-----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, OYlmq1+mNgeCgHtAE2pOewFCX35MmwJf5rKMluzaNHnwCWBLCnsIOXep0/0AWxA6 Mohm6+0v2ob3srDEL92YsA== 0000950152-04-008049.txt : 20041108 0000950152-04-008049.hdr.sgml : 20041108 20041108155438 ACCESSION NUMBER: 0000950152-04-008049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041108 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25196 FILM NUMBER: 041125790 BUSINESS ADDRESS: STREET 1: 6901 GLENN HIGHWAY CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 7404325641 10-Q 1 l10420ae10vq.txt CAMCO FINANCIAL CORPORATION 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 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 Identification Number) incorporation or organization) 6901 Glenn Highway, Cambridge, Ohio 43725-9757 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: (740) 435-2020 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of November 4, 2004, the latest practicable date, 7,640,505 shares of the registrant's common stock, $1.00 par value, were issued and outstanding. Page 1 of 24 Camco Financial Corporation INDEX
Page ---- PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition 3 Consolidated Statements of Earnings 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Quantitative and Qualitative Disclosures about Market Risk 23 Controls and Procedures 24 PART II - OTHER INFORMATION 25 SIGNATURES 26
2 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data)
SEPTEMBER 30, DECEMBER 31, 2004 2003 ASSETS Cash and due from banks $ 26,077 $ 22,807 Interest-bearing deposits in other financial institutions 19,214 30,904 ----------- ----------- Cash and cash equivalents 45,291 53,711 Investment securities available for sale - at market 25,123 27,008 Investment securities held to maturity - at cost, approximate market value of $1,190 and $1,204 as of September 30, 2004 and December 31, 2003, respectively 1,126 1,130 Mortgage-backed securities available for sale - at market 86,706 77,916 Mortgage-backed securities held to maturity - at cost, approximate market value of $4,416 and $7,839 as of September 30, 2004 and December 31, 2003, respectively 4,416 7,704 Loans held for sale - at lower of cost or market 4,386 5,457 Loans receivable - net 891,957 799,625 Office premises and equipment - net 13,518 13,380 Real estate acquired through foreclosure 2,507 1,463 Federal Home Loan Bank stock - at cost 25,524 24,494 Accrued interest receivable 4,700 4,088 Prepaid expenses and other assets 1,791 1,524 Cash surrender value of life insurance 19,800 17,740 Goodwill - net of accumulated amortization 7,023 2,953 Prepaid federal income taxes 237 958 ----------- ----------- Total assets $ 1,134,105 $ 1,039,151 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 728,918 $ 671,274 Advances from the Federal Home Loan Bank 291,719 262,735 Advances by borrowers for taxes and insurance 2,280 3,494 Accounts payable and accrued liabilities 9,543 4,102 Dividends payable 1,108 1,063 Deferred federal income taxes 3,510 3,940 ----------- ----------- Total liabilities 1,037,078 946,608 Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized 14,900,000 shares; 8,737,028 and 8,428,946 shares issued at September 30, 2004 and December 31, 2003, respectively 8,737 8,429 Additional paid-in capital 58,692 55,132 Retained earnings - substantially restricted 45,912 45,121 Accumulated other comprehensive income - unrealized gains on securities designated as available for sale, net of related tax effects 31 206 Less 1,096,523 shares of treasury stock at both September 30, 2004 and December 31, 2003, respectively - at cost (16,345) (16,345) ----------- ----------- Total stockholders' equity 97,027 92,543 ----------- ----------- Total liabilities and stockholders' equity $ 1,134,105 $ 1,039,151 =========== ===========
3 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 Interest income Loans $ 34,744 $ 36,497 $ 11,860 $ 11,795 Mortgage-backed securities 2,231 2,775 833 736 Investment securities 594 1,016 209 305 Interest-bearing deposits and other 1,618 1,665 571 506 -------- -------- -------- -------- Total interest income 39,187 41,953 13,473 13,342 Interest expense Deposits 10,222 12,460 3,570 3,827 Borrowings 10,212 11,495 3,497 3,828 -------- -------- -------- -------- Total interest expense 20,434 23,955 7,067 7,655 -------- -------- -------- -------- Net interest income 18,753 17,998 6,406 5,687 Provision for losses on loans 765 930 255 255 -------- -------- -------- -------- Net interest income after provision for losses on loans 17,988 17,068 6,151 5,432 Other income Late charges, rent and other 1,863 2,942 623 944 Loan servicing fees 1,138 1,225 373 412 Service charges and other fees on deposits 1,006 878 407 309 Gain on sale of loans 679 3,257 189 547 Valuation of mortgage servicing rights - net 133 188 206 (402) Gain on sale of investment and mortgage-backed securities 110 716 10 531 Gain on sale of real estate acquired through foreclosure 224 20 106 82 -------- -------- -------- -------- Total other income 5,153 9,226 1,914 2,423 General, administrative and other expense Employee compensation and benefits 10,162 11,134 3,308 3,647 Deferred compensation (FAS 91) (1,731) (2,956) (545) (1,186) Occupancy and equipment 2,569 2,792 867 936 Data processing 987 993 320 318 Advertising 822 554 387 190 Franchise taxes 791 959 283 362 Other operating 3,691 3,714 1,307 1,284 -------- -------- -------- -------- Total general, administrative and other expense 17,291 17,190 5,927 5,551 -------- -------- -------- -------- Earnings before federal income taxes 5,850 9,104 2,138 2,304 Federal income taxes Current 2,430 3,726 1,214 850 Deferred (614) (890) (544) (132) -------- -------- -------- -------- Total federal income taxes 1,816 2,836 670 718 -------- -------- -------- -------- NET EARNINGS $ 4,034 $ 6,268 $ 1,468 $ 1,586 ======== ======== ======== ======== EARNINGS PER SHARE Basic $ 0.54 $ 0.83 $ 0.20 $ 0.21 ======== ======== ======== ======== Diluted $ 0.54 $ 0.82 $ 0.19 $ 0.21 ======== ======== ======== ========
4 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 Net earnings $ 4,034 $ 6,268 $ 1,468 $ 1,586 Other comprehensive income, net of tax: Unrealized holding gains (losses) during the period, net of related taxes (benefits) of $(54), $(787), $707 and $(556) for the nine and three months ended September 30, 2004 and 2003, respectively (104) (1,527) 1,367 (1,080) Reclassification adjustment for realized gains included in net earnings, net of taxes of $36, $243, $3 and $181 for the respective periods (71) (473) (7) (350) ------- ------- ------- ------- Comprehensive income $ 3,859 $ 4,268 $ 2,828 $ 156 ======= ======= ======= ======= Accumulated comprehensive income $ 31 $ 98 $ 31 $ 98 ======= ======= ======= =======
5 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (In thousands)
2004 2003 Cash flows from operating activities: Net earnings for the period $ 4,034 $ 6,268 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of deferred loan origination fees (56) (352) Amortization of premiums and discounts on investment and mortgage-backed securities - net 821 1,977 Amortization of purchase accounting adjustments - net 67 66 Depreciation and amortization 1,085 1,352 Provision for losses on loans 765 930 Gain on sale of real estate acquired through foreclosure (224) (20) Federal Home Loan Bank stock dividends (759) (711) Gain on sale of investment and mortgage-backed securities (110) (716) Gain on sale of loans (679) (3,257) Loans originated for sale in the secondary market (76,262) (205,600) Proceeds from sale of loans in the secondary market 78,012 256,416 Increase (decrease) in cash, net of London Financial acquisition, due to changes in: Accrued interest receivable (138) 486 Prepaid expenses and other assets (231) 260 Accrued interest and other liabilities 4,706 177 Federal income taxes: Current 1,340 73 Deferred (614) (890) --------- --------- Net cash provided by operating activities 11,757 56,459 Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities 14,000 17,191 Proceeds from sale of investment securities designated as available for sale 1,557 2,043 Proceeds from sale of mortgage-backed securities designated as available for sale 13,060 54,135 Purchase of investment securities designated as available for sale (13,997) (10,341) Purchase of mortgage-backed securities designated as available for sale (43,301) (112,989) Purchase of mortgage-backed securities designated as held to maturity - (270) Purchase of loans (26,712) (9,954) Loan disbursements (110,369) (295,714) Principal repayments on loans 88,482 250,816 Principal repayments on mortgage-backed securities 24,442 75,351 Purchase of office premises and equipment (530) (601) Proceeds from sales of real estate acquired through foreclosure 3,750 3,206 Additions to real estate acquired through foreclosure (29) - Purchase of cash surrender value of life insurance (1,539) - Net cash paid for London Financial acquisition (1,769) - Proceeds from redemption of life insurance - 422 Net increase in cash surrender value of life insurance (521) (597) --------- --------- Net cash used in investing activities (53,476) (27,302) --------- --------- Net cash provided by (used in) operating and investing activities (subtotal carried forward) (41,719) 29,157 --------- ---------
6 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended September 30, (In thousands)
2004 2003 Net cash provided by (used in) operating and investing activities (subtotal brought forward) $(41,719) $ 29,157 Cash flows provided by (used in) financing activities: Net increase (decrease) in deposits 12,412 (32,552) Proceeds from Federal Home Loan Bank advances 36,650 44,500 Repayment of Federal Home Loan Bank advances (11,666) (43,013) Dividends paid on common stock (3,198) (3,144) Purchase of treasury stock - (7,031) Proceeds from exercise of stock options 317 1,080 Advances by borrowers for taxes and insurance (1,216) (929) -------- -------- Net cash used in financing activities 33,299 (41,089) -------- -------- Net decrease in cash and cash equivalents (8,420) (11,932) Cash and cash equivalents at beginning of period 53,711 57,022 -------- -------- Cash and cash equivalents at end of period $ 45,291 $ 45,090 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 20,508 $ 22,704 ======== ======== Income taxes $ 1,712 $ 3,493 ======== ======== Supplemental disclosure of noncash investing activities: Transfers from mortgage loans to real estate acquired through foreclosure $ 5,594 $ 2,848 ======== ======== Unrealized losses on securities designated as available for sale $ (175) $ (2,000) ======== ======== Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 1,030 $ 3,132 ======== ======== Issuance of loans upon sale of real estate acquired through foreclosure $ 1,053 $ 1,838 ======== ======== Dividends declared but unpaid $ 1,108 $ 1,070 ======== ======== Fair value of assets acquired in London Financial transaction $ 54,441 $ - Less fair value of liabilities assumed (50,371) - -------- -------- Goodwill assigned in acquisition $ 4,070 $ - ======== ======== Supplemental noncash financing activities: Common stock issued in acquisition of London Financial $ 3,551 $ - ======== ========
7 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the nine- and three-month periods ended September 30, 2004 and 2003 1. Basis of Presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Camco Financial Corporation ("Camco" or the "Corporation") included in Camco's Annual Report on Form 10-K for the year ended December 31, 2003. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements, have been included. The results of operations for the nine- and three-month periods ended September 30, 2004, are not necessarily indicative of the results which may be expected for the entire year. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Camco and its two wholly-owned subsidiaries: Advantage Bank ("Advantage" or the "Bank") and Camco Title Insurance Agency, Inc. 3. Critical Accounting Policies "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures found elsewhere in this quarterly report, are based upon Camco Financial's consolidated financial statements, which are prepared in accordance with US GAAP. The preparation of these financial statements requires Camco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under US GAAP. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of mortgage servicing rights and goodwill impairment. Actual results could differ from those estimates. ALLOWANCE FOR LOAN LOSSES The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration of all information available to us. In developing this assessment, we must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses. 8 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 3. Critical Accounting Policies (continued) ALLOWANCE FOR LOAN LOSSES (continued) The allowance is regularly reviewed by management to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss experience, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower's ability to repay, and current economic and industry conditions. Also considered as part of that judgement is a review of the Bank's trends in delinquencies and loan losses, as well as trends in delinquencies and losses for the region and nationally, and economic factors. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on management's current judgement about the credit quality of the loan portfolio. While the Corporation strives to reflect all known risk factors in its evaluations, judgment errors may occur. MORTGAGE SERVICING RIGHTS To determine the fair value of its mortgage servicing rights ("MSRs") each reporting quarter, the Corporation transmits information to a third party provider, representing individual loan information in each pooling period accompanied by escrow amounts. The third party then evaluates the possible impairment of MSRs as described below. Servicing assets are recognized as separate assets when loans are sold with servicing retained. A pooling methodology to the servicing valuation, in which loans with similar characteristics are "pooled" together, is applied for valuation purposes. Once pooled, each grouping of loans is evaluated on a discounted earnings basis to determine the present value of future earnings that a purchaser could expect to realize from the portfolio. Earnings are projected from a variety of sources including loan service fees, interest earned on float, net interest earned on escrow balances, miscellaneous income and costs to service the loans. The present value of future earnings is the estimated market value for the pool, calculated using consensus assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. Events that may significantly affect the estimates used are changes in interest rates and the related impact on mortgage loan prepayment speeds and the payment performance of the underlying loans. The interest rate for float, which is supplied by management, takes into consideration the investment portfolio average yield as well as current short duration investment yields. Management believes this methodology provides a reasonable estimate. Mortgage loan prepayment speeds are calculated by the third party provider utilizing the Economic Outlook as published by the Office of Chief Economist of Freddie Mac in estimating prepayment speeds and provides a specific scenario with each evaluation. Based on the assumptions discussed, pre-tax projections are prepared for each pool of loans serviced. These earning figures approximate the cash flow that could be received from the servicing portfolio. Valuation results are presented quarterly to management. At that time, management reviews the information and mortgage servicing rights are marked to lower of amortized cost or market for the current quarter. 9 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 3. Critical Accounting Policies (continued) GOODWILL We have developed procedures to test goodwill for impairment on an annual basis using June 30 financial information. This testing procedure is outsourced to a third party that evaluates possible impairment based on the following: The test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to reporting units and comparing the fair value of each reporting unit to its carrying value including goodwill. The value is determined assuming a freely negotiated transaction between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Accordingly, to derive the fair value of the reporting unit, the following common approaches to valuing business combination transactions involving financial institutions are utilized by a third party selected by Camco: (1) the comparable transactions approach - specifically based on earnings, book, assets and deposit premium multiples received in recent sales of comparable thrift franchises; and (2) the discounted cash flow approach. The application of these valuation techniques takes into account the reporting unit's operating history, the current market environment and future prospects. As of the most recent quarter, the only reporting unit carrying goodwill is the Bank. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and no second step is required. If not, a second test is required to measure the amount of goodwill impairment. The second test of the overall goodwill impairment compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. The impairment loss shall equal the excess of carrying value over fair value. After each testing period, the third party compiles a summary of the test that is then provided to the Audit Committee for review. As of the most recent testing date, June 30, 2004, the Audit Committee was informed that the fair value of the reporting unit exceeded its carrying amount. SUMMARY Management believes the accounting estimates related to the allowance for loan losses, the capitalization, amortization, and valuation of mortgage servicing rights and the goodwill impairment test are "critical accounting estimates" because: (1) the estimates are highly susceptible to change from period to period because they require management to make assumptions concerning the changes in the types and volumes of the portfolios, rates of future prepayments, and anticipated economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on Camco's assets reported on the balance sheet as well as its net earnings. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed Camco's disclosures relating to such matters in the quarterly Management's Discussion and Analysis. 10 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 4. Earnings Per Share Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the Corporation's stock option plans. The computations are as follows:
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 Weighted-average common shares outstanding (basic) 7,406,017 7,537,944 7,513,890 7,417,459 Dilutive effect of assumed exercise of stock options 51,472 130,045 46,026 82,721 --------- --------- --------- --------- Weighted-average common shares outstanding (diluted) 7,457,489 7,667,989 7,559,916 7,500,180 ========= ========= ========= =========
Options to purchase 80,789 and 7,088 shares of common stock with respective weighted-average exercise prices of $16.40 and $16.59 were outstanding at September 30, 2004 and 2003, respectively, but were excluded from the computation of common share equivalents for the nine and three month periods then ended, because the exercise prices were greater than the average market price of the common shares. 5. Stock Option Plans Stockholders of the Corporation have approved four stock option plans. Under the 1972 Plan and the 1982 Plan, 370,054 common shares were reserved for issuance to officers, directors, and key employees of the Corporation and its subsidiaries. All of the stock options under the 1972 and 1982 Plans have been granted and were subject to exercise at the discretion of the grantees through 2002. Under the 1995 Plan, 161,488 shares were reserved for issuance. Under the 2002 Plan, 400,000 shares were reserved for issuance. Additionally, in connection with the acquisition of First Federal Bank for Savings in 1996, the stock options of First Savings were converted into options to purchase 174,421 shares of the Corporation's stock at an exercise price of $7.38 per share, which expire in 2005. In connection with the 2000 acquisition of Westwood Homestead Financial Corporation, the stock options of Westwood Homestead were converted into options to purchase 311,794 shares of the Corporation's stock at a weighted-average exercise price of $11.89 per share, which expire in 2008. The Corporation accounts for its stock option plans in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair-value based method for valuing stock-based compensation that entities may use, that 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 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. 11 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 5. Stock Option Plans (continued) The Corporation utilizes APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the Corporation's stock option plans been determined based on the fair value at the grant dates for awards under the plans consistent with the accounting method utilized in SFAS No. 123, the Corporation's net earnings and earnings per share for the three- and nine-month periods ended September 30, 2004 and 2003, would have been reported as the pro forma amounts indicated below:
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 Net earnings (In thousands) As reported $ 4,034 $ 6,268 $ 1,468 $ 1,586 Stock-based compensation, net of tax (21) (15) (7) (5) ----------- ----------- ----------- ----------- Pro-forma $ 4,013 $ 6,253 $ 1,461 $ 1,581 =========== =========== =========== =========== Earnings per share Basic As reported $ .54 $ .83 $ .20 $ .21 Stock-based compensation, net of tax - - (.01) - ----------- ----------- ----------- ----------- Pro-forma $ .54 $ .83 $ .19 $ .21 =========== =========== =========== =========== Diluted As reported $ .54 $ .82 $ .19 $ .21 Stock-based compensation, net of tax - - - - ----------- ----------- ----------- ----------- Pro-forma $ .54 $ .82 $ .19 $ .21 =========== =========== =========== ===========
The fair value of each option grant is estimated on the date of grant using the modified Black-Scholes options-pricing model with the following assumptions used for grants during 2004, 2003 and 2002: dividend yield of 3.40%, 3.50%, and 3.84%, respectively; expected volatility of 21.44%, 16.88% and 16.34% respectively; a risk-free interest rate of 4.11%, 3.95% and 2.00% respectively; and an expected life of ten years for all grants. 12 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the n- and three-month periods ended September 30, 2004 and 2003 5. Stock Option Plans (continued) A summary of the status of the Corporation's stock option plans as of September 30, 2004 and December 31, 2003 and 2002, and changes during the periods ending on those dates is presented below:
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 2004 2003 2002 WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE Outstanding at beginning of year 257,072 12.11 323,291 $ 9.79 503,005 $10.16 Granted 17,705 17.17 56,948 16.13 3,700 14.55 Exercised (29,765) 9.08 (117,800) 7.60 (174,106) 10.84 Forfeited (3,017) 15.10 (5,367) 13.92 (9,308) 11.91 ------- ------ -------- ------ -------- ------ Outstanding at end of year 241,995 $12.50 257,072 $12.11 323,291 $ 9.79 ======= ====== ======== ====== ======== ====== Options exercisable at year-end 195,672 $11.56 211,780 $11.25 323,291 $ 9.79 ======= ====== ======== ====== ======== ====== Weighted-average fair value of options granted during the year $ 3.59 $ 2.60 $ 1.36 ====== ====== ======
The following information applies to options outstanding at September 30, 2004: Number outstanding 55,823 Range of exercise prices $ 7.40 - 8.94 Number outstanding 53,088 Range of exercise prices $ 9.75 - 11.36 Number outstanding 52,295 Range of exercise prices $12.50 - 14.65 Number outstanding 80,789 Range of exercise prices $16.13 - 17.17 Weighted-average exercise price $ 12.50 Weighted-average remaining contractual life 6.7 years
6. Forward Looking Statements Certain statements contained in this report that are not historical facts are forward looking statements that are subject to certain risks and uncertainties. When used herein, the terms "anticipates," "plans," "expects," "believes," and similar expressions as they relate to Camco or its management are intended to identify such forward looking statements. Camco's actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services 13 industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. 14 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the nine- and three-month periods ended September 30, 2004 and 2003 Discussion of Financial Condition Changes from December 31, 2003 to September 30, 2004 At September 30, 2004, Camco's consolidated assets totaled $1.13 billion, an increase of $95.0 million, or 9.1%, from the December 31, 2003 total. The increase in total assets was primarily due to the acquisition of London Financial Corporation which Camco acquired in August 2004 in a transaction accounted for using the purchase method of accounting. The acquisition resulted in net asset growth of approximately $58.5 million. The additional increase in total assets was achieved primarily through internal growth in loans receivable of $43.3 million which was funded principally by an increase of $25.0 million in advances from the Federal Home Loan Bank ("FHLB") and deposit growth of $12.4 million. Cash and interest-bearing deposits in other financial institutions totaled $45.3 million at September 30, 2004, a decrease of $8.4 million, or 15.7%, from December 31, 2003 levels. Investment securities totaled $26.2 million at September 30, 2004, a decrease of $1.9 million, or 6.7%, from the total at December 31, 2003. Investment securities purchases, which were comprised primarily of $14.0 million of intermediate-term callable U.S. Government agency obligations with an average yield of 3.34%, were offset by $14.0 million of maturities and sales of $1.6 million. Mortgage-backed securities totaled $91.1 million at September 30, 2004, an increase of $5.5 million, or 6.4%, from December 31, 2003. Mortgage-backed securities purchases totaled $43.3 million, while principal repayments totaled $24.4 million and sales totaled $13.0 million during the nine-month period ended September 30, 2004. Purchases of mortgage-backed securities during the period were comprised primarily of short duration mortgage-backed securities and collateralized mortgage obligations yielding 3.95%, which were classified as available for sale. Loans receivable, including loans held for sale, totaled $896.3 million at September 30, 2004, an increase of $91.3 million, or 11.3%, from December 31, 2003. The increase resulted primarily from loans of $49.1 million acquired through the London Financial acquisition and loan disbursements and purchases totaling $213.3 million, which were partially offset by principal repayments of $88.5 million and loan sales of $78.0 million. The volume of loans originated and purchased during the first nine months of 2004 was less than that of the comparable 2003 period by $297.9 million, or 58.3%, while the volume of loan sales decreased by $175.8 million year to year. As interest rates in the economy have begun to rise, consumer preference is moving towards adjustable-rate mortgage loans to fund home purchases. Camco has typically held adjustable-rate mortgage loans in its portfolio as part of its strategy to maintain its asset-sensitive interest-rate risk position. Loan originations during the nine-month period ended September 30, 2004, were comprised primarily of $145.7 million of loans secured by one- to four-family residential real estate, $43.7 million in consumer and other loans and $73.0 million in loans secured by commercial real estate. Management will continue to expand its consumer and commercial real estate lending in future periods as a means of increasing the yield on its loan portfolio. The allowance for loan losses totaled $6.4 million and $5.6 million at September 30, 2004 and December 31, 2003, respectively, representing 63.2% and 41.5% of nonperforming loans, respectively, at those dates. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $10.1 million and $13.6 million at September 30, 2004 and December 31, 2003, respectively, constituting 1.13% and 1.69% of total net loans, including loans held for sale, at those dates. At September 30, 2004, nonperforming loans were comprised of $7.2 million in one- to four-family residential real estate loans, $1.6 million in commercial real estate loans and $1.3 million of consumer loans. Management believes all nonperforming loans are adequately collateralized and no loss is expected over and above allocated reserves on such loans. Loans delinquent greater than 30 days but less than 90 days totaled $7.6 million at September 30, 2004, compared to $8.7 million at December 31, 2003, a decrease of $1.1 million, or 12.6%. Although management believes that its allowance for loan losses is adequate 15 based upon the available facts and circumstances at September 30, 2004, there can be no assurance that increased provisions will not be necessary in future periods, which could adversely affect Camco's results of operations. 16 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Discussion of Financial Condition Changes from December 31, 2003 to September 30, 2004 (continued) Deposits totaled $728.9 million at September 30, 2004, an increase of $57.6 million, or 8.6%, from the total at December 31, 2003. The increase resulted primarily from deposits of $45.2 million in the London Financial acquisition coupled with deposit portfolio growth of $12.4 million, or 1.9%, which resulted primarily from management's continuing efforts to achieve a moderate rate of growth through advertising and pricing strategies. Advances from the FHLB increased by $29.0 million, or 11.0% to a total of $291.7 million at September 30, 2004. The increase was due primarily to net borrowings totaling $25.0 million, coupled with advances of $4.0 million assumed in the London Financial transaction. The proceeds from deposit growth and FHLB advances were primarily used to fund loan originations during the nine month period. Stockholders' equity totaled $97.0 million at September 30, 2004, an increase of $4.5 million, or 4.8%, from December 31, 2003. The increase resulted primarily from net earnings of $4.0 million, the issuance of $3.5 million in common stock to shareholders of London Financial and $317,000 in proceeds from the exercise of stock options, which were partially offset by dividends of $3.2 million and a $175,000 decrease in the unrealized gains on available for sale securities. Advantage is required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 2004, the Bank's regulatory capital exceeded all regulatory capital requirements. The following tables present certain information regarding compliance by Advantage with applicable regulatory capital requirements at September 30, 2004:
At September 30, 2004 To be "well- capitalized" under For capital prompt corrective Actual adequacy purposes action provisions ----------------- ------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ------- ------ --------- ------ --------- ------- (Dollars in thousands) Total capital (to risk-weighted assets) $87,999 11.84% > or =$59,441 > or =8.0% > or =$74,301 > or =10.0% Tier I capital (to risk-weighted assets) $81,601 10.98% > or =$29,721 > or =4.0% > or =$44,581 > or = 6.0% Tier I leverage $81,601 7.46% > or =$43,782 > or =4.0% > or =$54,728 > or = 5.0%
Federal law prohibits a financial institution from making a capital distribution to anyone or paying management fees to any person having control of the institution if, after such distribution or payment, the institution would be undercapitalized. 17 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Comparison of Results of Operations for the Nine Months Ended September 30, 2004 and 2003 General The inclusion of the accounts of London Financial did not significantly contribute to the level of income and expenses during the nine months ended September 30, 2004, compared to the nine months ended September 30, 2003. Camco's net earnings for the nine months ended September 30, 2004 totaled $4.0 million, a decrease of $2.2 million, or 35.6%, from the $6.3 million of net earnings reported in the comparable 2003 period. The decrease in earnings was primarily due to the decrease of $2.6 million in gain on sale of loans and a $1.1 million reduction in late charges, rent and other. Net Interest Income Total interest income amounted to $39.2 million for the nine months ended September 30, 2004, a decrease of $2.8 million, or 6.6%, compared to the nine-month period ended September 30, 2003, generally reflecting the effects of a decrease in yield on total interest-earning assets of 37 basis points, from 5.50% in the 2003 period to 5.13% in the 2004 period, offset partially by a $1.9 million, or .2%, increase in the average balance of interest-earning assets outstanding year to year. Interest income on loans totaled $34.7 million for the nine months ended September 30, 2004, a decrease of $1.8 million, or 4.8%, from the comparable 2003 period. The decrease resulted primarily from a 76 basis point decrease in the average yield, to 5.53% in the 2004 period, offset partially by a $64.2 million, or 8.3%, increase in the average balance outstanding. Interest income on mortgage-backed securities totaled $2.2 million for the nine months ended September 30, 2004, a $544,000, or 19.6%, decrease year to year. The decrease was due primarily to a $30.3 million, or 25.0%, decrease in the average balance outstanding, partially offset by a 22 basis point increase in the average yield, to 3.28% in the 2004 period. Interest income on investment securities decreased by $422,000, or 41.5%, due primarily to a $12.4 million decrease in the average balance outstanding, coupled with a decline in the average yield, to 2.84% in the 2004 period. Interest income on other interest-earning assets decreased by $47,000, or 2.8%, due primarily to a decrease of $19.5 million, or 23.8%, in the average balance outstanding period to period partially offset by an increase in the average yield to 3.45% in the 2004 period. Interest expense on deposits totaled $10.2 million for the nine months ended September 30, 2004, a decrease of $2.2 million, or 18.0%, compared to the 2003 period, due primarily to a 47 basis point decrease in the average cost of deposits, to 2.06% in the 2004 period, offset partially be a $5.0 million, or ..8%, increase in the average balance of deposits outstanding year to year. Interest expense on borrowings totaled $10.2 million for the nine months ended September 30, 2004, a decrease of $1.3 million, or 11.2%, from the 2003 nine-month period. The decrease resulted primarily from a 67 basis point decrease in the average cost of borrowings to 4.89% in the 2004 period, which was partially offset by a $2.7 million, or 1.0%, increase in the average balance outstanding year to year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $755,000, or 4.2%, to a total of $18.8 million for the nine months ended September 30, 2004. The interest rate spread increased to approximately 2.23% at September 30, 2004, from 2.07% at September 30, 2003, while the net interest margin increased to approximately 2.45% for the nine months ended September 30, 2004, compared to 2.36% for the 2003 nine month period. The acquisition of London Financial accounted for approximately $163,000 or .9%, of the net interest income for the nine months ended September 30, 2004. 18 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Comparison of Results of Operations for the Nine Months Ended September 30, 2004 and 2003 (continued) Provision for Losses on Loans A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market areas, and other factors related to the collectibility of the Bank's loan portfolio. Based upon an analysis of these factors, management recorded a provision for losses on loans totaling $765,000 for the nine months ended September 30, 2004, an decrease of $165,000, or 17.7%, to the comparable period in 2003. Management believes all classified loans are adequately collateralized, however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known classified assets or that the allowance will be adequate to cover losses on classified assets in the future. Other Income Other income totaled $5.2 million for the nine months ended September 30, 2004, a decrease of $4.1 million, or 44.1%, comparable to the 2003 period. The decrease in other income was primarily attributable to a $2.6 million decrease in the gain on sale of loans, a $1.1 million, or 36.7%, decrease in late charges, rent and other and a $606,000 decrease in gain on sale of investment and mortgage-backed securities, which were partially offset by a $128,000, or 14.6%, increase in income from service charges and other fees on deposits. The decrease in the gain on sale of loans was due to a $175.8 million, or 69.5%, decrease in sales volume. The decline in late charges, rent and other was due primarily to a reduction in title premiums due to the decrease in originations. The increase in income from service charges and other fees on deposits was primarily due to the new expanded overdraft product. The acquisition of London Financial accounted for approximately $14,000 increase in other income for the nine month period ended September 30, 2004. General, Administrative and Other Expense General, administrative and other expense totaled $17.3 million for the nine months ended September 30, 2004, an increase of $101,000, or .6%, over the comparable period in 2003. The increase in general, administrative and other expense was due primarily to a decrease of $1.2 million or 41.4% in direct loan origination costs (FAS 91), offset partially by a decrease of $972,000 in employee compensation and benefits and a $223,000 decrease in occupancy and equipment. The decline in loan origination costs pursuant to FAS 91 relates solely to the reduction in residential loan production period to period. The decrease in employee compensation and benefits was primarily due to a reduction in commissions incentive accruals and continued efforts to contain personnel costs through operating efficiencies. The decrease in occupancy and equipment was primarily due to the closing of the Russell, Kentucky branch and a decrease in depreciation expense. The acquisition of London Financial accounted for approximately $89,000, or 88.1%, of the total increase in general, administrative and other expenses. 19 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Comparison of Results of Operations for the Nine Months Ended September 30, 2004 and 2003 (continued) Federal Income Taxes The provision for federal income taxes totaled $1.8 million for the nine months ended September 30, 2004, a decrease of $1.0 million, or 36.0%, compared to the nine months ended September 30, 2003. This decrease was primarily attributable to a $3.3 million, or 35.7%, decrease in pre-tax earnings. The Corporation's effective tax rates amounted to 31.0% and 31.2% for the nine-month periods ended September 30, 2004 and 2003, respectively. The Corporation's effective tax rate differs from the 34% statutory corporate tax rate due to the tax-exempt nature of earnings on bank-owned life insurance. Comparison of Results of Operations for the Three Months Ended September 30, 2004 and 2003 General Camco's net earnings for the three months ended September 30, 2004 totaled $1.5 million, a decrease of $118,000, or 7.4%, from the $1.6 million of net earnings reported in the comparable 2003 period. The decrease in earnings was primarily attributable to a decrease of $509,000 in other income and an increase of general, administrative and other expense of $376,000 which were partially offset by an increase in net interest income of $719,000 and a decrease in federal income tax expense of $48,000. Net Interest Income Total interest income amounted to $13.5 million for the three months ended September 30, 2004, an increase of $131,000, or 1.0%, compared to the three-month period ended September 30, 2003, generally reflecting the effects of an increase in average balance of interest-earning assets outstanding quarter to quarter of $46.6 million or 4.6% offset partially by a decrease in yield on total interest-earning assets of 19 basis points, from 5.31% in the 2003 period to 5.12% in the 2004 period. Interest income on loans totaled $11.9 million for the three months ended September 30, 2004, an increase of $65,000, or .6%, from the comparable 2003 period. The increase resulted primarily from a $85.2 million, or 10.9%, increase in the average balance outstanding offset partially by a 56 basis point decrease in the average yield to 5.46% in the 2004 period. Interest income on mortgage-backed securities totaled $833,000 for the three months ended September 30, 2004, a $97,000, or 13.2%, increase from the 2003 quarter. The increase was due primarily to a 118 basis point increase in the average yield, to 3.58% for the 2004 period, offset partially by a $29.6 million, or 24.1%, decrease in the average balance outstanding in the 2004 period. Interest income on investment securities decreased by $96,000, or 31.5%, due primarily to an $10.6 million decrease in the average balance outstanding, coupled with a 15 basis point decrease in the average yield to 3.06% in the 2004 period. Interest income on other interest-earning assets increased by $65,000, or 12.8%, due primarily to an increase in the average yield to 3.66% in the 2004 quarter as compared to 3.33% for the three months ended September 30, 2003, coupled with an increase in the average balance outstanding of $1.6 million, or 2.7%. 20 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Comparison of Results of Operations for the Three Months Ended September 30, 2004 and 2003 (continued) Net Interest Income (continued) Interest expense on deposits totaled $3.6 million for the three months ended September 30, 2004, a decrease of $257,000, or 6.7%, compared to the same quarter in 2003, due primarily to a 28 basis point decrease in the average cost of deposits to 2.09% in the current quarter, and a $37.2 million, or 5.8%, increase in average deposits outstanding. Interest expense on borrowings totaled $3.5 million for the three months ended September 30, 2004, a decrease of $331,000, or 8.7%, from the same 2003 three-month period. The decrease resulted primarily from a 74 basis point decrease in the average cost of borrowings to 4.79%, partially offset by a $14.8 million, or 5.3%, increase in the average balance outstanding year to year. The decline in interest expense on FHLB advances was due primarily to a December 2003 debt restructuring of $25.4 million of FHLB borrowings which carried an average fixed rate of 5.41%. The borrowings were replaced with variable rate advances having a weighted average rate of approximately 1.88% as of September 30, 2004. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $719,000, or 12.6%, to a total of $6.4 million for the three months ended September 30, 2004. The interest rate spread increased to approximately 2.22% at September 30, 2004, from 1.99% at September 30, 2003, while the net interest margin increased to approximately 2.44% for the three months ended September 30, 2004, compared to 2.26% for the 2003 period. Provision for Losses on Loans A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market areas, and other factors related to the collectibility of the Bank's loan portfolio. Based upon an analysis of these factors, management recorded a provision for losses on loans totaling $255,000 for the three months ended September 30, 2004, which is equal to the provision in the 2003 quarter. Management believes all classified loans are adequately collateralized, however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known classified assets or that the allowance will be adequate to cover losses on classified assets in the future. Other Income Other income totaled $1.9 million for the three months ended September 30, 2004, a decrease of $509,000, or 21.0%, from the comparable 2003 period. The decrease in other income was primarily attributable to a $358,000 decrease in gain on sale of loans, a $321,000 decrease in late charges, rent and other. The decrease in gain on sale of loans was due primarily to the $28.6 million, or 59.3%, decrease in sales volume. The reduction in late charges, rent and other was due primarily to reduced title premiums and other fees on loans due to the decline in loans originated in 2004. The Corporation's gain on sale of loans are subject to the cyclical changes in the overall level of interest rates in the economy. Management believes that the rise in home mortgage interest rates from the historical lows over the last nine months has had a dampening effect on the Corporation's net earnings. Management believes that higher home 21 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Comparison of Results of Operations for the Three Months Ended September 30, 2004 and 2003 (continued) Other Income (continued) mortgage rates will continue to reduce the Corporation's originations of primarily fixed rate mortgage loans and also probably will diminish the gains derived from the sale of those loans in the secondary market. The origination of adjustable rate home loans generally increases during a period of rising interest rates and, after a period of time, borrowers have historically come back into the home purchase and construction market using fixed rate loans to finance their homes. As evidenced in the most recent quarter, over time, this shift in assets transfer earnings from gains on sales to net interest income for the Bank. General, Administrative and Other Expense General, administrative and other expense totaled $5.9 million for the three months ended September 30, 2004, an increase of $376,000, or 6.8%, from the comparable quarter in 2003. The increase was primarily due to a $641,000, or 54.0% decrease in direct loan origination costs (FAS 91), an increase of $197,000 or 103.7% in advertising, offset partially by a decrease of $339,000 or 9.3%, in employee compensation and benefits, a decrease of $79,000, or 21.8%, in franchise taxes and a decrease of $69,000, or 7.4%, in occupancy and equipment. The decline in direct loan origination costs pursuant to FAS 91 relates directly to the decline in residential loan production. The increase in advertising was primarily due to hiring an advertising agency to better manage the Corporation's marketing effort to uniformly promote our brand and key product offerings. The decrease in employee compensation and benefits was primarily due to a reduction in commissions incentive accruals and continued efforts to contain personnel costs through operating efficiencies. The decrease in franchise tax was due to a lower taxable capital base in 2004 compared to the 2003 quarter. The decrease in occupancy and equipment was primarily due to the closing of the Russell, Kentucky branch and a reduction in depreciation expense. Federal Income Taxes The provision for federal income taxes totaled $670,000 for the three months ended September 30, 2004, a decrease of $48,000, or 6.7%, compared to the three months ended September 30, 2003. This decrease was primarily attributable to a $166,000, or 7.2%, decrease in pre-tax earnings. The Corporation's effective tax rates amounted to 31.3% and 31.2% for the three-month periods ended September 30, 2004 and 2003, respectively. The Corporation's effective tax rate differs from the statutory corporate rate due to the tax-exempt nature of earnings on bank owned life insurance. Subsequent Event During the month of October 2004, the Bank sold two properties that generated a pre-tax gain of $535,000. Both properties were associated with our continued effort to consolidate in our markets where appropriate. One office was in our Cincinnati/Northern Kentucky marketplace, and involved the moving of deposits to another office within close proximity. In this case, the sale involved the building and not loans or deposits. The other office was in our Dover/New Philadelphia marketplace, and involved moving our loan production office staff into available space within an existing branch office. We believe these consolidation efforts will increase efficiencies and customer services, while at the same time reduce unnecessary expenses associated with these additional offices. 22 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 Liquidity and Capital Resources Camco, like other financial institutions, is required under applicable federal regulations to maintain sufficient funds to meet deposit withdrawals, loan commitments and expenses. Liquid assets consist of cash and interest-bearing deposits in other financial institutions, investments and mortgage-backed securities. Management monitors and assesses liquidity needs daily in order to meet deposit withdrawals, loan commitments and expenses. The primary sources of funds include deposits, borrowings and principal and interest repayments on loans. Other funding sources include Federal Home Loan Bank advances. The following table sets forth information regarding the Bank's obligations and commitments to make future payments under contract as of September 30, 2004.
PAYMENTS DUE BY PERIOD LESS MORE THAN 1-3 3-5 THAN 1 YEAR YEARS YEARS 5 YEARS TOTAL (In thousands) Contractual obligations: Operating lease obligations $ 178 $ 192 $ 118 $ 200 $ 688 Advances from the Federal Home Loan (1) 8,612 11,824 35,782 193,501 249,719 Certificates of deposit 206,031 151,456 44,887 1,772 404,146 Amount of commitments expiring per period Commitments to originate loans: Overdraft lines of credit 778 - - - 778 Home equity lines of credit 67,160 - - - 67,160 Commercial lines of credit 5,066 - - - 5,066 One- to four-family and multi-family loans 2,342 - - - 2,342 Non-residential real estate and land loans 192 - - - 192 -------- -------- ------- -------- -------- Total contractual obligations $290,359 $163,472 $80,787 $195,473 $730,091 ======== ======== ======= ======== ========
(1) Fully secured asset borrowings totaling $42.0 million are not included. ITEM 3: Quantitative and Qualitative Disclosures about Market Risk There has been no material change in the Corporation's market risk since the Corporation's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003. 23 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the nine- and three-month periods ended September 30, 2004 and 2003 ITEM 4: Controls and Procedures (a) Camco's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the disclosure controls and procedures (as defined under Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended) as of September 30, 2004. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Camco's disclosure controls and procedures are effective. (b) There were no changes in Camco's internal control over financial reporting during the quarter ended September 30, 2004, which materially affected or are reasonably likely to materially affect the internal controls over financial reporting. 24 Camco Financial Corporation PART II ITEM 1. Legal Proceedings Not applicable ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds None ITEM 3. Defaults Upon Senior Securities Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable ITEM 5. Other Information Not applicable ITEM 6. Exhibits Exhibits: Exhibit 10 Purchase and Assumption Agreement between Advantage Bank and Peoples Bank, National Association Exhibit 31(i) Section 302 certification by Chief Executive Officer Exhibit 31(ii) Section 302 Certification by Chief Financial Officer Exhibit 32(i) Section 1350 certification by Chief Executive Officer Exhibit 32(ii) Section 1350 certification by Chief Financial Officer 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 5, 2004 By: /s/ Richard C. Baylor ------------------------- Richard C. Baylor Chief Executive Officer Date: November 5, 2004 By: /s/ Mark A. Severson ------------------------- Mark A. Severson Chief Financial Officer 26 EX-10 2 l10420aexv10.txt EXHIBIT 10 EXHIBIT 10 PURCHASE AND ASSUMPTION AGREEMENT BETWEEN ADVANTAGE BANK AND PEOPLES BANK, NATIONAL ASSOCIATION PURCHASE AND ASSUMPTION AGREEMENT
PAGE ---- ARTICLE I - THE ASSETS.................................................................... 4 Section 1.1. Banking Centers............................................... 4 ARTICLE II - TRANSFER OF ASSETS AND LIABILITIES........................................... 4 Section 2.1. Transferred Assets............................................ 4 Section 2.2. Purchase Price................................................ 5 Section 2.3. Deposit Liabilities........................................... 7 Section 2.4. Loans......................................................... 9 Section 2.5. Employee Matters.............................................. 11 Section 2.6. Records and Data Processing, etc.............................. 13 Section 2.7. Security...................................................... 14 Section 2.8. Taxes and Fees; Proration of Certain Expenses................. 14 Section 2.9. Title to Real Property........................................ 14 Section 2.10. Environmental Matters......................................... 16 Section 2.11 Safe Deposit Business......................................... 17 ARTICLE III - CLOSING AND EFFECTIVE TIME.................................................. 17 Section 3.1. Effective Time................................................ 17 Section 3.2. Closing....................................................... 18 Section 3.3. Post-Closing Adjustments...................................... 20 ARTICLE IV - INDEMNIFICATION.............................................................. 21 Section 4.1. Advantage's Indemnification of Peoples........................ 21 Section 4.2. Peoples' Indemnification of Advantage......................... 21 Section 4.3. Claims for Indemnity.......................................... 21 Section 4.4. Limitations on Indemnification................................ 22 ARTICLE V - REPRESENTATIONS AND WARRANTIES OF ADVANTAGE................................... 22 Section 5.1. Corporate Organization........................................ 22 Section 5.2. No Violation.................................................. 22 Section 5.3. Corporate Authority........................................... 23 Section 5.4. Enforceable Agreement......................................... 23 Section 5.5. No Brokers.................................................... 23 Section 5.6. Real Property................................................. 23 Section 5.7. Condition of Property......................................... 24 Section 5.8. Employees..................................................... 24 Section 5.9. Loans......................................................... 24 Section 5.10. Environmental Matters......................................... 25 Section 5.11. Deposit Liabilities........................................... 26 Section 5.12. Books, Records, Documentation, etc............................ 26 Section 5.13. Litigation.................................................... 26 Section 5.14. Tax Matters................................................... 26 Section 5.15. Limitation and Survival of Representations and Warranties..... 27
i ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PEOPLES.................................... 27 Section 6.1. Corporate Organization........................................ 27 Section 6.2. No Violation.................................................. 27 Section 6.3. Corporate Authority........................................... 27 Section 6.4. Enforceable Agreement......................................... 27 Section 6.5. No Brokers.................................................... 27 Section 6.6. Litigation.................................................... 27 Section 6.7. Survival of Representations and Warranties.................... 28 ARTICLE VII - OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME.................... 28 Section 7.1. Full Access................................................... 28 Section 7.2. Delivery of Magnetic Media Records............................ 28 Section 7.3. Application for Approval...................................... 28 Section 7.4. Conduct of Business; Maintenance of Properties................ 29 Section 7.5. No Solicitation by Advantage.................................. 29 Section 7.6. Further Actions............................................... 30 Section 7.7. Fees and Expenses............................................. 30 Section 7.8. Breaches with Third Parties................................... 30 Section 7.9. Operations.................................................... 30 Section 7.10. Destruction and Condemnation.................................. 32 Section 7.11. Insurance..................................................... 32 Section 7.12. Public Announcements.......................................... 32 Section 7.13. Tax Reporting................................................. 33 Section 7.14. Transitional Matters.......................................... 33 Section 7.15. No Solicitation by Peoples.................................... 33 ARTICLE VIII - CONDITIONS TO PEOPLES' OBLIGATIONS......................................... 33 Section 8.1. Representations and Warranties True........................... 33 Section 8.2. Obligations Performed......................................... 34 Section 8.3. No Adverse Litigation......................................... 34 Section 8.4. Regulatory Approval........................................... 34 ARTICLE IX - CONDITIONS TO ADVANTAGE'S OBLIGATIONS........................................ 34 Section 9.1. Representations and Warranties True........................... 34 Section 9.2. Obligations Performed......................................... 34 Section 9.3. No Adverse Litigation......................................... 34 Section 9.4. Regulatory Approval........................................... 34 ARTICLE X - TERMINATION................................................................... 35 Section 10.1. Methods of Termination........................................ 35 Section 10.2. Procedure Upon Termination.................................... 35 Section 10.3. Payment of Expenses........................................... 36 ARTICLE XI - MISCELLANEOUS PROVISIONS..................................................... 36 Section 11.1. Amendment and Modification.................................... 36 Section 11.2. Waiver or Extension........................................... 36
ii Section 11.3. Assignment.................................................... 37 Section 11.4. Confidentiality............................................... 37 Section 11.5. Addresses for Notices, Etc.................................... 37 Section 11.6. Counterparts.................................................. 38 Section 11.7. Headings...................................................... 38 Section 11.8. Governing Law................................................. 38 Section 11.9. Sole Agreement................................................ 38 Section 11.10. Parties In Interest........................................... 38 Section 11.11. Calculation of Dates and Deadlines............................ 38
iii PURCHASE AND ASSUMPTION AGREEMENT THIS PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement") is entered into as of September 10, 2004, by and between ADVANTAGE BANK, an Ohio commercial bank having its principal offices in Cambridge, Ohio ("Advantage"), and PEOPLES BANK, NATIONAL ASSOCIATION, a national banking association having its principal offices in Marietta, Ohio ("Peoples"): WITNESSETH: WHEREAS, Advantage wishes to divest itself of certain assets, deposits and other liabilities; and WHEREAS, Peoples wishes to purchase such assets and assume such liabilities upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, Advantage and Peoples agree as follows: ARTICLE I THE ASSETS Section 1.1. Banking Centers. Peoples shall purchase from Advantage the "Transferred Assets" (as defined in Section 2.1 below), and assume certain liabilities assigned to the financial service offices located at 1640 Carter Avenue, Ashland, Kentucky 41105 and 6601 U.S. 60 West, Summit, Kentucky 41102 (collectively, the "Banking Centers"). ARTICLE II TRANSFER OF ASSETS AND LIABILITIES Section 2.1. Transferred Assets. (a) As of the "Effective Time" (as defined in Section 3.1 below) and upon the terms and conditions set forth herein, Advantage will sell, assign, transfer, convey and deliver to Peoples, and Peoples will purchase from Advantage, the following assets located at or attributed to the Banking Centers, except as otherwise excluded from sale pursuant to the provisions of paragraph 2.1(b) below (collectively, the "Transferred Assets"): (1) all of Advantage's right, title and interest in and to all real estate and improvements thereon and fixtures affixed thereto at the Banking Centers, together with all rights and appurtenances pertaining thereto (the "Real Property"); (2) all furniture, equipment and other tangible personal property located at the Banking Centers, including any of such items on order at the Closing (the "Personal Property"); (3) all loans (exclusive of any allowance for loan losses) that are attributable to the Banking Centers, and that are listed on Exhibit 2.1(a) hereto and loans originated at the Banking Centers after the date of this Agreement consistent with Section 7.9, including all documents executed or delivered in connection with each such loan and any and all collateral relating to each such loan and all rights in relation thereto attributable to the Banking Centers at the Closing (collectively, the "Transferred Loans"); (4) all safe deposit boxes located at the Banking Centers as of the Effective Time and the safe deposit contracts and leases related thereto; and (5) all coins and currency located at the Banking Centers as of the Effective Time (the "Coins and Currency"). (b) The following items shall be excluded from the Transferred Assets (collectively, the "Excluded Assets"): (1) Advantage's rights in and to the name "Advantage Bank" and any of Advantage's corporate logos, trademarks, trade names, signs, paper stock forms and other supplies containing any such logos, trademarks or trade names, and all other intellectual property of Advantage; (2) any regulatory licenses or any other nonassignable licenses and permits; (3) proprietary software of Advantage or any affiliate of Advantage; (4) all rights of Advantage under any service or similar contracts in effect as of the Effective Time with non-affiliated third-party service providers which relate to the operations of the Banking Centers; and (5) other assets not specifically included as Transferred Assets. Section 2.2. Purchase Price. (a) As consideration for the purchase of the Banking Centers, Peoples shall pay Advantage a purchase price equal to the sum of the following, subject to adjustment as provided in Section 2.2(c): (1) the book value (less accumulated depreciation) of the Real Property at the Effective Time; (2) the book value (less accumulated depreciation/amortization) of the Personal Property at the Effective Time; (3) a premium for the "Deposit Liabilities" (as defined in paragraph 2.3(a) hereof) and franchise value assigned to the Banking Centers equal to 10.21% of such Deposit Liabilities; (4) the "Net Book Value" (as defined in paragraph 2.2(d) hereof) of the Transferred Loans as described in Section 2.4 hereof as of the Effective Time; (5) the amount of any pro-rated items properly credited to Advantage; and (6) the face amount of the Coins and Currency. (b) In addition, Peoples shall assume, as of the Effective Time, all of the duties, obligations and liabilities of Advantage relating to the Deposit Liabilities and to the Real Property and other Transferred Assets accruing or arising on or after the Effective Time. Specifically excluded from the above are: (1) liabilities or obligations with respect to any litigation, suits, claims, demands or governmental proceedings arising from any fact, circumstance or event occurring prior to the Effective Time and related to the Banking Centers; (2) any and all obligations arising under any contract with a non-affiliated third-party service provider affecting the Banking Centers; and (3) any and all obligations arising under any service agreements entered into between Advantage and its affiliates. (c) Advantage shall prepare a balance sheet in the form attached hereto as Exhibit 3.2(b)(13) (the "Pre-Closing Balance Sheet") in accordance with generally accepted accounting principles consistently applied as of a date not earlier than 30 calendar days prior to the Effective Time anticipated by the parties (the "Pre-Closing Balance Sheet Date") reflecting the assets to be sold and assigned hereunder and the liabilities to be transferred and assumed hereunder. Advantage agrees to pay to Peoples at the Closing (as defined in Section 3.1 hereof), in immediately available funds, the excess amount, if any, of the sum of any prorated items properly credited to Peoples plus the amount of Deposit Liabilities assumed by Peoples pursuant to paragraph 2.2(b) above, as reflected by the Pre-Closing Balance Sheet, over the aggregate purchase price computed in accordance with paragraph 2.2(a) above, as reflected by the Pre-Closing Balance Sheet. Peoples agrees to pay Advantage at the Closing, in immediately available funds, the excess, if any, of the aggregate purchase price computed in accordance with paragraph 2.2(a) above, as reflected by the Pre-Closing Balance Sheet, over the amount of Deposit Liabilities assumed by Peoples pursuant to paragraph 2.2(b) above plus any prorated items properly credited to Peoples, as reflected by the Pre-Closing Balance Sheet. The purchase price, as well as each of the items described in paragraphs 2.2(a) above and all amounts paid at the Closing shall be subject to subsequent adjustment based on the Post-Closing Balance Sheet (as defined in Section 3.3 hereof). (d) The "Net Book Value" of the Transferred Loans is the aggregate principal amount of the Loans, plus accrued and unpaid interest thereon, but such value shall not include any allowance for loan losses or general reserve. (e) Advantage and Peoples agree to allocate the purchase price in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Within 90 days after the Closing Date, Peoples shall provide to Advantage Peoples' proposed allocation of the purchase price as finally determined and paid by Peoples hereunder. Within 30 days after the receipt of such allocation, Advantage shall propose to Peoples any changes to such allocation or otherwise shall be deemed to have agreed with such allocation. Advantage and Peoples shall reduce such allocation to writing, including jointly and properly executing completed Internal Revenue Service Form 8594, and any other forms or statements required by the Code, Treasury Regulations or the Internal Revenue Service, together with any and all attachments required to be filed therewith. Advantage and Peoples shall file timely any such forms and statements with the Internal Revenue Service. To the extent consistent with applicable law, Advantage and Peoples shall not file any tax return or other documents or otherwise take any position with respect to taxes which is inconsistent with such allocation of the final purchase price; provided, however, that neither Advantage nor Peoples shall be obligated to litigate any challenge to such allocation of the final purchase price by a governmental authority. Advantage and Peoples shall promptly inform one another of any challenge by any governmental authority to any allocation made pursuant to this paragraph and agree to consult with and keep one another informed with respect to the state of, and any discussion, proposal or submission with respect to, such challenge. Section 2.3. Deposit Liabilities. (a) "Deposit Liabilities" shall mean all of Advantage's duties, obligations and liabilities relating to the deposit accounts assigned to the Banking Centers as of the Effective Time (including accrued but unpaid or uncredited interest thereon and funds held for payment of taxes and insurance associated with the Transferred Loans). (b) Except for those liabilities and obligations specifically assumed by Peoples under paragraph 2.2(b) above, Peoples is not assuming any other liabilities or obligations. Liabilities not assumed include, but are not limited to, the following: (1) Advantage's cashier checks, letters of credit, money orders, traveler's checks, interest checks and expense checks issued prior to the Effective Time, consignments of U.S. Government "E" and "EE" bonds and any cash items paid by Advantage and not cleared prior to the Effective Time; and (2) individual retirement accounts ("IRAs") which, by their terms, are not subject to assignment, it being understood that all other types of IRA Deposit Liabilities are intended to be transferred. (c) Advantage does not represent or warrant that any deposit customers whose accounts are assumed by Peoples will become or continue to be customers of Peoples after the Effective Time. (d) Peoples agrees to pay in accordance with law and customary banking practices all properly drawn and presented checks, drafts and withdrawal orders presented to Peoples by mail, over the counter or through the check clearing system of the banking industry, by depositors of the accounts assumed, whether drawn on the checks, withdrawal order or draft forms provided by Advantage or by Peoples, and in all other respects to discharge, in the usual course of the banking business, the duties and obligations of Advantage with respect to the balances due and owing to the depositors whose accounts are assumed by Peoples; provided that Peoples shall not be obligated to honor or pay any item if there are insufficient funds in the customer's account when presented. (e) If, after the Effective Time, any depositor, instead of accepting the obligation of Peoples to pay the Deposit Liabilities assumed, shall demand payment from Advantage for all or any part of any such assumed Deposit Liabilities, Advantage shall not be liable or responsible for making any such payment; provided, that if Advantage shall pay the same, Peoples agrees to reimburse Advantage for any such payment, and Advantage shall not be deemed to have made any representations or warranties to Peoples with respect to any such check, draft or withdrawal order and any such representations or warranties implied by law are hereby expressly disclaimed. Advantage and Peoples shall make arrangements to provide for the weekly settlement with immediately available funds by Peoples of checks, drafts, withdrawal orders, returns and other items presented to and paid by Advantage within 60 calendar days after the Effective Time and drawn on or chargeable to accounts that have been assumed by Peoples; provided, however, that Advantage shall be held harmless and indemnified by Peoples for acting in accordance with such arrangements. (f) Peoples agrees, at its cost and expense, (i) to notify such depositors, on or before the Effective Time, in a form and on a date mutually acceptable to Advantage and Peoples, of Peoples' assumption of Deposit Liabilities, (ii) to furnish such depositors with checks on the forms of Peoples and with instructions to utilize Peoples' checks and to destroy unused checks, draft and withdrawal order forms of Advantage (if Peoples so elects, Peoples may offer to buy from such depositors their unused Advantage check, draft and withdrawal order forms), (iii) to reissue all valid ATM and debit cards associated with the depositors of assumed Deposit Liabilities, (iv) to replace all line of credit checks with checks on the forms of Peoples with instructions to utilize Peoples' checks and to destroy the unused checks of Advantage, and (v) to disable and to notify customers of its disabling of all credit card overdraft protection or notify the customers of alternative over-draft protection through a different credit card or line of credit. At its expense, Advantage will prepare and deliver to Peoples two sets of its normal customer mailing labels relating to the Deposit Liabilities. In addition, subsequent to regulatory approval, Advantage will notify its affected customers by letter of the pending assignment of Advantage's Deposit Liabilities to Peoples, which notice shall be at Advantage's cost and expense and shall be in a form mutually agreeable to Advantage and Peoples. (g) Peoples agrees to pay promptly to Advantage an amount (the "Refund Amount") equivalent to the amount of any checks, drafts or withdrawal orders credited to any assumed Deposit Liabilities as of the Effective Time that are returned to Advantage after the Effective Time. Notwithstanding the foregoing, the aggregate of all payments made by Peoples pursuant to this Paragraph 2.3(g) where the Refund Amount exceeds the balance of the underlying Deposit Liability account shall not exceed $50,000. Advantage shall have the right to collect any amount for which Peoples is not required to pay Advantage pursuant to this Paragraph 2.3(g). (h) As of the Effective Time, Peoples will assume and discharge Advantage's duties and obligations in accordance with the terms and conditions and laws, rules and regulations that apply to the certificates of deposit, accounts and other Deposit Liabilities assumed under this Agreement. (i) As of the Effective Time, Peoples will maintain and safeguard in accordance with applicable law and sound banking practices all account documents, deposit contracts, signature cards, deposit slips, canceled items and other records related to the Deposit Liabilities assumed under this Agreement, subject to Advantage's right of access to such records as provided in this Agreement. (j) Advantage will render a final statement to each depositor of an account assumed under this Agreement as to transactions occurring through the Effective Time and will comply with all laws, rules and regulations regarding tax reporting of transactions of such accounts through the Effective Time. Advantage will be entitled to impose normal fees and service charges on a per-item basis, but Advantage will not impose periodic fees or blanket charges in connection with such final statements. Peoples will comply with all laws, rules and regulations regarding tax reporting of transactions of such accounts after the Effective Time. (k) As soon as practicable following the Closing Date, Peoples, at its expense, will notify all Automated Clearing House ("ACH") originators of the transfers and assumptions made pursuant to the Agreement; provided, however, that Advantage shall have provided Peoples with all information necessary to make such notifications and provided, further, that Advantage may, at its option, notify all such originators (on behalf of Peoples) also at the expense of Peoples. For a period of 180 calendar days beginning on the Effective Time, Advantage will honor all ACH items related to accounts assumed under this Agreement which are mistakenly routed or presented to Advantage. Advantage will make no charge to Peoples for honoring such items, and will electronically transmit such ACH data to Peoples. If Peoples cannot receive an electronic transmission, Advantage will make available to Peoples at Advantage's operations center receiving items from the Automated Clearing House tapes containing such ACH data. Items mistakenly routed or presented after the 180-day period will be returned to the presenting party. Advantage and Peoples shall make arrangements to provide for the daily settlement with immediately available funds by Peoples of any ACH items honored by Advantage, and Advantage shall be held harmless and indemnified by Peoples for acting in accordance with this arrangement to accept ACH items. (l) As of the Effective Time, Advantage shall transfer and assign all files, documents and records related to the Deposit Liabilities to Peoples, including such information held in electronic form, and Peoples will be responsible for maintaining and safeguarding all such materials in accordance with applicable law and sound banking practices. Section 2.4. Loans. (a) Advantage will transfer to Peoples as of the Effective Time, subject to the terms and conditions of this Agreement, all of Advantage's right, title and interest in (including accrued but unpaid interest and late charges and collateral relating thereto) the Transferred Loans. Such Transferred Loans (as well as any lien or security interest related thereto) shall be transferred by means of a blanket (collective) assignment and not individually (except as may be otherwise required by law). (b) Not later than 30 calendar days after the Effective Time, Peoples shall notify Advantage as to its rejection of any of the Transferred Loans (the "Retained Loans"), which rejection may only occur due to a Transferred Loan's non-compliance with Section 5.9 hereof or fraud. If Peoples' exercises its loan put-back option pursuant to this Section 2.4, in preparing the Post-Closing Balance Sheet, Advantage shall either: (i) include as Transferred Loans under this Agreement additional loans ("New Loans") with a Net Book Value that is not less than the Net Book Value of the Retained Loans and that comply with Section 5.9, or (ii) pay Peoples cash in an amount equal to the Net Book Value of the Retained Loans. The New Loans shall be selected by Peoples from a pool of loans compiled by Advantage. Exhibit 2.1(a) hereto shall be adjusted to reflect any such adjustments to the Transferred Loans. (c) Advantage and Peoples agree that Peoples will become the beneficiary of credit life insurance written on direct consumer installment loans included in the Transferred Loans and coverage will continue to be the obligation of the current insurer after the Effective Time and for the duration of such insurance as provided under the terms of the policy or certificate. If Peoples becomes the beneficiary of credit life insurance written on direct consumer installment loans included in the Transferred Loans, Advantage and Peoples agree to cooperate in good faith to develop a mutually satisfactory method by which the current insurer will make rebate payments to and satisfy claims of the holders of such certificates of insurance after the Effective Time. After the Effective Time, Advantage will promptly deliver to Peoples the proceeds of any credit life insurance relating to Transferred Loans inadvertently received by it. The parties' obligations under this Paragraph 2.4(c) are subject to any restrictions contained in existing insurance contracts as well as applicable laws and regulations. (d) In connection with the transfer of any Transferred Loans requiring notice to the borrower, Peoples and Advantage will comply with all notice and reporting requirements of the documents associated with the Transferred Loans or of any law or regulation. (e) All Transferred Loans will be transferred without recourse and without any warranties or representations whatsoever (including, without limitation, any representations or warranties as to the enforceability or collectibility of any such Transferred Loans or the creditworthiness of any of the obligors or guarantors thereunder, or the value or adequacy of the collateral associated therewith). (f) Peoples will at its expense issue new coupon books or other forms of payment identification for payment of Transferred Loans for which Advantage provides coupon books with instructions to utilize Peoples' coupons or forms and to destroy coupons furnished by Advantage. (g) For a period of 90 calendar days after the Effective Time, Advantage will forward to Peoples payments received by Advantage in respect of the Transferred Loans. Advantage shall have the right to return to the borrower any payments received by it subsequent to 90 days after the Effective Time. Advantage shall promptly notify Peoples of any such payments. Peoples shall reimburse Advantage for checks returned on payments forwarded to Peoples. (h) As of the Effective Time, Advantage shall transfer and assign all files, documents and records related to the Transferred Loans to Peoples, including such information held in electronic form, and Peoples will be responsible for maintaining and safeguarding all such materials in accordance with applicable law and sound banking practices. (i) If the balance due on any Transferred Loan purchased pursuant to this Section 2.4 has been reduced by Advantage as a result of a payment by check received prior to the Effective Time, which item is returned after the Effective Time, the asset value represented by the Transferred Loan transferred shall be correspondingly increased and an amount in cash equal to such increase shall be paid by Peoples to Advantage promptly upon demand, provided each such Transferred Loan and its related collateral (if any) have not been impaired or released by Advantage. (j) Advantage shall grant to Peoples as of the Effective Time a limited power of attorney, in substantially the form attached hereto as Exhibit 2.4(j) (the "Power of Attorney"). Section 2.5. Employee Matters. (a) Within five calendar days after the execution of this Agreement, Advantage will provide Peoples with a list of the employees employed by Advantage at the Banking Centers to whom Peoples may make an offer of employment. Peoples is not obligated to hire any such employee but will have the option to interview all such employees and make offers of employment to those employees it selects. Each offer of employment made by Peoples will be subject to the Closing. At least five business days prior to the Closing, Peoples will provide Advantage with a list of employees to whom Peoples has made an offer of employment that has been accepted to be effective on the Closing Date (the "Hired Employees"). Effective immediately before the Closing, Advantage will terminate the employment or accept the resignation of all of the Hired Employees. Peoples shall inform Advantage promptly of the identities of those employees of Advantage to whom Peoples will not make employment offers, and Advantage shall comply with the WARN Act, if applicable, as to those employees. (b) From the date of this Agreement and for a period of twelve months after the Closing, Advantage shall not solicit the continued employment of any Hired Employee or any other employee of Peoples that is employed at a Peoples office that is located within a 50 mile radius of either of the Banking Centers. From the date of this Agreement and for a period of twelve months after the Closing, Peoples shall not solicit any employee of Advantage that works at an Advantage office that is located within a 50 mile radius of the Banking Centers. (c) It is understood and agreed that (i) Peoples' option to extend offers of employment as set forth in this Section 2.5 shall not constitute any commitment, contract or understanding (express or implied) of any obligation on the part of Peoples to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Peoples may establish pursuant to individual offers of employment, and (ii) employment offered by Peoples is "at will" and may be terminated by Peoples or by a Hired Employee at any time for any reason (subject to any written commitments to the contrary made by Peoples or a Hired Employee and legal restrictions). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Peoples to terminate, reassign, promote or demote any of the Hired Employees after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such Hired Employees. (d) Peoples shall reimburse Advantage for Advantage's payment to each employee who is employed by Advantage at the Banking Centers immediately prior to the Effective Time and who does not become a Hired Employee, of: (i) severance, calculated in accordance with this Paragraph 2.5(d), and (ii) one month of health insurance. The severance payment shall equal one full month's salary or part-time compensation, plus an additional full month's salary or part-time compensation for each three years of service as an employee of Advantage or its affiliates. The maximum aggregate severance payment for each employee shall be equal to six months' salary. Each employee who receives a severance payment must execute an agreement releasing all claims such employee may have against Advantage, Peoples or their affiliates. In addition, Peoples shall provide Peoples' standard on-site outplacement services for each such employee. (e) Advantage shall be responsible for (i) the payment of all wages and other remuneration due to its employees with respect to their services as employees of Advantage through the close of business on the Closing Date; (ii) the provision of health plan continuation coverage to the extent required by COBRA; and (iii) any and all payments to employees required under the WARN Act based on the termination of their employment with Advantage. (f) Peoples shall honor the scheduled vacation time of employees of Advantage who are Hired Employees in respect of the calendar year in which the Closing occurs. Peoples shall not be responsible for the payment of any remuneration due to employees of Advantage for unused vacation pay earned prior to the Closing Date. (g) The interests of Hired Employees under Advantage's Code Section 401(k) plan which are vested as of the Closing Date shall not be forfeited based on the Closing and Peoples shall assume no responsibility or liability for the payment of benefits accrued under any such plan. (h) The base salary for each Hired Employee shall not be less than the base salary provided by Advantage immediately prior to the Effective Time, subject to changes due to employment classification. With respect to Peoples' qualified plans, the Hired Employees will be treated as new hires; however, Hired Employees will immediately participate in welfare benefit plans maintained by Peoples without regard to pre-existing conditions or waiting periods, if and to the extent that such Hired Employees are participating in Advantage's welfare benefit plans immediately prior to the Closing Date. Hired Employees will be required to satisfy the deductible and employee payments (if any) required by Peoples' plans. Hired Employees shall receive full credit for prior service with Advantage for purposes of determining their participation and benefit accrual under Peoples' vacation and sick leave policies. Hired Employees will be eligible for severance benefits consistent with Peoples' severance policies or plans, provided that all service with Advantage shall be taken into account in determining benefits under Peoples' severance policies or plans. (i) Advantage and Peoples each with respect to its respective plans, programs and policies described in this Section 2.5 shall give any notices required by applicable law and take whatever other actions as may be necessary to carry out the arrangements described in this Section 2.5. (j) If any of the arrangements described in this Section 2.5 are determined by the Internal Revenue Service or any other governmental authority to be prohibited by law, Advantage and Peoples shall modify such arrangements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the parties contemplated herein in a manner that is not prohibited by law. (k) Except as instructed by any Hired Employee consistent with Advantage's customary policies and practices, Advantage will not make any transfer of pension or other employee benefit plan assets to Peoples. (l) Except as provided in Section 2.5(k) above, Peoples shall not have any responsibility, liability or obligation to any current or former employees of Advantage, their beneficiaries or to any other person, with respect to any employee plans (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension). (m) Advantage shall not have any liability with respect to any Hired Employee or other employee, contractor or service provider of or for Peoples arising out of or relating to any services provided to Peoples. Section 2.6. Records and Data Processing, etc. (a) As of the Effective Time, Peoples shall become responsible for maintaining the files, documents and records referred to in this Agreement. Peoples will preserve and hold them in safekeeping as required by applicable law and sound banking practice for the joint benefit of Advantage and Peoples. After the Effective Time, Peoples will permit Advantage and its representatives, for reasonable cause, at reasonable times and upon reasonable notice, to examine, inspect, copy and reproduce any such files, documents or records as Advantage deems reasonably necessary and to have similar access to such records and Advantage's former employees for purposes of preparation of records and reports (including regulatory and tax reports and returns) and as Advantage requires in connection with third party litigation. (b) As of the Effective Time, Advantage will permit Peoples and its representatives, for reasonable cause, at reasonable times and upon reasonable notice, to examine, inspect, copy and reproduce files, documents or records retained by Advantage regarding the assets and liabilities transferred under this Agreement as Peoples deems reasonably necessary. (c) For a period of 90 days after the Effective Time, the party providing copies of records shall do so without charge; thereafter, it may charge its customary rate for such copies. (d) It is understood that certain of Advantage's records, including certificates of deposit, may be available only in electronic form or in the form of photocopies, film copies or other non-original and non-paper media. (e) After the execution of this Agreement, Advantage will work with Peoples to prepare mutually satisfactory schedules of Transferred Assets and contracts to be sold hereunder. Section 2.7. Security and Insurance. As of the Effective Time, Peoples shall be solely responsible for the security of and insurance on all persons and property located in or about the Banking Centers. Section 2.8. Taxes and Fees; Proration of Certain Expenses. (a) Peoples shall not be responsible for, or have any liability with respect to, taxes on any income to Advantage arising out of this transaction. Peoples shall not be responsible for any income tax liability of Advantage arising from the business or operations of the Banking Centers before the Effective Time, and Advantage shall not be responsible for any tax liabilities of Peoples arising from the business or operations of the Banking Centers after the Effective Time. Utility payments, telephone charges, real property taxes, personal property taxes, lease payments, salaries, deposit insurance premiums or assessments, maintenance items, other ordinary operating expenses of the Banking Centers and other expenses related to the liabilities assumed or assets purchased hereunder shall be prorated between the parties as of the Effective Time. To the extent any such item has been prepaid by Advantage for a period extending beyond the Effective Time and has been transferred or credited to the benefit of Peoples, there shall be a proportionate monetary adjustment in favor of Advantage. Peoples shall be responsible for the payment of any non-delinquent assessments. Real estate taxes shall be prorated on a calendar year basis, based upon the current valuation, maximum allowable discount and other applicable exemptions. Advantage will remain responsible for all real property taxes due and payable for any period prior to the Effective Time. The real property tax proration as of the Effective Time shall be final. (b) Advantage and Peoples shall each be responsible for their own costs with respect to the preparation and filing of any tax returns, as well as the preparation, review and analysis of the allocation statements and any forms or statements prepared in connection with the allocation of the final purchase price. Section 2.9. Title to Real Property. (a) Advantage agrees to deliver to Peoples as soon as reasonably possible, copies of all title information in possession of Advantage, including, but not limited to, title insurance policies, attorneys' opinions on titles, surveys, covenants, deeds and easements relating to the Real Property. Such delivery shall constitute no warranty by Advantage as to the accuracy or completeness thereof or that Peoples is entitled to rely thereon. (b) Peoples shall have the right to obtain, at Peoples' sole cost and expense: (1) a title insurance commitment from a title insurance company selected by Peoples and an owner's policy of title insurance insuring Peoples' title to the Real Property and related easements and rights appurtenant thereto for the price associated with the land and buildings specified in Section 2.2(a)(1); and (2) a survey as is required by the title insurer to remove the survey exception in the title insurance policy, to be conducted by a surveyor selected by Peoples. (c) Peoples agrees to notify Advantage, in writing within 45 calendar days after the date of this Agreement, of any mortgages, pledges, material liens, encumbrances, reservations, tenancies, encroachments, overlaps or other title exceptions, survey objections, or zoning or similar land use violations (excluding legal but nonconforming uses) or material engineering or structural problems related to the Real Property to which Peoples reasonably objects (the "Title Defects"). If Peoples does not notify Advantage of Title Defects within such time period, Peoples shall be deemed to have waived its rights under this Section 2.9. Peoples agrees that Title Defects shall not include real property taxes not yet due and payable, legal highways, zoning ordinances or easements, restrictions, tenancies, survey matters or other title matters, and rights of way which do not materially interfere with the use of the Real Property as such facility is currently utilized ("Permitted Encumbrances"; the term "Permitted Encumbrances" shall also include any title defects, deficiencies, exceptions or encumbrances to which Peoples fails to object within said 45-day period, or to which Peoples objects within said 45-day period but which Advantage does not correct and which Peoples accepts.) For a period of 30 days after Advantage's receipt of such notice of Title Defects from Peoples, Advantage shall make a good faith effort to correct any such Title Defects to Peoples' reasonable satisfaction; provided, however, that Advantage shall not be obligated to bring any lawsuit or make any payments of money (except payments of not more than $50,000 in the aggregate for all liens that Advantage does not dispute in good faith) to cure a Title Defect. If Advantage is unable or unwilling to cure any such Title Defects to Peoples' reasonable satisfaction, Advantage may retain the Real Property with the Title Defect and adjust the purchase price set forth in Section 2.2 accordingly, or it may lease such Real Property to Peoples pursuant to Paragraph 2.9(e) below. (d) Peoples shall have the right to request that the title insurance company update title matters up to 10 business days prior to the Closing Date for any changes which may have arisen between the date of the original title search and the Closing Date. If such update indicates that any Title Defects have been placed of record since the date of Peoples' original title search, and Peoples reasonably objects thereto in writing, then Advantage shall make a good faith effort to cure any such Title Defect to Peoples' reasonable satisfaction; provided that Advantage shall not be obligated to bring any lawsuit or make any payments of money (except payments of not more than $50,000 to pay liens that Advantage does not dispute in good faith) to cure a Title Defect. If Advantage is unable or unwilling to cure any such Title Defects to Peoples' reasonable satisfaction, Advantage may retain the Real Property with the Title Defect and adjust the purchase price set forth in Section 2.2 accordingly, or it may lease such Real Property to Peoples pursuant to Paragraph 2.9(e) below. (e) In the event that Advantage is unable to cure a Title Defect prior to Closing, Advantage may elect to lease the Real Property affected by the Title Defect to Peoples at a reasonable rent, based on a valuation of such Real Property at its purchase price under Paragraph 2.2(a) of this Agreement, for a term of one year. If Peoples leases any Real Property under this Paragraph 2.9(e) and if, following the Closing and at any time during the term of such lease, Advantage cures the unacceptable Title Defect, Advantage shall promptly sell and convey the Real Property to Peoples, upon the terms specified in this Agreement (provided, however, for this purpose, book value, which shall not include the cost of curing of the Title Defect, and appropriate expense and tax prorations shall be computed as of the actual conveyance date), whereupon such lease shall terminate. If Advantage is unable to cure a Title Defect during the term of the lease, Peoples may renew the lease for an additional one-year term, in its sole discretion, upon 30 days' prior notice to Advantage. Section 2.10. Environmental Matters. (a) Advantage agrees to deliver to Peoples as soon as reasonably possible, upon Peoples' request, copies of all environmental studies, reports and audits in Advantage's possession related to the Banking Centers. (b) Peoples shall have the right, but not the obligation, at its sole cost and expense, to cause such investigations and tests to be made as it deems necessary to determine whether there has been any soil, surface water, groundwater or building space contamination on or under the Real Property; provided, however, that without the prior written consent of Advantage, which consent will not unreasonably be withheld, and execution of a satisfactory property access agreement, Peoples shall not conduct subsurface testing, any ground water monitoring or install any test well or undertake any other investigation which requires a permit or license from, or the reporting of the investigation or the results thereof to, a local or state environmental regulatory authority or the United States Environmental Protection Agency. Advantage shall provide reasonable assistance to Peoples and/or its agents or contractors in their evaluation and testing of the Real Property and Advantage shall provide Peoples and/or its agents or contractors access to pertinent records and documents. Advantage authorizes Peoples and/or its agents or contractors to contact governmental agencies regarding the environmental status of the Real Property. Peoples agrees to notify Advantage, in writing within 45 calendar days after the date of this Agreement, of the results of any such investigations or tests and of any objections to any material adverse environmental condition ("Environmental Condition") that impacts the Banking Centers. If Peoples does not notify Advantage of any Environmental Condition within such time period, Peoples shall be deemed to have waived its rights under this Section 2.10. For a period of 30 days after Advantage's receipt of such notice of Environmental Conditions from Peoples, Advantage shall make a good faith effort to correct any such Environmental Conditions to Peoples' reasonable satisfaction; provided, however, that Advantage shall not be obligated to bring any lawsuit or make any payments of money (except payments of not more than $50,000 in the aggregate) to cure an Environmental Condition. If Advantage is unable or unwilling to cure any such Environmental Conditions to Peoples' reasonable satisfaction, Advantage may retain the Real Property with the Environmental Condition and adjust the purchase price set forth in Section 2.2 accordingly, or it may lease such Real Property to Peoples pursuant to Paragraph 2.10(c) below. (c) In the event that Advantage is unable to cure an Environmental Condition prior to Closing, Advantage may elect to lease the Real Property affected by the Environmental Condition to Peoples at a reasonable rent, based on a valuation of such Real Property at its purchase price under Paragraph 2.2(a) of this Agreement, for a term of one year. If Peoples leases any Real Property under this Paragraph 2.10(c) and if, following the Closing and at any time during the term of such lease, Advantage cures the unacceptable Environmental Condition, Advantage shall promptly sell and convey the Real Property to Peoples, upon the terms specified in this Agreement (provided, however, for this purpose, book value, which shall not include the cost of curing the Environmental Condition, and appropriate expense and tax prorations shall be computed as of the actual conveyance date), whereupon such lease shall terminate. If Advantage is unable to cure an Environmental Condition during the term of the lease, Peoples may renew the lease for an additional one-year term, in its sole discretion, upon 30 days' prior notice to Advantage. Section 2.11. Safe Deposit Business. (a) As of the Effective Time, Peoples will assume and discharge Advantage's obligations with respect to the safe deposit box business at the Real Property in accordance with the terms and conditions of contracts or rental agreements related to such business, and Peoples will maintain all facilities necessary for the use of such safe deposit boxes by persons entitled to use them. (b) As of the Effective Time, Advantage shall transfer, assign and deliver to Peoples the records related to such safe deposit box business, and Peoples shall maintain and safeguard all such records and be responsible for granting access to and protecting the contents of safe deposit boxes at the Real Property. (c) Safe deposit box rental payments collected by Advantage before the Effective Time shall be prorated as of the Effective Time. ARTICLE III CLOSING AND EFFECTIVE TIME Section 3.1. Effective Time. (a) The purchase of assets and assumption of liabilities provided for in this Agreement shall occur at a closing (the "Closing") to be held at the offices of Advantage in Cambridge, Ohio, at 10:00 a.m., local time, or at such other time, place and manner as the parties shall mutually agree, on a date to be mutually agreed upon between the parties, which date shall be after the receipt of all necessary approvals by regulatory agencies and after all statutory waiting periods have expired and no later than the nine-month anniversary of the date of this Agreement. The effective time (the "Effective Time") shall be 5:00 p.m., local time, on the day on which the Closing occurs (the "Closing Date"). (b) Advantage and Peoples may agree to conduct the Closing by exchanging executed and original documents by overnight courier service for delivery on the Closing Date. In this case, all Closing documents shall be held in escrow by the parties' counsel pending their receipt of confirmation that all Closing documents have been received and are satisfactory, respectively, and that the parties' wire transfer(s) of funds required under this Agreement have been received and credited to their designated account(s). Upon the parties' receipt of such confirmation(s), respectively, such Closing documents shall be released from escrow by such counsel and the Closing shall be deemed to have been consummated. Section 3.2. Closing. (a) All actions taken and documents delivered at the Closing shall be deemed to have been taken and executed and delivered simultaneously, and no action shall be deemed taken nor any document delivered until all have been taken and delivered. (b) At the Closing, subject to all the terms and conditions of this Agreement, Advantage shall execute and deliver to Peoples or, in the case of items (5), (6), (8), (9) and (10), make reasonably available to Peoples: (1) limited warranty deeds in recordable form executed by Advantage transferring Advantage's title to the Real Property, subject to the Permitted Encumbrances and any other such matters that are shown on the title commitment to be provided to Peoples hereunder, in and to the Real Property to Peoples in substantially the form attached hereto as Exhibit 3.2(b)(1); (2) a Bill of Sale, in substantially the form attached hereto as Exhibit 3.2(b)(2) (the "Bill of Sale"), transferring to Peoples all of Advantage's interest in the Transferred Loans; (3) an Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit 3.2(b)(3) (the "Assignment and Assumption Agreement"), assigning Advantage's interest in the Deposit Liabilities; (4) consents from third persons that are required to effect the assignments set forth in the Assignment and Assumption Agreement; (5) Advantage's files and records related to the Transferred Loans; (6) Advantage's records related to the Deposit Liabilities assumed by Peoples; (7) immediately available funds in the net amount shown as owing to Peoples by Advantage on the Closing Statement (as defined below), if any; (8) the Coins and Currency; (9) such of the other assets to be purchased as shall be capable of physical delivery; (10) Advantage's keys to the safe deposit boxes and Advantage's records related to the safe deposit boxes at the Banking Centers; (11) a certificate of a proper officer of Advantage, dated as of the Closing Date, certifying to the fulfillment of all conditions which are the obligation of Advantage and that all of the representations and warranties of Advantage set forth in this Agreement remain true and correct in all material respects as of Effective Time; (12) a copy of the resolution of the Board of Directors of Advantage, or the Executive Committee of Advantage, approving the sale contemplated herein; (13) a Closing Statement using amounts shown on the Pre-Closing Balance Sheet, substantially in the form attached hereto as Exhibit 3.2(b)(13) (the "Closing Statement"); (14) an affidavit of Advantage certifying that Advantage is not a "foreign person" as defined in the federal Foreign Investment in Real Property Tax Act of 1980; (15) the Limited Power of Attorney; (16) such title insurance affidavits as may be reasonably required by the title insurance company (such affidavits shall not include indemnities unless necessary to obtain title insurance coverage for a Title Defect); and (17) such certificates and other documents as Peoples and its counsel may reasonably require to evidence receipt by Advantage of all necessary regulatory authorizations and approvals for the consummation of the transactions provided for in this Agreement. It is understood that the items listed in items (5), (6), (8), (9) and (10) shall be transferred at the Banking Centers immediately after the Banking Centers has closed for business on the Closing Date. (c) At the Closing, subject to all the terms and conditions of this Agreement, Peoples shall execute and deliver to Advantage: (1) the Assignment and Assumption Agreement; (2) a certificate and receipt acknowledging the delivery and receipt of possession of the Assets and records referred to in this Agreement; (3) immediately available funds in the net amount shown as owing to Advantage by Peoples on the Closing Statement, if any; (4) a certificate of a proper officer of Peoples, dated as of the Closing Date, certifying to the fulfillment of all conditions which are the obligation of Peoples and that all of the representations and warranties of Peoples set forth in this Agreement remain true and correct in all material respects as of the Effective Time; (5) a copy of the resolution of the Board of Directors of Peoples, or the Executive Committee of Peoples, approving the purchase contemplated herein; and (6) such certificates and other documents as Advantage and its counsel may reasonably require to evidence the receipt by Peoples of all necessary regulatory authorizations and approvals for the consummation of the transactions provided for in this Agreement. (d) All instruments, agreements and certificates described in this Section 3.2 shall be in form and substance reasonably satisfactory to the parties' respective legal counsel. Section 3.3. Post-Closing Adjustments. (a) Not later than 30 days after the Effective Time (the "Post-Closing Balance Sheet Delivery Date"), Advantage shall deliver to Peoples a balance sheet dated as of the Effective Time and prepared in accordance with generally accepted accounting principles consistently applied reflecting the assets sold and assigned and the liabilities transferred and assumed hereunder in the form attached hereto as Exhibit 3.2(b)(13) (the "Post-Closing Balance Sheet"), including, but not limited to, the specific items described in paragraphs 2.2(a)(1) through (4) above, as adjusted, together with a copy of Advantage's calculation of the adjusted purchase price and amounts payable thereunder. Notwithstanding the foregoing, the portion of the purchase price attributable to the Real Property shall be adjusted only in the manner and to the extent described in Paragraphs 2.9(b), 2.10(b) and 7.10(a) of this Agreement. Additionally, Advantage shall deliver to Peoples a final list of the Transferred Loans purchased, individually identified by account number. Advantage shall afford Peoples and its accountants and attorneys the opportunity to review all work papers and documentation used by Advantage in preparing the Post-Closing Balance Sheet. Within 15 days following the Post-Closing Balance Sheet Delivery Date (the "Adjustment Payment Date"), Advantage and Peoples shall meet at the offices of Advantage, in Cambridge, Ohio, or such other location as may be mutually agreed, to effect the transfer of any funds as may be necessary to reflect changes in such assets and liabilities between the Pre-Closing Balance Sheet and the Post-Closing Balance Sheet and resulting changes in the purchase price, together with interest thereon computed from the Effective Time to the Adjustment Payment Date at the applicable Federal Funds Rate (as hereinafter defined). (b) In the event that a dispute arises as to the appropriate amounts to be paid to either party on the Adjustment Payment Date, each party shall pay to the other on such Adjustment Payment Date all amounts other than those as to which a dispute exists, and the disputed amounts shall be submitted to Crowe Chizek and Company LLC or any other mutually acceptable independent certified public accountant (the "Neutral Auditor") within ten (10) days after the Adjustment Payment Date. Each party hereto agrees to execute, if requested by the Neutral Auditor, a reasonable engagement letter. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor shall be borne pro rata by Advantage and Peoples in proportion to the allocation of the dollar amount of the disputed amounts between Advantage and Peoples made by the Neutral Auditor such that the party with whom the Neutral Auditor, in the aggregate, agrees more closely pays a lesser proportion of the fees and expenses. The Neutral Auditor shall act as an arbitrator to determine, based solely on the provisions of this Section 3.3 and the presentations by Advantage and Peoples, and not by independent review, only the resolution of the disputed amounts. The Neutral Auditor's resolution of such disputed amounts, which for each of the disputed amounts shall be within the range of values of the amount claimed by either party as to any of the disputed amounts, shall be made within thirty (30) days of the submission of the disputed amounts thereto, shall be set forth in a written statement delivered to Advantage and Peoples and shall be deemed to be mutually agreed upon by Advantage and Peoples for all purposes of this Agreement. Any disputed amounts retained by a party which are later found to be due to the other party by the Neutral Auditor shall be paid to such other party promptly with interest thereon from the Effective Time to the date paid at the applicable Federal Funds Rate. (c) The Federal Funds Rate shall be the mean of the high and low rates quoted for Federal Funds in the Money Rates column of The Wall Street Journal adjusted as such mean may increase or decrease during the period between the Effective Time and the date paid. ARTICLE IV INDEMNIFICATION Section 4.1. Advantage's Indemnification of Peoples. Subject to any limitations in paragraph 5.9(e) or otherwise contained in this Agreement, Advantage shall indemnify, hold harmless and defend Peoples from and against (a) any breach by Advantage of any representation or warranty contained herein, and (b) all claims, losses, liabilities, demands and obligations, including reasonable attorneys' fees and expenses, arising out of any actions, suits or proceedings commenced prior to the Effective Time (other than proceedings to prevent or limit the consummation of this transaction) relating to Advantage's operations at the Banking Centers; and, except as otherwise provided in this Agreement, Advantage shall further indemnify, hold harmless, and defend Peoples from and against all claims, losses, liabilities, demands and obligations, including reasonable attorneys' fees and expenses, real estate taxes, intangibles and franchise taxes, sales and use taxes, social security and unemployment taxes, all accounts payable, and operating expenses (including salaries, rents and utility charges) incurred by Advantage, prior to the Effective Time and which are claimed or demanded on or after the Effective Time, or which arise out of any actions, suits or proceedings commenced on or after the Effective Time and which relate to Advantage's operations or transactions at the Banking Centers prior to the Effective Time. Section 4.2. Peoples' Indemnification of Advantage. Peoples shall indemnify, hold harmless, and defend Advantage from and against (a) any breach by Peoples of any representation or warranty contained herein and (b) all claims, losses, liabilities, demands and obligations, including reasonable attorneys' fees and expenses, real estate taxes, intangibles and franchise taxes, sales and use taxes, social security and unemployment taxes, all accounts payable, and operating expenses (including salaries, rents and utility charges), which Advantage may receive, suffer or incur in connection with operations and transactions occurring after the Effective Time and which involve the Banking Centers, the Transferred Assets, or the liabilities assumed by Peoples pursuant to this Agreement. Section 4.3. Claims for Indemnity. (a) A claim for indemnity under Section 4.1 or 4.2 of this Agreement may be made by the claiming party at any time prior to 24 months after the Effective Time, by the giving of written notice thereof to the other party. Such written notice shall set forth in reasonable detail the basis upon which such claim for indemnity is made. In the event that any such claim is made within, the prescribed period, the indemnity relating to such claim shall survive until such claim is resolved. Claims not made within such period shall cease and no indemnity shall be made therefor. (b) In the event that any person or entity not a party to this Agreement shall make any demand or claim or file or threaten to file any lawsuit, which demand, claim or lawsuit may result in any liability, damage or loss to one party hereto of the kind for which such party is entitled to indemnification pursuant to Section 4.1 or 4.2 hereof, then, after written notice is provided by the indemnified party to the indemnifying party of such demand, claim or lawsuit, the indemnifying party shall have the option, at its cost and expense, to retain counsel for the indemnified party to defend any such demand, claim or lawsuit. In the event that the indemnifying party shall fail to respond within five calendar days after receipt of such notice of any such demand, claim or lawsuit, then the indemnified party shall retain counsel and conduct the defense of such demand, claim or lawsuit as it may in its discretion deem proper, at the cost and expense of the indemnifying party. In effecting the settlement of any such demand, claim or lawsuit, an indemnified party shall act in good faith, shall consult with the indemnifying party and shall enter into only such settlement as the indemnifying party shall approve (the indemnifying party's approval will be implied if it does not respond within ten calendar days of its receipt of the notice of such settlement offer). Section 4.4. Limitations on Indemnification. Notwithstanding anything to the contrary contained in this Article IV, no indemnification shall be required to be made by either party until the aggregate amount of all such claims by a party exceeds $150,000. Once such aggregate amount exceeds $150,000, such party shall thereupon be entitled to indemnification for all amounts in excess of such $150,000. IN ADDITION, THE PARTIES SHALL HAVE NO OBLIGATIONS UNDER THIS ARTICLE IV FOR ANY CONSEQUENTIAL LIABILITY, DAMAGE OR LOSS THE INDEMNIFIED PARTY MAY SUFFER AS THE RESULT OF ANY DEMAND, CLAIM OR LAWSUIT. ARTICLE V REPRESENTATIONS AND WARRANTIES OF ADVANTAGE Except as otherwise specifically herein provided, and except as specifically disclosed to Peoples in writing prior to the date hereof, or as otherwise disclosed as described in the particular Sections of this Article V, Advantage hereby represents and warrants to Peoples as of the date of this Agreement and as of the Effective Time: Section 5.1. Corporate Organization. Advantage is a state commercial bank duly organized, validly existing and in good standing under the laws of the State of Ohio. Advantage has the corporate power and authority to carry on its business as currently conducted and to effect the transactions contemplated herein. Section 5.2. No Violation. The Banking Centers have been operated in all material respects in accordance with applicable laws, rules and regulations. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, will violate or conflict with (i) Advantage's articles of incorporation or bylaws; (ii) any material provision of any material agreement or any other material restriction of any kind to which Advantage is a party or by which Advantage is bound; (iii) any material statute, law, decree, regulation or order of any governmental authority; or (iv) any material provision which will result in a default under, or cause the acceleration of the maturity of, any material obligation or loan to which Advantage is a party. Section 5.3. Corporate Authority. Prior to the Closing Date, the consummation of the transactions contemplated herein will have been duly authorized by the Board of Directors of Advantage, or the Executive Committee of Advantage. No further corporate authorization is necessary for Advantage to consummate the transactions contemplated hereunder. Section 5.4. Enforceable Agreement. This Agreement has been duly executed and delivered by Advantage and is the legal, valid and binding agreement of Advantage, enforceable in accordance with its terms. Section 5.5. No Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Advantage and Peoples, and there has been no participation or intervention by any other person, firm or corporation employed or engaged by or on behalf of Advantage in such a manner as to give rise to any valid claim against Advantage or Peoples for a brokerage commission, finder's fee or like commission, except for Capital Market Securities, Inc. Section 5.6. Real Property. Advantage makes the following additional representations regarding the Real Property: (a) Except as specifically set forth herein, Advantage has no knowledge of any condemnation proceedings pending against the Real Property. (b) Except as specifically set forth herein, Advantage has not entered into any agreement regarding the Real Property, and to Advantage's knowledge the Real Property is not subject to any claim, demand, suit, lien, proceeding or litigation of any kind, pending or outstanding, which would materially affect or limit Peoples' use and enjoyment of the Real Property or which would materially limit or restrict Advantage's right or ability to enter into this Agreement and consummate the sale and purchase contemplated hereby. (c) To Advantage's knowledge, (i) no fact or condition exists which would result in the permanent termination or material impairment of access to the Real Property from adjoining public streets or highways or in the permanent discontinuance of necessary utilities services to the Real Property, and (ii) all sanitation, plumbing, refuse disposal, and similar facilities servicing the Banking Centers are in material compliance with applicable governmental regulations. (d) No complaints have been received by Advantage that Advantage is in violation of applicable building, zoning, platting, subdivision, use, safety, building or similar laws, ordinances, regulations and restrictions with respect to the Banking Centers. To Advantage's knowledge, there are no special or general assessments pending against or affecting the Real Property and, to Advantage's knowledge, no public improvements have been recently made which would cause special or general assessments to be assessed against the Real Property. Except for any encroachment which does not materially affect the use or value of the premises: (i) to Advantage's knowledge, there is no encroachment upon the Real Property from any buildings or improvements, if any, located on the adjacent property; and (ii) to Advantage's knowledge, there is no encroachment by the Real Property upon any adjacent property or upon any easements with respect to the adjacent property. There are no leases or other agreements by which any person possesses or has a right to possess all or any portion of the Real Property other than those described in this Agreement or exhibits to this Agreement. To Advantage's knowledge, and except as disclosed by title insurance binder or by survey, there is no violation of any applicable building restriction or restrictive covenant. To Advantage's knowledge, the Real Property is adequately serviced by all utilities necessary for effective operation as presently used for a financial institution office. Section 5.7. Condition of Property. Except as may be otherwise specifically set forth in this Agreement, the Real Property to be purchased by Peoples hereunder is sold "AS IS, WHERE IS," with no warranties or representations whatsoever, except as may be expressly represented or warranted in this Agreement. Section 5.8. Employees. No employee located in the Banking Centers is a party to any collective bargaining, employment, severance, termination, or change of control agreement or represented by a labor organization of any type other than Advantage's established terms of employment and severance policies. Advantage is unaware of any efforts during the past three years to unionize or organize the employees of the Banking Centers. Exhibit 5.8 sets forth a true and correct list of any and all bonus or incentive or other compensation arrangements or commitments, other than benefits plans applicable to all Advantage employees, for the employees of the Banking Centers individually or as a group. Peoples agrees to keep such information in confidence. None of the employees of the Banking Centers is a party to any employment contract, formal or informal, oral or written, or represented under any collective bargaining agreement relating to employment with Advantage. Section 5.9. Loans. (a) Each Transferred Loan was made in the ordinary course of business, has been properly executed by the parties thereto, represents the valid and binding obligation of the obligor, enforceable by the holder thereof in accordance with its terms, is free from any material defenses, contains customary enforcement provisions such that the rights and remedies of the holder thereof are adequate for enforcement of such loan, and, unless approved by Advantage and documented in its files, no material provision of such loan has been waived. (b) Each Transferred Loan (such term to include, for purposes of this paragraph, the principal documents relating in any way to such loan, including notes, mortgages, security instruments and guarantees) complies and has been administered in all material respects with all requirements of applicable Federal, state and local laws and regulations. (c) Each Transferred Loan that is secured by collateral is secured by a perfected mortgage or security interest in the collateral in favor of Advantage as mortgagee or secured party. No collateral has been released from the lien granted to Advantage, unless approved by Advantage and documented in its files. (d) None of the Transferred Loans: (1) is a construction loan; (2) has been part of a bankruptcy or foreclosure action; (3) has been 60 days past due during the past 18 months; or (4) has been 30 days past due three or more times during the last 12 months. (e) Peoples' sole remedy for a breach of the representations and warranties in this Section 5.9 shall be to reject the applicable loan in accordance with paragraph 2.4(b). Section 5.10. Environmental Matters. Except as previously disclosed to Peoples in writing or as disclosed in the environmental studies, reports and audits delivered to Peoples pursuant to Section 2.10 or as disclosed by investigations and tests performed by Peoples pursuant to Section 2.10, to the actual knowledge of the executive officers of Advantage, and without any investigation by such officers: (a) The Banking Centers are, in all material respects, in compliance with all applicable Federal, state, local or municipal statutes, ordinances, laws and regulations and all orders, rulings or other decisions of any court, administrative agency or any other governmental authority relating to the protection of the environment. (b) The Banking Centers are free of friable asbestos except to the extent properly sealed or encapsulated in compliance with all applicable Environmental Laws (as defined below). (c) During Advantage's ownership and operation, no part of the Banking Centers have been used for the manufacture, handling, storage or disposal of Hazardous Substances, except in compliance with Environmental Laws. (d) Except as disclosed in writing to Peoples, the Banking Centers do not contain, nor to the knowledge of Advantage, have ever contained, an "underground storage tank" as that term is defined in the Federal Hazardous and Solid Waste Amendments of 1984 to the Resource Conservation and Recovery Act. (e) There is no action, suit, investigation, inquiry, or other proceeding, ruling, order or citation involving Advantage, pending, threatened or previously asserted as a result of any actual or alleged failure to comply with any requirement of any Environmental Laws with respect to the Banking Centers. (f) Advantage has not received notice that, with respect to any of the Banking Centers, Advantage is an "owner" or "operator" of a "facility" as those terms are defined in Section 9601 of the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 U.S.C.A. Section 9601 ("CERCLA"). For purposes of this Section 5.10, "Hazardous Substances" has the meaning defined in Section 9601 of CERCLA; and "Environmental Laws" mean all laws, ordinances, rules and regulations that: (i) regulate waste management, including the containment, storage, handing, transportation, disposal, or management of Hazardous Substances; (ii) regulate or prescribe requirements for air, water or soil quality; (iii) protect the environment; or (iv) establish liability for the investigation, removal, or cleanup of, or damage caused by, any Hazardous Substances. Section 5.11. Deposit Liabilities. No selection procedures believed to be adverse to Peoples have been utilized by Advantage in selecting the Deposit Liabilities. The Deposit Liabilities are insured by the FDIC to the fullest extent permitted by federal law and no action is pending or has been threatened by the FDIC against Advantage with respect to the termination of such insurance. To Advantage's knowledge, the Deposit Liabilities (i) are in all respects genuine and enforceable obligations of Advantage and have been acquired and maintained in full compliance with all applicable laws, including (but not limited to) the Truth in Savings Act and regulations promulgated thereunder; (ii) were acquired in the ordinary course of Advantage's business; and (iii) are not subject to any claims with respect to such Deposit Liabilities that are superior to the rights of persons shown on the records delivered to Peoples indicating the owners of the Deposit Liabilities other than claims against such owners of the Deposit Liabilities, such as state and federal tax liens, garnishments, and other judgment claims, which have matured or may mature into claims against the respective Deposit Liabilities. Section 5.12. Books, Records, Documentation, etc. The books and records of the Banking Centers are correct, accurate and complete, in all material respects, have been maintained in a consistent and a customary manner, and are in material compliance with all applicable federal and state laws and regulations and customary banking practices. The deposit- and lending-related forms, notices, statements and related documentation, as well as Advantage's policies, procedures and practices with respect thereto, used at the Banking Centers comply in all material respects with applicable federal and state laws and regulations and customary banking practices. Section 5.13. Litigation. There are no actions, causes of action, claims, suits or proceedings, pending or, to Advantage's knowledge, threatened, against Advantage relating to the Banking Centers or materially affecting the Banking Centers, whether at law, in equity or before or by a governmental department, commission, board, bureau, agency or instrumentality. For purposes of this section, claims will be considered to materially affect the Banking Centers if the aggregate amount of such claims exceeds $10,000. Section 5.14. Tax Matters. Advantage has complied with the requirements of the Internal Revenue Service regarding taxpayer identification number certification, interest information reporting and backup withholding of interest payable in connection with Deposit Liabilities. Advantage has filed all federal, state, county, local and foreign tax returns, including information returns, required to be filed by it in connection with the operation of the Banking Centers, and paid all taxes owed by it, including those with respect to withholding, social security, unemployment, workers compensation, franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on such returns or assessments received by it are delinquent. Advantage has paid all taxes which it is required to withhold from amounts owing to employees, creditors, holders of Deposit Liabilities, or other third parties. For all completed years, Advantage has duly and timely sent to each holder of Deposit Liabilities a Form 1099 (or a substitute form permitted by law) relating to interest, earnings or dividends paid on such accounts for those periods. Section 5.15. Limitation and Survival of Representations and Warranties. EXCEPT AS MAY BE EXPRESSLY REPRESENTED OR WARRANTED IN THIS AGREEMENT, ADVANTAGE MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER WITH REGARD TO ANY ASSET BEING TRANSFERRED TO PEOPLES OR ANY LIABILITY OR OBLIGATION BEING ASSUMED BY PEOPLES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES WITH RESPECT TO MERCHANTABILITY, FITNESS, TITLE, ENFORCEABILITY, COLLECTIBILITY, DOCUMENTATION OR FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART). ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PEOPLES Except as otherwise specifically herein provided, Peoples hereby represents and warrants to Advantage as follows: Section 6.1. Corporate Organization. Peoples is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. Peoples has the corporate power and authority to carry on the business being acquired, to assume the liabilities being transferred, and to effect the transactions contemplated herein. Section 6.2. No Violation. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, will violate or conflict with (i) the articles of association or bylaws of Peoples; (ii) any material provision of any material agreement or any other material restriction of any kind to which Peoples is a party or by which Peoples is bound; (iii) any material statute, law, decree, regulation or order of any governmental authority; or (iv) any material provision which will result in a default under, or cause the acceleration of the maturity of, any material obligation or loan to which Peoples is a party. Section 6.3. Corporate Authority. Prior to the Closing Date, the consummation of the transactions contemplated herein will have been duly authorized by the Board of Directors of Peoples, or the Executive Committee of Peoples. No further corporate authorization on the part of Peoples is necessary to consummate the transactions contemplated hereunder. Section 6.4. Enforceable Agreement. This Agreement has been duly executed and delivered by Peoples and is the legal, valid and binding agreement of Peoples, enforceable in accordance with its terms. Section 6.5. No Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Peoples and Advantage and there has been no participation or intervention by any other person, firm or corporation employed or engaged by or on behalf of Peoples in such a manner as to give rise to any valid claim against Advantage or Peoples for a brokerage commission, finder's fee or like commission. Section 6.6. Litigation. There are no actions, causes of action, claims, suits or proceedings, pending or, to Peoples' knowledge, threatened, by or against or affecting Peoples in connection with or relating to the transactions contemplated by this Agreement or of any action taken or to be taken in connection with this Agreement or the consummation of the transactions contemplated by this Agreement. Section 6.7. Survival of Representations and Warranties. The foregoing representations and warranties shall survive the Effective Time for a period of 12 months. ARTICLE VII OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME Section 7.1. Full Access. Advantage shall afford to the officers and authorized representatives of Peoples, upon prior notice and subject to Advantage's normal security requirements, access to the properties, books and records pertaining to the Banking Centers, specifically including but not limited to all books and records relating to the Deposit Liabilities, the loans attributable to the Banking Centers and the Real Property, in order that Peoples may have full opportunity to make reasonable investigations and to engage in operational planning, at reasonable times, without interfering with the normal business and operations of the Banking Centers or the affairs of Advantage relating to the Banking Centers. Advantage will cooperate with Peoples to the extent reasonably requested and legally permissible to provide Peoples with information about employees and a means to meet with employees; provided, however, that Peoples shall not extend any offers of employment or otherwise announce or notify the Employees of Peoples' intentions regarding the Employees who will be offered employment by Peoples until after receipt of all necessary regulatory approvals of the transactions contemplated by this Agreement. The officers of Advantage shall furnish Peoples with two standard sets of such additional financial and operating data and other information as to its business and properties at the Banking Centers, or where otherwise located, as Peoples may, from time to time, reasonably request and as shall be available, including, without limitation, information required for inclusion in all governmental applications necessary to effect this transaction. Any additional copies of such information shall be produced and provided at Peoples' expense. Nothing in this Section 7.1 shall require Advantage to breach any obligation of confidentiality or to reveal any proprietary information, trade secrets or marketing or strategic plans. Records, including credit information relating to the Transferred Loans, will be made available for review by Peoples no later than 30 calendar days after the execution of this Agreement. It is understood that certain of Advantage's records may be available only in the form of photocopies, film copies, or other non-original and non-paper media. Section 7.2. Delivery of Magnetic Media Records. Advantage shall prepare or cause to be prepared at its expense and make available to Peoples at Advantage's data processing center or other reasonably convenient location magnetic media records in field format as soon as possible and in any event not later than 60 calendar days after the execution of this Agreement and further shall make available to Peoples such records updated monthly and as of the Closing Date, which records shall contain the information related to the items described in paragraphs 3.2(b)(5) and (6) above. Such updated records shall be made available at such time after the Closing Date as agreed to by the parties. Section 7.3. Application for Approval. As soon as practicable following the execution of this Agreement, Peoples shall prepare and file applications required by law with the appropriate regulatory authorities for approval to purchase and assume the aforesaid assets and liabilities and to effect in all other respects the transactions contemplated herein. Peoples agrees to process such applications in a diligent manner and on a priority basis and to provide Advantage promptly with a copy of such applications as filed (except for any confidential portions thereof) and all material notices, orders, opinions, correspondence, and other documents with respect thereto, and to use its best efforts to obtain all necessary regulatory approvals. On the date hereof, Peoples knows of no reason why such applications should not receive all such approvals. Peoples shall promptly notify Advantage upon receipt by Peoples of notification that any application provided for hereunder has been accepted or denied. Advantage shall provide such assistance and information to Peoples as shall be reasonably necessary for Peoples to comply with the requirements of the applicable regulatory authorities. Advantage and Peoples acknowledge that time is of the essence in respect of fulfilling the obligations under this Section 7.3. Section 7.4. Conduct of Business; Maintenance of Properties. From the date hereof until the Effective Time, Advantage covenants that it will: (a) carry on, or cause to be carried on, the business of the Banking Centers substantially in the same manner as on the date hereof, use all reasonable efforts to preserve intact its current business organization and preserve its business relationships with depositors, customers and others having business relationships with it and whose accounts will be retained at the Banking Centers; provided, however, that Advantage need not, in its sole discretion, advertise or promote new or substantially new customer services in the principal market area of the Banking Centers; (b) cooperate with and assist Peoples in assuring the orderly transition of the business of the Banking Centers to Peoples from Advantage; and (c) maintain the Real Property in its current condition, ordinary wear and tear excepted. Section 7.5. No Solicitation by Advantage. (a) For a period of 18 months after the Closing Date, Advantage will take reasonable measures to insure that it does not directly solicit or target the customers of the Banking Centers who are associated with the Deposit Liabilities and/or Transferred Loans to transfer all or part of their deposit or loan business from the Banking Centers to Advantage. For a period of 24 months after the Closing Date, Advantage will not establish any new branch facility or install any automated teller machine at any location within the Huntington-Ashland standard metropolitan statistical area ("SMSA"); provided, however, that this restriction will not apply to any branch existing as of the date of this Agreement nor prohibit Advantage from acquiring a branch facility or automated teller machine as part of an acquisition of another financial institution or holding company that has at least 85% of its total deposits attributed to branch offices located outside of the Huntington-Ashland SMSA nor prevent Advantage from operating an office to "work out" the loans retained by Advantage. (b) In order to facilitate Advantage's compliance with the restrictions in this Section 7.5, Peoples will give prompt notice to Advantage of any mailing or other form of marketing that it determines is not consistent with such restrictions. Section 7.6. Further Actions. Subject to the terms and conditions of this Agreement, each of Advantage and Peoples agrees to use its reasonable best efforts in good faith to satisfy all conditions to this Agreement and to cause the consummation of the transactions contemplated by this Agreement, and to take, or cause to be taken, all necessary actions and to execute all additional documents, agreements and instruments that may be reasonably required, in the opinion of counsel for Advantage and counsel for Peoples, so that this Agreement and the transactions contemplated hereby will become effective as promptly as practicable. Included in such actions shall be the execution and delivery of additional powers of attorney and such other documents and instruments as shall be prepared and reasonably requested by Peoples to transfer the Transferred Loans and all collateral related thereto. Such assistance will be provided to Peoples without costs for Advantage's personnel for a period of at least 12 months after the Closing Date. Section 7.7. Fees and Expenses. Subject to the provisions of Section 10.3 and except as provided in this Section 7.7, Peoples shall be responsible for the costs of all title examinations, surveys, environmental investigation costs, its own attorneys' and accountants' fees and expenses, recording costs, transfer fees, sales and use and other transfer taxes, regulatory applications and other expenses arising in connection therewith as well as all costs and expenses associated with the transfer or perfection of any security interests or liens securing Transferred Loans transferred hereunder. Advantage shall pay the costs of real estate transfer charges. Advantage shall be responsible for its own attorneys' and accountants' fees and expenses related to this transaction, including, without limitation, fees owed to Capital Market Securities, Inc. Advantage shall make no charge to Peoples for Advantage's personnel assigned to transition matters hereunder. Section 7.8. Breaches with Third Parties. If the assignment of any material claim, contract, license or commitment (or any material claim or right or any benefit arising thereunder) without the consent of a third party would constitute a breach thereof or materially affect the rights of Peoples or Advantage thereunder, then such assignment is hereby made subject to such consent or approval being obtained. Section 7.9. Operations. Notwithstanding the foregoing, between the date of this Agreement and the Effective Time, and except as may be otherwise required by regulatory authority, Advantage shall not without the prior consent of Peoples, which consent shall not be unreasonably withheld: (a) cause the Banking Centers to engage or participate in any material transaction or incur or sustain any obligation which is material to its business, condition or operation; (b) cause the Banking Centers to transfer to Advantage's other operations any material amount of Transferred Assets, except for (i) supplies, if any, which have a unique function in Advantage's business and ordinarily would not be useful to Peoples, (ii) cash and other normal intrabank transfers which may be transferred in the ordinary course of business in accordance with normal banking practices and (iii) signs, or those parts thereof, bearing Advantage's name and/or logo; (c) except in the ordinary course of business at the unsolicited request of depositors (i) cause the Banking Centers to transfer to Advantage's other operations any Deposit Liabilities or (ii) cause any of Advantage's other operations to transfer to the Banking Centers any Deposit Liabilities; (d) enter into or amend any continuing contract (other than Deposit Liabilities and loans) relating exclusively to the Banking Centers, which cannot be terminated without cause and without payment of any amounts as a penalty, bonus, premium or other compensation for termination, or which is not made in the ordinary course of business; (e) undertake any actions which are inconsistent with a program to use all reasonable efforts to maintain good relations with customers and with employees employed at the Banking Centers, unless such actions are required or permitted by this Agreement; (f) increase the compensation of any employee of the Banking Centers, or promote any of the employees, except where any such action is pursuant to and consistent with customary procedures and policies of Advantage; (g) make any material change to its customary policies for setting rates on deposits offered at the Banking Centers; (h) amend or modify any of its promotional, deposit account, or loan practices at the Banking Centers other than amendments or modifications in the ordinary course of business in accordance with amendments or modifications undertaken at Advantage's financial service offices other than the Banking Centers. Advantage shall underwrite and administer the Transferred Loans in accordance with its past standards and practices and in accordance with applicable laws and regulations; (i) enter into any employment, severance, termination, or change in control contracts or understandings with the Banking Centers employees; (j) reduce the service charges on any deposit product or fee-based product (e.g. money orders, cashier's checks) unless such reduction is implemented generally in Advantage's other branches; (k) lease any space in the Banking Centers, (l) until the Effective Time, fail to maintain and update its general ledger on a basis consistent with its past accounting practices; or (m) undertake any actions which would result in a Title Defect or fail to take any action to remove or cure a Title Defect caused by Advantage after the date hereof. Section 7.10. Destruction and Condemnation. (a) If any of the Banking Centers are damaged or destroyed or condemned between the date hereof and the Closing Date, Advantage shall make a good faith effort to correct any such damage to Peoples' reasonable satisfaction; provided, however, that Advantage shall not be obligated to make any payments of money (except payments of not more than $50,000 in the aggregate) to repair or replace the damage. If Advantage is unable or unwilling to cure any such damage to Peoples' reasonable satisfaction, Advantage may retain the damaged Transferred Asset and adjust the purchase price set forth in Section 2.2 accordingly, or, if the damage relates to Real Property and such Real Property can still be used, Advantage may lease such Real Property to Peoples pursuant to Paragraph 7.10(b) below. (b) In the event that Advantage is unable to repair the damage to the Real Property prior to Closing, Advantage may elect to lease the damaged Real Property to Peoples at a reasonable rent, based on a valuation of such Real Property at its purchase price under Paragraph 2.2(a) of this Agreement, for a term of one year. If Peoples leases any Real Property under this Paragraph 7.10(b) and if, following the Closing and at any time during the term of such lease, Advantage cures the unacceptable damage, Advantage shall promptly sell and convey the Real Property to Peoples, upon the terms specified in this Agreement (provided, however, for this purpose, book value, which shall not include the cost of curing the damage, and appropriate expense and tax prorations shall be computed as of the actual conveyance date), whereupon such lease shall terminate. If Advantage is unable to cure the damage during the term of the lease, Peoples may renew the lease for an additional one-year term, in its sole discretion, upon 30 days' prior notice to Advantage. Section 7.11. Insurance. As of the Effective Time, Advantage will discontinue its insurance coverage maintained in connection with the Banking Centers and the activities conducted thereon. Peoples shall be responsible for all insurance protection for the Banking Centers' premises and the activities conducted thereon immediately following the Effective Time. Advantage shall bear the risk of loss until the Effective Time. Section 7.12. Public Announcements. Advantage and Peoples agree that from the date hereof, neither shall make any public announcement or public comment, regarding this Agreement or the transactions contemplated herein, without first consulting with the other party hereto and reaching an agreement upon the substance and timing of such announcement or comment. Further, Advantage and Peoples acknowledge the sensitivity of this transaction to the employees at the Banking Centers and no announcements or communications with the public or such employees shall be made without the prior approval of Advantage until the Effective Time. Section 7.13. Tax Reporting. Advantage shall comply with all tax reporting obligations in connection with Transferred Assets and liabilities on or before the Effective Time and Peoples shall comply with all tax reporting obligations with respect to the Transferred Assets and liabilities after the Effective Time. Peoples shall prepare all Form 1099s, 1098s, IRA tax forms and any other applicable tax forms for the Deposit Liabilities for the year in which the Closing occurs; provided that Advantage shall make available to Peoples the histories and other necessary information in an appropriate format for Peoples to prepare such Form 1099s, 1098s, IRA tax forms and any other applicable tax forms. Section 7.14. Transitional Matters. Advantage shall use its best efforts to cooperate with Peoples to assure an orderly transition of ownership of the Transferred Assets and Transferred Loans and responsibility for the liabilities, including the Deposit Liabilities, assumed by Peoples hereunder. As soon as practicable following the date of this Agreement, but in no event later than 30 calendar days after the date of this Agreement, Peoples shall provide Advantage with a draft of a detailed transition plan covering operational aspects of the transition, including methods for the transmission of data and records. If Advantage does not accept any part or all of such plan, it must notify Peoples in writing within 15 calendar days after receiving such draft transition plan from Peoples, whereupon the parties agree to use their best efforts to agree upon a mutually acceptable transition plan as soon as possible, but in no event later than 60 calendar days after the date of this Agreement. Advantage shall use its best efforts to cooperate fully with Peoples in implementing such transition plan. Section 7.15. No Solicitation by Peoples. Prior to the Effective Time, Peoples shall not knowingly solicit, either directly or indirectly, any of the deposit or loan customers of Advantage to become customers of Peoples or any of its subsidiaries or affiliates, provided that a general solicitation by Peoples which is not specifically targeted to customers of Advantage shall not be deemed to be a breach of this Section. For purposes hereof, "knowingly" shall mean the actual knowledge of Peoples and its directors, officers, employees and agents who are aware of the existence of this Agreement and the prohibition set forth in this Section 7.15. In addition to any other remedies available to Peoples at law or in equity, if any breach by Peoples of this Section 7.15 results in the transfer of any Deposit Liabilities from Advantage to Peoples, then the amount of the Deposit Liabilities so transferred shall be included in the total amount of Deposit Liabilities for purposes of calculating the deposit premium under Section 2.2(a)(3) hereof. ARTICLE VIII CONDITIONS TO PEOPLES' OBLIGATIONS The obligation of Peoples to complete the transactions contemplated in this Agreement is conditioned upon fulfillment, on or before the Closing Date, of each of the following conditions: Section 8.1. Representations and Warranties True. The representations and warranties made by Advantage in this Agreement shall be true in all material respects on and as of the Effective Time as though such representations and warranties were made at and as of such time, except for any changes permitted by the terms hereof or consented to by Peoples. Section 8.2. Obligations Performed. Advantage shall (a) deliver or make available to Peoples those items required by Section 3.2 hereof, and (b) perform and comply in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Effective Time. Section 8.3. No Adverse Litigation. As of the Effective Time, no action, suit or proceeding shall be pending or threatened against Advantage which is reasonably likely to (a) materially and adversely affect the business, properties and assets of the Banking Centers, or (b) materially and adversely affect the transactions contemplated hereunder. Section 8.4. Regulatory Approval. (a) Peoples shall have received all necessary regulatory approvals of the transactions contemplated by this Agreement, all notice and waiting periods required by law to pass shall have passed, no proceeding to enjoin, restrain, prohibit or invalidate such transactions shall have been instituted or threatened, and any conditions of any regulatory approval shall have been met. (b) Such approvals shall not have imposed any condition which is materially disadvantageous or burdensome to Peoples. Section 8.5 Minimum Deposit Liabilities. The amount of the Deposit Liabilities shall not be less than $59,662,685. ARTICLE IX CONDITIONS TO ADVANTAGE'S OBLIGATIONS The obligation of Advantage to complete the transactions contemplated in this Agreement is conditioned upon fulfillment, on or before the Closing Date, of each of the following conditions: Section 9.1. Representations and Warranties True. The representations and warranties made by Peoples in this Agreement shall be true in all material respects at and as of the Effective Time as though such representations and warranties were made at and as of such time, except for any changes permitted by the terms hereof or consented to by Advantage. Section 9.2. Obligations Performed. Peoples shall (a) deliver to Advantage those items required by Section 3.2 hereof, and (b) perform and comply in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Effective Time. Section 9.3. No Adverse Litigation. As of the Effective Time, no action, suit or proceeding shall be pending or threatened against Peoples which might materially and adversely affect the transactions contemplated hereunder. Section 9.4. Regulatory Approval. (a) Advantage shall have received from the appropriate regulatory authorities approval of the transactions contemplated by this Agreement, all notice and waiting periods required by law to pass shall have passed, no proceeding to enjoin, restrain, prohibit or invalidate such transactions shall have been instituted or threatened, and any conditions of any regulatory approval shall have been met. (b) Such approvals or Peoples' corresponding regulatory approvals shall not have imposed any condition which is materially disadvantageous or burdensome to Advantage. ARTICLE X TERMINATION Section 10.1. Methods of Termination. This Agreement may be terminated in any of the following ways: (a) by either Peoples or Advantage, in writing five calendar days in advance of such termination, if the Closing has not occurred by the nine-month anniversary of the date of this Agreement; (b) at any time on or prior to the Effective Time by the mutual consent in writing of Advantage and Peoples; (c) by Advantage in writing if the conditions set forth in Article IX of this Agreement shall not have been met by Peoples or waived in writing by Advantage prior to the Closing Date; (d) by Peoples in writing if the conditions set forth in Article VIII of this Agreement shall not have been met by Advantage or waived in writing by Peoples prior to the Closing Date; (e) any time prior to the Effective Time, by Peoples or Advantage in writing if the other shall have been in breach of any representation and warranty in any material respect (as if such representation and warranty had been made on and as of the date hereof and on the date of the notice of breach referred to below), or in breach of any covenant, undertaking or obligation contained herein, and such breach has not been cured by the earlier of 30 calendar days after the giving of notice to the breaching party of such breach or the Effective Time; provided, however, that there shall be no cure period in connection with any breach of Section 7.3 hereof, so long as such breach by Peoples was not caused by any action or inaction of Advantage, and Advantage may terminate this Agreement immediately if regulatory applications are not filed within 30 calendar days after the date of this Agreement as provided in that section; or (f) by Advantage in writing at any time after any applicable regulatory authority has denied approval of any application of Peoples for approval of the transactions contemplated herein. Section 10.2. Procedure Upon Termination. In the event of termination pursuant to Section 10.1 hereof, and except as otherwise stated therein, written notice thereof shall be given to the other party, and this Agreement shall terminate immediately upon receipt of such notice unless an extension is consented to by the party having the right to terminate. If this Agreement is terminated as provided herein: (a) each party will return all documents, work papers and other materials of the other party, including photocopies or other duplications or summaries thereof, relating to this transaction, whether obtained before or after the execution hereof, to the other party; (b) all information received by either party hereto with respect to the business of the other party (other than information which is a matter of public knowledge or which has heretofore been published in any publication for public distribution or filed as public information with any governmental authority) shall not at any time be used for any business purpose by such party or disclosed by such party to third persons; and (c) each party will pay its own expenses. Section 10.3. Payment of Expenses. Should the transactions contemplated herein not be consummated because of a party's breach of this Agreement, in addition to such damages as may be recoverable in law or equity, the other party shall be entitled to recover from the breaching party upon demand, itemization and documentation, its reasonable outside legal, accounting, consulting and other out-of-pocket expenses. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.1. Amendment and Modification. The parties hereto, by mutual consent, may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing. Section 11.2. Waiver or Extension. Except with respect to required approvals of the applicable governmental authorities, either party, by written instrument signed by a duly authorized officer, may extend the time for the performance of any of the obligations or other acts of the other party and may waive (a) any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (b) compliance with any of the undertakings, obligations, covenants or other acts contained herein. Section 11.3. Assignment. This Agreement and all of the provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto and their permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other. Section 11.4. Confidentiality. Peoples and Advantage agree that any confidentiality agreements between Peoples and Advantage shall survive the execution hereof and the consummation of the transactions contemplated herein. Section 11.5. Addresses for Notices, Etc. All notices, consents, waivers and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) deposited in the United States Mail if sent by registered or certified mail, return receipt requested, (c) sent by telecopier (with electronic confirmation of receipt), provided that a copy is mailed by registered or certified mail, return receipt requested, or (d) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses or telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other party): If to Advantage, to: Advantage Bank 6901 Glenn Highway Cambridge, Ohio 43725 Attn: Richard C. Baylor Facsimile Number: (740) 435-2021 with a copy to: Michael D. Martz, Esq. Vorys, Sater, Seymour and Pease LLP 52 East Gay Street Columbus, Ohio 43215 Facsimile Number: (614) 719-4841 If to Peoples, to: Peoples Bank, National Association 138 Putnam Street P.O. Box 738 Marietta, Ohio 45750-0738 Attn: Charles R. Hunsaker, Esq. Facsimile Number: (740) 376-7277 with a copy to: Peoples Bank, National Association 138 Putnam Street P.O. Box 738 Marietta, Ohio 45750-0738 Attn: Mark F. Bradley, President Facsimile Number: (740) 376-7288 Section 11.6. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 11.7. Headings. The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not constitute a part thereof. Section 11.8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. Section 11.9. Sole Agreement. Except for any confidentiality agreements between Peoples and Advantage which shall remain in effect in accordance with Section 11.4, this Agreement and the exhibits and attachments hereto represent the sole agreement between the parties hereto respecting the transactions contemplated hereby and all prior or contemporaneous written or oral proposals, agreements in principle, representations, warranties and understandings between the parties with respect to such matters are superseded hereby and merged herein. Section 11.10. Parties In Interest. Nothing in this Agreement, express or implied, expressly including, without limiting the generality of the foregoing in any way, the provisions of Section 2.5 hereof, is intended or shall be construed to confer upon or give to any person (other than the parties hereto, their successors and permitted assigns) any rights or remedies under or by reason of this Agreement, or any term, provision, condition, undertaking, warranty, representation, indemnity, covenant or agreement contained herein. Section 11.11. Calculation of Dates and Deadlines. Unless otherwise specified, any period of time to be determined under this Agreement shall be deemed to commence at 12:01 a.m. on the first full day after the specified starting date, event or occurrence. Any deadline, due date, expiration date, or period-end to be calculated under this Agreement shall be deemed to end at 5 p.m. on the last day of the specified period. The time of day shall be determined with reference to the then current local time in Cambridge, Ohio. [Remainder of page intentionally left blank; signatures on following page.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first written above. ADVANTAGE BANK By:/s/ Richard C. Baylor ------------------------------------------- Printed Name: Richard C. Baylor Title: Chief Executive Officer and President PEOPLES BANK, NATIONAL ASSOCIATION By:/s/ John W. Conlon ------------------------------------------- Printed Name: John W. Conlon Title: Chief Financial Officer [EXHIBITS INTENTIONALLY OMITTED] EX-31.1 3 l10420aexv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Richard C. Baylor, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Camco Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2004 /s/Richard C. Baylor -------------------------------------------- Richard C. Baylor, Chief Executive Officer EX-31.2 4 l10420aexv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 SECTION 302 CERTIFICATION I, Mark A. Severson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Camco Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2004 /s/Mark A. Severson -------------------------------------------- Mark A. Severson, Chief Executive Officer EX-32.1 5 l10420aexv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Camco Financial Corporation (the "Corporation") on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard C. Baylor, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. /s/Richard C. Baylor - ------------------------------------------ Richard C. Baylor, Chief Executive Officer November 5, 2004 A signed original of this written statement required by Section 906 has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 l10420aexv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Camco Financial Corporation (the "Corporation") on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark A. Severson, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. /s/Mark A. Severson - ----------------------------------------- Mark A. Severson, Chief Financial Officer November 5, 2004 A signed original of this written statement required by Section 906 has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----