-----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, RI9LwaNyJK1Aol3ukwnR5Nj9/IFlRAfJQ+jc/f4v2G+91+xsB5f7DrVWKLAPfAl+ JgrEIOHAnLtVqR6jz4PTpA== 0000950152-97-002507.txt : 19970401 0000950152-97-002507.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950152-97-002507 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMCO FINANCIAL CORP CENTRAL INDEX KEY: 0000016614 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 510110823 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25196 FILM NUMBER: 97569726 BUSINESS ADDRESS: STREET 1: 814 WHEELING AVENUE CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 6144325641 10KSB 1 CAMCO FINANCIAL CORPORATION 10KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________ Commission File Number: 0-25196 ------- CAMCO FINANCIAL CORPORATION - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0110823 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 814 Wheeling Avenue, Cambridge, Ohio 43725 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (614) 432-5641 Securities registered pursuant to Section 12(b) of the Act: None None - ------------------------------ ---------------------------------------- (Title of Each Class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value per share - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the bid and asked price of such stock as of March 14, 1997, was $47.5 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) The registrant's revenues for the fiscal year ended December 31, 1996, were $32,856,000. 3,053,977.9 shares of the Registrant's common stock were issued and outstanding on March 14, 1997. DOCUMENTS INCORPORATED BY REFERENCE: Part III of Form 10-KSB: Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders 2 PART I ITEM 1. BUSINESS. GENERAL Camco Financial Corporation ("Camco") is a multiple savings and loan holding company organized under Delaware law in 1970. Through its wholly-owned subsidiaries, Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings"), First Federal Savings Bank of Washington Court House ("First Federal") and First Federal Bank for Savings ("First Savings"), Camco is engaged in the savings and loan business in Ohio and Kentucky. In October 1996, the merger of First Ashland Financial Corporation, a Kentucky corporation, with and into Camco (the "Merger") was completed. Pursuant to the Merger, First Savings, which has its main office and a full-service branch office in Ashland, Kentucky, and a full-service branch office in Russell, Kentucky, became a wholly-owned subsidiary of Camco. First Federal was acquired by Camco in 1988. First Federal has its main office and a full-service branch office in Washington Court House, Ohio, and loan origination offices in Chillicothe, Circleville and Wilmington, Ohio. Cambridge Savings, which was acquired by Camco in 1971, was incorporated under Ohio law in 1885. The main office of Cambridge Savings is in Cambridge, Ohio. Cambridge Savings has branch offices in Cambridge, Byesville and Uhrichsville, Ohio. In July 1994, Cambridge Savings converted its charter from an Ohio savings and loan association to an Ohio savings bank. Established in 1923 under Ohio law, Marietta Savings was acquired by Camco in 1973. Marietta has its main office in Marietta, Ohio, and a branch in Belpre, Ohio. In July 1994, Marietta Savings converted its charter from an Ohio savings and loan association to an Ohio savings bank. Cambridge Savings, Marietta Savings, First Federal and First Savings (collectively, the "Banks") are members of the Federal Home Loan Bank (the "FHLB") of Cincinnati, and the accounts of each are insured up to applicable limits by the Savings Association Insurance Fund (the "SAIF") administered by the Federal Deposit Insurance Corporation (the "FDIC"). First Federal and First Savings are subject to regulation, examination and supervision by the United States Department of the Treasury, Office of Thrift Supervision (the "OTS") and the FDIC. Cambridge Savings and Marietta Savings are regulated by the Ohio Department of Financial Institutions, Division of Savings Banks (the "Division") and the FDIC. Cambridge Savings and Marietta Savings each own 50% of the outstanding stock of Camco Mortgage Corporation ("CMC"), a service corporation engaged in mortgage lending and related activities. Marietta Savings owns 100% of the outstanding stock of WestMar Mortgage Company ("WestMar"), a service corporation engaged in mortgage lending activities, primarily in Wood County, West Virginia. First Savings owns 100% of the stock of First S&L Corporation, a Kentucky corporation incorporated in 1975 for the purpose of acquiring stock in a data processing company located in Cincinnati, Ohio. East Ohio Land Title Agency, Inc. ("East Ohio"), a wholly-owned subsidiary of Camco, is engaged in the title insurance agency business. The financial statements for Camco and its subsidiaries are prepared on a consolidated basis. The principal source of revenue for Camco on an unconsolidated basis is dividends from the Banks. Payment of dividends to Camco by the Banks is subject to various regulatory restrictions and tax considerations. See "REGULATION." References in this report to various aspects of the business, operations and financial condition of Camco may be limited to the Banks, as the context requires. -2- 3 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following tables set forth certain information concerning the consolidated financial position and results of operations of Camco at the dates indicated. This selected financial data should be read in conjunction with the consolidated financial statements appearing elsewhere in this document.
CONSOLIDATED STATEMENTS OF At December 31, FINANCIAL CONDITION: ----------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (In thousands) Total amount of: Assets $469,450 $346,469 $324,627 $277,098 $269,997 Interest-bearing deposits (1) 8,268 4,003 8,486 26,111 32,807 Investment securities available for sale - at market 5,174 3,131 2,978 -- -- Investment securities - at cost 21,844 19,283 27,333 29,104 26,158 Mortgage-backed securities available for sale - at market 742 985 1,464 -- -- Mortgage-backed securities - at cost 10,700 5,002 5,452 9,315 12,121 Loans receivable - net (2) 388,923 292,751 261,459 198,608 184,821 Deposits 358,009 286,574 266,861 252,219 249,776 FHLB advances and other borrowings 57,354 26,078 26,511 1,500 114 Stockholders' equity - substantially restricted 45,013 27,693 24,741 19,826 16,965
CONSOLIDATED STATEMENTS OF EARNINGS: Year ended December 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (In thousands, except per share data) Total interest income $29,260 $25,440 $19,759 $18,990 $21,937 Total interest expense 16,046 14,257 10,233 9,752 12,566 ------- ------- ------- ------- ------- Net interest income 13,214 11,183 9,526 9,238 9,371 Provision for loan losses 111 143 97 310 352 ------- ------- ------- ------- ------- Net interest income after provision for loan losses 13,103 11,040 9,429 8,928 9,019 Other income 3,596 3,293 2,578 3,106 1,999 General, administrative and other expense 12,190 8,775 8,154 6,963 6,752 ------- ------- ------- ------- ------- Earnings before federal income tax and cumulative effect of change in accounting principle 4,509 5,558 3,853 5,071 4,266 Federal income taxes 1,496 1,910 1,311 1,747 1,444 ------- ------- ------- ------- ------- Earnings before cumulative effect of change in accounting principle 3,013 3,648 2,542 3,324 2,822 Cumulative effect of change in accounting for income taxes -- -- -- -- (291) ------- ------- ------- ------- ------- Net earnings $ 3,013 $ 3,648 $ 2,542 $ 3,324 $ 2,531 ======= ======= ======= ======= ======= Earnings per share:(3) Earnings per share before cumulative effect of change in accounting principle $ 1.30 $ 1.85 $ 1.47 $ 1.93 $ 1.63 Cumulative effect of change in accounting principle -- -- -- -- (.16) ------- ------- ------- ------- ------- Earnings per share $ 1.30 $ 1.85 $ 1.47 $ 1.93 $ 1.47 ======= ======= ======= ======= =======
- ----------------------------- (1) Includes short-term interest-bearing deposits in other banks. (2) Includes loans held for sale. (3) Earnings per share has been adjusted to give effect to a 5% stock dividend effected during the years ended December 31, 1996, 1995 and 1994, and a two for one stock split effected in the form of a 100% stock dividend in 1993.
SELECTED FINANCIAL RATIOS: At or for the year ended December 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (In thousands, except per share data) Return on average assets(1) .74% 1.09% .84% 1.22% .93% Return on average equity(1) 8.29 13.91 11.41 18.07 15.96 Average equity to average assets(1) 8.71 7.81 7.41 6.72 5.85 Dividend payout ratio(2) 34.52 21.07 22.63 17.53 15.42
- ----------------------------- (1) Ratios are based upon the mathematical average of the balances at the beginning and the end of the year. (2) Represents dividends per share divided by earnings per share. -3- 4 LENDING ACTIVITIES GENERAL. Camco's primary lending activities include the origination of conventional fixed-rate and variable-rate mortgage loans for the construction, acquisition or refinancing of single-family homes located in the Banks' primary market areas. Construction and permanent mortgage loans on condominiums, multifamily (over four units) and nonresidential properties are also offered by Camco. In addition to mortgage lending, Camco makes a variety of consumer loans. LOAN PORTFOLIO COMPOSITION. The following table presents certain information in respect of the composition of Camco's loan portfolio, including loans held for sale, at the dates indicated:
At December 31, ------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------ ------------------ ------------------- ------------------- ------------------- Percent Percent Percent Percent Percent of total of total of total of total of total Amount loans Amount loans Amount loans Amount loans Amount loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (Dollars in thousands) Type of loan: Construction $ 19,960 5.2% $ 19,944 6.8% $ 21,947 8.4% $ 16,624 8.4% $ 8,633 4.7% Loans on existing residential 340,901 87.6 245,285 83.8 213,354 81.6 156,563 78.8 146,913 79.5 properties (1) Nonresidential real estate 12,529 3.2 11,486 3.9 14,845 5.7 14,025 7.1 14,678 7.9 Developed building lots 1,406 0.4 965 0.3 1,147 0.4 825 0.4 809 0.4 Education loans 2,037 0.5 2,728 0.9 2,799 1.1 2,494 1.2 2,053 1.1 Consumer and other loans (2) 22,244 5.7 22,589 7.7 18,659 7.1 16,636 8.4 17,128 9.3 -------- ----- -------- ----- -------- ----- ------- ----- ------- ----- Total 399,077 102.6 302,997 103.4 272,751 104.3 207,167 104.3 190,214 102.9 Less: Undisbursed loans in process (8,867) (2.3) (8,717) (3.0) (9,483) (3.6) (7,006) (3.5) (3,889) (2.1) Unamortized yield adjustments (40) (0.0) (497) (0.1) (866) (0.3) (525) (0.3) (615) (0.3) Allowance for loan losses (1,247) (0.3) (1,032) (0.3) (943) (0.4) (1,028) (0.5) (889) (0.5) -------- ----- ------- ----- -------- ----- ------- ----- ------- ----- Total loans, net $388,923 100.0% $292,751 100.0% $261,459 100.0% $198,608 100.0% $184,821 100.0% ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
- ----------------------------- (1) Includes loans held for sale. (2) Includes second mortgage loans. Camco's loan portfolio was approximately $388.9 million at December 31, 1996, and represented 82.8% of total assets. LOAN MATURITY SCHEDULE. The following table sets forth certain information as of December 31, 1996, regarding the dollar amount of loans maturing in Camco's portfolio based on the contractual terms to maturity of the loans. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
Due during the year ending Due in Due in December 31, years years after 1997 1998-2002 2002 Total ---------------- --------- ----------- ----- (In thousands) Real estate loans (1): One- to four- family $176,864 $ 97,247 $68,083 $342,194 Multifamily and nonresidential 9,687 6,173 5,522 21,382 Consumer and other loans 10,942 8,557 6,204 25,703 -------- -------- ------- -------- Total $197,493 $111,977 $79,809 $389,279 ======== ======== ======= ========
- ----------------------------- (1) Excludes loans held for sale of $931,000 and does not consider the effects of unamortized yield adjustments of $40,000 and allowance for loan losses of $1.2 million. -4- 5 The following table sets forth at December 31, 1996, the dollar amount of all loans due after one year from December 31, 1996, which have predetermined interest rates and have floating or adjustable interest rates:
Due more than one year after December 31, 1996 ---------------------------- (In thousands) Fixed rate of interest $ 81,711 Adjustable rate of interest 110,075 -------- Total $191,786
Generally, loans originated by the Banks are on a fully amortized basis. The Banks have no rollover provisions in their loan documents and anticipate that loans will be paid in full by the maturity date. RESIDENTIAL LOANS. The primary lending activity of the Banks has been the origination of conventional loans for the acquisition or construction of single-family residences. At December 31, 1996, 87.6% of the total outstanding loans consisted of loans secured by mortgages on one- to four-family residential properties. The Banks also originate loans on multifamily housing (over four units) and condominiums. Each of such loans is secured by a mortgage on the underlying real estate and improvements thereon. Federal regulations and Ohio law limit the amount which the Banks may lend in relationship to the appraised value of the underlying real estate at the time of loan origination (the "Loan-to-Value Ratio" or "LTV"). In accordance with such regulations and law, the Banks make loans on single-family residences up to 95% of the value of the real estate and improvements. The Banks generally require the borrower on each loan which has an LTV in excess of 90% to obtain private mortgage insurance. The Banks have offered adjustable-rate mortgage loans ("ARMs") since 1981. The interest rate adjustment periods on the ARMs offered by the Banks are generally one, three or five years. The interest rates initially charged on ARMs and the new rates at each adjustment date are determined by adding a stated margin to a designated interest rate index. For the past several years, the Banks have used the one-year, three-year and five-year United States Treasury bill rates, adjusted to a constant maturity, as the index for its one-year, three-year and five-year adjustable-rate loans, respectively. The initial interest rate for a three-year and a five-year ARM is set slightly higher than for the one-year ARM to compensate for the reduced interest rate sensitivity. The maximum adjustment at each adjustment date for ARMs is usually 2%, with a maximum adjustment of 6% over the term of the loan. None of the Banks' ARMs have negative amortization features. From time to time, the Banks originate ARMs which have an initial interest rate that is lower than the sum of the specified index plus the margin. Such loans are subject to increased risk of delinquency or default due to increasing monthly payments as the interest rates on such loans increase to the fully indexed level. The Banks attempt to reduce the risk by underwriting such loans at the fully indexed rate. Residential mortgage loans offered by the Banks are usually for terms of 10 to 30 years. Due to the general long-term nature of an investment in mortgage loans, such loans could have an adverse effect upon earnings if such loans do not reprice as quickly as the cost of funds. To minimize such effect, the Banks emphasize the origination of ARMs and sell fixed-rate loans when conditions favor such a sale. Furthermore, experience reveals that, as a result of prepayments in connection with refinancings and sales of the underlying properties, residential loans generally remain outstanding for periods which are substantially shorter than the maturity of such loans. Of the total mortgage loans originated by the Banks during the year ended December 31, 1996, 49.7% were ARMs and 50.3% were fixed-rate loans. Adjustable-rate loans comprised 75.4% of Camco's total outstanding loans at December 31, 1996. CONSTRUCTION LOANS. The Banks offer residential construction loans both to owner-occupants and to builders for homes being built under contract with owner-occupants. The Banks also make construction loans to persons constructing projects for investment purposes. At December 31, 1996, a total of $20.0 million, or approximately 5.2% of Camco's total loans, consisted of construction loans, primarily for one- to four-family properties. -5- 6 Construction loans to owner-occupants are typically adjustable-rate long-term loans on which the borrower pays only interest during the construction period. Some construction loans to builders, however, have terms of up to 18 months at fixed rates of interest. Construction loans for investment properties involve greater underwriting and default risks to Camco than do loans secured by mortgages on existing properties or construction loans for single-family residences. Loan funds are advanced upon the security of the project under construction, which is more difficult to value in the case of investment properties before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate precisely the total loan funds required to complete a project and the related Loan-to-Value Ratios. In the event a default on a construction loan occurs and foreclosure follows, Camco could be adversely affected in that it would have to take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project. At December 31, 1996, the Banks had one construction loan in the amount of $108,400 on an investment property. NONRESIDENTIAL REAL ESTATE LOANS. The Banks originate loans secured by mortgages on nonresidential real estate, including retail, office and other types of business facilities and apartment projects containing 36 or more units. Nonresidential real estate loans are generally made on an adjustable-rate basis for terms of up to 20 years. Nonresidential real estate loans originated by the Banks generally have an LTV of 80% or less. The largest nonresidential real estate loan outstanding at December 31, 1996, was a $1.3 million loan secured by a sixty-four unit apartment complex. Nonresidential real estate loans comprised 3.2% of loans at December 31, 1996. Nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. The Banks have endeavored to reduce this risk by carefully evaluating the credit history and past performance of the borrower, the location of the real estate, the quality of the management constructing or operating the property, the debt service ratio, the quality and characteristics of the income stream generated by the property and appraisals supporting the property's valuation. Federal law limits an association's investment in nonresidential real estate loans to 400% of the association's capital. Camco does not anticipate that it will be adversely affected by such limitation because Camco's business strategy includes limited nonresidential real estate lending. At December 31, 1996, Camco's investment in nonresidential real estate loans was approximately 27.8% of its total capital. CONSUMER LOANS. The Banks make various types of consumer loans, including loans made to depositors on the security of their savings deposits, automobile loans, education loans, home improvement loans, home equity line of credit loans and unsecured personal loans. Home equity loans and unsecured loans are generally made at a variable rate of interest tied to the base rate on corporate loans, posted by 75% of the nation's 30 largest banks, as reported in The Wall Street Journal. Home equity loans are for terms of up to ten years. Most other consumer loans are generally made at fixed rates of interest for terms of up to ten years. The risk of default on consumer loans during an economic recession is greater than for residential mortgage loans. At December 31, 1996, education, consumer and other loans constituted 6.2% of Camco's total loans. LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a number of sources, including: solicitations by Camco's lending staff; referrals from real estate brokers and builders; continuing business with depositors, other borrowers and real estate developers; and walk-in customers. Camco does not use loan brokers. Camco's management stresses the importance of individualized attention to the financial needs of its customers. The loan origination process is decentralized, with each of the Banks having autonomy in loan processing and approval for its respective market area. Mortgage loan applications from potential borrowers are taken by one of the loan officers of the Bank originating the loan, after which they are forwarded to the Bank's loan department for processing. On new loans, the loan department typically obtains a credit report, verification of employment and other documentation concerning the borrower and orders an appraisal of the fair market value of the real estate which will secure the loan. Such real estate is thereafter physically inspected and appraised by a staff appraiser or by a designated fee appraiser approved by the Board of Directors of the originating Bank. Upon the completion of the appraisal and the receipt of all necessary information regarding the borrower, the mortgage loan application is submitted to the Bank's loan committee for approval. If the loan is approved, an attorney's opinion of title or title insurance is obtained on the real estate which will secure the loan. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name the originating Bank as an insured mortgagee. -6- 7 The procedure for approval of construction loans is the same as for residential mortgage loans, except that the appraisal evaluates the building plans, construction specifications and construction cost estimates. The originating Bank also evaluates the feasibility of the proposed construction project and the experience and record of the builder. Consumer loans are underwritten on the basis of the borrower's credit history and an analysis of the borrower's income and expenses, ability to repay the loan and the value of the collateral, if any. LOAN ORIGINATIONS, PURCHASES AND SALES. The Banks have been actively originating new 30-year, 15-year and 10-year fixed-rate real estate loans as well as adjustable-rate real estate loans and consumer loans. Generally all residential fixed-rate loans made by the Banks are originated on documentation which will permit a possible sale of such loans to the Federal Home Loan Mortgage Corporation ("FHLMC") or other secondary mortgage market participants. When a mortgage loan is sold to the FHLMC, the selling Bank services the loan by collecting monthly payments of principal and interest and forwarding such payments to the FHLMC, net of a servicing fee. Fixed-rate loans not sold to the FHLMC and all of the ARMs originated by the Banks are held in the Banks' loan portfolios. During the year ended December 31, 1996, Camco sold approximately $61.7 million in loans to the FHLMC and others. Income from loans serviced by Camco for others was $749,000 for the year ended December 31, 1996. From time to time, the Banks sell participation interests in mortgage loans originated by them and purchase whole loans or participation interests in loans originated by other lenders. The Banks held whole loans and participations in loans originated by other lenders of approximately $13.7 million at December 31, 1996. Loans which the Banks purchase must meet or exceed the underwriting standards for loans originated by the Banks. In recent years, Camco has purchased mortgage-backed securities insured or guaranteed by U.S. Government agencies in order to improve Camco's asset portfolio yield by profitably investing excess funds. Camco intends to continue to purchase such mortgage-backed securities when conditions favor such an investment. See "Investment Activities." The following table presents Camco's mortgage loan origination, purchase, sale and principal repayment activity for the periods indicated:
Year ended December 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (Dollars in thousands) Loans originated: Construction $ 23,653 $ 13,466 $ 15,898 $ 16,538 $ 8,012 Permanent 115,538 97,283 119,368 149,500 114,814 Consumer and other 41,647 26,656 22,711 18,894 15,418 --------- --------- --------- --------- --------- Total loans originated 180,838 137,405 157,977 184,932 138,244 --------- --------- --------- --------- --------- Loan participations purchased (1) -- -- 1,210 3,119 9,664 Reductions: Principal repayments (1) 88,561 68,451 57,609 64,394 56,264 Loans sold (1) 61,687 38,891 41,276 112,441 100,206 Transfers from loans to real estate owned 92 70 72 764 317 --------- --------- --------- --------- --------- Total reductions 150,340 107,412 98,957 177,599 156,787 Increase in other items, net (2) 1,123 370 222 529 663 Increase due to Merger 70,006 -- -- -- -- --------- --------- --------- --------- --------- Net increase (decrease) $ 101,627 $ 30,363 $ 60,452 $ 10,981 $ (8,216) ========= ========= ========= ========= =========
- ----------------------- (1) Includes mortgage-backed securities. (2) Other items primarily consist of amortizations of deferred loan origination fees, the provision for losses on loans, mortgage servicing rights and unrealized gains on mortgage-backed securities designated as available for sale. -7- 8 FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on the aggregate amount that a savings association can lend to one borrower to an amount equal to 15% of the association's total capital for risk-based capital purposes plus any loan reserves not already included in total capital (the "Lending Limit Capital"). A savings association may loan to one borrower an additional amount not to exceed 10% of the association's Lending Limit Capital, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." In applying this limit, the regulations require that loans to certain related or affiliated borrowers be aggregated. An exception to this limit permits loans of any type to one borrower of up to $500,000. In addition, the OTS, under certain circumstances, may permit exceptions to the lending limit on a case-by-case basis. The largest amount which the Banks could have loaned to one borrower at December 31, 1996, was approximately $1.9 million for Cambridge Savings, $1.3 million for Marietta Savings, $900,000 for First Federal and $2.5 million for First Savings. LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans, the Banks may receive loan origination fees or "points" of up to 2.0% of the loan amount, depending on the type of loan, plus reimbursement of certain other expenses. Loan origination fees and other fees are a volatile source of income, varying with the volume of lending and economic conditions. All nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment to yield over the life of the related loan in accordance with Statement of Financial Accounting Standards ("SFAS") No. 91. DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The Banks attempt to minimize loan delinquencies through the assessment of late charges and adherence to established collection procedures. Generally, after a loan payment is 15 days delinquent, a late charge of 5% of the amount of the payment is assessed and a loan officer contacts the borrower by mail or phone to request payment. In certain limited instances, the Banks may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs. The Banks generally initiate foreclosure proceedings, in accordance with applicable laws, when it appears that a modification or moratorium would not be productive. Real estate which has been or will be acquired by one of the Banks as a result of foreclosure or by deed in lieu of foreclosure is classified as "real estate owned" until it is sold. "Real estate owned" is recorded at the lower of the book value of the loan or the fair value of the property less estimated selling expenses at the date of acquisition. Periodically, "real estate owned" is reviewed to ensure that fair value is not less than carrying value, and any allowance resulting therefrom is charged to earnings as a provision for losses on real estate acquired through foreclosure. All costs incurred from the date of acquisition are expensed in the period paid. The following table reflects the amount of loans in a delinquent status as of the dates indicated:
Year ended December 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (Dollars in thousands) Loans delinquent for: 30 to 89 days $5,438 $4,160 $3,209 $2,497 $1,834 90 or more days 2,373 1,082 1,319 2,044 3,367 ------ ------ ------ ------ ------ Total delinquent loans $7,811 $5,242 $4,528 $4,541 $5,201 ====== ====== ====== ====== ====== Ratio of total delinquent loans to total net loans 2.01% 1.79% 1.73% 2.29% 2.81% ==== ==== ==== ==== ====
-8- 9 Nonaccrual status denotes loans for which, in the opinion of management, the collection of additional interest is unlikely, or loans that meet nonaccrual criteria as established by regulatory authorities. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on management's assessment of the collectibility of the loan. The following table sets forth information with respect to Camco's nonaccruing and delinquent loans for the periods indicated.
At December 31, ---------------------------------------------------------- 1996 1995 1994 1993 1992 --------- -------- -------- -------- -------- (Dollars in thousands) Loans accounted for on a nonaccrual basis: Real estate: Residential $ 908 $ 456 $ 576 $ 842 $ 966 Nonresidential 655 174 80 127 973 Consumer and other 35 -- 16 20 43 ------- ------- ------- ------- ------- Total nonaccrual loans 1,598 630 672 989 1,982 ------- ------- ------- ------- ------- Accruing loans delinquent 90 days or more: Real estate: Residential 652 395 515 882 1,191 Nonresidential -- -- 38 97 68 Consumer and other 123 57 94 76 126 ------- ------- ------- ------- ------- Total loans 90 days past due 775 452 647 1,055 1,385 ------- ------- ------- ------- ------- Total nonperforming loans $ 2,373 $ 1,082 $ 1,319 $ 2,044 $ 3,367 ======= ======= ======= ======= ======= Allowance for loan losses $ 1,247 $ 1,032 $ 943 $ 1,028 $ 889 ======= ======= ======= ======= ======= Nonperforming loans as a percent of total net loans .61% .37% .50% 1.03% 1.82% === === === ==== ==== Allowance for loan losses as a percent of nonperforming loans 52.5% 95.4% 71.5% 50.3% 26.4% ==== ==== ==== ==== ====
As of and for the year ended December 31, 1996, no loans were troubled debt restructurings as defined in SFAS No. 15. The amount of interest income that would have been recorded had nonaccrual loans performed in accordance with contractual terms totaled $89,731 for the year ended December 31, 1996. Interest collected on such loans and included in net income was $68,987. At December 31, 1996, there were no loans which were not classified as nonaccrual, 90 days past due or restructured which management considered classifying in the near future due to concerns as to the ability of the borrowers to comply with repayment terms. Federal regulations require each of the Banks to classify its assets on a regular basis. Under such regulations, problem assets are to be classified as either (i) "substandard," (ii) "doubtful" or (iii) "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the same weaknesses as substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of existing facts, conditions and value. Assets classified as "loss" are considered uncollectible and of such little value that their treatment as assets without the establishment of a specific reserve is unwarranted. Federal regulations provide for the reclassification of real estate assets by federal examiners. -9- 10 Assets classified as substandard or doubtful require the institution to establish prudent general allowances for losses. If an asset or portion thereof is classified as loss, the institution must either establish specific allowances for losses in the amount of 100% of the portion of the asset classified loss or charge off such amount. At December 31, 1996, the aggregate amounts of Camco's classified assets were as follows:
At December 31, 1996 (In thousands) -------------------- Classified assets: Substandard $2,158 Doubtful 39 Loss 148 ------- Total classified assets $2,345
The regulations also include a "special mention" category, consisting of assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification, but which possess credit deficiencies or potential weaknesses deserving management's close attention. Camco had assets in the amount of $443,979 designated as "special mention" at December 31, 1996. ALLOWANCE FOR LOAN LOSSES. The following table sets forth an analysis of Camco's allowance for loan losses:
Year ended December 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 ------- -------- -------- ------- -------- (Dollars in thousands) Balance at beginning of year $1,032 $ 943 $1,028 $ 889 $651 Charge-offs: 1-4 family residential real estate 3 - - 126 151 Multifamily and nonresidential real estate - 40 169 - 7 Consumer 3 16 13 53 20 ------ ------ ------ ------ ---- Total charge-offs 6 56 182 179 178 ------ ------ ------ ------ ---- Recoveries: 1-4 family residential real estate -- -- -- 8 -- Multifamily and nonresidential real estate -- -- -- -- 63 Consumer 1 2 -- -- 1 ------ ------ ------ ------ ---- Total recoveries 1 2 -- 8 64 ------ ------ ------ ------ ---- Net chargeoffs (5) (54) (182) (171) (114) Provision for losses on loans 111 143 97 310 352 Increase attributable to Merger 109 -- - -- -- ------ ------ ------ ------ ---- Balance at end of year $1,247 $1,032 $ 943 $1,028 $889 ====== ====== ====== ====== ==== Net charge-offs to average loans -% .02% .08% .09% .06% ==== === === === ===
-10- 11 The following table sets forth the allocation of Camco's allowance for loan losses by type of loan at the dates indicated:
At December 31, ---------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------- --------------- ----------------- ---------------- ----------------- Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in each in each in each in each in each category category category category category to total to total to total to total to total Amount loans Amount loans Amount loans Amount loans Amount loans ------ -------- ------ -------- ------ -------- ------ --------- ------ --------- (Dollars in thousands) Balance at year end applicable to: Mortgage loans $1,027 93.9% $ 897 91.6% $809 92.1% $ 805 90.8% $701 89.9% Consumer and other 220 6.1 135 8.4 134 7.9 223 9.2 188 10.1 ------ ----- ------ ----- ----- ----- ------ ----- ---- ----- loans Total $1,247 100.0% $1,032 100.0% $943 100.0% $1,028 100.0% $889 100.0% ====== ===== ====== ===== ==== ===== ====== ===== ==== =====
INVESTMENT ACTIVITIES Federal regulations require that the Banks maintain a minimum amount of liquid assets, which may be invested in United States Treasury obligations, securities of various agencies of the federal government, certificates of deposit at insured banks, bankers' acceptances and federal funds sold. The Banks are also permitted to make limited investments in commercial paper, corporate debt securities and certain mutual funds, as well as other investments permitted by federal law and regulations. It has generally been Camco's policy to maintain liquid assets at the Banks in excess of regulatory requirements in order to shorten the maturities of the investment portfolios and improve the matching of short-term investments and interest rate sensitive savings deposit liabilities. The following table sets forth the composition of Camco's investment securities portfolio, except its stock in the FHLB of Cincinnati, and mortgage-backed securities at the dates indicated:
At December 31, --------------------------------------------------------------------------------------------------- 1996 1995 1994 -------------------------------- -------------------------------- ------------------------------- Amortized % of Fair % of Amortized % of Fair % of Amortized % of Fair % of cost Total value Total cost Total value Total cost Total value Total --------- ----- ----- ----- --------- ----- ----- ----- --------- ----- ----- ----- (In thousands) Held to maturity: U.S. Government agency obligations $21,367 54.2% $21,312 54.0% $19,147 63.4% $18,980 63.0% $27,185 60.8% $25,752 60.0% Deposits in insured 990 2.5 990 2.5 1,881 6.2 1,881 6.2 7,427 16.6 7,427 17.3 banks Municipal bonds 477 1.2 510 1.3 136 .4 143 .5 148 .4 151 .4 Mortgage-backed 10,700 27.2 10,735 27.2 5,002 16.6 5,045 16.7 5,452 12.2 5,150 12.0 ------- ----- ------- ----- ------- ---- ------- ----- ------ ----- ------- ---- 33,534 85.1 33,547 85.0 26,166 86.6 26,049 86.4 40,212 90.0 38,480 89.7 Available for sale: U.S. Government agency obligations 3,523 8.9 3,543 9.0 2,999 9.9 3,045 10.1 2,998 6.7 2,978 6.9 Corporate equity 1,623 4.1 1,631 4.1 82 .3 86 .3 - - - - security Mortgage-backed 733 1.9 742 1.9 968 3.2 985 3.2 1,487 3.3 1,464 3.4 securities ------- ----- ------- ----- ------- ---- ------- ----- ------ ----- ------ ---- 5,879 14.9 5,916 15.0 4,049 13.4 4,116 13.6 4,485 10.0 4,442 10.3 ------- ----- ------- ----- ------- ---- ------- ----- ------ ----- ------ ---- Total investments and mortgage-backed $39,413 100.0% $39,463 100.0% $30,215 100.0% $30,165 100.0% $44,697 100.0% $42,922 100.0% securities ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
-11- 12 The following table presents the contractual maturities or terms to repricing of Camco's investment securities, except its stock in the FHLB of Cincinnati and corporate equity securities, and mortgage-backed securities and the weighted average yields at December 31, 1996:
At December 31, 1996 ---------------------------------------------------------------------------------------------------- After one After five One year or through five through ten After ten less years years years Total ------------------ ------------------ ----------------- ---------------- ------------------------- Weighted Amortized Average amortized Average Amortized Average Amortized Average Amortized Fair average cost yield cost yield cost yield cost yield cost value yield ------ ------- --------- ------ --------- ------ --------- ------- --------- ----- ------- (Dollars in thousands) U.S. Government agency $4,543 6.50% $19,860 6.36% $ 487 5.83% $ - -% $24,890 $24,855 6.37% obligations Deposits in insured banks 792 5.93 198 6.14 - - - - 990 990 5.97 Municipal bonds 63 5.20 235 7.08 - - 179 7.00 477 510 6.80 Mortgage-backed securities 390 6.88 2,495 6.86 2,151 6.36 6,397 7.13 11,433 11,477 6.92 ------ ---- ------- ---- ------ ---- ------- ---- -------- ------- ---- Total $5,788 6.43% $22,788 6.42% $2,638 6.26% $6,576 7.12% $37,790 $37,832 6.53% ====== ==== ======= ==== ====== ==== ====== ==== ======= ======= ====
DEPOSITS AND BORROWINGS GENERAL. Deposits have traditionally been the primary source of Camco's funds for use in lending and other investment activities. In addition to deposits, Camco derives funds from interest payments and principal repayments on loans, advances from the FHLB of Cincinnati and income on earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to general interest rate and money market conditions. Borrowings from the FHLB of Cincinnati are used on a short-term basis to compensate for reductions in the availability of funds from other sources. FHLB advances and other borrowings are also used on a longer term basis for general business purposes. DEPOSITS. Deposits are attracted principally from within Camco's primary market area through the offering of a broad selection of deposit instruments, including interest and non-interest bearing checking accounts, money market deposit accounts, regular passbook savings accounts, term certificate accounts and retirement savings plans. Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by management of the Banks based on their particular liquidity requirements, growth goals and interest rates paid by competitors. Interest rates paid by Camco on deposits are not limited by federal or state law or regulation. Camco generally does not obtain funds through brokers or offer premiums to attract deposits. Camco does not have a significant amount of savings accounts from outside its primary market area. -12- 13 The following table sets forth the dollar amount of deposits in the various types of savings programs offered by the Banks at the dates indicated:
At December 31 ------------------------------------------------------------------------- 1996 1995 1994 Weighted ------------------ ---------------------- ------------------------- average Percent Percent Percent rate at of total of total of total 12/31/96 Amount deposits Amount deposits Amount deposits -------- ------ --------- ------ -------- -------- -------- (Dollars in thousands) Withdrawable accounts: Interest and non-interest bearing accounts 1.93% $ 47,078 13.1% $ 44,591 15.6% $ 41,658 15.6% Money market demand accounts 3.64 17,186 4.8 15,047 5.2 20,756 7.8 Passbook and statement savings accounts 3.01 58,610 16.4 50,498 17.6 57,981 21.7 ---- -------- ---- --------- ---- --------- ---- Total withdrawable accounts 2.68 122,874 34.3 110,136 38.4 120,395 45.1 Certificates accounts: Term: Seven days to one year 5.59 46,143 12.9 19,332 6.7 19,994 7.5 One to two years 5.77 66,674 18.6 54,336 19.0 41,228 15.5 Two to eight years 6.31 82,747 23.1 70,198 24.5 67,621 25.3 Negotiated rate certificates 5.69 21,786 6.1 21,446 7.5 7,489 2.8 Individual retirement accounts 5.90 17,785 5.0 11,126 3.9 10,134 3.8 Total certificate accounts 5.93 235,135 65.7 176,438 61.6 146,466 54.9 ---- -------- ----- -------- ----- -------- ----- Total deposits 4.81% $358,009 100.0% $286,574 100.0% $266,861 100.0% ==== ======== ===== ======== ===== ======== =====
The following table presents the amount and remaining maturities of Camco's time deposits at December 31, 1996:
Amount Due ------------------------------------------------------------------------ Up to Over one year 1-3 years 3-5 years 5 years Total -------- --------- --------- ------- ----- (Dollars in thousands) Amount maturing $145,780 $83,038 $4,149 $2,168 $235,135 ======== ======= ====== ====== ======== Average rate 5.74% 5.89% 6.51% 6.78% 5.82% ==== ==== ==== ==== ====
The following table sets forth the amount and maturities of Camco's time deposits in excess of $100,000 at December 31, 1996:
Maturity At December 31, 1996 -------- -------------------- (In thousands) Three months or less $10,756 Over three to six months 4,489 Over six to twelve months 10,347 Over twelve months 12,300 ------- Total $37,892 =======
BORROWINGS. The twelve regional FHLBs function as central reserve banks, providing credit for their member institutions. As members in good standing of the FHLB of Cincinnati, the Banks are authorized to apply for advances from the FHLB of Cincinnati, provided certain standards of creditworthiness have been met. Advances are made pursuant to several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the -13- 14 amount of advances are based either on a fixed percentage of an institution's regulatory capital or on the FHLB's assessment of the institution's creditworthiness. Under current regulations, a member institution must meet certain qualifications to be eligible for FHLB advances. The extent to which an association is eligible for such advances will depend upon whether it meets the Qualified Thrift Lender ("QTL") test. See "REGULATION - Federal Regulation -- Qualified Thrift Lender Test." If an institution meets the QTL test, it will be eligible for 100% of the advances it would otherwise be eligible to receive. If an institution does not meet the QTL test, it will be eligible for such advances only to the extent it holds QTL test assets. At December 31, 1996, each of the Banks met the QTL test. The following table sets forth the maximum amount of Camco's FHLB advances outstanding at any month end during the periods shown and the average aggregate balances of FHLB advances for such periods:
Year ended December 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Maximum amount outstanding $57,354 $32,205 $28,114 Average amount outstanding 35,678 27,940 11,631 Weighted average interest cost of FHLB advances based on month end balances 5.93% 6.37% 6.33%
The following table sets forth certain information with respect to Camco's FHLB advances at the dates indicated:
At December 31, ------------------------------------------ 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Amount outstanding $57,354 $26,078 $26,511 Weighted average interest rate 5.87% 6.31% 7.00%
YIELDS EARNED AND RATES PAIDYIELDS EARNED AND RATES PAID The following table sets forth the weighted average yields earned on Camco's interest-earning assets, the weighted average interest rates paid on Camco's interest-bearing liabilities and the interest rate spread between the weighted average yields earned and rates paid by Camco at the dates indicated:
At December 31, ------------------------------------------- 1996 1995 1994 ---- ---- ---- Weighted average yield on: Loan portfolio 8.23% 8.32% 7.59% Investment portfolio 6.25 6.00 5.89 Interest-earning assets 8.01 8.07 7.33 Weighted average rate paid on: Deposits 4.81 4.68 4.10 FHLB advances 5.87 6.31 7.00 Interest-bearing liabilities 4.96 4.82 4.29 Interest rate spread (spread between weighted average rate on all interest-earning assets and all interest-bearing liabilities) 3.05 3.25 3.04
-14- 15 AVERAGE YIELD AND RATE ANALYSIS The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, and the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. Balances are based on the average of month-end balances which, in the opinion of management, do not differ materially from daily balances:
Year ended December 31, ----------------------------------------------------------------------------------------------- 1996 1995 1994 ------------------------------ ----------------------------- ----------------------------- Average Interest Average Average Interest Average Average Interest Average outstanding earned/ yield/ outstanding earned/ yield/ outstanding earned/ yield/ balance paid rate balance paid rate balance paid rate ----------- ------- ------- ----------- -------- -------- ----------- -------- ------- Interest-earning assets: Loans receivable (1) $319,730 $26,621 8.33% $281,358 $22,939 8.15% $215,732 $16,622 7.70% Mortgage-backed securities (2) 6,908 474 6.86 6,533 423 6.47 9,778 497 5.08 Investment securities (2) 23,833 1,448 6.08 26,339 1,570 5.96 29,109 1,826 6.27 Interest-bearing deposits and other 9,359 717 7.66 8,176 508 6.21 21,826 814 3.73 -------- ------ ---- -------- ------ ---- -------- ------ ---- Total interest-earning $359,830 29,260 8.13 $322,406 25,440 7.89 $276,445 19,759 7.15 assets ======== ======== ======== Interest-bearing liabilities: Deposits 306,437 13,933 4.55 280,683 12,478 4.45 255,607 9,497 3.72 FHLB advances and other borrowings 35,678 2,113 5.93 27,940 1,779 6.37 11,631 736 6.33 -------- ------ ---- -------- ------ ---- -------- ------ ---- Total interest-bearing liabilities $342,115 16,046 4.69 $308,623 14,257 4.62 $267,238 10,233 3.83 ======== ------ ---- ======== ------ ---- ======== ------ ---- Net interest income; interest rate spread $13,214 3.44% $11,183 3.27% $ 9,526 3.32% ======= ==== ======= ==== ======== ==== Net interest margin (3) 3.67% 3.47% 3.45% ==== ==== ==== Average interest-earning assets to average interest-bearing 105.18% 104.47% 103.45% liabilities ====== ====== ======
- ------------------------------------- (1) Includes nonaccrual loans. (2) Includes securities designated as available for sale. (3) Net interest income as a percent of average interest-earning assets. -15- 16 RATE/VOLUME ANALYSIS The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Camco's interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been designated as "Other."
Year ended December 31, ------------------------------------------------------------------------------------ 1996 vs. 1995 1995 vs. 1994 ------------------------------------------------------------------------------------ Increase (decrease) due to Increase (decrease) due to ------------------------------ --------------------------------------- Volume Rate Other Total Volume Rate Other Total ------ ---- ----- ----- ------ ---- ----- ----- (Dollars in thousands) Interest income attributable to: Loans receivable (1) $3,142 $ 518 $ 73 $3,733 $4,735 $1,181 $ 327 $6,243 Investment securities (80) 173 (6) 87 (851) 427 (138) (562) ------ ----- ---- ------ ------ ------ ------ ------ Total interest income 3,062 691 67 3,820 3,884 1,608 189 5,681 ------ ----- ---- ------ ------ ------ ------ ------ Interest expense attributable to: Deposits 1,146 281 28 1,455 932 1,866 183 2,981 FHLB advances and other borrowings 493 (123) (36) 334 1,032 5 6 1,043 ------ ----- --- ------ ------ -------- ------ ------- Total interest expense 1,639 158 (8) 1,789 1,964 1,871 189 4,024 ------ ----- --- ------ ------ ------- ------ ------ Increase (decrease) in net interest income $1,423 $ 533 $ 75 $2,031 $1,920 $ (263) $ - $1,657 ====== ===== ==== ====== ====== ======= ======= ======
- ----------------------------- (1) Includes mortgage-backed securities. COMPETITION Camco competes for deposits with other savings associations, savings banks, commercial banks and credit unions and with the issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, Camco competes with other savings banks, savings associations, commercial banks, consumer finance companies, credit unions and other lenders. Camco competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of the services it provides to borrowers. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable. Competition is affected by federal laws which enable bank holding companies ("BHCs") to acquire control of any savings association or holding company thereof wherever located. In addition, federal law permits the merger or consolidation of any federal savings association into any other depository institution, subject to restrictions on interstate acquisitions. Ohio law permits savings and loan associations or holding companies having their principal place of business in any state having reciprocal legislation to charter or otherwise acquire an Ohio savings and loan association or holding company. Such laws may increase the number and size of financial institutions competing with Camco. Such increased competition may have an adverse effect upon Camco. SERVICE CORPORATION ACTIVITIES Federal regulations permit savings associations to invest an amount up to 2% of their assets in the stock, paid-in surplus and unsecured obligations of subsidiary service corporations engaged in certain activity. In addition, federal regulations generally authorize such institutions which meet the minimum regulatory capital requirements to invest up to 50% of their regulatory capital in conforming first mortgage loans made by service corporations. -16- 17 At December 31, 1996, Cambridge Savings and Marietta Savings each had a direct investment in the capital stock of CMC in the amount of $592,861. The principal business of CMC is originating first mortgage loans on residential real estate located primarily in Coshocton, Muskingum, Stark and Tuscarawas Counties, Ohio. Loans originated by CMC are generally sold to Cambridge Savings. CMC originated $45.3 million of mortgage loans in 1996, $45.0 million of which were sold to Cambridge Savings, compared to $50.5 million of mortgage loans in 1995, $47.4 million of which were sold to Cambridge Savings. Marietta Savings had a direct investment in the capital stock of WestMar in the amount of $251,740 at December 31, 1996. The principal business of WestMar is originating first mortgage loans on residential real estate located in Wood County, West Virginia. WestMar originated $8.4 million of mortgage loans in 1996, $7.5 million of which were sold to Marietta Savings, compared to $8.0 million of mortgage loans in 1995, $7.6 million of which were sold to Marietta Savings. At December 31, 1996, First Savings' investment in First S&L Corporation totaled $15,000. First S&L Corporation has not conducted any business other than the acquisition of stock in a data processing company. EMPLOYEES As of December 31, 1996, Camco had 153 full-time employees and 15 part-time employees. Camco believes that relations with its employees are excellent. Camco offers health and disability benefits, a 401(k) salary savings plan and a contributory defined benefit pension plan, which Camco is in the process of terminating. None of the employees of Camco are represented by a collective bargaining unit. REGULATION GENERAL As a savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933, as amended (the "HOLA"), Camco is subject to regulation, examination and oversight by the OTS. First Federal and First Savings are subject to regulation by the OTS and the FDIC. Cambridge Savings and Marietta Savings are subject to regulation by the Division and the FDIC. Camco and the Banks must file periodic reports with these governmental agencies, as applicable, concerning their activities and financial condition. Examinations are conducted periodically by the applicable regulators to determine whether Camco and the Banks are in compliance with various regulatory requirements and are operating in a safe and sound manner. The Banks are members of the FHLB of Cincinnati and are also subject to certain regulations promulgated by the Board of Governors of the Federal Reserve System ("FRB"). Congress is considering legislation to eliminate the federal savings and loan charter and the separate federal regulation of savings and loan associations, and the Department of the Treasury is preparing a report for Congress on the development of a common charter for all federally-chartered financial institutions. Pursuant to such legislation, Congress may eliminate the OTS and the First Federal and First Savings may be regulated under federal law as banks or be required to change their charters. Such change in regulation or charter would likely change the range of activities in which the First Federal and First Savings may engage and would probably subject the First Federal and First Savings to more regulation by the FDIC. In addition, Camco might become subject to different holding company regulations which may limit the activities in which Camco may engage, and subject Camco to other additional regulatory requirements, including separate capital requirements. At this time, Camco cannot predict when or whether Congress may actually pass legislation regarding the regulatory requirements or charter of Camco, First Federal and First Savings. Although such legislation may change the activities in which Camco, First Federal and First Savings are authorized to engage, it is not anticipated that the current activities of Camco, First Federal and First Savings will be materially affected by those activity limits. OHIO REGULATION As savings banks incorporated under Ohio law, Cambridge Savings and Marietta Savings are subject to regulation by the Division. Such regulation affects the internal organization of Cambridge Savings and Marietta Savings, as well as their savings, mortgage lending and other investment activities. Ohio law requires that Cambridge Savings and Marietta Savings each maintain at least 60% of their assets in housing-related and other specified investments. At December 31, 1996, Cambridge Savings and Marietta Savings had at least 60% of their respective assets in such investments. The ability of Ohio savings banks -17- 18 to engage in certain state-authorized investments is subject to oversight and approval by the FDIC. See "Federal Regulation - State Chartered Bank Activities." Ohio law generally limits the aggregate amount that a savings bank can lend to one borrower to an amount equal to 15% of the institution's unimpaired capital and surplus. Based on such limit, Cambridge Savings and Marietta Savings were able to lend approximately $1.9 million and $1.3 million, respectively, to one borrower at December 31, 1996. A savings bank may lend to one borrower an additional amount not to exceed 10% of the institution's unimpaired capital and surplus, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." The Division is responsible for the regulation and supervision of Ohio savings banks in accordance with the laws of the State of Ohio. Periodic examinations by the Division are usually conducted on a joint basis with the federal examiners. Ohio law requires that Cambridge Savings and Marietta Savings maintain federal deposit insurance as a condition of doing business. Any mergers involving, or acquisitions of control of, Ohio savings banks must be approved by the Division. The Division may initiate certain supervisory measures or formal enforcement actions against Ohio savings banks. Ultimately, if the grounds provided by law exist, the Division may place an Ohio savings bank in conservatorship or receivership. In addition to being governed by the laws of Ohio specifically governing savings banks, Cambridge Savings and Marietta Savings are also governed by Ohio corporate law, to the extent such law does not conflict with the laws specifically governing savings banks. FEDERAL REGULATION SUPERVISION AND EXAMINATION. The FDIC is responsible for the regulation and supervision of all commercial banks and state savings banks that are not members of the Federal Reserve System ("Non-member Banks"), including Cambridge Savings and Marietta Savings. The OTS is responsible for the regulation and supervision of all savings associations, including First Federal and First Savings. Each of the Banks must undergo a full-scope, on-site examination by its primary federal regulator at least (a) once every twelve months, if the bank has total assets of $250 million or more, or (b) once every eighteen months, if the institution has total assets of less than $250 million and satisfies other specified criteria. In lieu of conducting its own examination, the federal regulator may accept a state examination every other examination period. The FDIC issues regulations governing the operations of Non-member Banks, examines such institutions and may initiate enforcement actions against such institutions and certain persons affiliated with them for violations of laws and regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the FDIC may appoint a conservator or a receiver for a Non-member Bank. The OTS issues regulations governing the operations of savings associations, regularly examines such institutions and imposes assessments on savings associations based on their asset size to cover the costs of this supervision and examination. It also promulgates regulations that prescribe permissible activities for federally chartered associations, including the types of lending that such associations may engage in and the investments in real estate, subsidiaries and securities they may make. The OTS also may initiate enforcement actions against savings associations and certain persons affiliated with them for violations of laws or regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the OTS may appoint a conservator or receiver for a savings association. Non-member Banks and savings associations are subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of an institution to open a new branch or engage in a merger transaction. STATE-CHARTERED BANK ACTIVITIES. The ability of Cambridge Savings and Marietta Savings to engage in any state-authorized activities or make any state-authorized investments, as principal, is limited if such activity is conducted or investment is made in a manner different than that permitted for, or subject to different terms and conditions than those imposed on, national banks. Engaging as a principal in any such activity or investment not permissible for a national bank is subject to approval by the FDIC. Such approval will not be granted unless certain capital requirements are met and there is not a significant risk to the FDIC insurance fund. Most equity and real estate investments (excluding office space and other real estate owned) authorized -18- 19 by state law are not permitted for national banks. Certain exceptions are granted for activities deemed by the FRB to be closely related to banking and for FDIC-approved subsidiary activities. LIQUIDITY. OTS regulations require that each of First Federal and First Savings maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, and specified United States Government, state or federal agency obligations) equal to a monthly average of not less than 5% of its net withdrawable savings deposits plus borrowings payable in one year or less. Federal regulations also require each association to maintain an average daily balance of short-term liquid assets of not less than 1% of the total of its net withdrawable savings deposits plus borrowings payable in one year or less. Monetary penalties may be imposed upon associations failing to meet liquidity requirements. The average eligible liquidity of First Federal and First Savings, as computed under current regulations, was approximately $5.4 million, or 7.1% and $10.2 million, or 14.3%, respectively, for the month of December 1996, and exceeded the applicable 5% liquidity requirement by approximately $1.6 million and $6.7 million, respectively. Cambridge Savings and Marietta Savings are not required to maintain a specific level of liquidity; however, the FDIC expects them to maintain adequate liquidity to protect safety and soundness. QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet the QTL test. Prior to September 30, 1996, the QTL test required savings associations to maintain a specified level of investments in assets that are designated as qualifying thrift investments ("QTI"), which are generally related to domestic residential real estate and manufactured housing and include credit card, student and small business loans, and stock issued by any FHLB, the FHLMC or the FNMA. Under this test 65% of an institution's "portfolio assets" (total assets less goodwill and other intangibles, property used to conduct business and 20% of liquid assets) must consist of QTI on a monthly average basis in 9 out of every 12 months. Congress created a second QTL test, effective September 30, 1996, pursuant to which a savings association will qualify as a QTL thrift if at least 60% of the institution's assets (on a tax basis) consist of specified assets (generally loans secured by residential real estate or deposits, educational loans, cash and certain governmental obligations). The OTS may grant exceptions to the QTL test under certain circumstances. If a savings association fails to meet the QTL test, the association and its holding company become subject to certain operating and regulatory restrictions. A savings association that fails to meet the QTL test will not be eligible for new FHLB advances. At December 31, 1996, each of the Banks met the QTL test. LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions or requirements on the ability of associations, including First Federal and First Savings, to make capital distributions, including dividend payments. OTS regulations also establish a three-tier system limiting capital distributions according to ratings of associations based on their capital level and supervisory condition. Tier 1 consists of associations that, before and after the proposed distribution, meet their fully phased-in capital requirements. Associations in this category may make capital distributions during any calendar year equal to the greater of 100% of net income, current year-to-date, plus 50% of the amount by which the lesser of the association's tangible, core or risk-based capital exceeds its fully phased-in capital requirement for such capital component, as measured at the beginning of the calendar year, or the amount authorized for a Tier 2 association. A Tier 1 association deemed to be in need of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association. First Federal and First Savings meet the requirements for a Tier 1 association and have not been notified of any need for more than normal supervision. Tier 2 consists of associations that before and after the proposed distribution meet their current minimum, but not fully phased-in, capital requirements. Associations in this category may make capital distributions of up to 75% of net income over the most recent four-quarter period. Tier 3 associations do not meet current minimum capital requirements and must obtain OTS approval of any capital distribution. Tier 2 associations that propose to make a capital distribution in excess of the noted safe harbor level must also obtain OTS approval. Tier 2 associations proposing to make a capital distribution within the safe harbor provisions and Tier 1 associations proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. In December 1994, the OTS issued a proposal to amend the capital distributions limits. Under that proposal, associations which are not owned by a holding company and which have a CAMEL examination rating of 1 or 2 could make a capital distribution without notice to the OTS, if they remain adequately capitalized, as described above, after the distribution is made. Any other association seeking to make a capital distribution that would not cause the association to fall below the capital levels to qualify as adequately capitalized or better, would have to provide notice to the OTS. Except under limited -19- 20 circumstances and with OTS approval, no capital distributions would be permitted if it caused the association to become undercapitalized or worse. As subsidiaries of Camco, First Federal and First Savings are required to give the OTS 30-days' notice prior to declaring any dividend on its stock. The OTS may object to the distribution during that 30-day period. LENDING LIMITS. OTS regulations generally limit the aggregate amount that First Federal and First Savings can lend to one borrower to an amount equal to 15% of the association's Lending Limit Capital. A savings association may lend to one borrower an additional amount not to exceed 10% of the association's unimpaired capital and surplus, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." Certain types of loans are not subject to these limits. Notwithstanding the specified limits, an association may lend to one borrower up to $500,000 for any purpose. In applying these limits, the regulations require that loans to certain related borrowers be aggregated. At December 31, 1996, First Federal and First Savings were in compliance with these lending limits. See "Lending Activities - Federal Lending Limit." REGULATORY CAPITAL REQUIREMENTS. The Banks are required by applicable law and regulations to meet certain minimum capital requirements. The capital standards include a leverage limit, or core capital requirement, a tangible capital requirement applicable to First Federal and First Savings, and a risk-based capital requirement. For First Federal and First Savings, the leverage limit requires "core capital" of at least 3% of total assets. "Core capital" is comprised of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, minority interests in consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual associations and certain purchased mortgage servicing rights. The tangible capital requirement provides that First Federal and First Savings must maintain "tangible capital" of not less than 1.5% of its adjusted total assets. "Tangible capital" is defined as core capital minus any "intangible assets". For Cambridge Savings and Marietta Savings, the leverage capital requirement is a minimum level of Tier 1 capital to average total consolidated assets of 3%, if they have the highest regulatory examination rating, well diversified risk and minimal anticipated growth or expansion, and between 4% and 5% of average total consolidated assets if they do not meet those criteria. "Tier 1" capital includes common stockholders equity, noncumulative perpetual preferred stock and minority interest in the equity accounts of consolidated subsidiaries, less all intangibles, other than includable purchased mortgage servicing rights and credit card relationships. Pursuant to the risk-based capital requirement, the Banks must maintain total capital, which consists of core or Tier 1 capital and certain general valuation reserves, of 8% of risk-weighted assets. For purposes of computing risk-based capital, assets and certain off-balance sheet items are weighted at percentage levels ranging from 0% to 100%, depending on their relative risk. There are certain differences between the risk weightings applicable to First Federal and First Savings and those applicable to Cambridge Savings and Marietta Savings. -20- 21 The following tables present certain information regarding compliance by the Banks with applicable regulatory capital requirements at December 31, 1996:
At December 31, 1996 --------------------------------------------------------------------------------------- To be "well-capitalized" For capital under prompt corrective Actual adequacy purposes action provisions ----------------------- --------------------- ------------------------ Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Cambridge Savings - ----------------- Total capital (to risk-weighted assets) $13,176 13.4% $7,840 8.0% $9,800 10.0% Tier I Capital (to risk-weighted assets) 12,786 13.0% 3,920 4.0% 5,880 6.0% Tier I Leverage 12,786 7.2% 7,087 4.0% 8,859 5.0% Marietta Savings - ---------------- Total capital (to risk-weighted assets) $8,726 12.3% $5,654 8.0% $7,067 10.0% Tier I Capital (to risk-weighted assets) 8,354 11.8% 2,827 4.0% 4,240 6.0% Tier I Leverage 8,354 7.3% 4,547 4.0% 5,684 5.0% First Federal - ------------- Tangible capital $6,232 7.2% $1,300 1.5% $4,334 5.0% Core capital 6,232 7.2% 2,601 3.0% 5,201 6.0% Risk-based capital 6,482 13.7% 3,788 8.0% 4,735 10.0% First Savings - ------------- Tangible capital $12,709 14.7% $1,299 1.5% $4,330 5.0% Core capital 12,709 14.7% 2,598 3.0% 5,196 6.0% Risk-based capital 12,802 27.8% 3,680 8.0% 4,601 10.0%
The OTS has adopted an interest rate risk component to the risk-based capital requirement, though the implementation of that component has been delayed. Pursuant to that requirement, a savings association would have to measure the effect of an immediate 200 basis point change in interest rates on the value of its portfolio, as determined under the methodology established by the OTS. If the measured interest rate risk is above the level deemed normal under the regulation, the association will be required to deduct one-half of that excess exposure from its total capital when determining its level of risk-based capital. In general, an association with less than $300 million in assets and a risk-based capital ratio of greater than 12% will not be subject to this requirement. First Federal and First Savings currently qualifies for such exception. Pending implementation of the interest rate risk component, the OTS has the authority to impose a higher individualized capital requirement on any savings association it deems to have excess interest rate risk. The OTS also may adjust the risk-based capital requirement on an individual basis for any association to take into account risks due to concentrations of credit and non-traditional activities. -21- 22 The FDIC has adopted a new interest rate risk component to the capital requirements applicable to Non-member Banks. It includes a final rule to allow for an increase in a Non-member Bank's risk-based capital requirements on an individualized basis to address the bank's exposure to a decline in the economic value of its capital due to a change in interest rates. It also includes a proposed policy to provide for measurement of such decline in economic value by determining the amount of change in the present value of an institution's assets, liabilities and off-balance sheet items as a result of a 200 basis point change in interest rates, and taking into account an institution's management of its interest rate risk and the overall risk exposure of the institution. There is a proposed exemption from the policy for small, well-managed institutions with moderate interest rate risk exposure based on asset maturities or repricing schedules. Such institutions must still measure and assess interest rate risk. The FDIC has an outstanding proposal to add a market risk component to the capital requirements of Non-member Banks. Such component would require additional capital for general or specific market risk of trading portfolios of debt and equity securities and other investments or assets. The policy will apply to an institution with less than $5 billion in assets only if its trading portfolio constitutes at least 10% of the institution's assets. Cambridge Savings and Marietta Savings cannot predict in what form this market risk component will be adopted, if at all. At December 31, 1996, Cambridge Savings and Marietta Savings did not have a trading portfolio. The FDIC may also require additional capital to address concentrations of credit and non-traditional activities on a case-by-case basis. The OTS and FDIC have adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings associations and Non-member Banks. At each successively lower defined capital category, an institution is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the applicable agency has less flexibility in determining how to resolve the problems of the institution. The agencies have defined these capital levels as follows: (1) well-capitalized institutions must have total risk-based capital of at least 10%, core or Tier 1 risk-based capital (consisting only of items that qualify for inclusion in core or Tier 1 capital) of at least 6% and core or Tier 1 capital of at least 5%; (2) adequately capitalized institutions are those that meet the regulatory minimum of total risk-based capital of at least 8%, core or Tier 1 risk-based capital (consisting only of items that qualify for inclusion in core or Tier 1 capital) of at least 4% and core or Tier 1 capital of at least 4% (except for institutions receiving the highest examination rating and with an acceptable level of risk, in which case the core or Tier 1 capital level is at least 3%); (3) undercapitalized institutions are those that do not meet regulatory limits, but that are not significantly undercapitalized; (4) significantly undercapitalized institutions have total risk-based capital of less than 6%, core or Tier 1 risk-based capital (consisting only of items that qualify for inclusion in core or Tier 1 capital) of less than 3% and core or Tier 1 capital of less than 3%; and (5) critically undercapitalized institutions are those with core or Tier 1 capital of less than 2% of total assets. In addition, the agency generally can downgrade an institution's capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the institution is deemed to be engaging in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. An undercapitalized institution must submit a capital restoration plan to the applicable agency within 45 days after it becomes undercapitalized. Such institution will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching and engaging in new lines of business. Furthermore, critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances. The Banks' capital levels at December 31, 1996, met the standards for well-capitalized institutions. 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. In addition, each company controlling an undercapitalized institution must guarantee that the institution will comply with its capital restoration plan until the institution has been adequately capitalized on an average during each of the four preceding calendar quarters and must provide adequate assurances of performance. The aggregate liability pursuant to such guarantee is limited to the lesser of (a) an amount equal to 5% of the institution's total assets at the time it became undercapitalized or (b) the amount necessary to bring the institution into compliance with all capital standards applicable to such institution at the time the institution fails to comply with its capital restoration plan. FEDERAL DEPOSIT INSURANCE CORPORATION DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial -22- 23 banks and state savings banks and the SAIF for savings associations. The Banks are members of the SAIF and their deposit accounts are insured by the FDIC, up to the prescribed limits. The FDIC has examination authority over all insured depository institutions, including the Banks, and has authority to initiate enforcement actions against federally insured savings associations, if the FDIC does not believe the OTS has taken appropriate action to safeguard safety and soundness and the deposit insurance fund. The FDIC is required to maintain designated levels of reserves in each fund. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Because of the differing reserve levels of the funds, deposit insurance assessments paid by healthy savings associations were reduced significantly below the level paid by healthy savings associations effective in mid-1995. Assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in late 1995. Such excess equalled approximately $.23 per $100 in deposits beginning in 1996. This premium disparity had a negative competitive impact on the Banks and other institutions in the SAIF. Federal legislation, which was effective September 30, 1996, provided for the recapitalization of the SAIF by means of a special assessment of $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. Certain banks holding SAIF-insured deposits were required to pay the same special assessment on 80% of deposits at March 31, 1995. In addition, part of the cost of prior thrift failures, which had previously been paid only by SAIF members, will be paid by BIF members. As a result, BIF assessments for healthy banks in 1997 will be $.013 per $100 in deposits and SAIF assessments for healthy institutions in 1997 will be $.064 per $100 in deposits. The Banks had $277.3 million in deposits at March 31, 1995. The Banks paid a special assessment of $1.8 million in November 1996, which was accounted for and recorded as of September 30, 1996. This assessment is tax-deductible, but has reduced earnings for the year ended December 31, 1996. TRANSACTIONS WITH AFFILIATES AND INSIDERS Loans to executive officers, directors and principal shareholders and their related interests must conform to the lending limit on loans to one borrower, and the total of such loans to executive officers, directors, principal shareholders and their related interests cannot exceed the association's Lending Limit Capital (or 200% of Lending Limit Capital for qualifying institutions with less than $100 million in assets). Most loans to directors, executive officers and principal shareholders must be approved in advance by a majority of the "disinterested" members of the board of directors of the association with any "interested" director not participating. All loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions with the general public or as offered to all employees in a company-wide benefit program, and loans to executive officers are subject to additional limitations. The Banks were in compliance with such restrictions at December 31, 1996. All transactions between savings associations and their affiliates must comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An affiliate is any company or entity which controls, is controlled by or is under common control with the financial institution. In a holding company context, the parent holding company of a savings association and any companies that are controlled by such parent holding company are affiliates of the institution. Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a financial institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus for any one affiliate and 20% of such capital stock and surplus for the aggregate of such transactions with all affiliates, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable to the institution or the subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar types of transactions. In addition to limits in Sections 23A and 23B, First Federal and First Savings may not make any loan or other extension of credit to an affiliate unless the affiliate is engaged only in activities permissible for a bank holding company and may not purchase or invest in securities of any affiliate, except shares of a subsidiary. Exemptions from Sections 23A or 23B of the FRA may be granted only by the FRB. The Banks were in compliance with these requirements at December 31, 1996. -23- 24 CHANGE IN CONTROL FEDERAL LAW. The Federal Deposit Insurance Act (the "FDIA") provides that no person, acting directly or indirectly or in concert with one or more persons, shall acquire control of any insured depository institution or holding company, unless 60-days prior written notice has been given to the primary federal regulator for that institution and such regulator has not issued a notice disapproving the proposed acquisition. Control, for purposes of the FDIA, means the power, directly or indirectly, alone or acting in concert, to direct the management or policies of an insured institution or to vote 25% or more of any class of securities of such institution. Control exists in situations in which the acquiring party has direct or indirect voting control of at least 25% of the institution's voting shares, controls in any manner the election of a majority of the directors of such institution or is determined to exercise a controlling influence over the management or policies of such institution. In addition, control is presumed to exist, under certain circumstances where the acquiring party (which includes a group "acting in concert") has voting control of at least 10% of the institution's voting stock. These restrictions do not apply to holding company acquisitions. See "Holding Company Regulation". OHIO LAW. A statutory limitation on the acquisition of control of an Ohio savings bank requires the written approval of the Division prior to the acquisition by any person or entity of a controlling interest in an Ohio association. Control exists, for purposes of Ohio law, when any person or entity which, either directly or indirectly, or acting in concert with one or more other persons or entities, owns, controls, holds with power to vote, or holds proxies representing, 15% or more of the voting shares or rights of an association, or controls in any manner the election or appointment of a majority of the directors. A director will not be deemed to be in control by virtue of an annual solicitation of proxies voted as directed by a majority of the board of directors. Ohio law also requires that certain acquisitions of voting securities that would result in the acquiring shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of Camco must be approved in advance by the holders of at least a majority of the outstanding voting shares represented at a meeting at which a quorum is present and a majority of the portion of the outstanding voting shares represented at such a meeting, excluding the voting shares by the acquiring shareholder. This statute was intended, in part, to protect shareholders of Ohio corporations from coercive tender offers. Under certain circumstances, interstate mergers and acquisitions involving savings banks incorporated under Ohio law are permitted by Ohio law. A financial institution or financial institution holding company with its principal place of business in another state may acquire a savings and loan association or savings and loan holding company incorporated under Ohio law if, in the discretion of the Division, the laws of such other state give an Ohio institution or an Ohio holding company reciprocal rights. HOLDING COMPANY REGULATION Camco is a multiple savings and loan holding company subject to the regulatory oversight, examination and enforcement authority of the OTS. Though Cambridge Savings and Marietta Savings are not savings associations, they have elected to be treated as such for holding company purposes, so that Camco is not regulated as a bank holding company. Camco is required to register and file periodic reports with the OTS. If the OTS determines that the continuation of a particular activity by a savings and loan holding company constitutes a serious threat to the financial condition of its subsidiary institutions, the OTS may impose restrictions on the holding company. Such restrictions may include limiting the payment of dividends, transactions with affiliates or any other activities deemed to pose a serious threat to the subsidiary institutions. Generally, no savings and loan holding company may (i) acquire or retain control of a savings association or another savings and loan holding company or control the assets thereof or (ii) acquire or retain more than 5% of the voting shares of a savings association or holding company thereof, which is not a subsidiary, without the prior written approval of the Director of the OTS. Additionally, under certain circumstances a savings and loan holding company is permitted to acquire, with the approval of the Director of the OTS, up to 15% of the previously unissued voting shares of an undercapitalized savings association for cash, without such savings association being deemed to be controlled by the holding company. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock may also acquire control of any savings institution, other than a subsidiary institution, or any other savings and loan holding company. The Director of the OTS may approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state, if the multiple savings and loan holding company involved controls a savings association which operated a home or branch office in the state of the association to be acquired as of March 5, 1987, or if the laws of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). As under prior law, the Director of the OTS may -24- 25 approve an acquisition resulting in a multiple savings and loan holding company controlling savings associations in more than one state in the case of certain emergency thrift acquisitions. As a multiple savings and loan holding company, the activities of Camco and those of any of its subsidiaries (other than the Banks) are subject to certain restrictions. Generally, no multiple savings and loan holding company or subsidiary thereof that is not a savings association may engage in any business activity other than (i) furnishing or performing management services for a subsidiary savings association, (ii) conducting an insurance agency or an escrow business, (iii) holding, managing or liquidating assets owned by or acquired from a subsidiary savings association, (iv) holding or managing properties used or occupied by a subsidiary savings association, (v) acting as trustee under deeds of trust, (vi) engaging in those activities previously directly authorized by federal regulation as of March 5, 1987, to be engaged in by multiple holding companies, or (vii) furnishing or performing such other services or engaging in those activities authorized by the FRB as permissible for bank holding companies, unless the director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above must also be approved by the Director of the OTS prior to being engaged in by a multiple holding company. Federal law provides that an insured institution shall be liable for any loss incurred by the FDIC in connection with the default or potential default of, or federal assistance provided to, an insured institution which is controlled by the same holding company. Such loss would be apportioned among all of the insured institutions controlled by the holding company. FEDERAL RESERVE REQUIREMENTS FRB regulations currently require savings associations to maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up to $49.3 million (subject to an exemption of up to $4.4 million), and of 10% of net transaction accounts in excess of $49.3 million. At December 31, 1996, each of the Banks was in compliance with its reserve requirements. FEDERAL HOME LOAN BANK SYSTEM The FHLBs provide credit to their members in the form of advances. As members of the FHLB of Cincinnati, the Banks are each required to maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1.0% of the aggregate outstanding principal amount of their residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of their advances from the FHLB of Cincinnati. Camco is in compliance with this requirement with an aggregate investment by the Banks in FHLB of Cincinnati stock of $3.9 million at December 31, 1996. Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is required to obtain and to maintain a security interest in collateral in one or more of the following categories: fully disbursed, whole first mortgage loans on improved residential property or securities representing a whole interest in such loans; securities issued, insured or guaranteed by the United States Government or an agency thereof; deposits in any FHLB; or other real estate related collateral (up to 30% of the member's capital) acceptable to the applicable FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLBs. The standards take into account a member's performance under the Community Reinvestment Act and its record of lending to first-time home buyers. All long-term advances by each FHLB must be made only to provide funds for residential housing finance. The FHLBs have established the "Affordable Housing Program" to subsidize the interest rate on advances to member associations engaged in lending for long-term, low- and moderate-income, owner-occupied and affordable rental housing at subsidized rates. The FHLB of Cincinnati reviews and accepts proposals for subsidies under that program twice a year. Cambridge Savings and First Federal have participated in this program. FEDERAL TAXATION Camco and its subsidiaries are each subject to the federal tax laws and regulations which apply to corporations generally. In addition to the regular income tax, Camco and its subsidiaries are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum taxable income" (which is the sum of a corporation's regular taxable income, with certain adjustments, and tax preference items), less any available exemption. Such tax preference items include interest on certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the amount by which a corporation's "adjusted current earnings" exceeds its alternative minimum taxable income computed -25- 26 without regard to this preference item and prior to reduction by net operating losses, is included in alternative minimum taxable income. Net operating losses can offset no more than 90% of alternative minimum taxable income. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax. Payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. In addition, for taxable years after 1986 and before 1996, Camco and its subsidiaries are also subject to an environmental tax equal to 0.12% of the excess of alternative minimum taxable income for the taxable year (determined without regard to net operating losses and the deduction for the environmental tax) over $2.0 million. Prior to the enactment of the Small Business Jobs Protection Act (the "Act"), which was signed into law on August 21, 1996, certain thrift institutions, including the Banks, were allowed deductions for bad debts under methods more favorable than those granted to other taxpayers. Qualified thrift institutions could compute deductions for bad debts using either the specific charge off method of Section 166 of the Code, or one of the two reserve methods of Section 593 of the Code. The reserve methods under Section 593 of the Code permitted a thrift institution annually to elect to deduct bad debts under either (i) the "percentage of taxable income" method applicable only to thrift institutions, or (ii) the "experience" method that also was available to small banks. Under the "percentage of taxable income" method, a thrift institution generally was allowed a deduction for an addition to its bad debt reserve equal to 8% of its taxable income (determined without regard to this deduction and with additional adjustments). Under the experience method, a thrift institution was generally allowed a deduction for an addition to its bad debt reserve equal to the greater of (i) an amount based on its actual average experience for losses in the current and five preceding taxable years, or (ii) an amount necessary to restore the reserve to its balance as of the close of the base year. A thrift institution could elect annually to compute its allowable addition to bad debt reserves for qualifying loans either under the experience method or the percentage of taxable income method. For tax years 1995, 1994 and 1993, Camco used the percentage of taxable income method because such method provided a higher bad debt deduction than the experience method. The Act eliminated the percentage of taxable income reserve method of accounting for bad debts by thrift institutions, effective for taxable years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to utilize the experience method applicable to such institutions, while thrift institutions that are treated as large banks are required to use only the specific charge off method. A thrift institution required to change its method of computing reserves for bad debt will treat such change as a change in the method of accounting, initiated by the taxpayer, and having been made with the consent of the Secretary of the Treasury. Section 481(a) of the Code requires certain amounts to be recaptured with respect to such change. Generally, the amounts to be recaptured will be determined solely with respect to the "applicable excess reserves" of the taxpayer. The amount of the applicable excess reserves will be taken into account ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement described below. In the case of a thrift institution that becomes a large bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans (generally loans secured by improved real estate) and its reserve for losses on nonqualifying loans (all other types of loans) as of the close of its last taxable year beginning before January 1, 1996, over (ii) the balances of such reserves as of the close of its last taxable year beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that becomes a small bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans and its reserve for losses on nonqualifying loans as of the close of its last taxable year beginning before January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the thrift's reserves would have been at the close of its last year beginning before January 1, 1996, had the thrift always used the experience method. For taxable years that begin after December 31, 1995, and before January 1, 1998, if a thrift meets the residential loan requirement for a tax year, the recapture of the applicable excess reserves otherwise required to be taken into account as a Code Section 481(a) adjustment for the year will be suspended. A thrift meets the residential loan requirement if, for the tax year, the principal amount of residential loans made by the thrift during the year is not less then its base amount. The "base amount" generally is the average of the principal amounts of the residential loans made by the thrift during the six most recent tax years beginning before January 1, 1996. A residential loan is a loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by residential real and church property and certain mobile homes), but only to the extent that the loan is made to the owner of the property. The balance of the pre-1988 reserves is subject to the provisions of Section 593(e) as modified by the Act which require recapture in the case of certain excessive distributions to shareholders. The pre-1988 reserves may not be utilized for payment of cash dividends or other distributions to a shareholder (including distributions in dissolution or liquidation) or for -26- 27 any other purpose (excess to absorb bad debt losses). Distribution of a cash dividend by a thrift institution to a shareholder is treated as made: first, out of the institution's post-1951 accumulated earnings and profits; second, out of the pre-1988 reserves; and third, out of such other accounts as may be proper. To the extent a distribution by the Banks to Camco is deemed paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and the Banks' gross income for tax purposes would be increased by the amount which, when reduced by the income tax, if any, attributable to the inclusion of such amount in its gross income, equals the amount deemed paid out of the pre-1988 reserves. As of December 31, 1996, the Banks pre-1988 reserves for tax purposes totaled approximately $5.9 million. Camco believes the Banks had approximately $23.6 million of accumulated earnings and profits for tax purposes as of December 31, 1996, which would be available for dividend distributions, provided regulatory restrictions applicable to the payment of dividends are met. See "REGULATION - Federal Regulations -- Limitations on Capital Distributions." No representation can be made as to whether the Banks will have current or accumulated earnings and profits in subsequent years. The tax returns of Camco have been audited or closed without audit through fiscal year 1992. In the opinion of management, any examination of open returns would not result in a deficiency which could have a material adverse effect on the financial condition of Camco. OHIO TAXATION. Camco and East Ohio are each subject to an Ohio franchise tax based on the higher of the tax computed on its (1) adjusted net worth or (2) adjusted federal taxable income. The Banks are subject to an Ohio franchise tax based on their adjusted net worth (including certain reserves). The resultant net taxable value of capital is taxed at a rate of 1.5% for 1995. CMC and WestMar are subject to the Ohio Dealers in Intangibles property tax but currently incur no liability because they are owned by Ohio financial institutions. DELAWARE TAXATION. As a Delaware corporation, Camco is subject to an annual franchise tax based on the quantity and par value of its authorized capital stock and its gross assets. As a savings and loan holding company, Camco is exempt from Delaware corporate income tax. KENTUCKY TAXATION. The Commonwealth of Kentucky imposes no income or franchise taxes on savings institutions. First Savings is subject to an annual ad valoreum tax which is .1% of First Savings' deposit accounts, common stock and retained income, with certain deductions for amounts borrowed by depositors and securities guaranteed by the U.S. Government or certain of its agencies. WEST VIRGINIA TAXATION. Marietta Savings and WestMar are both subject to a West Virginia tax on apportioned adjusted net income and a West Virginia franchise tax on apportioned adjusted capital. The adjusted net income of each is taxed at a rate of 9.08%. The franchise tax rate is 0.75% of adjusted capital. The apportionment is based solely on the ratio of gross receipts derived from West Virginia as compared to gross receipts everywhere. -27- 28 ITEM 2. PROPERTIES The following table provides the location of, and certain other information pertaining to, Camco's office premises as of December 31, 1996:
Year facility Leased Approximate commenced or square Net book Office Location operations owned footage value (1) - --------------- ---------- ------ ------------ ---------- First Federal - ------------- 134 E. Court Street Washington Ct. House, Ohio 1963 Owned 5,000 $ 369,769 45 West Second Street Chillicothe, Ohio 1994 Leased (2) 1,200 200 N. Court Street Circleville, Ohio 1993 Leased (3) 1,300 135 North South Street Wilmington, Ohio 1992 Owned 900 $ 92,579 1050 Washington Ave. Washington Court House, Ohio 1996 Owned 2800 $ 561,045 East Ohio - --------- 510 Grand Central Ave. Vienna, West Virginia 1996 Leased (4) 670 Marietta Savings - ---------------- 226 Third Street Marietta, Ohio 1976 Owned 10,361 $ 659,537 1925 Washington Boulevard Belpre, Ohio 1979 Owned 2,357 $ 158,070 Cambridge Savings - ----------------- 814 Wheeling Avenue (5) Cambridge, Ohio 1963 Owned 27,000 $1,093,147 327 E. 3rd Street Uhrichsville, Ohio 1975 Owned 1,650 $ 97,929 175 N. 11th Street Cambridge, Ohio 1981 Owned 1,350 $ 201,493 209 Seneca Avenue Byesville, Ohio 1978 Leased (6) 1,200
-28- 29
Year facility Leased Approximate commenced or square Net book Office Location operations owned footage value (1) - --------------- ---------- ------ ------------ --------- First Savings - ------------- 1640 Carter Avenue Ashland, Kentucky 1961 Owned 5,450 $ 795,781 U.S. 60 - Summit Ashland, Kentucky 1992 Owned 2,500 $ 745,938 Greenup Mall Russell, Kentucky 1980 Owned 1,100 $ 99,531 CMC - --- 1320 4th Street, N.W. (7) New Philadelphia, Ohio 1985 Owned 900 $ 230,662 4328 Dressler Road Canton, Ohio 1992 Leased (8) 1,500 2359 Maple Avenue Zanesville, Ohio 1993 Leased (9) 1,380 Westmar - ------- 510 Grand Central Avenue Vienna, West Virginia 1991 Leased (10) 1,200
- ------------------------------ (1) Net book value amounts are for land, buildings and improvements. (2) The lease expires in 1999. First Federal has the option to renew the lease for one five-year term. (3) The lease expires in 1999. (4) The lease expires in 1997. East Ohio has the option to renew the lease for two one-year terms. (5) The Wheeling Avenue facility also serves as the Camco office and the East Ohio-Cambridge office. (6) The lease expires in 2000. Cambridge Savings has the option to renew the lease for three five-year terms. (7) The 4th Street facility also serves as the East Ohio-New Philadelphia office. (8) The lease is currently on a month-to-month basis. (9) The lease expires in 1999. (10) The lease expires in 1997. West Mar has the option to renew the lease for two one-year terms. Camco also owns furniture, fixtures and various bookkeeping and accounting equipment. The net book value of Camco's investment in office premises and equipment totaled $6.8 million at December 31, 1996. See Note E of Notes to Consolidated Financial Statements for additional information. -29- 30 ITEM 3. LEGAL PROCEEDINGS. Neither Camco nor any of the Banks is presently engaged in any legal proceedings of a material nature. From time to time, Camco is involved in legal proceedings to enforce its security interest in collateral taken as security for its loans. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. At December 31, 1996, Camco had 2,980,398.9 shares of common stock outstanding and held of record by approximately 778 stockholders. The table below sets forth a range of high and low bid information known to Camco for the common stock of Camco, together with the respective dividends declared per share of common stock, for each quarter of 1994, 1995 and 1996. Bid information for 1995 and 1996 is based on Nasdaq National Market listings published in The Wall Street Journal. Prior to 1995, Camco's common stock was not quoted on Nasdaq.
Cash dividends Year ended December 31, 1994 (1) High Low declared -------------------------------- ---- ---- -------- First Quarter $10.73 $10.29 $ - Second Quarter 11.14 10.93 0.1543 Third Quarter 12.19 12.19 - Fourth Quarter 13.09 13.09 0.1625
Cash dividends Year ended December 31, 1995 (1) High Low declared -------------------------------- ---- --- -------- First Quarter $13.99 $12.19 $0.0857 Second Quarter 13.54 13.09 0.0903 Third Quarter 17.58 13.54 0.0950 Fourth Quarter 17.58 15.91 0.0998
Cash dividends Year ended December 31, 1996 (1) High Low declared -------------------------------- ---- --- -------- First Quarter $18.05 $15.91 $0.1045 Second Quarter 19.24 16.75 0.1093 Third Quarter 19.38 17.50 0.1150 Fourth Quarter 18.75 15.50 0.1200
- --------------------- (1) Amounts have been restated to give effect to 5% stock dividends in June of 1994 and 1995, and July of 1996. In addition to certain federal income tax considerations, regulations of the OTS impose limitations on the payment of dividends and other capital distributions by savings associations. -30- 31 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Camco's profitability depends primarily on the level of net interest income, which is the difference between interest income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on deposit accounts and borrowings. In recent years, Camco's net earnings has also been heavily influenced by the level of other income, including gains on sale of loans, loan servicing fees and other fees. Camco's operations are also influenced by the level of general, administrative and other expenses, including salaries and employee benefits, occupancy expense, federal deposit insurance premiums and federal income tax expense. Since its incorporation in 1970, Camco has evolved into a full service provider of financial products to the communities served by its Banks. Utilizing a common marketing theme based on Camco's commitment to personalized customer service, Camco and its affiliates have grown from $22.4 million of consolidated assets in 1970 to $469.5 million of consolidated assets at December 31, 1996. Camco's rate of growth is largely attributable to its acquisitions of Marietta Savings, First Federal and First Savings and the continued expansion of product lines from the limited deposit and loan offerings which could be offered in the heavily regulated environment of the 1970s to the wider array of financial service products that were the previous domain of commercial banks. Additionally, Camco's operational growth has been enhanced by vertical integration of the residential lending function through establishing mortgage banking operations in the Banks' primary market areas and, to a lesser extent, by chartering a title insurance agency. Camco's management believes that continued success in the financial services industry will be achieved by those institutions with a rigorous dedication to building value-added customer-oriented organizations. Toward this end, each of the Banks' operations are decentralized, with a separate Board of Directors and management team focusing on consumer preferences for financial products in the respective communities served. Based on such consumer preferences, Camco's management designs financial service products with a view towards differentiating each of the constituent Banks from the competition. It is management's opinion that the Banks' abilities to rapidly adapt to consumer needs and preferences is essential to community-based financial institutions in order to compete against the larger regional and money-center bank holding companies. ASSET AND LIABILITY MANAGEMENT Net interest income, the difference between asset yields and the cost of interest-bearing liabilities is the principal component of Camco's net earnings. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained during fluctuations in the prevailing level of interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap", provides an indication of the extent to which a financial institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income, while a positive gap within shorter maturities would have the opposite effect. In recognition of the foregoing factors, the Board of Directors of each of the Banking Subsidiaries has implemented an asset and liability management strategy directed toward improving each Bank's interest rate sensitivity. The principal common elements of such strategies include 1) meeting the consumer preference for fixed-rate loans over the past several years by selling such loans in the secondary market and 2) maintaining higher levels of liquid assets, such as cash, short-term interest-bearing deposits and short-term investment securities as a hedge against rising interest rates in the lower interest rate environment and utilizing FHLB advances and longer term certificates of deposit as funding sources when available. The following table sets forth certain information regarding the amounts of various categories of assets and liabilities repricing within the periods indicated:
December 31, 1996 Within 1 year 1-5 years Over 5 years Total (In thousands) Interest-earning assets(1): Interest-bearing deposits in other banks $ 8,070 $ 198 $ -- $ 8,268 Investment securities(2) 4,606 20,095 666 25,367 Mortgage-backed securities 390 2,495 8,548 11,433 Loans receivable(3) 167,010 85,410 145,726 398,146 --------- --------- -------- -------- Total 180,076 108,198 154,940 443,214 --------- --------- -------- -------- Interest-bearing liabilities(1): Deposits 268,654 87,187 2,168 358,009 FHLB advances 34,500 17,110 5,744 57,354 --------- --------- -------- -------- Total 303,154 104,297 7,912 415,363 --------- --------- -------- -------- Excess (deficiency) of interest sensitive assets over interest sensitive liabilities $(123,078) $ 3,901 $147,028 $ 27,851 ========= ========= ======== ======== Cumulative excess (deficiency) of interest sensitive assets over interest sensitive liabilities $(123,078) $(119,177) $ 27,851 $ 27,851 ========= ========= ======== ======== Cumulative interest rate sensitivity gap to total assets (26.22)% (25.39)% 5.93% 5.93% ====== ====== ==== ====
- -------------------------- (1) Interest-earning assets and interest-bearing liabilities are shown as repricing based on contractual terms to repricing, without consideration of loan prepayments or deposit decay assumptions. (2) Does not include corporate equity securities or FHLB stock. (3) Represents loans receivable totals before consideration of net items and excluding loans held for sale. FINANCIAL CONDITION Camco's total assets amounted to $469.5 million as of December 31, 1996, an increase of $123.0 million, or 35.5%, over the $346.5 million total as of December 31, 1995. The increase in 1996 follows asset growth of $21.8 million, or 6.7%, in 1995. The increase in 1996 was due primarily to the acquisition of First Ashland Financial Corporation and its wholly owned subsidiary, First Savings, which resulted in net asset growth of approximately $80.7 million. The additional increase -31- 32 in total assets was funded primarily through growth in the deposit portfolio of $2.6 million, an increase in advances from the Federal Home Loan Bank of $29.8 million and undistributed net earnings of $1.8 million. Cash, interest-bearing deposits and certificates of deposit in other financial institutions totaled $18.9 million at December 31, 1996, an increase of $3.5 million, or 23.0%, over the 1995 total. Investment securities totaled $27.0 million at December 31, 1996, an increase of $4.6 million, or 20.5%, over 1995 levels. The increase was primarily attributable to securities acquired through the Merger totaling $5.9 million, coupled with purchases during 1996 of $10.0 million, which were partially offset by maturities of $10.8 million and sales of $427,000. Mortgage-backed securities increased by $5.5 million, or 91.1%, to a total of $11.4 million at December 31, 1996, as a result of securities acquired through the Merger of $6.7 million, which were partially offset by principal repayments during the year totaling $1.2 million. Loans receivable totaled $388.9 million at December 31, 1996, an increase of $96.2 million, or 32.9%, over the $292.8 million total at December 31, 1995. The increase resulted primarily from loans acquired through the Merger totaling $64.1 million, coupled with loan originations during 1996 of $180.8 million, which were partially offset by principal repayments of $87.3 million and sales of loans in the secondary market totaling $61.7 million. Loan origination volume increased during 1996 by $43.4 million, or 31.6%, as compared to 1995. During 1996, Camco's volume of loan sales in the secondary market increased by $22.8 million, or 58.6%, as compared to 1995 sales volume of $38.9 million. Camco's consolidated allowance for loan losses totaled $1.2 million, $1.0 million and $943,000 at December 31, 1996, 1995 and 1994, respectively, representing 52.5%, 95.4% and 71.5% of nonperforming loans at those respective dates. Nonperforming loans totaled $2.4 million, $1.1 million and $1.3 million at December 31, 1996, 1995 and 1994, respectively, representing .61%, .37% and .50% of total net loans, including loans held for sale, at those dates. The increase in nonperforming loans during 1996 was due primarily to the $1.1 million of nonperforming loans in the portfolio acquired in the Merger. This total included one multi-family loan totaling approximately $530,000 which was included in the non accrual portfolio, and approximately $480,000 of loans greater than 90 days deliquent secured by other residential real estate. Over all, Camco's nonperforming loans consisted of loans secured by residential real estate totaling $1.6 million, or 65.7%, loans secured by nonresidential real estate totaling $655,000, or 27.6%, and consumer and other loans totaling $158,000, or 6.7%. The allowance for loan losses was increased during 1996 as a result of the Merger by $109,000, which represented the allowance maintained by First Savings prior to the Merger. The provision for loan losses for the years ended December 31, 1996 and 1995, was primarily attributable to the $62.1 million in loan portfolio growth during that period and to the aforementioned increase in nonperforming loans. Although management believes that its allowance for loan losses at December 31, 1996, was adequate based upon the available facts and circumstances, there can be no assurance that additions to such allowance will not be necessary in future periods, which could adversely affect Camco's results of operations. The foregoing statement regarding the adequacy of the allowance for loan losses is a "forward-looking" statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could affect the adequacy of the loan loss allowance include, but are not limited to, the following: (1) changes in the national and local economy which may negatively impact the ability of borrowers to repay their loans and which may cause the value of real estate and other properties that secure outstanding loans to decline; (2) unforeseen adverse changes in circumstances with respect to certain large loans; (3) decreases in the value of collateral securing consumer loans to amounts less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that Camco must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. Cash surrender value of life insurance increased by $4.9 million during the year ended December 31, 1996. The increase relates the purchase of single premium key man life insurance, of which Camco is the beneficiary, to supplemental retirement benefits for certain key officers of the Corporation and its subsidiaries. As a result of the Merger, goodwill and other intangible assets totaled $3.7 million at December 31, 1996. Deposits increased by $71.4 million, or 24.9%, during the year ended December 31, 1996, to a total of $358.0 million, compared to the $286.6 million total at December 31, 1995. The increase resulted primarily from deposits of $68.9 million acquired in the Merger, coupled with deposit portfolio growth of $2.6 million, or .9%. Deposit growth during 1995 amounted to $19.7 million, or 7.4%. The increase in 1995 resulted primarily from management's marketing efforts, coupled with pricing strategies employed to achieve a moderate rate of growth. Advances from the FHLB of Cincinnati totaled $57.4 million at December 31, 1996, an increase of $31.3 million, or 119.9%, over the $26.1 million total at December 31, 1995. The increase was due primarily to net current period borrowings totaling $29.8 million, coupled with advances of $1.5 million acquired through the Merger. During 1996 management elected to partially fund loan origination volume with such advances as an alternative to higher costing customer deposits. The Banks are required to maintain minimum regulatory capital levels pursuant to federal regulations. At December 31, 1996, the Banks' regulatory capital exceeded the most stringent of these regulations by approximately $20.1 million. -32- 33 COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 GENERAL. Camco's net earnings for the year ended December 31, 1996, totaled $3.0 million, a decrease of $635,000, or 17.4%, from the $3.6 million in net earnings recorded for the year ended December 31, 1995. The decrease resulted primarily from a $3.4 million increase in general, administrative and other expense due primarily to the one-time SAIF assessment of $1.8 million, which was partially offset by a $2.0 million increase in net interest income, a $32,000 decrease in the provision for losses on loans, a $303,000 increase in other income and a $414,000 decrease in the provision for federal income taxes. NET INTEREST INCOME. Total interest income for the year ended December 31, 1996, amounted to $29.3 million, an increase of $3.8 million, or 15.0%, over the $25.4 million recorded in 1995. Interest income on loans and mortgage-backed securities increased by $3.7 million, or 16.0%. The increase resulted primarily from a $38.7 million increase in the average portfolio outstanding, coupled with an 18 basis point increase in the average yield, from 8.11% in 1995, to 8.29% in 1996. Interest income on investment securities and interest-bearing deposits increased by $87,000, or 4.2%, to a total of $2.2 million in 1996. The increase was due primarily to a 50 basis point increase in yield, to 6.52% in 1996, which was partially offset by a $1.3 million decrease in the average outstanding balance. The decline in the average balance during 1996 reflects management's decision to redeploy excess liquidity to fund loan originations, thereby obtaining a more favorable yield. Interest expense increased during the year ended December 31, 1996, by $1.8 million, or 12.5%, to a total of $16.0 million, compared to the $14.3 million total recorded in 1995. Interest expense on deposits increased by $1.5 million, or 11.7%, to a total of $13.9 million in 1996. The increase resulted primarily from growth in the average portfolio outstanding of $25.8 million, coupled with an increase in the average rate paid on deposits of 10 basis points, from 4.45% in 1995 to 4.55% in 1996. Interest expense on borrowings increased by $334,000, or 18.8%, to a total of $2.1 million in 1996. The increase was due primarily to a $7.7 million increase in the average balance of borrowings outstanding, which was partially offset by a 44 basis point decline in the average rate paid on such advances, from 6.37% in 1995 to 5.93% in 1996. As a result of the foregoing changes in interest income and interest expense, net interest income increased by approximately $2.0 million, or 18.2%, to a total of $13.2 million for the year ended December 31, 1996. The net interest rate spread increased by 17 basis points during the year, from 3.27% in 1995 to 3.44% in 1996, while the net interest margin increased by 20 basis points, from 3.47% in 1995 to 3.67% in 1996. 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 Banks, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Banks' market areas and other factors related to the collectibility of the Banks' loan portfolio. As a result of such analysis, management recorded a provision for losses on loans totaling $111,000 for the year ended December 31, 1996, a decrease of $32,000, or 22.4%, from the $143,000 total recorded in 1995. As stated previously, the current year provision is primarily attributable to growth in the loan portfolio, coupled with an increase in nonperforming loans to $2.4 million at December 31, 1996, compared to $1.1 million at December 31, 1995. OTHER INCOME. Other income totaled $3.6 million for the year ended December 31, 1996, an increase of $303,000, or 9.2%, over the $3.3 million total for 1995. The increase resulted primarily from a $230,000, or 25.1%, increase in late charges, rent and other and a $131,000, or 11.6% increase in gain on sale of loans. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other expense totaled $12.2 million for the year ended December 31, 1996, an increase of $3.4 million, or 38.9%, over the $8.8 million total recorded in 1995. The increase resulted primarily from a $1.7 million, or 279.0%, increase in federal deposit insurance premiums, which resulted from the legislation enacted to recapitalize the SAIF, coupled with a $772,000, or 18.4%, increase in employee compensation and benefits, a $268,000, or 29.7%, increase in occupancy and equipment, a $77,000, or 23.9%, increase in franchise taxes and a $477,000, or 24.8%, increase in other operating expense. During 1996 legislation was enacted to recapitalize the SAIF which mandated payment of a special one-time assessment for all savings associations, including the Banks. The assessment was computed based upon the Banks' deposits as of March 31, 1995. The assessment rate was finalized at $.657 per every $100 of deposits, which resulted in a pre-tax -33- 34 charge to 1996 operations of approximately $1.8 million for deposits held by Cambridge Savings, First Federal and Marietta Savings. The recapitalization legislation will reduce federal deposit insurance premiums from $.23 per $100 in deposits to $.065 per $100 in deposits, effective January 1, 1997. Increases in general, administrative and other expenses during 1996 generally resulted from the effects of the Merger which was consummated on October 4, 1996. From that date through the end of 1996, operating expenses reflect the increased size of Camco, as compared to the prior year. In addition to Merger-related increases, employee compensation and benefits increased primarily from increased costs associated with retirement and other employee benefit plans, coupled with normal merit increases and an increase in staffing levels as a result of growth. The increase in occupancy and equipment resulted primarily from an increase in depreciation expense following the addition of a new branch location at First Federal and the construction costs related to the installation of automated teller machines ("ATMs") during 1996. The increase in franchise taxes resulted from the increase in stockholders' equity year to year. The increase in other operating expenses resulted primarily from increased costs of operations as a result of Camco's growth year to year. FEDERAL INCOME TAXES. The provision for federal income taxes totaled $1.5 million for the year ended December 31, 1996, a decrease of $414,000, or 21.7%, from the $1.9 million total recorded in 1995. The decrease resulted primarily from the decrease in net earnings before taxes of $1.0 million, or 18.9%. The effective tax rates were 33.2% and 34.4% for the years ended December 31, 1996 and 1995, respectively. COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994 GENERAL. Camco's net earnings for the year ended December 31, 1995, totaled $3.6 million, an increase of $1.1 million, or 43.5%, over the $2.5 million in net earnings recorded for the year ended December 31, 1994. The increase resulted primarily from a $1.7 million increase in net interest income and a $715,000 increase in other income, which were partially offset by a $46,000 increase in the provision for losses on loans, a $621,000 increase in general, administrative and other expense, and a $599,000 increase in the provision for federal income taxes. NET INTEREST INCOME. Total interest income for the year ended December 31, 1995, amounted to $25.4 million, an increase of $5.7 million, or 28.8%, over the $19.7 million recorded in 1994. Interest income on loans and mortgage-backed securities increased by $6.2 million, or 36.5%. The increase resulted primarily from a $62.4 million increase in the average portfolio outstanding, coupled with a 52 basis point increase in the average yield, from 7.59% in 1994 to 8.11% in 1995. Interest income on investment securities and interest-bearing deposits decreased by $562,000, or 21.3%, to a total of $2.1 million in 1995. The decrease was due primarily to a reduction in the average balance outstanding of $16.4 million, which was partially offset by an 84 basis point increase in yield, to 6.02% in 1995. The decline in the average balance during the year reflects management's decision to redeploy excess liquidity to fund loan originations, thereby obtaining a more favorable yield. Interest expense increased during the year ended December 31, 1995, by $4.0 million, or 39.3%, to a total of $14.3 million, compared to 1994. Interest expense on deposits increased by $3.0 million, or 31.4%, to a total of $12.5 million in 1995. The increase resulted primarily from growth in the average portfolio outstanding of $25.1 million, coupled with an increase in the average rate paid on deposits of 73 basis points, from 3.72% in 1994 to 4.45% in 1995. Interest expense on borrowings increased by $1.0 million, or 141.7%, to a total of $1.8 million in 1995. The increase was due primarily to a $16.3 million increase in the average balance of borrowings outstanding. As a result of the foregoing changes in interest income and interest expense, net interest income increased by approximately $1.7 million, or 17.4%, to a total of $11.2 million for the year ended December 31, 1995. The net interest rate spread declined by 5 basis points during the year, from 3.32% in 1994 to 3.27% in 1995, while the net interest margin increased by 2 basis points, from 3.45% in 1994 to 3.47% in 1995. PROVISIONS FOR LOSSES ON LOANS. The provision for losses on loans amounted to $143,000 for the year ended December 31, 1995, an increase of $46,000, or 47.4%, over the $97,000 total recorded in 1994. The 1995 provision is primarily attributable to growth in the loan portfolio, as nonperforming loans declined during the period, totaling $1.1 million at December 31, 1995, compared to $1.3 million at December 31, 1994. OTHER INCOME. Other income totaled $3.3 million for the year ended December 31, 1995, an increase of $715,000, or 27.7%, over the $2.6 million total for 1994. The increase resulted primarily from a $163,000, or 21.7%, increase in late charges, rent and other and a $625,000, or 124.8%, increase in gain on sale of loans, which were partially offset by a $140,000 decline in gain on sale of real estate acquired through foreclosure. The increase in gain on sale of loans can be attributed primarily to Camco's adoption of SFAS No. 122 on "Accounting for Mortgage Servicing Rights" during 1995. SFAS No. 122 provides for -34- 35 recognition of rights to service mortgage loans as separate assets. Camco adopted SFAS No. 122 as of April 1, 1995, and recorded mortgage servicing rights totaling $655,000 during the year ended December 31, 1995. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other expense totaled $8.8 million for the year ended December 31, 1995, an increase of $621,000, or 7.6%, over the $8.2 million recorded in 1994. The increase resulted primarily from a $592,000, or 16.4%, increase in employee compensation and benefits, a $51,000, or 8.9%, increase in federal deposit insurance premiums and a $31,000, or 10.7%, increase in franchise taxes, which were partially offset by a decline of $28,000, or 3.0%, in occupancy expense. The increase in employee compensation and benefits resulted primarily from normal merit increases and an increase in staffing levels as a result of growth. The increase in federal deposit insurance premiums can be attributed to growth in the deposit portfolio year to year, while the increase in franchise taxes resulted from an increase in stockholders' equity following Camco's stock offering during 1994. FEDERAL INCOME TAXES. The provision for federal income taxes totaled $1.9 million for the year ended December 31, 1995, an increase of $599,000, or 45.7%, over the $1.3 million total recorded in 1994. The increase resulted primarily from the increase in net earnings before taxes of $1.7 million, or 44.3%. The effective tax rates were 34.4% and 34.0% for the years ended December 31, 1995 and 1994, respectively. LIQUIDITY AND CAPITAL RESOURCES Savings associations are generally required to maintain specified minimum levels of liquid investments, including cash and qualifying types of U.S. Government and agency obligations and other specified instruments. The primary sources of funds to the Banks are deposits, principal and interest payments made on the portfolio loans, proceeds from the sale of mortgage loans, maturing investments, FHLB advances and funds provided by operating activities. Principal uses of funds include deposit withdrawals, loan originations, investment purchases, repayment of FHLB advances, payment of interest on deposits and payment of operating expenses. While certain of these sources and uses of funds are relatively predictable, deposit flows, loan originations and prepayments of loans are influenced by external factors such as interest rates, economic conditions, competition and consumer confidence in financial service industries. Camco attempts to maintain a stable retail deposit base which does not utilize brokered deposits. During the years ended December 31, 1996 and 1995, Camco maintained its deposit balance goals by offering competitive, but not excessive, interest rates on deposits. In addition to growth as a result of the Merger, the deposit balance increased by $2.6 million due to growth in Camco's portfolio in 1996. In 1995, deposit balances increased by $19.7 million. As stated previously, management intends to pursue growth in the current interest rate environment. At December 31, 1996, the Banks had total outstanding loan commitments of $22.2 million, which included outstanding loan origination commitments, outstanding commitments to purchase loans, undisbursed loans in process of $8.9 million, and borrower's unused lines of credit of $7.5 million. Such commitments can be funded from current excess liquidity. Camco's principal source of income on an unconsolidated basis is earnings and dividends from the Banks. The ability of the Banks to pay dividends to Camco is subject to certain regulatory restrictions. Each of the Banks is currently able to pay dividends to Camco to the fullest extent permitted by federal regulations. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than does the effect of general levels of inflation. In the current interest rate environment, the liquidity, the maturity structure and the quality of Camco's assets and liabilities are critical to the maintenance of acceptable performance levels. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In October 1994, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119 requires financial statement disclosure of certain derivative financial instruments, defined as -35- 36 futures, forwards, swaps, option contracts, or other financial instruments with similar characteristics. In the opinion of management, the disclosure requirements of SFAS No. 119 will have no material effect on Camco's consolidated financial condition or results of operations, as Camco does not invest in derivative financial instruments, as defined. As a result, the applicability of SFAS No. 119 relates solely to disclosure requirements pertaining to fixed-rate and adjustable-rate loan commitments. In March 1995, the FASB issued SFAS No. 121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. SFAS No. 121 is effective for financial statements for fiscal years beginning after December 15, 1995. Earlier application is encouraged. Management adopted SFAS No. 121 on January 1, 1996, as required, without material effect on Camco's consolidated financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", establishing financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting are require to disclose in a footnote to the financial statements pro forma net earnings and, if presented, earnings per share, as if SFAS No. 123 had been adopted. The accounting requirements of SFAS No. 123 are effective for transactions entered into during fiscal years that begin after December 15, 1995; however, companies are required to disclose information for awards granted in their first fiscal year beginning after December 15, 1994. Management has determined that Camco will continue to account for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, and therefore, the disclosure provisions of SFAS No. 123 will have no effect on its consolidated financial condition or results of operations. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that provides accounting guidance on transfers of financial assets, servicing of financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an approach to accounting for transfers of financial assets that provides a means of dealing with more complex transactions in which the seller disposes of only a partial interest in the assets, retains rights or obligations, makes use of special purpose entities in the transaction, or otherwise has continuing involvement with the transferred assets. The new accounting method, referred to as the financial components approach, provides that the carrying amount of the financial assets transferred be allocated to components of the transaction based on their relative fair values. SFAS No. 125 provides criteria for determining whether control of assets has been relinquished and whether a sale has occurred. If the transfer does not qualify as a sale, it is accounted for as a secured borrowing. Transactions subject to the provisions of SFAS No. 125 include, among others, transfers involving repurchase agreements, securitizations of financial assets, loan participations, factoring arrangements, and transfers of receivables with recourse. An entity that undertakes an obligation to service financial assets recognizes either a servicing asset or liability for the servicing contract (unless related to a securitization of assets, and all the securitized assets are retained and classified as held-to-maturity). A servicing asset or liability that is purchased or assumed is initially recognized at its fair value. Servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are subject to subsequent assessments for impairment based on fair value. SFAS No. 125 provides that a liability is removed from the balance sheet only if the debtor either pays the creditor and is relieved of its obligation for the liability or is legally released from being the primary obligor. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1997, and is to be applied prospectively. Earlier or retroactive application is not permitted. Management does not believe that adopting of SFAS No. 125 will have a material adverse effect on Camco's consolidated financial position or results of operations. -36- 37 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Camco Financial Corporation We have audited the accompanying consolidated statements of financial condition of Camco Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years ended December 31, 1996, 1995 and 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Camco Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. As more fully explained in Note A-4, the Corporation changed its method of accounting for gains on sale of loans during the year ended December 31, 1995. Grant Thornton LLP Cincinnati, Ohio February 19, 1997 -37- 38 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands, except share data)
ASSETS 1996 1995 ---- ---- Cash and due from banks $ 10,587 $ 11,325 Interest-bearing deposits in other financial institutions 7,278 2,122 --------- --------- Cash and cash equivalents 17,865 13,447 Certificates of deposit in other financial institutions 990 1,881 Investment securities available for sale - at market 5,174 3,131 Investment securities - at cost, approximate market value of $21,822 and $19,123 as of December 31, 1996 and 1995 21,844 19,283 Mortgage-backed securities available for sale - at market 742 985 Mortgage-backed securities - at cost, approximate market value of $10,735 and $5,045 as of December 31, 1996 and 1995 10,700 5,002 Loans held for sale - at lower of cost or market 931 1,518 Loans receivable - net 387,992 291,233 Office premises and equipment - net 6,811 4,153 Real estate acquired through foreclosure 53 28 Federal Home Loan Bank stock - at cost 3,942 2,832 Accrued interest receivable on loans 2,443 1,736 Accrued interest receivable on mortgage-backed securities 69 58 Accrued interest receivable on investment securities and interest-bearing deposits 499 335 Prepaid expenses and other assets 495 699 Cash surrender value of life insurance 4,880 - Goodwill and other intangible assets - net of accumulated amortization 3,701 - Prepaid federal income taxes 319 148 -------- -------- Total assets $469,450 $346,469 ======== ========
-38- 39
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- Deposits $358,009 $286,574 Advances from the Federal Home Loan Bank 57,354 26,078 Advances by borrowers for taxes and insurance 2,864 2,964 Accounts payable and accrued liabilities 4,490 1,797 Dividends payable 368 207 Deferred federal income taxes 1,352 1,156 -------- -------- Total liabilities 424,437 318,776 Commitments - - Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized, 4,900,000 shares, issued 3,062,893 at December 31, 1996 and 1,971,482 shares at December 31, 1995 3,063 1,971 Additional paid-in capital 21,917 5,735 Retained earnings - substantially restricted 20,005 19,936 Unrealized gains on securities designated as available for sale, net of related tax effects 28 51 -------- -------- Total stockholders' equity 45,013 27,693 -------- -------- Total liabilities and stockholders' equity $469,450 $346,469 ======== ========
The accompanying notes are an integral part of these statements. -39- 40 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the year ended December 31, (In thousands, except share data)
1996 1995 1994 ---- ---- ---- Interest income Loans $26,621 $22,939 $16,622 Mortgage-backed securities 474 423 497 Investment securities 1,448 1,570 1,826 Interest-bearing deposits and other 717 508 814 --------- --------- --------- Total interest income 29,260 25,440 19,759 Interest expense Deposits 13,933 12,478 9,497 Borrowings 2,113 1,779 736 --------- --------- --------- Total interest expense 16,046 14,257 10,233 --------- --------- --------- Net interest income 13,214 11,183 9,526 Provision for losses on loans 111 143 97 --------- --------- --------- Net interest income after provision for losses on loans 13,103 11,040 9,429 Other income Late charges, rent and other 1,145 915 752 Loan servicing fees 749 796 769 Service charges and other fees on deposits 447 448 408 Gain on sale of loans 1,257 1,126 501 Gain (loss) on sale of real estate acquired through foreclosure (2) 8 148 --------- --------- --------- Total other income 3,596 3,293 2,578 --------- --------- --------- General, administrative and other expense Employee compensation and benefits 4,970 4,198 3,606 Occupancy and equipment 1,170 902 930 Federal deposit insurance premiums 2,369 625 574 Data processing 454 397 405 Advertising 388 406 409 State franchise taxes 399 322 291 Amortization of goodwill 38 - - Other operating 2,402 1,925 1,939 --------- --------- --------- Total general, administrative and other expense 12,190 8,775 8,154 --------- --------- --------- Earnings before federal income taxes 4,509 5,558 3,853 Federal income taxes Current 1,214 1,794 1,356 Deferred 282 116 (45) --------- --------- --------- Total federal income taxes 1,496 1,910 1,311 --------- --------- --------- NET EARNINGS $ 3,013 $ 3,648 $ 2,542 ========= ========= ========= EARNINGS PER SHARE $1.30 $1.76 $1.40 ===== ===== ===== Weighted average number of common shares outstanding 2,313,240 2,068,866 1,814,227 ========= ========= =========
The accompanying notes are an integral part of these statements. -40- 41 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 1996, 1995 and 1994 (In thousands, except share data)
UNREALIZED GAINS (LOSSES) ON SECURITIES ADDITIONAL DESIGNATED TOTAL COMMON STOCK PAID-IN AS AVAILABLE RETAINED STOCKHOLDERS' ($1 PAR VALUE) CAPITAL FOR SALE EARNINGS EQUITY -------------- ----------- ------------- -------- ------------- Balance at January 1, 1994 $1,565 $ 741 $- $17,520 $19,826 Stock options exercised 1 7 - - 8 Cash dividends declared - $.3168 per share - - - (578) (578) Stock dividend (5%) including cash in lieu of fractional shares 78 938 - (1,018) (2) Proceeds from offering of common stock 231 2,730 - - 2,961 Designation of securities as available for sale upon adoption of SFAS No. 115 - - 298 - 298 Net earnings - - - 2,542 2,542 Unrealized losses on securities designated as available for sale, net of related tax effects - - (314) - (314) ----- ----- --- ------- -------- Balance at December 31, 1994 1,875 4,416 (16) 18,466 24,741 Stock options exercised 2 8 - - 10 Cash dividends declared - $.3708 per share - - - (770) (770) Stock dividend (5%) including cash in lieu of fractional shares 94 1,311 - (1,408) (3) Net earnings - - - 3,648 3,648 Unrealized gains on securities designated as available for sale, net of related tax effects - - 67 - 67 ----- ----- ---- ------- --------- Balance at December 31, 1995 1,971 5,735 51 19,936 27,693 Stock options exercised 6 23 - - 29 Cash dividends declared - $.4488 per share - - - (1,165) (1,165) Stock dividend (5%) including cash in lieu of fractional shares 99 1,676 - (1,779) (4) Issuance of shares in connection with acquisition 987 14,483 - - 15,470 Net earnings - - - 3,013 3,013 Unrealized losses on securities designated as available for sale, net of related tax effects - - (23) - (23) ----- ------- ---- ------- --------- Balance at December 31, 1996 $3,063 $21,917 $ 28 $20,005 $45,013 ====== ======= ===== ======= =======
The accompanying notes are an integral part of these statements. -41- 42 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings for the year $ 3,013 $ 3,648 $ 2,542 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of goodwill 38 - - Amortization of premiums and discounts on investment and mortgage-backed securities - net 30 (13) 139 Depreciation and amortization 492 461 502 Amortization of purchase accounting adjustments (10) - - Provision for loan losses 111 143 97 Amortization of deferred loan origination fees (441) (310) (226) Loss (gain) on sale of real estate acquired through foreclosure 2 (8) (148) Federal Home Loan Bank stock dividends (225) (177) (109) Gain on sale of loans (391) (471) (501) Gain on sale of equipment - (5) - Loans originated for sale in the secondary market (61,100) (39,941) (35,015) Proceeds from sale of mortgage loans in the secondary market 62,078 39,362 41,777 Increase (decrease) in cash, net of acquisition of First Ashland Financial Corporation, due to changes in: Accrued interest receivable on loans (297) (418) (338) Accrued interest receivable on mortgage-backed securities 32 28 23 Accrued interest receivable on investments (95) 125 9 Prepaid expenses and other assets 255 (152) (142) Accrued interest and other liabilities 1,967 (411) 1,237 Federal income taxes Current (158) 294 (142) Deferred 282 116 (45) ------- ------- ------- Net cash provided by operating activities 5,583 2,271 9,660 ------- ------- ------- Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities 10,788 9,750 5,194 Proceeds from sale of investment securities 427 - - Purchase of investment securities designated as available for sale (33) - - Purchase of investment securities designated as held to maturity (9,996) (1,775) (6,473) Purchase of mortgage-backed securities - - (500) Principal repayments on mortgage-backed securities 1,244 1,061 2,807 Loans purchased - - (710) Loan disbursements (119,738) (97,464) (122,962) Principal repayments on loans 87,317 67,390 54,802 Purchase of office premises and equipment (1,023) (565) (535) Proceeds from sale of office premises and equipment - 37 - Proceeds from sale of real estate acquired through foreclosure 326 89 333 Proceeds from redemption of FHLB stock - - 67 Purchase of FHLB stock (200) (393) (551) Additions to real estate acquired through foreclosure (3) (70) (92) Net decrease in certificates of deposit in other financial institutions 891 5,546 8,309 Purchase of cash surrender value of life insurance (4,735) - - Net increase in cash surrender value of life insurance (145) - - Purchase of First Ashland Financial Corporation stock - net 2,633 - - ------- ------- ------ Net cash used in investing activities (32,247) (16,394) (60,311)
-42- 43 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended December 31, (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows provided by (used in) financing activities: Net increase in deposits 2,603 19,713 14,642 Proceeds from Federal Home Loan Bank advances and other borrowings 110,115 70,400 63,241 Repayment of Federal Home Loan Bank advances and other borrowings (80,326) (70,833) (38,230) Dividends paid on common stock (1,169) (773) (580) Proceeds from exercise of stock options 29 10 8 Proceeds from offering of common stock - - 2,961 Increase (decrease) in advances by borrowers for taxes and insurance (170) (226) 1,778 -------- ------- -------- Net cash provided by financing activities 31,082 18,291 43,820 -------- ------- ------- Increase (decrease) in cash and cash equivalents 4,418 4,168 (6,831) Cash and cash equivalents at beginning of year 13,447 9,279 16,110 -------- -------- ------- Cash and cash equivalents at end of year $ 17,865 $ 13,447 $ 9,279 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest on deposits and borrowings $ 15,735 $ 14,003 $ 10,143 -------- -------- ------- Income taxes $ 1,489 $ 1,684 $ 1,329 ======== ======== ======== Supplemental disclosure of noncash investing activities: Transfers of mortgage loans to real estate acquired through foreclosure $ 92 $ 70 $ 72 ======== ======== ======== Issuance of mortgage loans upon sale of real estate acquired through foreclosure $ 283 $ 42 $ 277 ======== ======== ======== Unrealized gains (losses) on securities designated as available for sale, net of related tax effects $ (23) $ 67 $ (16) ======== ======== ======== Recognition of gains on sale of loans in accordance with SFAS No. 122 $ 866 $ 655 $ - ======== ======== ======== Liabilities assumed and cash paid in acquisition of First Ashland Financial Corporation $ 84,467 $ - $ - Less: fair value of assets received 80,728 - - -------- ------- ------- Amount assigned to goodwill $ 3,739 $ - $ - ======== ======== =======
The accompanying notes are an integral part of these statements. -43- 44 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The business activities of Camco Financial Corporation (the "Corporation") have been limited primarily to holding the common shares of its wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge"), Marietta Savings Bank ("Marietta"), First Federal Savings Bank of Washington Court House ("First Federal"), First Federal Bank for Savings ("Ashland") (collectively hereinafter the "Banks") and East Ohio Land Title Agency, Inc., and two second tier subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company. Accordingly, the Corporation's results of operations are economically dependent upon the results of the Banks' operations. The Banks conduct a general commercial banking business in eastern and central Ohio, northern West Virginia and northeastern Kentucky which consists of attracting deposits from the general public and applying those funds to the origination of loans for residential, consumer and nonresidential purposes. The Banks' profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Banks can be significantly influenced by a number of competitive factors, such as governmental monetary policy, that are outside of management's control. The consolidated financial information presented herein has been prepared in accordance with generally accepted accounting principles ("GAAP") and general accounting practices within the financial services industry. In preparing financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from such estimates. The following is a summary of the Corporation's significant accounting policies which, with the exception of the policy described in Note A-4, have been consistently applied in the preparation of the accompanying consolidated financial statements. 1. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its wholly-owned and second tier subsidiaries. All significant intercompany balances and transactions have been eliminated. 2. Interest Rate Risk The earnings of the Banks are primarily dependent upon net interest income, which is determined by 1) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (interest rate spread) and 2) the relative amounts of interest-earning assets and interest-bearing liabilities outstanding. The Corporation's interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Corporation is vulnerable to an increase in interest -44- 45 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. Interest Rate Risk (continued) rates to the extent that interest-bearing liabilities mature or reprice more rapidly than interest-earning assets. At December 31, 1996, 1995 and 1994, the Corporation had net interest-earning assets of $444.5 million, $328.0 million and $309.4 million with weighted average effective yields of 8.01%, 8.07% and 7.33% and net interest-bearing liabilities of approximately $415.4 million, $312.7 million and $293.4 million, with weighted average effective interest rates of 4.96%, 4.82% and 4.29%. To minimize the effect of adverse changes in interest rates on its results of operations, the Corporation has implemented an asset and liability management plan that emphasizes increasing the interest rate sensitivity and shortening the maturities of its interest-earning assets and extending the maturities of its interest-bearing liabilities. Although the Corporation has undertaken a variety of strategies to minimize its exposure to interest rate risk, its primary emphasis has been on the origination and purchase of adjustable rate loans. 3. Investment Securities and Mortgage-Backed Securities The Corporation accounts for investment and mortgage-backed securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that investments be categorized as held-to-maturity, trading, or available for sale. Securities classified as held-to-maturity are carried at cost only if the Corporation has the positive intent and ability to hold these securities to maturity. Trading securities and securities available for sale are carried at fair value with resulting unrealized gains or losses recorded to operations or stockholders' equity, respectively. Investment and mortgage-backed securities are classified as held to maturity or available for sale upon acquisition. At December 31, 1996 and 1995, the Corporation's stockholders' equity reflected net unrealized gains on securities designated as available for sale of $28,000 and $51,000, respectively. Realized gains and losses on sales of securities are recognized using the specific identification method. 4. Loans Receivable Loans held in portfolio are stated at the principal amount outstanding, adjusted for unamortized yield adjustments, including deferred loan origination fees and costs and capitalized mortgage servicing rights, and the allowance for loan losses. The yield adjustments are amortized and accreted to operations using the interest method over the average life of the underlying loans. Interest is accrued as earned unless the collectibility of the loan is in doubt. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has returned to normal, in which case the loan is returned to accrual status. -45- 46 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Loans Receivable (continued) Loans held for sale are carried at the lower of acquisition cost (less principal payments received) or fair value (market value), calculated on an aggregate basis. At December 31, 1996 and 1995, such loans were carried at cost, which approximated fair value. In May 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 122 "Accounting for Mortgage Servicing Rights," which requires that the Corporation recognize as separate assets, rights to service mortgage loans for others, regardless of how those servicing rights are acquired. An institution that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells those loans with servicing rights retained is required to allocate some of the cost of the loans to the mortgage servicing rights. SFAS No. 122 requires that securitization of mortgage loans be accounted for as sales of mortgage loans and acquisitions of mortgage-backed securities. Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights and capitalized excess servicing receivables be assessed for impairment. Impairment is measured based on fair value. SFAS No. 122 was effective for years beginning after December 15, 1995, (January 1, 1996, as to the Corporation) to transactions in which an entity acquires mortgage servicing rights and to impairment evaluations of all capitalized mortgage servicing rights and capitalized excess servicing receivables whenever acquired. Retroactive application was prohibited, and earlier adoption was encouraged. Management elected early adoption of SFAS No. 122, which resulted in the recognition of $655,000 in pre-tax gains on sales of loans during the year ended December 31, 1995. During 1996, the Corporation recorded $866,000 in pre-tax gains on sales of loans pursuant to SFAS No. 122. The mortgage servicing rights recorded by the Banks', calculated in accordance with the provisions of SFAS No. 122, were segregated into pools for valuation purposes, using as pooling criteria the loan term and coupon rate. Once pooled, each grouping of loans was evaluated on a discounted earnings basis to determine the present value of future earnings that a purchaser could expect to realize from each portfolio. Earnings were projected from a variety of sources including loan servicing fees, interest earned on float, net interest earned on escrows, miscellaneous income, and costs to service the loans. The present value of future earnings is the "economic" value for the pool, i.e., the net realizable present value to an acquirer of the acquired servicing. The Corporation recorded amortization related to mortgage servicing rights totaling approximately $99,000 and $20,000 for the years ended December 31, 1996 and 1995. At December 31, 1996 and 1995, the fair value of the Corporation's mortgage servicing rights totaled approximately $1.4 million and $655,000, respectively. At December 31, 1996 and 1995, the Banks were servicing approximately $265.8 million and $242.9 million, respectively, of mortgage loans that have been sold to the Federal Home Loan Mortgage Corporation and other investors. -46- 47 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Loan Origination and Commitment Fees The Corporation accounts for loan origination fees and costs in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions of SFAS No. 91, all loan origination fees received, net of certain direct origination costs, are deferred on a loan-by-loan basis and amortized to interest income using the interest method, giving effect to actual loan prepayments. Additionally, SFAS No. 91 generally limits the definition of loan origination costs to the direct costs attributable to originating a loan, i.e., principally actual personnel costs. Fees received for loan commitments are deferred and amortized over the life of the related loan using the interest method. 6. Allowance for Loan Losses It is the Corporation's policy to provide valuation allowances for estimated losses on loans based upon past loss experience, trends in the level of delinquent and specific problem loans, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current and anticipated economic conditions in the primary market area. When the collection of a loan becomes doubtful, or otherwise troubled, the Corporation records a loan loss provision equal to the difference between the fair value of the property securing the loan and the loan's carrying value. Such provision is based on management's estimate of the fair value of the underlying collateral, taking into consideration the current and currently anticipated future operating or sales conditions. As a result, such estimates are particularly susceptible to changes that could result in a material adjustment to results of operations in the near term. Recovery of the carrying value of such loans is dependent to a great extent on economic, operating, and other conditions that may be beyond the Corporation's control. In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114, which was amended by SFAS No. 118 as to certain income recognition and financial statement disclosure provisions, requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loans observable market price or fair value of the collateral. The Corporation adopted SFAS No. 114 effective January 1, 1995, as required, without material effect on consolidated financial condition or results of operations. Under SFAS No. 114, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Corporation considers its investment in one-to-four family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Corporation's investment in multi-family and nonresidential loans, and its evaluation of impairment thereof, such loans are collateral dependent and as a result are carried as a practical expedient at the lower of cost or fair value. -47- 48 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. Allowance for Loan Losses (continued) It is the Corporation's policy to charge off unsecured credits that are more than ninety days delinquent. Similarly, collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. At December 31, 1996 and 1995, the Corporation had no loans that would be defined as impaired under SFAS No. 114. 7. Real Estate Acquired Through Foreclosure Real estate acquired through foreclosure is carried at the lower of the loan's unpaid principal balance (cost) or fair value less estimated selling expenses at the date of acquisition. Real estate loss provisions are recorded if the properties' fair value subsequently declines below the amount determined at the recording date. In determining the lower of cost or fair value at acquisition, costs relating to development and improvement of property are capitalized. Costs relating to holding real estate acquired through foreclosure, net of rental income, are charged against earnings as incurred. 8. Office Premises and Equipment Depreciation of office premises and equipment is computed using the straight-line method over estimated useful lives of the assets, estimated to be ten to fifty years for buildings and improvements and three to twenty-five years for furniture, fixtures and equipment. 9. Goodwill and Other Intangible Assets Goodwill resulting from the acquisition of Ashland, net of amortization recorded in 1996, totaled approximately $3.7 million, and is being amortized over a twenty-five year period using the straight-line method. Management periodically evaluates the carrying value of these intangible assets in relation to the continuing earnings capacity of the acquired assets and assumed liabilities. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 provides guidance on when to recognize and how to measure impairment losses of long-lived assets and certain identifiable intangibles and how to value long-lived assets to be disposed of. The Corporation adopted SFAS No. 121 effective January 1, 1996, as required, without material effect on consolidated financial condition or results of operations. -48- 49 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 10. Federal Income Taxes The Corporation accounts for federal income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Pursuant to the provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years' earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. The Corporation's principal temporary differences between pretax financial income and taxable income result primarily from the different methods of accounting for deferred loan origination fees, Federal Home Loan Bank stock dividends, the general loan loss allowance, percentage of earnings bad debt deductions and certain components of retirement expense. A temporary difference is also recognized for depreciation expense computed using accelerated methods for federal income tax purposes. 11. Earnings Per Share and Dividends Per Share Earnings per share is calculated based on the weighted average number of common and common equivalent shares (which includes those stock options that are dilutive) outstanding during the respective periods, adjusted to reflect a 5% stock dividend effected during the years ended December 31, 1996 and 1995. Dividends per share for the years ended December 31, 1996, 1995 and 1994, have also been adjusted to reflect the effect of such stock dividends. 12. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. -49- 50 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Fair Value of Financial Instruments (continued) The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and Cash Equivalents: The carrying amount reported in the consolidated statement of financial condition for cash and cash equivalents is deemed to approximate fair value. Certificates of Deposit in Other Financial Institutions: For certificates of deposit in other financial institutions, fair values are estimated using discounted cash flow analyses, using interest rates currently being offered for such deposits with similar remaining maturities. Investment Securities and Mortgage-backed Securities: Fair values for investment securities and mortgage-backed securities are based on quoted market prices and dealer quotes. Loans receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential real estate, multi-family residential real estate, installment and other. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. Federal Home Loan Bank stock: The carrying amount presented in the consolidated statement of financial condition is deemed to approximate fair value. Accrued Interest Receivable and Accrued Interest Payable: The carrying amount as reported in the consolidated statement of financial condition is deemed a reasonable estimate of fair value. Cash Surrender Value of Life Insurance: The carrying amount as reported in the consolidated statement of financial condition is deemed to approximate fair value. Deposits: The fair values of deposits with no stated maturity, such as money market demand deposits, savings and NOW accounts, are deemed equal to the amount payable on demand as of December 31, 1996 and 1995. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. -50- 51 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Fair Value of Financial Instruments (continued) Advances from the Federal Home Loan Bank: The fair value of these advances is estimated using the rates currently offered for similar advances of similar remaining maturities or, when available, quoted market prices. Advances by Borrowers for Taxes and Insurance: The carrying amount of advances by borrowers for taxes and insurance is deemed to approximate fair value. Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At December 31, 1996 and 1995, the difference between the fair value and notional amount of loan commitments was not material. Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation's financial instruments are as follows:
DECEMBER 31, 1996 1995 CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE (In thousands) Financial assets Cash and cash equivalents $ 17,865 $ 17,865 $ 13,447 $ 13,447 Certificates of deposit in other financial institutions 990 990 1,881 1,881 Investment securities 27,018 26,996 22,414 22,254 Mortgage-backed securities 11,442 11,477 5,987 6,030 Loans receivable 388,923 292,751 291,671 Federal Home Loan Bank stock 3,942 3,942 2,832 2,832 Accrued interest receivable 3,011 3,011 2,129 2,129 Cash surrender value of life insurance 4,880 4,880 - - -------- -------- -------- -------- $458,071 $341,441 $340,244 ======== ======== ======== Financial liabilities Deposits $358,009 $286,574 $290,243 Advances from the Federal Home Loan Bank 57,354 26,078 26,139 Advances by borrowers for taxes and insurance 2,864 2,864 2,964 2,964 -------- -------- -------- -------- $418,227 $315,616 $319,346 ======== ======== ========
13. Cash and Cash Equivalents Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of three months or less. -51- 52 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 14. Advertising Advertising costs are expensed when incurred. 15. Reclassifications Certain prior year amounts have been reclassified to conform to the 1996 consolidated financial statement presentation. NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of investment securities at December 31, 1996 and 1995 are as follows:
1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: U.S. Government agency obligations $21,367 $ 42 $ (97) $21,312 Municipal bonds 477 33 - 510 ------- ---- ----- ------- Total investment securities held to maturity 21,844 75 (97) 21,822 AVAILABLE FOR SALE: U.S. Government agency obligations 3,523 23 (3) 3,543 Corporate equity securities 1,623 24 (16) 1,631 ------- ---- ----- ------- Total investments available for sale 5,146 47 (19) 5,174 ------- ---- ----- ------- Total investment securities $26,990 $122 $(116) $26,996 ======= ==== ===== =======
1995 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: U.S. Government agency obligations $19,147 $17 $(184) $18,980 Municipal bonds 136 7 - 143 ------- --- ----- ------- Total investment securities held to maturity 19,283 24 (184) 19,123 AVAILABLE FOR SALE: U.S. Government agency obligations 2,999 46 - 3,045 Corporate equity securities 82 4 - 86 ------- --- ----- ------- Total investments available for sale 3,081 50 - 3,131 ------- --- ----- ------- Total investment securities $22,364 $74 $(184) $22,254 ======= === ===== =======
-52- 53 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of mortgage-backed securities at December 31, 1996 and 1995, are as follows:
1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: FNMA $ 4,352 $ 19 $ (48) $ 4,323 FHLMC 2,906 69 (18) 2,957 CMOs 3,142 49 (30) 3,161 GNMA 195 15 - 210 Other 105 - (21) 84 ------- -- ----- ------- Total mortgage-backed securities held to maturity 10,700 152 (117) 10,735 AVAILABLE FOR SALE: FHLMC 733 9 - 742 ------- ---- ----- ------- Total mortgage-backed securities $11,433 $161 $(117) $11,477 ======= ==== ===== =======
1995 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: FNMA $3,218 $33 $ (3) $3,248 FHLMC 1,784 21 (8) 1,797 ----- --- ----- ----- Total mortgage-backed securities held to maturity 5,002 54 (11) 5,045 AVAILABLE FOR SALE: FHLMC 968 17 - 985 ------ --- ----- ------ Total mortgage-backed securities $5,970 $71 $ (11) $6,030 ====== === ===== ======
-53- 54 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost and estimated fair value of investment and mortgage-backed securities at December 31, 1996 and 1995 (including securities designated as available for sale) by contractual term to maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1996 1995 ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE (In thousands) Due in one year or less $ 4,606 $ 4,586 $ 6,019 $ 6,030 Due after one year through five years 20,095 20,097 15,217 15,084 Due after five years through ten years 487 487 1,046 1,054 Due after ten years through fifteen years 179 195 - - ------- ------- ------- ------ Total investment securities 25,367 25,365 22,282 22,168 Corporate equity securities 1,623 1,631 82 86 Mortgage-backed securities - not due at a single maturity date 11,433 11,477 5,970 6,030 ------- ------- ------- ------- Total $38,423 $38,473 $28,334 $28,284 ======= ======= ======= =======
During 1996, the Corporation sold investment securities designated as available for sale with a carrying value of $427,000 at no gain or loss. There were no sales of investment securities or mortgage-backed securities during the years ended December 31, 1995 and 1994. -54- 55 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE C - LOANS RECEIVABLE Loans receivable at December 31 consist of the following:
1996 1995 (In thousands) Conventional real estate loans: Existing residential properties $339,970 $243,767 Nonresidential real estate 12,529 11,486 Construction 19,960 19,944 Developed building lots 1,406 965 Education loans 2,037 2,728 Consumer and other loans 22,244 22,589 -------- -------- Total 398,146 301,479 Less: Undisbursed portion of loans in process 8,867 8,717 Unamortized yield adjustments 40 497 Allowance for loan losses 1,247 1,032 -------- -------- Total loans receivable - net $387,992 $291,233 ======== ========
As depicted above, the Corporation's lending efforts have historically focused on loans secured by existing residential properties, which comprise approximately $340.0 million, or 88%, of the total loan portfolio at December 31, 1996 and approximately $243.8 million, or 84%, of the total loan portfolio at December 31, 1995. Generally, such loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Corporation with adequate collateral coverage in the event of default. Nevertheless, the Corporation, as with any lending institution, is subject to the risk that residential real estate values could deteriorate in its primary lending areas of central and eastern Ohio, northern West Virginia, and northeastern Kentucky, thereby impairing collateral values. However, management is of the belief that residential real estate values in the Corporation's primary lending areas are presently stable. The Banks, in the ordinary course of business, have granted loans to certain of their directors, executive officers, and their associates. Such loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans (excluding loans to any such individual which in the aggregate did not exceed $60,000) was less than 5% of stockholders' equity at December 31, 1996 and 1995. -55- 56 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE D - ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows for the years ended December 31:
1996 1995 1994 (In thousands) Balance at beginning of year $1,032 $ 943 $1,028 Provision for losses 111 143 97 Allowance resulting from acquisition 109 - - Charge-offs, net of immaterial recoveries (5) (54) (182) ------ ------ ------ Balance at end of year $1,247 $1,032 $ 943 ====== ====== ======
Nonaccrual and nonperforming loans totaled approximately $2.4 million, $1.1 million and $1.3 million at December 31, 1996, 1995 and 1994, respectively. Interest income that would have been recognized had such nonaccrual loans performed pursuant to contractual terms totaled approximately $90,000, $24,000 and $57,000 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment at December 31 is summarized as follows:
1996 1995 (In thousands) Land $1,308 $ 919 Buildings and improvements 5,783 4,095 Furniture, fixtures and equipment 3,728 2,662 ------ ----- 10,819 7,676 Less accumulated depreciation and amortization (4,008) (3,523) ------ ------ $6,811 $4,153 ====== ======
-56- 57 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE F - DEPOSITS Deposit balances by type and weighted-average interest rate at December 31, 1996 and 1995, are summarized as follows:
1996 1995 AMOUNT RATE AMOUNT RATE (In thousands) NOW accounts $ 47,078 1.93% $ 44,591 2.30% Money market demand accounts 17,186 3.64 15,047 3.29 Passbook and statement savings accounts 58,610 3.01 50,498 3.01 -------- ---- -------- ---- Total withdrawable accounts 122,874 2.68 110,136 2.76 Money market certificates: Seven days to one year 46,143 5.59 19,332 4.73 One to two years 66,674 5.77 54,336 5.99 Two to eight years 82,747 6.31 70,198 6.13 Negotiated rate certificates 21,786 5.69 21,446 5.63 Individual retirement accounts 17,785 5.90 11,126 6.23 -------- ---- -------- ---- Total certificate accounts 235,135 5.93 176,438 5.88 -------- ---- -------- ---- Total deposits $358,009 4.81% $286,574 4.68% ======== ==== ======== ====
At December 31, 1996 and 1995, the Corporation had certificates of deposit accounts with balances in excess of $100,000 totaling $37.9 million and $44.7 million, respectively. Interest expense on deposits is summarized as follows for the years ended December 31:
1996 1995 1994 (In thousands) Certificate of deposit accounts $10,974 $ 9,592 $6,173 NOW accounts and money market demand accounts 1,498 1,450 1,447 Passbook and statement savings accounts 1,461 1,436 1,877 ------- ------- ----- $13,933 $12,478 $9,497 ======= ======= ======
The contractual maturities of outstanding certificates of deposit are summarized as follows at December 31:
1996 1995 YEAR ENDING DECEMBER 31: (In thousands) 1996 $ - $105,593 1997 145,780 48,826 1998 53,565 14,479 1999 23,290 3,713 2000 6,183 3,827 After 2000 6,317 - -------- -------- Total certificate of deposit accounts $235,135 $176,438 ======== ========
-57- 58 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE F - DEPOSITS (continued) At December 31, 1996 and 1995, public savings deposits were collateralized by investment securities and interest-bearing deposits in other banks totaling $22.2 million and $20.0 million, respectively. NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at December 31, 1996 and 1995, by pledges of certain residential mortgage loans totaling $86.0 million and $39.1 million, respectively, as well as the Federal Home Loan Bank stock of the respective Bank subsidiaries, are summarized as follows:
MATURING FISCAL INTEREST RATE YEAR ENDING IN 1996 1995 (In thousands) 5.80% - 7.45% 1996 $ - $15,500 5.36% - 7.75% 1997 34,500 8,000 4.95% - 5.90% 1998 11,750 2,000 6.10% - 6.25% 1999 4,462 - 5.38%2000 750 - 4.25% - 6.71% Thereafter 5,892 578 ------- ------- $57,354 $26,078 ======= ======= Weighted average rate 5.87% 6.31% ==== ====
NOTE H - FEDERAL INCOME TAXES A reconciliation of the effective tax rate for the years ended December 31, 1996, 1995 and 1994, respectively, and the federal statutory rate in each of these years of 34%, computed by applying the statutory federal corporate tax rate to income before taxes, are summarized as follows at December 31:
1996 1995 1994 (In thousands) Expected federal tax at statutory rate $1,533 $1,890 $1,310 Other (37) 20 1 ------ ------ ------- Tax provision per consolidated financial statements $1,496 $1,910 $1,311 ====== ====== ======
-58- 59 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE H - FEDERAL INCOME TAXES (continued) The components of the Corporation's net deferred tax liability as of December 31, 1996 and 1995, are summarized as follows:
1996 1995 TEMPORARY TAX TEMPORARY TAX DIFFERENCE AT 34% DIFFERENCE AT 34% Deferred tax liabilities: Deferred loan origination fees $ (57) $ (19) $ (639) $ (217) FHLB stock dividends (1,528) (520) (952) (324) Percentage of earnings bad debt deduction (1,732) (589) (1,750) (595) Retirement expense (49) (17) (156) (53) Mortgage servicing rights (1,419) (482) (655) (223) Other liabilities (602) (205) (285) (97) ------- ------ ------ ------- Total deferred tax liabilities (5,387) (1,832) (4,437) (1,509) Deferred tax assets: General loan loss allowance 1,105 376 949 323 Other assets 306 104 88 30 ------- ------- ------- ------- Total deferred tax assets 1,411 480 1,037 353 ------- ------- ------- ------- Net deferred tax liability $(3,900) $(1,352) $(3,400) $(1,156) ======= ======= ======= =======
The Banks were allowed a special bad debt deduction generally limited to 8% of otherwise taxable income, subject to certain limitations based on aggregate loans and savings account balances at the end of the year. If the amounts that qualify as deductions for federal income taxes are later used for purposes other than for bad debt losses, including distributions in liquidations, such distributions will be subject to federal income taxes at the then current corporate income tax rate. The percentage of earnings bad debt deduction had accumulated to approximately $7.6 million as of December 31, 1996. The amount of the unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $2.0 million at December 31, 1996. See Note P for additional information regarding future percentage of earnings bad debt deductions. NOTE I - COMMITMENTS The Banks are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statement of financial condition. The contract or notional amounts of the commitments reflect the extent of the Banks' involvement in such financial instruments. -59- 60 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE I - COMMITMENTS (continued) The Banks' exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments. At December 31, 1996 and 1995, the Banks had outstanding commitments to originate or purchase fixed rate loans of approximately $1.4 million and $2.7 million, respectively, and adjustable rate loans of approximately $4.4 million and $4.0 million, respectively. Additionally, the Banks had unused lines of credit under home equity loans of $7.5 million at December 31, 1996. Management believes that all loan commitments are able to be funded through cash flow from operations and existing excess liquidity. Fees received in connection with these commitments have not been recognized in earnings. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral on loans may vary but the preponderance of loans granted generally include a mortgage interest in real estate as security. NOTE J - REGULATORY CAPITAL REQUIREMENTS Cambridge and Marietta are subject to the regulatory capital requirements of the Federal Deposit Insurance Corporation (the "FDIC"). First Federal Savings Bank and First Federal Bank for Savings are subject to minimum regulatory capital standards promulgated by the Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -actions by regulators that, if undertaken, could have a direct material effect on each of the Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. During the calendar year, each of the Banks were notified from their respective regulators that the Banks were categorized as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized" the Banks' must maintain minimum capital ratios as set forth in the following tables. -60- 61 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued) The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based capital ratio guidelines to which Cambridge and Marietta are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk-weighting categories, with higher levels of capital being required for the categories perceived as representing greater risk. These guidelines divide the capital into two tiers. The first tier ("Tier 1") includes common equity, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and purchased credit card relationships, subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1 capital. The FDIC may, however, set higher capital requirements when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. In addition, the FDIC established guidelines prescribing a minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as specified in the guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3% for savings banks that meet certain specified criteria, including that they have the highest regulatory rating and are not experiencing or anticipating significant growth. All other savings banks are required to maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. As of December 31, 1996, management believes that Cambridge and Marietta meet all capital adequacy requirements to which the Banks are subject.
CAMBRIDGE AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED' UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ------------------ ------------------- ------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $13,176 13.4% =>$7,840 =>8.0% =>$9,800 =>10.0% Tier I Capital (to risk-weighted assets) $12,786 13.0% =>$3,920 =>4.0% =>$5,880 => 6.0% Tier I Leverage $12,786 7.2% =>$7,087 =>4.0% =>$8,859 => 5.0%
-61- 62 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
MARIETTA AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS --------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $8,726 12.3% =>$5,654 =>8.0% =>$7,067 =>10.0% Tier I Capital (to risk-weighed assets) $8,354 11.8% =>$2,827 =>4.0% =>$4,240 => 6.0% Tier I Leverage $8,354 7.3% =>$4,547 =>4.0% =>$5,684 => 5.0%
The minimum capital standards of the OTS generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as stockholders' equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in present form, would increase the core capital requirement to a range of 4.0% - 5.0% of adjusted total assets for substantially all savings associations. Management anticipates no material change to the Banks' excess regulatory capital position as a result of this proposed change in the regulatory capital requirement. The risk-based capital requirement currently provides for the maintenance of core capital plus general loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Banks' multiply the value of each asset on their respective statement of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. As of December 31, 1996, management believes that First Federal and Ashland meet all capital adequacy requirements to which the Banks are subject.
FIRST FEDERAL AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ---------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $6,232 7.2% =>$1,300 =>1.5% =>$4,334 => 5.0% Core Capital $6,232 7.2% =>$2,601 =>3.0% =>$5,201 => 6.0% Risk-based capital $6,482 13.7% =>$3,788 =>8.0% =>$4,735 =>10.0%
-62- 63 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
ASHLAND AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS --------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $12,709 14.7% =>$1,299 =>1.5% =>$4,330 => 5.0% Core Capital $12,709 14.7% =>$2,598 =>3.0% =>$5,196 => 6.0% Risk-based capital $12,802 27.8% =>$3,680 =>8.0% =>$4,601 =>10.0%
The Corporation's management believes that, under the current regulatory capital regulations, the Banks will continue to meet their minimum capital requirements in the foreseeable future. However, events beyond the control of the Corporation, such as increased interest rates or a downturn in the economy in the subsidiaries' market areas, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements. Regulations of the Office of Thrift Supervision (OTS) impose limitations on the payment of dividends and other capital distributions by savings associations. Under such regulations, a savings association that, immediately prior to, and on a pro forma basis after giving effect to, a proposed capital distribution, has total capital (as defined by OTS regulation) that is equal to or greater than the amount of its fully phased-in capital requirement is generally permitted without OTS approval (but subsequent to 30 days prior notice to the OTS of the planned dividend) to make capital distributions during a calendar year in the amount of (i) up to 100% of its net earnings to date during the year plus an amount equal to one-half of the amount by which its total capital to assets ratio exceeded its fully phased-in capital to assets ratio at the beginning of the year (ii) or 75% of its net income for the most recent four quarters. Pursuant to such OTS dividend regulations, the Banks had the ability to pay dividends of approximately $7.3 million to Camco Financial Corporation at December 31, 1996. NOTE K - BENEFIT PLANS The Corporation has a non-contributory insured defined benefit pension plan (the Plan) covering all eligible employees. The Plan's benefit formula is the projected unit credit formula which encompasses future salary levels and participants' years of service. -63- 64 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE K - BENEFIT PLANS (continued) Net pension costs includes the following components for the years ended December 31:
1996 1995 1994 (In thousands) Service cost - benefits earned during year $232 $185 $180 Interest cost on projected benefit obligation 180 158 155 Gain on plan assets (69) (139) (53) Net amortization, deferral and other (40) 65 27 ---- ---- ---- Net pension cost $303 $269 $309 ==== ==== ====
The following table sets forth the Plan's funded status and amounts recognized in the consolidated statement of financial condition at December 31:
1996 1995 (In thousands) Actuarial present value of benefit obligation: Vested benefit obligation $1,605 $1,819 ====== ====== Accumulated benefit obligation $1,605 $1,955 ====== ====== Plan assets at fair value $2,279 $1,918 Actuarial present value of projected benefit obligation for services rendered to date 1,605 3,033 ------ ------ Plan assets greater (less) than projected benefit obligation 674 (1,115) Unrecognized net gain 580 1,168 Unrecognized transition liability, net of amortization 2 2 Other 1 116 ------ ------ Prepaid pension cost (included in prepaid expenses and other assets) $ 97 $ 171 ====== ======
Assumptions for the plan valuations include:
YEAR ENDED DECEMBER 31, 1996 1995 1994 Weighted average discount rate 7.71% 6.00% 6.50% Annual rate of increase in compensation levels N/A 4.50% 4.50% Expected long-term rate of return on assets 8.00% 8.00% 7.00%
The Corporation is in the process of terminating the Plan. It is anticipated that appropriate regulatory approval of the Plan termination will be received in the first quarter of calendar 1997. Coincident with the termination of the pension plan, the Corporation undertook a retirement plan in 1996 which provides retirement benefits to certain key officers. The Corporation's obligations under the plan have been provided for via the purchase of single premium key man life insurance of which the Corporation is the beneficiary. The Corporation recorded expense related to the plan totaling approximately $37,000 during the year ended December 31, 1996. The Corporation also has a 401(k) Salary Savings Plan covering substantially all employees. Total expense under this plan was $93,000, $62,000 and $63,000 for the years ended December 31, 1996, 1995 and 1994, respectively. -64- 65 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE L - STOCK OPTION PLANS Stockholders of the Corporation have approved three stock option plans. Under the 1972 Plan, 161,416 common shares were reserved for issuance to officers, directors, and key employees of the Corporation and its subsidiaries. The 1982 Plan reserved 73,539 common shares for issuance to employees of the Corporation and its subsidiaries. Under the 1995 Plan, 97,650 shares were reserved for issuance. As of December 31, 1996, options to purchase 73,500 shares were awarded to officers, directors, and key employees at $16.15 per share, the common stock's adjusted fair value on the grant date, and were subject to exercise at the discretion of the grantees through 2005. At December 31, 1996, no options under the 1995 Plan have been exercised. The foregoing number of shares under option have been adjusted to reflect the 5% stock dividends effected during the years ended December 31, 1996, 1995 and 1994, and the stock split effected in the form of a 100% stock dividend in 1993. At December 31, 1996, all of the stock options under the 1972 and 1982 Plans had been granted and were subject to exercise at the discretion of the grantees through 2002. The following summarizes stock option transactions for the 1972 and 1982 Plans:
1972 PLAN OPTION NUMBER PRICE OF SHARES PER SHARE TOTAL Outstanding at January 1, 1994 2,668 $ 1.58-$5.72 $12,629 Effect of 5% stock dividend in 1994 133 - - ------ ------------- ------- Outstanding at December 31, 1994 2,801 $1.50-$5.44 12,629 Exercised (1,382) $3.55 (avg.) (4,911) Effect of 5% stock dividend in 1995 71 - - ------ ------------ ------- Outstanding at December 31, 1995 1,490 $5.18 7,718 Exercised (1,490) 5.18 (7,718) ----- ----- ------- Outstanding at December 31, 1996 - $ - $ - ====== ===== =======
-65- 66 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE L - STOCK OPTION PLANS (continued)
1982 PLAN OPTION NUMBER PRICE OF SHARES PER SHARE TOTAL Outstanding at January 1, 1994 6,206 $5.72 $35,445 Exercised (1,361) $5.44 (7,685) Effect of 5% stock dividend in 1994 259 - - ------ ------ ------ Outstanding at December 31, 1994 5,104 $5.44 27,760 Exercised (1,058) $5.44 (5,755) Effect of 5% stock dividend in 1995 202 - - ------ ------ ------ Outstanding at December 31, 1995 4,248 $5.18 $22,005 Exercised (4,081) $5.18 (21,140) Effect of 5% stock dividend in 1996 4 - - ------ ---- ------ Outstanding at December 31, 1996 171 $4.93 $ 843 ====== ===== =======
Additionally, in connection with the acquisition of First Ashland Financial Corporation, the stock options of First Ashland were converted into 160,772 options of Camco Financial Corporation stock at an exercise price of $12.24 per share which expire on October 25, 2005. As of December 31, 1996, none of these options had been exercised. On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue to account for employee stock options and similar equity instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net earnings and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. Such disclosures are not required for the Corporation since no stock options were granted in 1996. The Corporation's employee stock option plans are accounted for under APB Opinion No. 25. -66- 67 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION The following condensed financial statements summarize the financial position of Camco Financial Corporation as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the years ended December 31, 1996, 1995 and 1994: CAMCO FINANCIAL CORPORATION STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands)
1996 1995 ASSETS Cash in subsidiary Banks $ 373 $ 685 Interest-bearing deposits in other financial institutions 1,230 - Investment securities available for sale 97 86 Investment in Bank subsidiaries utilizing the equity method 43,959 27,079 Investment in title agency subsidiary 339 232 Cash surrender value of life insurance 631 - Prepaid expenses and other assets 6 46 Prepaid federal income taxes 76 - ------- ------- Total assets $46,711 $28,128 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and other accrued liabilities $ 1,319 $ 110 Dividends payable 368 207 Accrued federal income taxes - 118 Deferred federal income taxes 11 - ------- ------- Total liabilities 1,698 435 Stockholders' equity Common stock 3,063 1,971 Additional paid-in capital 21,917 5,735 Retained earnings - substantially restricted 20,005 19,936 Unrealized gains on securities designated as available for sale, net of related tax effects 28 51 ------- ------- Total stockholders' equity 45,013 27,693 ------- ------- Total liabilities and stockholders' equity $46,711 $28,128 ======= =======
-67- 68 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) CAMCO FINANCIAL CORPORATION STATEMENTS OF EARNINGS Year ended December 31, (In thousands)
1996 1995 1994 Income: Dividends from Bank subsidiaries $2,264 $1,123 $ 870 Interest and other income 60 140 203 Equity in undistributed net earnings of the Bank subsidiaries 1,140 2,781 1,845 Equity in undistributed net earnings of title agency subsidiary 107 72 8 ------ ------ ------ Total income 3,571 4,116 2,926 General, administrative and other expense 912 607 496 ------ ------ ------ Earnings before federal income tax credits 2,659 3,511 2,430 Federal income tax credits (354) (137) (112) ------ ------ ------ Net earnings $3,013 $3,648 $2,542 ====== ====== ======
-68- 69 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) CAMCO FINANCIAL CORPORATION STATEMENTS OF CASH FLOWS Year ended December 31, (In thousands)
1996 1995 1994 Cash flows provided by (used in) operating activities: Net earnings for the year $3,013 $3,648 $2,542 Adjustments to reconcile net earnings to net cash flows from operating activities: Undistributed net earnings of the Bank subsidiaries (1,140) (2,781) (1,845) Undistributed net earnings of title agency subsidiary (107) (72) (8) Decrease (increase) in other assets 40 (61) (16) Increase (decrease) in accounts payable and other liabilities 1,370 (88) (72) Increase (decrease) in current federal income taxes (194) (136) 35 Other - net (273) - - ------ ------ ------ Net cash provided by operating activities 2,709 510 636 Cash flows used in investing activities: Issuance of note receivable to Bank subsidiary - - (3,000) Repayment of note receivable from Bank subsidiary - 3,000 - Contribution of capital to Bank subsidiaries - (2,500) - Purchase of investment securities (20) (29) - Purchase of cash surrender value of life insurance (614) - - Net increase in cash surrender value of life insurance (17) - - Increase in interest-bearing deposits in other financial institutions (1,230) - - ------ ------ ------ Net cash provided by (used in) investing activities (1,881) 471 (3,000) Cash flows provided by (used in) financing activities: Proceeds from other borrowing 5,465 - - Repayment of other borrowing (5,465) - - Common stock options exercised 29 10 8 Dividends paid (1,169) (773) (580) Proceeds from offering of common stock - - 2,961 ------ ------ ------ Net cash provided by (used in) financing activities (1,140) (763) 2,389 ------ ------ ------ Net increase (decrease) in cash and cash equivalents (312) 218 25 Cash and cash equivalents at beginning of year 685 467 442 ------ ------ ------ Cash and cash equivalents at end of year $ 373 $ 685 $ 467 ====== ====== ======
-69- 70 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) During 1994, the Corporation undertook an offering of common stock which was completed on December 28, 1994. The Corporation issued 231,000 shares of common stock in the offering at $14.50 per share. After giving effect to offering expenses of $379,000, the Corporation recognized a $3.0 million increase in stockholders' equity. NOTE N - SEGMENT INFORMATION The following table sets forth the Corporation's revenues, income before income taxes, and assets for each of its business segments for the years ended December 31, 1996, 1995 and 1994. For purposes of the table, "revenue" represents the sum of total interest income and total other income:
YEAR ENDED DECEMBER 31, 1996 1995 1994 (In thousands) Revenue: Banking $ 31,035 $ 26,827 $ 20,429 Mortgage banking 2,976 2,808 2,703 -------- -------- -------- Total business segments 34,011 29,635 23,132 Intersegment eliminations (1,155) (902) (795) -------- -------- -------- Total $ 32,856 $ 28,733 $ 22,337 ======== ======== ======== Earnings before income taxes: Banking $ 3,314 $ 4,092 $ 2,934 Mortgage banking 1,369 1,698 1,099 -------- -------- ------- Total business segments 4,683 5,790 4,033 Intersegment eliminations (174) (232) (180) -------- -------- -------- Total $ 4,509 $ 5,558 $ 3,853 ======== ======== ======== Assets-year-end: Banking $467,478 $344,177 $323,355 Mortgage banking 2,655 3,096 1,817 -------- -------- -------- Total business segments 470,133 347,273 325,172 Intersegment eliminations (683) (804) (545) -------- -------- -------- Total $469,450 $346,469 $324,627 ======== ======== ========
-70- 71 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE O - BUSINESS COMBINATION On October 4, 1996, the Corporation acquired First Ashland Financial Corporation utilizing the purchase method of accounting. First Ashland was dissolved upon consummation, with First Ashland's banking subsidiary, First Federal Bank for Savings, continuing operations as a wholly owned subsidiary of the Corporation. The results of First Federal Bank for Savings' operations subsequent to October 4, 1996 are included in the consolidated financial statements. Camco paid $13.2 million in cash and issued 987,247 of its common shares in connection with the acquisition, with the $3.7 million excess of the fair value of liabilities assumed over assets received, assigned to goodwill. Presented below are pro-forma condensed consolidated statements of earnings and earnings per share which have been prepared as if the acquisition had been consummated as of the beginning of each of the years ended December 31, 1996 and 1995.
1996 1995 (In thousands, except share data) (Unaudited) Total interest income $33,956 $31,442 Total interest expense 18,504 17,675 ------- ------- Net interest income 15,452 13,767 Provision for losses on loans 161 141 Other income 3,749 3,375 General, administrative and other expense 14,435 10,777 ------- ------- Earnings before income taxes 4,605 6,224 Federal income taxes 1,617 2,167 ------- ------- Net earnings $ 2,988 $ 4,057 ======= ======= Earnings per share $.96 $1.28 ==== =====
NOTE P - LEGISLATIVE DEVELOPMENTS The deposit accounts of the Banks and of other savings associations are insured by the FDIC through the Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF were below the level required by law, because a significant portion of the assessments paid into the fund were used to pay the cost of prior thrift failures. The deposit accounts of commercial banks are insured by the FDIC through the Bank Insurance Fund ("BIF"), except to the extent such banks have acquired SAIF deposits. The reserves of the BIF met the level required by law in May 1995. As a result of the respective reserve levels of the funds, deposit insurance assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in 1995. In 1996, no BIF assessments were required for healthy commercial banks except for a $2,000 minimum fee. -71- 72 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE P - LEGISLATIVE DEVELOPMENTS (continued) Legislation was enacted to recapitalize the SAIF that provided for a special assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. The Banks held $277.3 million in deposits at March 31, 1995, resulting in an assessment of approximately $1.8 million, or $1.2 million after tax, which was charged to operations in 1996. A component of the recapitalization plan provides for the merger of the SAIF and BIF on January 1, 1999. However, the SAIF recapitalization legislation currently provides for an elimination of the thrift charter or of the separate federal regulation of thrifts prior to the merger of the deposit insurance funds. As a result, First Federal and Ashland would be regulated as banks under federal laws which would subject it to the more restrictive activity limits imposed on national banks. Under separate legislation related to the recapitalization plan, the Banks are required to recapture as taxable income approximately $1.7 million of their bad debt reserve, which represents the post-1987 additions to the reserve, and will be unable to utilize the percentage of earnings method to compute the reserve in the future. The Banks have provided deferred taxes for this amount and will be permitted to amortize the recapture of the bad debt reserve in taxable income over six years. -72- 73 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The information contained under the captions "Board of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed by Camco no later than 120 days after the end of the fiscal year (the "Proxy Statement") is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION. The information contained in the Proxy Statement under the caption "Compensation of Executive Officers and Directors" is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained in the Proxy Statement under the caption "Voting Securities and Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3)(i) Certificate of Incorporation (3)(ii) Bylaws (10)(ii)-1 Employment Agreement between Camco and Larry A. Caldwell (10)(ii)-2 Employment Agreement between Camco and Anthony J. Popp (10)(ii)-3 Employment Agreement between Marietta Savings and Anthony J. Popp (21) Subsidiaries of Camco (23)(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial Statements and Form S-8 (23)(ii) Consent of Grant Thornton LLP regarding Camco's 401(k) Salary Savings Plan Financial Statements and Form S-8 (27) Financial Data Schedule (99) 1995 Financial Statements of the Camco Financial Corporation 401(k) Salary Savings Plan (b) On October 15, 1996, Camco filed a Form 8-K, reporting in Item 2 its acquisition of First Ashland Financial Corporation on October 4, 1996 (the "Form 8-K"). -73- 74 On December 18, 1996, Camco filed an amendment to the Form 8-K which included financial statements of First Ashland Financial Corporation and pro forma financial information with respect to Camco and First Ashland Financial Corporation. -74- 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Camco Financial Corporation By /s/ Larry A. Caldwell -------------------------- Larry A. Caldwell, President, Chief Executive Officer and a Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Anthony J. Popp By /s/ James R. Hanawalt ---------------------------- --------------------- Anthony J. Popp James R. Hanawalt, Principal Financial Officer, Director Senior Vice President and Director Date: March 17, 1997 Date: March 17, 1997 By /s/ Samuel W. Speck By /s/ Robert C. Dix, Jr. ---------------------------- --------------------- Samuel W. Speck, Robert C. Dix, Jr. Director Director Date: March 17, 1997 Date: March 17, 1997 By /s/ Jeffrey T. Tucker By /s/ Paul D. Leake ---------------------------- --------------------- Jeffrey T. Tucker, Paul D. Leake, Director Director Date: March 17, 1997 Date: March 17, 1997 By /s/ Eric G. Spann By /s/ John H. Heiby ---------------------------- --------------------- Eric G. Spann, John H. Heiby Director Director Date: March 17, 1997 Date: March 17, 1997 By /s/ D. Edward Rugg ---------------------------- D. Edward Rugg, Principal Accounting Officer Date: March 17, 1997 -75- 76 INDEX TO EXHIBITS
ITEM DESCRIPTION Exhibit (3)(i) Third Restated Certificate of Incorporation of Camco Financial Corporation Exhibit (3)(ii) 1987 Amended and Restated By-Laws of Incorporated by reference to Camco's Annual Camco Financial Corporation Report on Form 10-KSB for the fiscal year ended December 31, 1995, filed with the Securities and Exchange Commission on April 1, 1996 (the "1995 Form 10-KSB"), Exhibit 3(iii). Exhibit (10)(ii)-1 Employment Agreement dated January 22, Incorporated by reference to the 1995 Form 1996, by and between Camco and Larry A. 10-KSB, Exhibit 10(ii)-1 Caldwell Exhibit (10)(ii)-2 Employment Agreement dated January 28, Incorporated by reference to Camco's Annual 1994, by and between Camco and Anthony Report on Form 10-KSB for the fiscal year ended J. Popp December 31, 1993, filed with the SEC on March 31, 1994 (the "1994 Form 10-KSB"), Exhibit 10(ii)-1. Exhibit (10)(ii)-3 Employment Agreement dated January 28, Incorporated by reference to the 1994 Form 1994, by and between Marietta Savings 10-KSB, Exhibit 10(ii)-2. Bank and Anthony J. Popp Exhibit 21 Subsidiaries of Camco Exhibit 23(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial Statements and Form S-8 Exhibit 23(ii) Consent of Grant Thornton LLP regarding Camco's 401(k) Salary Savings Plan Financial Statements and Form S-8 Exhibit 27 Financial Data Schedule Exhibit 99 1995 Financial Statements the Camco Financial Corporation 401(k) Salary Savings Plan
-76- EX-3.I 2 EXHIBIT 3(I) 1 Exhibit 3(i) STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ----------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "CAMCO FINANCIAL CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF MAY, A.D. 1987, AT 10 O'CLOCK A.M. [The seal of the State of Delaware appears on this page] [The seal of the Secretary of State of /s/ EDWARD J. FREEL Delaware appears on this page.] ----------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 7697527 DATE: 11-02-95 2 THIRD RESTATED CERTIFICATE OF INCORPORATION OF CAMCO FINANCIAL CORPORATION (A Delaware Corporation) As Adopted May 26, 1987 The following provisions constitute the Third Restated Certificate of Incorporation of Camco Financial Corporation, which was originally incorporated on October 19, 1970 under the name First Cambridge Corporation: FIRST: The name of the corporation is Camco Financial Corporation. SECOND: The address of the corporation's registered office in the State of Delaware is: Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purposes of the corporation are: (1) To acquire and own savings and loan associations; and (2) To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is two million (2,000,000), of which stock one million nine hundred thousand (1,900,000) shares shall be common shares of the par value of One Dollar ($1) each, amounting in the aggregate to One Million Nine Hundred Thousand Dollars ($1,900,000), and one hundred thousand (100,000) shares shall be preferred shares of the par value of One Dollar ($1) each, amounting in the aggregate to One Hundred Thousand Dollars ($100,000). There is hereby granted to the Board of Directors of the corporation the authority to fix by resolution or resolutions any and all powers, designations, preferences and relative, participating, optional or other rights or the qualifications, limitations or restrictions thereof, of shares of the preferred stock, or of any series of the preferred stock, of the corporation that are permitted by the General 3 Corporation Law of Delaware to be fixed by the Board of Directors, and such grant of authority shall include the power to specify the number of shares of any series of the preferred stock of the corporation. FIFTH: The corporation is to have perpetual existence. SIXTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or a class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or all of the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. SEVENTH: No election of Directors need be by written ballot. EIGHTH: Any Director or the entire Board of Directors may be removed only by the affirmative vote of not less than 80% of the outstanding stock entitled to vote at an election of Directors, and such removal may be effected only for cause; provided, however, that if any class or series of stock shall entitle the holders thereof to elect one or more Directors, any Director or all the Directors elected by such holders may be removed only by the affirmative vote of not less than 80% of the outstanding stock of such class or series entitled to vote at an election of such Directors, and such removal may be effected only for cause. Any such removal shall be deemed to create a vacancy in the Board of Directors. NINTH: When used in the Certificate of Incorporation: (1) An "Affiliate" of a specified Person is a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. (2) The term "Associate" used to indicate a relationship with any Person shall mean (A) any corporation or organization (other than this corporation or a Subsidiary) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of Equity Security, (B) any trust or other estate in which such Person -2- 4 has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, and (C) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person, or is an officer or director of any corporation controlling or controlled by such Person. (3) "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision) or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on May 26, 1987; provided, however, that a Person shall, in any event, also be deemed to be the "Beneficial Owner" of any shares of Voting Stock: (A) that such Person or any of its Affiliates or Associates beneficially own, directly or indirectly; or (B) that such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of an agreement, arrangement or understanding with the corporation to effect a Business Combination) or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or (C) that are beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its Affiliates or Associates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the corporation; and provided further, however, that (i) no Director or officer of the corporation, nor any Associate or Affiliate of any such Director or officer, shall, solely by reason of any or all such Directors and officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock beneficially owned by any other such Director or officer (or any Associate or Affiliate thereof), and (ii) no employee stock ownership or similar plan of the corporation or any Subsidiary nor any trustee with respect thereto, nor any Associate or Affiliate of any such trustee, shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan. For purposes of computing the percentage Beneficial Ownership of shares of Voting Stock of a Person in order to determine whether such Person is a Substantial Stockholder, the -3- 5 outstanding shares of Voting Stock shall include shares deemed owned by such Person through application of this paragraph (3) but shall not include any other shares of Voting Stock which may be issuable by the corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding shares of Voting Stock shall include only shares of Voting Stock then outstanding and shall not include any shares of Voting Stock which may be issuable by the corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (4) The term "Business Combination" shall mean any transaction which is described in any one or more of the clauses (A) through (E) of paragraph (1) of Article ELEVENTH of the Certificate of Incorporation. (5) "Continuing Director" shall mean a Person who was a member of the Board of Directors of the corporation as of May 26, 1987, or thereafter elected by the stockholders or appointed by the Board of Directors of the corporation prior to the date as of which the Substantial Stockholder in question became a Substantial Stockholder, or a Person designated (before his initial election or appointment as a director) as a Continuing Director by three-fourths (3/4) of the Whole Board, but only if a majority of the Whole Board shall then consist of Continuing Directors. (6) "Equity Security" shall have the meaning given to such term under Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on May 26, 1987. (7) A "Person" shall mean any individual, firm, corporation or other entity. (8) "Subsidiary" shall mean any corporation of which a majority of any class of Equity Security is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Substantial Stockholder set forth in paragraph (10) of this ARTICLE NINTH, the term "Subsidiary" shall mean only a corporation of which a majority of each class of Equity Security is owned, directly or indirectly, by the corporation. (9) "Substantial Part" shall mean assets having a book value (determined in accordance with generally accepted accounting principles) in excess of ten percent (10%) of the book value (determined in accordance with generally accepted accounting principles) of the total consolidated assets of the corporation, at the end of its most recent fiscal year ending prior to the time that determination is made. (10) "Substantial Stockholder" shall mean any Person who or which, as of the record date for the determination of stockholders entitled to notice of and to vote on any Business Combination, or immediately prior to the consummation of any such Business Combination: (A) is the Beneficial Owner, directly or indirectly, of more than fifteen percent (15%) of the shares of Voting Stock [determined solely on the basis of the total number of shares of Voting Stock so Beneficially Owned (and without giving effect to the -4- 6 number or percentage of votes entitled to be cast in respect of such shares) in relation to the total number of shares of Voting Stock then issued and outstanding], or (B) is an Affiliate of the corporation and at any time within three years prior thereto was the Beneficial Owner, directly or indirectly, of more than fifteen percent (15%) of the then outstanding Voting Stock (determined as aforesaid), or (C) is an assignee of or has otherwise succeeded to any shares of capital stock of the corporation which were at any time within three years prior thereto Beneficially Owned by any Substantial Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. Notwithstanding the foregoing, a Substantial Stockholder shall not include (a) the corporation or any Subsidiary or (b) any profit-sharing, employee share ownership or other employee benefit plan of the corporation or any Subsidiary, or any trustee of or fiduciary with respect to any such plan when acting in such capacity. (11) "Voting Stock" shall mean any shares of capital stock of the corporation entitled to vote generally in the election of directors. (12) "Whole Board" shall mean the total number of Directors which the corporation would have if there were no vacancies, i.e., the whole authorized number of Directors. TENTH: Any action required or permitted to be taken by the stockholders of the corporation must be taken pursuant to a vote of such stockholders at an annual or special meeting of such stockholders that is duly held pursuant to notice. No action required or permitted to be taken by the stockholders of the corporation at any annual or special meeting of such stockholders may be taken pursuant to one or more consents in writing signed by the holders of all or any other portion of the outstanding stock entitled to vote on such action. Except as otherwise required by law and subject to any rights afforded by any provision of the Certificate of Incorporation to holders of any class or series of capital stock of the corporation having a preference over the common stock as to dividends or upon liquidation, special meetings of stockholders of the corporation may be called only by the President or by the Board of Directors pursuant to a resolution duly adopted by a majority of the Whole Board or by a writing signed by a majority of the Whole Board. ELEVENTH: (1) In addition to any vote required by law or under any other provision of the Certificate of Incorporation or any resolution or resolutions adopted by the Board of Directors pursuant to its authority under Article FOURTH of the Certificate of Incorporation, and except as otherwise expressly provided in this Article ELEVENTH: -5- 7 (A) any merger or consolidation of the corporation or any Subsidiary with or into (i) any Substantial Stockholder or (ii) any other corporation (whether or not itself a Substantial Stockholder) which, after such merger or consolidation, would be an Affiliate of a Substantial Stockholder, or (B) any sale, lease exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Substantial Stockholder of any Substantial Part of the assets of the corporation or of any Subsidiary, or (C) the issuance or transfer by the corporation or by any Subsidiary (in one transaction or a series of related transactions) of any Equity Securities of the corporation or any Subsidiary to any Substantial Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value equal to or in excess of sixty percent (60%) of the amount of stockholders' equity reflected on the corporation's audited balance sheet as of the end of its most recent fiscal year (which shall be prepared on a consolidated basis by the corporation's independent certified public accountants in accordance with generally accepted accounting principles), or (D) the adoption of any plan or proposal for the liquidation or dissolution of the corporation if, as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon, any person shall be a Substantial Stockholder, or (E) any reclassification of securities (including any reverse stock split) or recapitalization of the corporation, or any reorganization, merger or consolidation of the corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving a Substantial Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding securities of any class of equity securities of the corporation or any Subsidiary which is directly or indirectly Beneficially Owned by any Substantial Stockholder, shall (except as otherwise expressly provided in the Certificate of Incorporation) require the affirmative vote of not less than 80% of all outstanding shares of Voting Stock; provided that such affirmative vote must include the affirmative vote of a majority of all outstanding shares of Voting Stock not beneficially owned by the Substantial Stockholder in question. Each such affirmative vote must include the affirmative vote of a majority of all outstanding shares of Voting Stock not beneficially owned by the Substantial Stockholder in question. Each such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The provisions of this Article ELEVENTH shall not be applicable to any Business Combination, the terms of which shall be approved, either in advance of or subsequent to a Substantial Stockholder having become a Substantial Stockholder, by three-fourths (3/4) of the -6- 8 Whole Board, but only if a majority of the members of the Board of Directors in office and acting upon such matter shall be Continuing Directors. (3) A majority of the Continuing Directors then in office shall have the power to determine for the purpose of this Article ELEVENTH, on the basis of information known to them: (A) The number of shares of Voting Stock beneficially owned by any Person; (B) Whether a Person is an Affiliate or Associate of another; (C) Whether the assets subject to any Business Combination constitute a Substantial Part of the assets of the corporation in question; and/or (D) Any other factual matter relating to the applicability or effect of this Article ELEVENTH. (4) A majority of the Continuing Directors then in office shall have the right to demand that any Person who is reasonably believed to be a Substantial Stockholder (or holder of record shares of Voting Stock beneficially owned by any Substantial Stockholder) supply to the corporation complete information as to: (A) The record owner(s) of all shares beneficially owned by such Person who is reasonably believed to be a Substantial Stockholder; (B) The number of, and each class or series of, shares Beneficially Owned by such Person who is reasonably believed to be a Substantial Stockholder and held of record by each such record owner and the number(s) of the stock certificate(s) evidencing such shares; and (C) Any other factual matter relating to the applicability or effect of this Article ELEVENTH as may be reasonably requested of such Person, and such Person, shall furnish such information within 10 days after receipt of such demand. (5) Any determination made by the Board of Directors, or by the Continuing Directors, as the case may be, pursuant to this Article ELEVENTH in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the corporation and its stockholders, including any Substantial Stockholder. (6) Nothing contained in this Article ELEVENTH shall be construed to relieve any Substantial Stockholder from any fiduciary obligation imposed by law. TWELFTH: The Board of Directors of the corporation, when evaluating any offer of another party to make a tender or exchange offer for any Equity Security of the corporation to -7- 9 merge or consolidate the corporation with another corporation, or to purchase or otherwise acquire all or a Substantial Part of the properties and assets of the corporation, or any proposal for the liquidation or dissolution of the corporation shall, in connection with the exercise of its Judgment in determining what is in the best interests of the corporation and its stockholders, give due consideration to all relevant factors, including without limitation: (A) The best interest of the stockholders. For this purpose, the Directors shall consider, among other factors, not only the consideration offered in relation to the then current market price of the outstanding stock of the corporation, but also in relation to the current value of the corporation in a freely negotiated transaction and in relation to the Board of Directors' then current estimate of the future value of the corporation as an independent entity or as the subject of a future transaction; and (B) The best interests of depositors of savings institutions affiliated with the corporation; and (C) Such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal and economic effects upon (i) employees, suppliers, customers and the business of the corporation and any Subsidiary and (ii) each community in which the corporation or any Subsidiary operates or is located. THIRTEENTH: No Director of the corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: (l) For any breach of the Director's duty of loyalty to the corporation or its stockholders, (2) For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) Under Section 174 of the General Corporation Law of Delaware, or (4) For any transaction from which the Director derived an improper personal benefit. If the General Corporation Law of Delaware is amended after approval by the stockholders of this Article THIRTEENTH to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of this Article THIRTEENTH by the stockholders of the corporation shall not adversely affect any right or protection of a Director of the corporation existing at the time of such repeal or modification. -8- 10 FOURTEENTH: (l) Except as otherwise provided in any By-Law adopted by the stockholders, the By-Laws may be altered, amended or repealed by-the affirmative vote of not less than a majority of the Whole Board; provided, however, that any By-Law that provides for the division of the Directors into classes having staggered terms may be adopted, altered, amended or repealed only by the stockholders. (2) No By-Law of the corporation shall be adopted, repealed, altered, amended or rescinded by the stockholders of the corporation except by the affirmative vote of at least 80% of the Voting Stock entitled to vote thereon. Any amendment to the Certificate of Incorporation which shall contravene any By-Law in existence on the record date of the meeting of stockholders at which such amendment is to be voted upon by the stockholders shall require the affirmative vote of at least 80% of the Voting Stock entitled to vote thereon. FIFTEENTH: (l) In addition to any requirements of law and any other provisions of the Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant to Article FOURTH of the Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law, the Certificate of Incorporation, any such resolution or resolutions or otherwise), the affirmative vote of at least 80% of the Voting Stock shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, Articles EIGHTH, NINTH, TENTH, TWELFTH, THIRTEENTH, FOURTEENTH or FIFTEENTH of the Certificate of Incorporation, and the affirmative vote of at least 80% of the Voting Stock, including at least a majority of the Voting Stock not beneficially owned by a Substantial Stockholder, shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, Article ELEVENTH of the Certificate of Incorporation. (2) Subject to the provisions of Paragraph (1) of this Article FIFTEENTH, the corporation reserves the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. This Third Restated Certificate of Incorporation was adopted by the stockholders of Camco Financial Corporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of Delaware and was executed at Cambridge, Ohio on May 26, 1987. /s/ LARRY A. CALDWELL --------------------------------------- Larry A. Caldwell, President of Camco Financial Corporation /s/ ANTHONY J. POPP ----------------------------- Attest: Anthony J. Popp, Secretary of Camco Financial Corporation -9- 11 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ----------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "CAMCO FINANCIAL CORPORATION", FILED IN THIS OFFICE ON THE NINTH DAY OF AUGUST, A.D. 1994, AT 12:30 O'CLOCK P.M. [The seal of the State of Delaware appears on this page.] [The seal of the Secretary of State of /s/ EDWARD J. FREEL Delaware appears on this page.] ------------------------------------ Edward J. Freel, Secretary of State AUTHENTICATION: 7697528 DATE: 11-02-95 12 State of Delaware Secretary of State Division of Corporation Filed 12:30 p.m. 08/09/1994 944148178-763614 CERTIFICATE OF AMENDMENT OF THIRD RESTATED CERTIFICATE OF INCORPORATION Camco Financial Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Camco Financial Corporation, resolutions were duly adopted setting forth a proposed amendment to the Third Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and directing that the amendment be considered at the next annual meeting of the stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, that Article Fourth of the Corporation's Third Restated Certificate of Incorporation be amended to read as follows: FOURTH: The total number of shares of stock which the corporation shall have authority to issue is Two Million Six Hundred Thousand (2,600,000), of which stock Two Million Five Hundred Thousand (2,500,000) shares shall be common shares of the par value of One Dollar ($1) each, amounting in the aggregate to Two Million Five Hundred Thousand Dollars ($2,500,000), and one hundred thousand (100,000) shares shall be preferred shares of the par value of One Dollar ($1) each, amounting in the aggregate to One Hundred Thousand Dollars ($100,000). There is hereby granted to the Board of Directors of the corporation the authority to fix by resolution or resolutions any and all powers, designations, preferences and relative, participating, optional or other rights, or the qualifications, limitations or restrictions thereof, of shares of the preferred stock, or of any series of the preferred stock, of the corporation that are permitted by the General Corporation Law of Delaware to be fixed by the Board of Directors, and such grant of authority shall include the power to specify the number of shares to any series of the preferred stock of the corporation. SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in 13 accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Camco Financial Corporation has caused this certificate to be signed by Larry A. Caldwell, its President, and attested by Anthony J. Popp, its Secretary, this 12th day of July, 1994. By: LARRY A. CALDWELL ------------------- Larry A. Caldwell ATTEST: By: ANTHONY J. POPP ----------------- Anthony J. Popp -2- 14 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ----------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "CAMCO FINANCIAL CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIFTH DAY OF SEPTEMBER, A.D. 1996, AT 3:30 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [The seal of the State of Delaware appears on this page.] /s/ EDWARD J. FREEL ------------------------------------- Edward J. Freel, Secretary of State [The seal of the Secretary of State of Delaware AUTHENTICATION: 8121125 appears on this page.] DATE: 09-26-96 15 CERTIFICATE OF AMENDMENT OF THIRD RESTATED CERTIFICATE OF INCORPORATION Camco Financial Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Camco Financial Corporation, resolutions were duly adopted setting forth a proposed amendment to the Third Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and directing that the amendment be considered at a special meeting of the stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, that Article Fourth of the Corporation's Third Restated Certificate of Incorporation be amended to read as follows: FOURTH: The total number of shares of stock which the corporation shall have authority to issue is Five Million (5,000,000), of which stock Four Million Nine Hundred Thousand (4,900,000) shares shall be common shares of the par value of One Dollar ($1) each, amounting in the aggregate to Four Million Nine Hundred Thousand Dollars ($4,900,000), and one hundred thousand (100,000) shares shall be preferred shares of the par value of One Dollar ($1) each, amounting in the aggregate to One Hundred Thousand Dollars ($100,000). There is hereby granted to the Board of Directors of the corporation the authority to fix by resolution or resolutions any and all powers, designations, preferences and relative, participating, optional or other rights, or the qualifications, limitations or restrictions thereof, of shares of the preferred stock, or of any series of the preferred stock, of the corporation that are permitted by the General Corporation Law of Delaware to be fixed by the Board of Directors, and such grant of authority shall include the power to specify the number of shares to any series of the preferred stock of the corporation. SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which 16 meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Camco Financial Corporation has caused this certificate to be signed by Larry A. Caldwell, its President, and attested by Anthony J. Popp, its Secretary, this 23rd day of September, 1996. By: LARRY A. CALDWELL -------------------- Larry A. Caldwell ATTEST: By: ANTHONY J. POPP ----------------- Anthony J. Popp -2- EX-21 3 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF CAMCO State of Name Incorporation Ownership - ---- ------------- --------- Cambridge Savings Bank Ohio 100% Marietta Savings Bank Ohio 100% First Federal Savings Bank of Washington Court House United States 100% First Federal Bank for United States 100% Savings East Ohio Land Title Agency Ohio 100% SUBSIDIARIES OF CAMBRIDGE SAVINGS Camco Mortgage Corporation Ohio 50% SUBSIDIARIES OF MARIETTA SAVINGS Camco Mortgage Corporation Ohio 50% WestMar Mortgage Company Ohio 100% SUBSIDIARIES OF FIRST SAVINGS First S&L Corporation Kentucky 100% EX-23.I 4 EXHIBIT 23(I) 1 ACCOUNTANTS' CONSENT We have issued our report dated February 19, 1997, accompanying the consolidated financial statements of Camco Financial Corporation which are incorporated within the Annual Report on Form 10-KSB for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in Camco's Form S-8 (33-88072). Grant Thornton LLP Cincinnati, Ohio March 25, 1997 EX-23.II 5 EXHIBIT 23(II) 1 ACCOUNTANTS' CONSENT We have issued our report dated March 17, 1997, accompanying the financial statements of Camco Financial Corporation 401(k) Salary Savings Plan which are incorporated within the Annual Report on Form 10-KSB for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in Camco's Form S-8 (33-88072). Grant Thornton LLP Cincinnati, Ohio March 25, 1997 EX-27 6 EXHIBIT 27
9 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 10,587 8,268 0 0 5,916 32,544 32,557 388,923 1,247 469,450 358,009 57,354 9,074 0 0 0 3,063 41,950 469,450 26,621 1,922 717 29,260 13,933 16,046 13,214 111 0 12,190 4,509 4,509 0 0 3,013 1.30 1.30 3.67 1,598 775 0 0 1,032 6 1 1,247 142 0 1,105
EX-99 7 EXHIBIT 99 1 Exhibit 99 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN December 31, 1996, 1995 and 1994 2 CONTENTS Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS 4 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS 6 NOTES TO FINANCIAL STATEMENTS 9 SUPPLEMENTAL INFORMATION SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES 14 SCHEDULE OF REPORTABLE TRANSACTIONS 15 3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Trustees Camco Financial Corporation 401(k) Salary Savings Plan We have audited the accompanying statements of net assets available for plan benefits of Camco Financial Corporation 401(k) Salary Savings Plan as of December 31, 1996 and 1995, supplemental information as of December 31, 1996, and the related statements of changes in net assets available for plan benefits for the years ended December 31, 1996, 1995 and 1994. These statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 1996 and 1995, supplemental information as of December 31, 1996, and the changes in net assets available for benefits for the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. Grant Thornton LLP Cincinnati, Ohio March 17, 1997 4 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1996
FIDELITY VANGUARD BLUE CHIP TEMPLETON INDEX GROWTH ACORN FOREIGN TRUST ASSETS FUND FUND FUND FUND Investments at current value: Common stock $ - $ - $ - $ - Mutual funds 113,948 554,504 162,193 279,569 Certificates of deposit - - - U.S. Treasury obligations 1,500 53,600 1,100 5,300 -------- -------- -------- -------- Total investments 115,448 608,104 163,293 284,869 Notes receivable - - - Accrued interest receivable 11 126 5,717 23 Contribution receivable - employer 1,442 2,325 747 1,233 Contribution receivable - participants' 2,479 4,661 1,483 2,511 -------- -------- -------- -------- Total receivable 3,932 7,112 7,947 3,767 Cash and cash equivalents 76 90 1,258 31 -------- -------- -------- -------- Net assets available for Plan benefits $119,456 $615,306 $172,498 $288,667 ======== ======== ======== ========
December 31, 1996 VANGUARD CAMBRIDGE CAMCO WELLINGTON SAVINGS FINANCIAL BALANCED CERTIFICATES LOAN CORPORATION ASSETS FUND OF DEPOSIT FUND STOCK TOTAL Investments at current value: Common stock $ - $ - $ - $244,363 $ 244,363 Mutual funds 232,480 - - - 1,342,694 Certificates of deposit - 361,722 - - 361,722 U.S. Treasury obligations 2,000 7,500 2,400 3,000 76,400 -------- -------- ------- -------- ---------- Total investments 234,480 369,222 2,400 247,363 2,025,179 Notes receivable - - 56,510 - 56,510 Accrued interest receivable 30 5,826 - 26 11,759 Contribution receivable - employer 1,075 1,065 - 1,885 9,772 Contribution receivable - participants' 2,529 1,939 - 3,522 19,124 -------- -------- ------- -------- ---------- Total receivable 3,634 8,830 56,510 5,433 97,165 Cash and cash equivalents 49 28 - 41 1,573 -------- -------- ------- -------- ---------- Net assets available for Plan benefits $238,163 $378,080 $58,910 $252,837 $2,123,917 ======== ======== ======= ======== ==========
5 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1995
VANGUARD PEOPLES TEMPLETON INDEX BALANCED ACORN FOREIGN TRUST ASSETS FUND FUND FUND FUND Investments at current value: Common stock $ - $ - $ - $ - Mutual funds 231,951 401,015 100,488 194,843 Certificates of deposit - - - - U.S. Treasury obligations 1,700 32,900 500 3,400 -------- -------- -------- -------- Total investments 233,651 433,915 100,988 198,243 Notes receivable - - - - Accrued interest receivable 2,340 106 1,821 28 Contribution receivable - employer 756 28 148 Contribution receivable - participants' 2,169 4,371 1,143 1,957 -------- -------- -------- -------- Total receivable 4,509 5,233 2,992 2,133 Cash and cash equivalents 61 29 86 32 -------- -------- -------- -------- Net assets available for Plan benefits $238,221 $439,177 $104,066 $200,408 ======== ======== ======== ========
CAMBRIDGE CAMCO SAVINGS FINANCIAL CERTIFICATES LOAN CORPORATION ASSETS OF DEPOSIT FUND STOCK TOTAL Investments at current value: Common stock $ - $ - $130,117 $ 130,117 Mutual funds - - - 928,297 Certificates of deposit 398,153 - - 398,153 U.S. Treasury obligations - 12,100 4,300 54,900 -------- ------- -------- ---------- Total investments 398,153 12,100 134,417 1,511,467 Notes receivable - 44,534 - 44,534 Accrued interest receivable 5,988 - 69 10,352 Contribution receivable - employer 1,115 - 807 2,854 Contribution receivable - participants' 3,670 - 2,907 16,217 -------- ------- -------- ---------- Total receivable 10,773 44,534 3,783 73,957 Cash and cash equivalents 49 37 62 356 -------- ------- -------- ---------- Net assets available for Plan benefits $408,975 $56,671 $138,262 $1,585,780 ======== ======= ======== ==========
6 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the year ended December 31, 1996
FIDELITY VANGUARD PEOPLES BLUE CHIP TEMPLETON INDEX BALANCED GROWTH ACORN FOREIGN TRUST FUND FUND FUND FUND FUND Additions to net assets attributed to: Interest and dividends $ - $ 7,901 $ 58,185 $ 7,462 $ 6,997 Net appreciation (depreciation) - 3,229 43,997 15,438 42,486 Contributions - employer - 6,295 21,198 9,201 12,368 Contributions - participants' - 10,735 58,191 22,516 30,561 Rollovers - 18,058 14,665 6,339 9,852 --------- -------- -------- -------- -------- Total contributions - 35,088 94,054 38,056 52,781 --------- -------- -------- -------- -------- Total additions - 46,218 196,236 60,956 102,264 Deductions from net assets attributed to: Benefit payments - - 19,789 5,636 6,224 --------- -------- -------- -------- -------- Net increase (decrease) before transfers - 46,218 176,447 55,320 96,040 Interfund transfers (238,221) 73,238 (318) 13,112 (7,781) --------- -------- -------- -------- -------- Net increase (decrease) (238,221) 119,456 176,129 68,432 88,259 Net assets available for plan benefits: Beginning of year 238,221 - 439,177 104,066 200,408 --------- -------- -------- -------- -------- End of year $ - $119,456 $615,306 $172,498 $288,667 ========= ======== ======== ======== ========
VANGUARD CAMBRIDGE CAMCO WELLINGTON SAVINGS FINANCIAL BALANCED CERTIFICATES LOAN CORPORATION FUND OF DEPOSIT FUND STOCK TOTAL Additions to net assets attributed to: Interest and dividends $ 22,908 $ 24,196 $ - $ 5,517 $ 133,166 Net appreciation (depreciation) 21,522 - - (19,443) 107,229 Contributions - employer 11,511 13,739 - 17,297 91,609 Contributions - participants' 29,242 31,332 - 43,679 226,256 Rollovers 14,650 703 - 17,476 81,743 -------- -------- ------- -------- ---------- Total contributions 55,403 45,774 - 78,452 399,608 -------- -------- ------- -------- ---------- Total additions 99,833 69,970 - 64,526 640,003 Deductions from net assets attributed to: Benefit payments 38,115 21,406 4,461 6,235 101,866 -------- -------- ------- -------- ---------- Net increase (decrease) before transfers 61,718 48,564 (4,461) 58,291 538,137 Interfund transfers 176,445 (79,459) 6,700 56,284 - -------- -------- ------- -------- ---------- Net increase (decrease) 238,163 (30,895) 2,239 114,575 538,137 Net assets available for plan benefits: Beginning of year - 408,975 56,671 138,262 1,585,780 -------- -------- ------- -------- ---------- End of year $238,163 $378,080 $58,910 $252,837 $2,123,917 ======== ======== ======= ======== ==========
7 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the year ended December 31, 1995
VANGUARD PEOPLES TEMPLETON INDEX BALANCED ACORN FOREIGN TRUST FUND FUND FUND FUND Additions to net assets attributed to: Interest and dividends $ 12,625 $ 35,054 $ 7,199 $ 4,777 Net appreciation 26,931 30,886 3,319 42,576 Contributions - employer 8,146 14,111 4,091 5,717 Contributions - participants' 33,127 59,479 14,668 25,379 -------- -------- -------- -------- Total contributions 41,273 73,590 18,759 31,096 -------- -------- -------- -------- Total additions 80,829 139,530 29,277 78,449 Deductions from net assets attributed to: Benefit payments 15,586 13,433 4,142 12,966 -------- -------- -------- -------- Net increase (decrease) before transfers 65,243 126,097 25,135 65,483 Interfund transfers (65,008) (21,187) (39,708) (13,401) -------- -------- -------- -------- Net increase (decrease) 235 104,910 (14,573) 52,082 Net assets available for plan benefits: Beginning of year 237,986 334,267 118,639 148,326 -------- -------- -------- -------- End of year $238,221 $439,177 $104,066 $200,408 ======== ======== ======== ========
CAMBRIDGE CAMCO SAVINGS FINANCIAL CERTIFICATES LOAN CORPORATION OF DEPOSIT FUND STOCK TOTAL Additions to net assets attributed to: Interest and dividends $ 26,984 $ - $ 2,260 $ 88,899 Net appreciation - - 15,377 119,089 Contributions - employer 15,845 - 11,009 58,919 Contributions - participants' 50,787 - 38,741 222,181 -------- ------- -------- ---------- Total contributions 66,632 - 49,750 281,100 -------- ------- -------- ---------- Total additions 93,616 - 67,387 489,088 Deductions from net assets attributed to: Benefit payments 16,838 2,801 5,586 71,352 -------- ------- -------- ---------- Net increase (decrease) before transfers 76,778 (2,801) 61,801 417,736 Interfund transfers 19,323 43,520 76,461 - -------- ------- -------- ---------- Net increase (decrease) 96,101 40,719 138,262 417,736 Net assets available for plan benefits: Beginning of year 312,874 15,952 - 1,168,044 -------- ------- -------- ---------- End of year $408,975 $56,671 $138,262 $1,585,780 ======== ======= ======== ==========
8 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the year ended December 31, 1994
VANGUARD PEOPLES TEMPLETON INDEX BALANCED ACORN FOREIGN TRUST FUND FUND FUND FUND Additions to net assets attributed to: Interest and dividends $ 9,775 $ 17,280 $ 7,295 $ 4,272 Net depreciation (14,591) (42,864) (12,010) (1,767) Contributions - employer 16,150 20,017 5,130 8,723 Contributions - participants' 54,498 79,699 19,106 33,110 Rollovers 15,303 13,203 - - -------- -------- -------- -------- Total contributions 85,951 112,919 24,236 41,833 -------- -------- -------- -------- Total additions 81,135 87,335 19,521 44,338 Deductions from net assets attributed to: Benefit payments - 460 - - -------- -------- -------- -------- Net increase before transfers 81,135 86,875 19,521 44,338 Interfund transfers 54,239 10,505 99,118 (22,888) -------- -------- -------- -------- Net increase (decrease) 135,374 97,380 118,639 21,450 Net assets available for plan benefits: Beginning of year 102,612 236,887 - 126,876 -------- -------- -------- -------- End of year $237,986 $334,267 $118,639 $148,326 ======== ======== ======== ========
CAMBRIDGE SAVINGS CERTIFICATES LOAN OF DEPOSIT FUND TOTAL Additions to net assets attributed to: Interest and dividends $ 17,609 $ - $ 56,231 Net depreciation - - (71,232) Contributions - employer 7,645 - 57,665 Contributions - participants' 19,276 - 205,689 Rollovers - - 28,506 -------- ------- ---------- Total contributions 26,921 - 291,860 -------- ------- ---------- Total additions 44,530 - 276,859 Deductions from net assets attributed to: Benefit payments 2,943 - 3,403 -------- ------- ---------- Net increase before transfers 41,587 - 273,456 Interfund transfers (141,926) 952 - -------- ------- ---------- Net increase (decrease) (100,339) 952 273,456 Net assets available for plan benefits: Beginning of year 413,213 15,000 894,588 -------- ------- ---------- End of year $312,874 $15,952 $1,168,044 ======== ======= ==========
9 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE A - DESCRIPTION OF PLAN The following description of the Camco Financial Corporation 401(k) Salary Savings Plan ("Plan") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. 1. GENERAL The Plan is a defined contribution plan covering all full-time employees of the Company who have one year of service (1,000 hours or more) and are age twenty-one or older. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). 2. CONTRIBUTIONS Each year, participants may contribute up to 15 percent of pretax annual compensation, as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or contribution plans. In 1995 and 1994, the Company contributed 50 percent of the first four percent of base compensation that a participant contributed to the Plan. On July 1, 1996, the Plan sponsor amended the Plan so that the Company contributes 100 percent of the first three percent of base compensation and contributes 50 percent of the next two percent of base compensation. Contributions are subject to certain limitations. 3. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contribution and allocations of (a) the Company's contribution and, (b) Plan earnings. Allocations are based on each account balance, as defined. Forfeited balances of terminated participants' nonvested accounts are used to reduce future Company contributions. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. 4. VESTING Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company's matching and discretionary contribution portion of their accounts plus actual earnings thereon is based on years of continuous service. A participant is 100 percent vested after five years of participation as follows:
VESTING YEAR OF PARTICIPATION PERCENT One year 20% Two years 40% Three years 60% Four years 80% Five years 100%
10 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - DESCRIPTION OF PLAN (continued) 5. INVESTMENT OPTIONS Upon enrollment in the Plan, a participant may direct contributions in various investment options. o FIDELITY BLUE CHIP GROWTH FUND -- The fund invests approximately 60 percent of its assets in common stock of Blue Chip companies. o ACORN FUND -- An aggressive growth mutual fund that invests in primarily stocks of smaller companies. o TEMPLETON FOREIGN FUND -- An aggressive growth mutual fund that invests primarily in stocks of foreign companies. o VANGUARD INDEX TRUST FUND -- A mutual fund that invests primarily in Blue Chip companies. o VANGUARD WELLINGTON BALANCED FUND -- A mutual fund that seeks conservation of capital and reasonable income and invests in common stocks and preferred stock debt securities. o CAMBRIDGE SAVINGS CERTIFICATE OF DEPOSIT FUND -- Funds are invested in certificates of deposit with a subsidiary of Camco Financial Corporation. o CAMCO FINANCIAL CORPORATION STOCK -- Funds are invested in stock of the Plan sponsor's Camco Financial Corporation common stock. Participants may change their investment options quarterly. 6. PARTICIPANT NOTES RECEIVABLE Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lessor of $50,000 or 50 percent of their account balance. Loan transactions are treated as a transfer to (from) the investment fund from (to) the Loan Fund. Loan terms range from 1-5 years. The loans are secured by the balance in the participant's account and bear interest at a rate of 2% over the prime rate. 7. PAYMENT OF BENEFITS On termination of service due to death, disability or retirement, a participant will receive a lump-sum amount equal to the value of the participants' vested interest in his or her account. For termination of service due to other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. 11 CAMCO FINANCIAL CORPORATION 401(K) SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE B - SUMMARY OF ACCOUNTING POLICIES 1. BASIS OF ACCOUNTING The financial statements of the Plan are prepared under the accrual method of accounting. 2. INVESTMENT VALUATION AND INCOME RECOGNITION The Plan's investments are stated at fair value. Participant notes receivable are valued at cost which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Investments that represent five percent or more of the Plan's net assets are separately identified.
1996 1995 Camco Financial Corporation stock $244,363 $130,117 Peoples Balanced Fund - 231,951 Fidelity Blue Chip Growth Fund 113,948 - Acorn Fund 554,504 401,015 Templeton Foreign Fund 162,193 100,488 Vanguard Index Trust Fund 279,569 194,843 Vanguard Wellington Fund 232,480 - Cambridge Savings Certificates of Deposit 361,722 398,153
During 1996 and 1995, the Plan's investments (including investments bought, sold, and held during the year) appreciated in value by $107,229 and $119,089, respectively. In 1994, the Plan's investments depreciated in value by $71,232. 3. PAYMENT OF BENEFITS Benefits are recorded when paid. NOTE C - PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100 percent vested in their accounts. 12 CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE D - TAX STATUS The Internal Revenue Service has determined and informed the Company by a letter dated August 9, 1995, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. NOTE E- ADMINISTRATIVE EXPENSES Administrative expenses of the Plan are paid by the Plan sponsor. NOTE F - RELATED PARTY TRANSACTIONS Certain Plan investments are shares of mutual funds managed by Peoples Bank, the trustee of the Plan. The Plan also offers participants the option of investing in shares of stock of the Plan sponsor, Camco Financial Corporation and, therefore, these transactions qualify as party-in-interest. 13 SUPPLEMENTAL INFORMATION 14 CAMCO FINANCIAL CORPORATION 401(K) SALARY SAVINGS PLAN FORM 5500 E.I.N. 51-0110823 PLAN NO. - 002 ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES December 31, 1996
(a) (b) (c) (d) (e) IDENTITY OF ISSUE, DESCRIPTION OF INVESTMENT INCLUDING BORROWER, LESSOR, OR MATURITY DATE, RATE OF INTEREST; CURRENT SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE COMMON STOCK SHARES ------------ ------ * Camco Financial Corporation stock 15,393 $ 248,430 $ 244,363 MUTUAL FUNDS ------------ Fidelity Blue Chip Growth Fund 3,486 110,718 113,948 Acorn Fund 36,869 484,961 554,504 Templeton Foreign Fund 15,656 150,339 162,193 Vanguard Index Trust Fund 4,042 193,648 279,569 Vanguard Wellington Fund 8,890 220,038 232,480 ---------- ---------- 1,159,704 1,342,694 CERTIFICATES OF DEPOSIT ----------------------- * Cambridge Savings Certificates of Deposit 361,722 361,722 U.S. TREASURY OBLIGATIONS ------------------------- Fidelity U.S. Treasury Income Portfolio 76,400 76,400 76,400 NOTE RECEIVABLE --------------- * Participants' notes 56,510 56,510 ---------- ---------- $1,902,766 $2,081,689 ========== ==========
* Related Party Transaction 15 CAMCO FINANCIAL CORPORATION 401(K) SALARY SAVINGS PLAN FORM 5500 E.I.N. 51-0110823 PLAN NO. - 002 ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS Year ended December 31, 1996
(a) (b) (c) (d) (e) (f) (g) (h) (i) CURRENT VALUE IDENTITY EXPENSE OF ASSET ON OF PARTY PURCHASE SELLING LEASE INCURRED WITH COST OF TRANSACTION NET GAIN INVOLVED DESCRIPTION OF ASSET PRICE PRICE RENTAL TRANSACTION ASSET DATE OR (LOSS) * Camco Financial Corporation Stock Purchases $ 133,699 $ - $ - $ - $ 133,699 $ 133,699 $ - Sales - 8 - - 6 8 2 Fidelity Blue Chip Growth Fund Purchases 110,718 - - - 110,718 110,718 - Acorn Fund Purchases 120,892 - - - 120,892 120,892 - Sales - 11,400 - - 11,483 11,400 (83) * Peoples Balanced Fund Purchases 17,690 - - - 17,690 17,690 - Sales - 258,543 - - 230,250 258,543 28,293 Vanguard Wellington Fund Purchases 225,850 - - - 225,850 225,850 - Sales - 5,990 - - 5,812 5,990 178 Fidelity U.S. Treasury Fund Purchases 1,476,700 - - - 1,476,700 1,476,700 - Sales - 1,455,200 - - 1,455,200 1,455,200 - * Party in interest
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