-----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, Kpzv6A8hMcuvDyDuaesT4kZdI6aFqmKXbqn58wKB6oDrEvsGiQnu7NugIuNF/UYy Ji/qPK5uwn22SYTeJWqwvg== 0000950152-97-006913.txt : 19971001 0000950152-97-006913.hdr.sgml : 19971001 ACCESSION NUMBER: 0000950152-97-006913 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19970929 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: S-4 SEC ACT: SEC FILE NUMBER: 333-36677 FILM NUMBER: 97687974 BUSINESS ADDRESS: STREET 1: 814 WHEELING AVE CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 6144325641 S-4 1 CAMCO FINANCIAL CORP. S-4 1 As filed with the Securities and Exchange Commission on September 29, 1997 Registration No. 333-____ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- CAMCO FINANCIAL CORPORATION --------------------------- (Exact name of registrant as specified in its charter) DELAWARE 6035 51-0110823 - ------------------------------------ ---------------------------------- -------------------- (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.)
814 Wheeling Avenue Cambridge, Ohio 43725 (614) 432-5641 --------------------------------------------------- (Address, including ZIP Code, and telephone number, including area code, of agent for service) Copies to: MR. LARRY A. CALDWELL TERRI R. ABARE, ESQ. Camco Financial Corporation KATHLEEN M. MOLINSKY, ESQ. 814 Wheeling Avenue Vorys, Sater, Seymour and Pease Cambridge, Ohio 43725 221 E. Fourth Street Suite 2100, Atrium Two Cincinnati, Ohio 45202 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement has become effective and all other conditions to the consummation of the transactions described in the closed Prospectus and Proxy Statement have been satisfied or waived. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] 2 CALCULATION OF REGISTRATION FEE -------------------------------
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of to be registered registered offering price per unit(1) aggregate price registration fee ---------------- ---------- -------------------------- --------------- ---------------- Common Stock, $1.00 628,967 shares of 26.66 $16,768,261 $5,082 par value per share Common Stock - -------------------- (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f) on the basis of the market value of the shares of common stock of GF Bancorp, Inc. on September 26, 1997, as determined pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. 3 CAMCO FINANCIAL CORPORATION Registration Statement on Form S-4 Cross Reference Sheet Pursuant to Reg. Section 229.501(b) ----------------------------------------------------------
Form S-4 Item No. and Caption Prospectus and Proxy Statement Caption ----------------------------- -------------------------------------- A. INFORMATION ABOUT THE TRANSACTION ------------------------------------------------ 1. Forepart of Registration Statement and Facing Page; Outside Front Cover Page; Cross Outside Front Cover Page of Prospectus Reference Sheet 2. Inside Front and Outside Back Cover AVAILABLE INFORMATION; INCORPORATION OF CERTAIN Pages of Prospectus DOCUMENTS BY REFERENCE; TABLE OF CONTENTS 3. Risk Factors, Ratio of Earnings to Fixed SUMMARY; COMPARATIVE STOCK PRICES AND DIVIDENDS; Charges and Other Information SELECTED CONSOLIDATED FINANCIAL DATA; RIGHTS OF GFBC DISSENTING STOCKHOLDERS; REGULATION OF GFBC and FINANCIAL STATEMENTS - GF Bancorp, Inc. 4. Terms of the Transaction INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; SUMMARY - Introduction, - Background and Reasons for the Merger, - Terms of the Merger; BACKGROUND AND REASONS FOR THE MERGER; THE MERGER; DESCRIPTION OF CAMCO SHARES and COMPARISON OF RIGHTS OF HOLDERS OF CAMCO SHARES AND HOLDERS OF GFBC SHARES. 5. Pro Forma Financial Information Not Applicable 6. Material Contacts with the Company Being Not Applicable Acquired 7. Additional Information Required for Not Applicable Reoffering by Persons and Parties Deemed to Be Underwriters 8. Interests of Named Experts and Counsel Not Applicable 9. Disclosure of Commission Position on DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION Indemnification for Securities Act Liabilities B. INFORMATION ABOUT THE REGISTRANT ------------------------------------------------ 10. Information with Respect to S-3 Not Applicable Registrants 11. Incorporation of Certain Information By Not Applicable Reference
4 12. Information with Respect to S-2 or S-3 SUMMARY - Parties to the Agreement, - Background and Registrants Reasons for the Merger; COMPARATIVE STOCK PRICES AND DIVIDENDS; SELECTED CONSOLIDATED FINANCIAL DATA and BACKGROUND AND REASONS FOR THE MERGER - Camco 13. Incorporation of Certain Information By INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Reference 14. Information with Respect to Registrants Not Applicable Other Than S-3 or S-2 Registrants C. INFORMATION ABOUT THE COMPANIES BEING ACQUIRED ------------------------------------------------- 15. Information with Respect to S-3 Companies Not Applicable 16. Information with Respect to S-2 or S-3 Not Applicable Companies 17. Information with Respect to Companies SUMMARY - Parties to the Agreement, - Background and Other Than S-3 or S-2 Companies Reasons for the Merger; COMPARATIVE STOCK PRICES AND DIVIDENDS; SELECTED CONSOLIDATED FINANCIAL DATA; BACKGROUND AND REASONS FOR THE MERGER - GFBC, Opinion of McDonald & Company; GFBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; BUSINESS OF GFBC; BUSINESS OF GERMANTOWN; CHANGES IN ACCOUNTANTS; REGULATION OF GFBC and FINANCIAL STATEMENTS - GFBC D. VOTING AND MANAGEMENT INFORMATION ------------------------------------------------- 18. Information if Proxies, Consents or SUMMARY; BACKGROUND AND REASONS FOR THE MERGER - Authorizations are to be Solicited Recommendation of the Board of Directors of GFBC; THE MERGER - Interests of Certain Persons; RIGHTS OF GFBC DISSENTING STOCKHOLDERS; SPECIAL MEETING OF GFBC STOCKHOLDERS and SECURITY OWNERSHIP OF GFBC 19. Information if Proxies, Consents or Not Applicable Authorizations are not to be Solicited or in an Exchange Offer
5 CAMCO FINANCIAL CORPORATION GF BANCORP, INC. PROSPECTUS PROXY STATEMENT for for Up to 628,967 Shares of Common Stock, The Special Meeting of Stockholders of Par Value $1.00 Per Share, GF Bancorp, Inc. To be Issued in Connection with the Merger of to be held on December __, 1997, GF Bancorp, Inc. at the offices of GF Bancorp, Inc. with and into Camco Financial Corporation One North Plum Street, Germantown, OH 45327 (the "GFBC Special Meeting")
This Prospectus and Proxy Statement constitutes both a Prospectus of Camco Financial Corporation, a Delaware corporation ("Camco"), with respect to 628,967 shares of common stock of Camco, par value $1.00 per share (the "Camco Shares"), that may be issued in connection with the proposed merger of GF Bancorp, Inc., a Delaware corporation ("GFBC"), with and into Camco (the "Merger") and the Proxy Statement of GFBC for use in connection with the solicitation of proxies by the Board of Directors of GFBC to be used at the GFBC Special Meeting. Stockholders will be asked at the GFBC Special Meeting to consider and act upon a proposal to adopt the Agreement of Merger and Plan of Reorganization dated July 28, 1997 (the "Agreement"), by and among Camco, GFBC, First Federal Savings Bank of Washington Court House, a federal savings bank and wholly-owned subsidiary of Camco ("First Federal"), and Germantown Federal Savings Bank, a federal savings bank and wholly-owned subsidiary of GFBC ("Germantown Federal"). After the Merger is effective, pursuant to the Agreement, Germantown Federal will be merged with and into First Federal (the "Bank Merger"). In accordance with the terms and subject to the conditions of the Agreement, each of the outstanding shares of common stock of GFBC, $0.01 par value per share (the "GFBC Shares"), will be canceled and extinguished at the time the Merger becomes effective, as specified in the Certificate of Merger filed with the Secretary of State of Delaware (the "Effective Time"), in consideration and exchange for 1.616 shares of common stock of Camco, subject to certain adjustments based on changes in the market value of the issued and outstanding Camco Shares before the Effective Time (the "Exchange Ratio"). See "THE MERGER - Exchange of GFBC Shares." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE CAMCO SHARES THAT ARE BEING OFFERED PURSUANT TO THIS PROSPECTUS AND PROXY STATEMENT AND THAT WILL BE ISSUED UPON THE CONSUMMATION OF THE MERGER ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER STATE OR FEDERAL AGENCY. A SIGNED AND RETURNED PROXY IN THE FORM OF THE ENCLOSED PROXY (A "PROXY") THAT DOES NOT CONTAIN VOTING INSTRUCTIONS WILL BE VOTED FOR THE ADOPTION OF THE AGREEMENT. ANY GFBC STOCKHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS ("GFBC DISSENTING STOCKHOLDERS") MUST EITHER (1) NOT RETURN A SIGNED PROXY, OR (2) SIGN AND RETURN THE PROXY, VOTING AGAINST, OR ABSTAINING FROM VOTING ON, THE ADOPTION OF THE AGREEMENT AND THE APPROVAL OF THE MERGER. SEE "RIGHTS OF GFBC DISSENTING STOCKHOLDERS." The date of this Prospectus and Proxy Statement is _____, 1997. 6 AVAILABLE INFORMATION Camco is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Camco has filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Camco common stock to be issued to GFBC stockholders in the Merger. As permitted by the rules and regulations of the Commission, this Prospectus and Proxy Statement omits certain information, exhibits and undertakings contained in the Registration Statement. Reference is made to the Registration Statement and to the exhibits thereto for further information. Statements contained herein concerning such documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits thereto, as well as the reports, proxy statements and other information filed with the Commission by Camco under the Exchange Act, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Camco is an electronic filer, and the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at the following Web address: (http://www.sec.gov). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by Camco with the Commission under the Exchange Act, or, where indicated, certain portions thereof, are incorporated herein by reference: 1. Camco's Annual Report on Form 10-KSB for the year ended December 31, 1996 (the "Camco Form 10-KSB"); 2. Camco's Amendment No. 1 to the Annual Report on Form 10-KSB for the year ended December 31, 1996 (the "Camco 10-KSB Amendment"); 3. Camco's Quarterly Reports on Forms 10-Q for the periods ended March 31, 1997, and June 30, 1997 (the "Camco Forms 10-Q"); 4. Camco's Current Report on Form 8-K dated July 28, 1997 (the "Camco Form 8-K"); and 5. The information contained in Camco's Annual Report to Shareholders for the 1996 fiscal year (the "1996 Annual Report") on pages 10 through 46 under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Report of Independent Certified Public Accountants" and "Audited Consolidated Financial Statements." 6. The information contained in Camco's Proxy Statement for its Annual Meeting of Shareholders held on May 27, 1997 (the "1997 Proxy Statement"), on pages 2 through 9 under the captions "VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"; "BOARD OF DIRECTORS"; "OTHER EXECUTIVE OFFICERS"; AND "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS." All documents filed by Camco pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and Proxy Statement and prior to the GFBC Special Meeting should be deemed to be incorporated by reference into this Prospectus and Proxy Statement and to be part hereof from the date of filing of such documents. See "AVAILABLE INFORMATION." Any statement contained in a document incorporated or deemed to be incorporated by reference should be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently -ii- 7 filed document that is or is deemed to be incorporated by reference herein) modifies or supersedes such previous statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. THIS PROSPECTUS AND PROXY STATEMENT IS ACCOMPANIED BY CAMCO'S 1996 ANNUAL REPORT, ITS 1997 PROXY STATEMENT AND ITS FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997. EXCEPT FOR THE INFORMATION PROVIDED IN CAMCO'S 1996 ANNUAL REPORT AND 1997 PROXY STATEMENT UNDER THE CAPTIONS SPECIFICALLY IDENTIFIED ABOVE, NO INFORMATION CONTAINED ELSEWHERE IN EITHER THE 1996 ANNUAL REPORT OR THE 1997 PROXY STATEMENT IS INCORPORATED BY REFERENCE IN, AND SUCH INFORMATION SHALL NOT CONSTITUTE A PART OF, THIS PROSPECTUS AND PROXY STATEMENT. The information relating to Camco contained in this Prospectus and Proxy Statement should be read together with the information in the documents incorporated by reference. The Agreement, which is included in Appendix A, is hereby incorporated by reference into this Prospectus and Proxy Statement. THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN DOCUMENTS OF CAMCO WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND PROXY STATEMENT) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM A COPY OF THIS PROSPECTUS AND PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO ANTHONY J. POPP, SENIOR VICE PRESIDENT, CAMCO FINANCIAL CORPORATION, C/O MARIETTA SAVINGS BANK, 226 THIRD STREET, P.O. BOX 837, MARIETTA, OHIO 45750-0837. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER THAN ________, 1997. -iii- 8 NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CAMCO OR GFBC. NEITHER THIS PROSPECTUS AND PROXY STATEMENT, NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS AND PROXY STATEMENT, CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS AND PROXY STATEMENT OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. THE DELIVERY OF THIS PROSPECTUS AND PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF CAMCO OR GFBC SINCE THE DATE OF THIS PROSPECTUS AND PROXY STATEMENT. TABLE OF CONTENTS -----------------
PAGE ---- SUMMARY...................................................................................................................1 Introduction........................................................................................................1 Parties to the Agreement............................................................................................1 Special Meeting of GFBC Stockholders................................................................................3 Background and Reasons for the Merger...............................................................................3 Opinion of McDonald & Company.......................................................................................4 Terms of the Merger.................................................................................................4 Recommendation of the Board of Directors of GFBC....................................................................5 Comparison of Rights of Holders of Camco Shares and GFBC Shares.....................................................5 Exchange of Certificates Evidencing GFBC Shares.....................................................................5 Resale of Camco Shares by Affiliates of Camco and GFBC..............................................................6 GFBC Dissenters' Rights.............................................................................................6 COMPARATIVE STOCK PRICES AND DIVIDENDS....................................................................................6 SELECTED CONSOLIDATED FINANCIAL DATA......................................................................................8 Comparative Per Share Data.........................................................................................10 INTRODUCTION.............................................................................................................11 BACKGROUND AND REASONS FOR THE MERGER....................................................................................11 Camco..............................................................................................................11 GFBC...............................................................................................................12 Opinion of McDonald & Company......................................................................................13 Recommendation of the Board of Directors of GFBC...................................................................16 THE MERGER...............................................................................................................16 Exchange of GFBC Shares............................................................................................16 Fractional Shares..................................................................................................17 Exchange of Certificates Evidencing GFBC Shares....................................................................17 Representations, Warranties and Covenants..........................................................................18 Conditions.........................................................................................................18 Effective Time of Merger...........................................................................................19 Effective Time of Bank Merger......................................................................................19 Termination and Amendment..........................................................................................19 Interests of Certain Persons.......................................................................................19 Management and Operations of Camco Following the Consummation of the Merger........................................19 Resale of Camco Shares by Affiliates of Camco and GFBC.............................................................20 Income Tax Consequences............................................................................................20 Accounting Treatment...............................................................................................21 RIGHTS OF GFBC DISSENTING STOCKHOLDERS...................................................................................21 SPECIAL MEETING OF GFBC STOCKHOLDERS.....................................................................................22 Date, Time and Place...............................................................................................22 Purpose of Meeting.................................................................................................22 Shares Outstanding and Entitled to Vote and Record Date............................................................22 Vote Required......................................................................................................23 Voting and Solicitation and Revocation of Proxies..................................................................23
-iv- 9 GFBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................24 General............................................................................................................24 Financial Condition at June 30, 1997...............................................................................24 Comparison of Results of Operations for the Three Months Ended June 30, 1997 and June 30, 1996.....................24 Financial Condition at March 31, 1997..............................................................................25 Comparison of Results of Operations for the Years Ended March 31, 1997 and March 31, 1996..........................26 Asset and Liability Management.....................................................................................27 Liquidity..........................................................................................................31 Capital Resources..................................................................................................31 Impact of Inflation and Changing Prices............................................................................31 Impact of Recent Accounting Pronouncements.........................................................................32 BUSINESS OF GFBC.........................................................................................................32 BUSINESS OF GERMANTOWN FEDERAL...........................................................................................33 Lending Activities.................................................................................................33 Originations and Purchases of Loans and Mortgage Backed Securities.................................................36 Mortgage-Backed Securities and Investment Activities...............................................................40 Sources of Funds...................................................................................................41 Competition........................................................................................................43 Subsidiary Activities..............................................................................................43 Personnel..........................................................................................................43 CHANGE IN ACCOUNTANTS....................................................................................................43 SECURITY OWNERSHIP OF GFBC...............................................................................................44 REGULATION OF GFBC.......................................................................................................45 General............................................................................................................45 OTS Regulation.....................................................................................................45 Federal Deposit Insurance Corporation..............................................................................47 Transactions with Affiliates and Insiders..........................................................................48 Change in Control..................................................................................................48 Holding Company Regulation.........................................................................................48 Federal Reserve Requirements.......................................................................................49 Federal Home Loan Bank System......................................................................................49 Federal Taxation...................................................................................................49 Ohio Taxation......................................................................................................51 Delaware Taxation..................................................................................................51 DESCRIPTION OF CAMCO SHARES..............................................................................................52 Authorized Stock...................................................................................................52 Special Meetings...................................................................................................52 Preemptive Rights..................................................................................................52 Voting Rights......................................................................................................52 Board of Directors.................................................................................................52 Antitakeover Provisions in the Certificate and By-laws.............................................................52 COMPARISON OF RIGHTS OF HOLDERS OF CAMCO SHARES AND HOLDERS OF GFBC SHARES...............................................53 Authorized Stock...................................................................................................53 Director Nominations...............................................................................................53 Antitakeover Provisions............................................................................................54 ANTITAKEOVER STATUTES APPLICABLE TO CAMCO AND GFBC.......................................................................54 DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION.......................................................................55 LEGAL MATTERS............................................................................................................56 EXPERTS..................................................................................................................56 OTHER MATTERS............................................................................................................56 GF BANCORP, INC. CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1
-v- 10 APPENDICES: Appendix A Agreement of Merger and Plan of Reorganization ---------- dated July 28, 1997, by and among Camco Financial Corporation, GF Bancorp, Inc., First Federal Savings Bank of Washington Court House and Germantown Federal Savings Bank Appendix B Opinion of McDonald & Company Securities, Inc. ---------- Appendix C Delaware General Corporation Law Section 262 ---------- -vi- 11 SUMMARY The following is a summary of some of the matters to be considered in connection with the GFBC Special Meeting and is qualified in its entirety by reference to the more detailed information contained elsewhere in this Prospectus and Proxy Statement, the Appendices attached hereto and the other documents referred to herein. INTRODUCTION On July 28, 1997, Camco, GFBC, First Federal and Germantown Federal entered into the Agreement. If the Agreement is adopted by the affirmative vote of the holders of a majority of the issued and outstanding GFBC Shares and if all other conditions to the consummation of the Merger are satisfied, GFBC will merge with and into Camco. At the Effective Time, each of the outstanding GFBC Shares will be canceled and extinguished in consideration and exchange for the number of Camco Shares indicated by the Exchange Ratio, subject to certain adjustments based on changes in the market value of Camco Shares before the Effective Time. See "THE MERGER - Exchange of GFBC Shares." The Exchange Ratio was determined as a result of arms-length negotiations between the Boards of Directors of Camco and GFBC. Such negotiations commenced when Camco responded to GFBC's invitation to submit an acquisition offer and Camco made an offer to GFBC based upon the consideration by Camco of a number of factors, including the book value and earnings per share of GFBC, the asset quality of GFBC and the exchange ratios involved in similar transactions. Following such negotiations and a due diligence review of each party by the other, Camco and GFBC agreed that GFBC stockholders would receive, in exchange for each GFBC Share outstanding at the Effective Time, the Exchange Ratio, subject to certain adjustments based on changes in the market value of the issued and outstanding Camco Shares. As of the date of this Prospectus and Proxy Statement, there were 311,459 GFBC Shares issued and outstanding, which would result in the issuance of 503,317 Camco Shares at the Effective Time, assuming no adjustments to the Exchange Ratio. As of July 25, 1997, the last trading date before the announcement of the execution of the Agreement, the price paid for the most recent trade of Camco Shares on the Nasdaq National Market ("Nasdaq") equaled $18.75 per share. If that is the value of a Camco Share at the Effective Time, the value of the 1.616 Camco Shares to be issued in exchange for each GFBC Share would equal $30.30 per share. GFBC Shares are neither listed on any exchange nor quoted on The Nasdaq Stock Market. Information about GFBC Shares is reported on the OTC Bulletin Board. As of the date before the announcement of the execution of the Agreement, the price paid for the most recent trade of GFBC Shares known to the management of GFBC was $16.75 per share. As of November __, 1997, the date of this Prospectus and Proxy Statement, the average of the $_____ high bid and the $_____ low asked prices of a Camco Share on Nasdaq equaled $_____. If that is the value of a Camco Share at the Effective Time, the value of the 1.616 Camco Shares to be issued in exchange for each GFBC Share will equal $________. The market value of Camco Shares to be received in the Merger, however, is subject to fluctuation. Fluctuations in the market price of Camco Shares would result in an increase or a decrease in the value to be received by GFBC stockholders in the Merger. See "THE MERGER - Exchange of GFBC Shares." PARTIES TO THE AGREEMENT CAMCO. Camco is a multiple savings and loan holding company organized under Delaware law in 1970. Its wholly-owned financial institution subsidiaries, First Federal, Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings") and First Federal Bank for Savings ("First Savings"), conduct business in Ohio and Kentucky. East Ohio Land Title Agency, Inc. ("East Ohio Title"), another wholly-owned subsidiary of Camco, is engaged in the title insurance agency business. 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 which is currently inactive. First Federal was acquired by Camco in 1988. First Federal has its main office in Washington Court House, Ohio, and loan origination offices in Chillicothe, Circleville and Wilmington, Ohio. 12 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 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 from an Ohio savings and loan association to an Ohio savings bank. First Savings, a federal savings bank, was acquired by Camco in 1996. First Savings has its main office and a full-service branch office in Ashland, Kentucky, and a full-service branch office in Russell, Kentucky. First Federal, Cambridge Savings, Marietta Savings 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 Federal Deposit Insurance Corporation (the "FDIC") in the Savings Association Insurance Fund (the "SAIF"). First Federal and First Savings are subject to regulation, examination and supervision by the Office of Thrift Supervision (the "OTS") and the FDIC. Cambridge Savings and Marietta Savings are regulated by the Ohio Division of Financial Institutions (the "Division") and the FDIC. Camco is regulated by the OTS as a savings and loan holding company. The principal source of revenue for Camco on an unconsolidated basis is dividends from the Banks. Camco, through the Banks, is principally engaged in the business of making first mortgage loans to finance the purchase, construction or improvement of residential or other real property. Camco also invests in United States Government guaranteed mortgage-backed securities and securities issued by the United States Government and agencies thereof. Funds for loans and investments are obtained primarily from savings deposits, loan principal repayments and borrowings from the FHLB of Cincinnati. At June 30, 1997, Camco had total assets of $489.8 million, total deposits of $371.0 million and stockholders' equity of $46.9 million, or 9.6% of total assets. The executive office of Camco is located at 814 Wheeling Avenue, Cambridge, Ohio 43725, and its telephone number is (614) 432-5641. GFBC. GFBC is a Delaware corporation organized on June 2, 1993, to acquire all of the capital stock that Germantown Federal issued upon its conversion from the mutual form of ownership to the stock form of ownership, consummated on September 16, 1993 (the "Conversion"). Germantown Federal is a federally chartered savings bank located in Germantown, Ohio. Germantown Federal was chartered in 1887 as an Ohio building and loan association under the name Germantown Building and Savings Association. In 1938, Germantown Federal adopted a federal charter and changed its name to Germantown Federal Savings and Loan Association. Its present name, Germantown Federal Savings Bank, was adopted in 1983 when it became a federal savings bank. Germantown Federal's deposits are insured by the SAIF and Germantown Federal is a member of the FHLB of Cincinnati. Germantown Federal is primarily engaged in the business of accepting deposits from the general public and using those funds to originate mortgage loans for the purchase and refinancing of single-family homes located in Germantown, Ohio, and surrounding communities and for the purchase of mortgage-backed and investment securities. Germantown Federal also makes deposit loans, automobile loans, personal installment loans, construction loans, and second mortgage loans. Germantown Federal conducts operations through its main office located at One North Plum Street, Germantown, Ohio, and an additional office located at 675 West Main Street, New Lebanon, Ohio. Germantown Federal's primary market for savings and lending activities is the villages of Germantown and New Lebanon and the surrounding townships of German, Jackson and Perry in southwestern Montgomery County, Ohio. At June 30, 1997, GFBC had total assets of $48.5 million, total deposits of $40.4 million, and stockholders' equity of $6.6 million, or 13.6% of total assets. The executive office of GFBC is located at One North Plum Street, Germantown, Ohio 45327, and its telephone number is (937) 855-4125. 2 13 SPECIAL MEETING OF GFBC STOCKHOLDERS The GFBC Special Meeting will be held at __:00 __.m., local time, on ______, 1997, at the offices of GFBC, One North Plum Street, Germantown, Ohio. At the GFBC Special Meeting, GFBC stockholders will be asked to consider and act upon (i) a proposal to adopt the Agreement, and (ii) such other business as may properly come before the GFBC Special Meeting and any adjournment thereof. Only the holders of record of GFBC Shares outstanding at the close of business on _______, 1997 (the "GFBC Record Date"), will be entitled to notice of and to vote at the GFBC Special Meeting and any adjournment thereof. The affirmative vote of the holders of a majority of the outstanding GFBC Shares, voting in person or by proxy, is required to adopt the Agreement and approve the Merger. As of the GFBC Record Date, 311,459 GFBC Shares were outstanding and entitled to vote and were held of record by 170 stockholders. The affirmative vote, therefor, of the holders of 155,730 GFBC Shares will be necessary to adopt the Agreement and approve the Merger. As of the GFBC Record Date, the directors and executive officers of GFBC owned or had voting power, in the aggregate, with respect to 80,313 GFBC Shares (excluding GFBC shares held in a fiduciary capacity), or 25.8% of the outstanding GFBC Shares. The directors and executive officers of GFBC have agreed to vote all such GFBC Shares for the adoption of the Agreement. Assuming the affirmative vote of all of such GFBC Shares, the affirmative vote of the holders of an additional 75,417 GFBC Shares, representing an additional 24.2% of the outstanding GFBC Shares, will be necessary to adopt the Agreement. See "SPECIAL MEETING OF GFBC STOCKHOLDERS - Shares Outstanding and Entitled To Vote and Record Date" and "- Vote Required." A majority of the GFBC Shares present, in person or by proxy, at the GFBC Special Meeting will constitute a quorum at the GFBC Special Meeting. Each GFBC stockholder will be entitled to one vote for each GFBC Share held. Under applicable law, shares that are held by a nominee for a beneficial owner and which are represented in person or by proxy at the GFBC Special Meeting, but which are not voted with respect to the adoption of the Agreement ("Non-votes"), will be counted as present for purposes of establishing a quorum. The effect of an abstention or Non-vote will be the same as a vote against the adoption of the Agreement. The GFBC Shares represented by each properly executed Proxy received before the GFBC Special Meeting and not revoked prior to use will be voted at the GFBC Special Meeting, or any adjournment thereof, as specified on such Proxy or, in the absence of specific instructions to the contrary, will be voted FOR the adoption of the Agreement. Any GFBC stockholder who has executed and returned a Proxy may revoke such Proxy at any time before it is voted by executing and returning to GFBC a proxy bearing a later date or by giving notice of revocation to GFBC in writing or at the GFBC Special Meeting. The mere presence at the GFBC Special Meeting of a GFBC stockholder who has executed and returned a Proxy will not revoke the Proxy. See "SPECIAL MEETING OF GFBC STOCKHOLDERS - Voting and Solicitation and Revocation of Proxies." BACKGROUND AND REASONS FOR THE MERGER CAMCO. Camco's strategic plan is to deliver a wide array of financial products and services through a network of community-based financial institutions which benefit from the centralized support provided by the holding company structure while operating autonomously in their respective markets under the direction of management personnel who maintain close ties to the communities they serve. In pursuing growth, Camco has paid particular attention to opportunities in geographic areas contiguous to its existing market areas, which currently consist of portions of central and southern Ohio and northeastern Kentucky. The acquisition of GFBC provides Camco the opportunity to expand First Federal's market area into a more densely populated area of Ohio. For a more detailed discussion of the factors considered by the Camco Board in reaching its decision to adopt the Agreement and approve the transactions contemplated thereby, see "BACKGROUND AND REASONS FOR THE MERGER - Camco." Based upon the foregoing the directors of Camco concluded that the terms of the Merger, as set forth in the Agreement, were fair to, and in the best interests of, Camco and the Camco stockholders, and, on July 28, 1997, adopted a resolution approving the Agreement. GFBC. Since the Conversion in 1993, the Board of Directors of GFBC has continually evaluated various strategies for increasing the comparatively low returns on equity and assets of GFBC. In addition, the GFBC Board of Directors has been concerned about the illiquid nature of the market for GFBC Shares. For a more detailed discussion of the factors 3 14 considered by the GFBC Board in reaching its decision to adopt the Agreement and approve the transactions contemplated thereby, see "BACKGROUND AND REASONS FOR THE MERGER - GFBC." Based on the foregoing and the receipt and review of the opinion of McDonald & Company Securities, Inc. ("McDonald & Company"), the directors of GFBC concluded that the terms of the Merger, as set forth in the Agreement, were fair to, and in the best interests of, the GFBC stockholders and, on July 28, 1997, adopted a resolution approving the Agreement. See "BACKGROUND AND REASONS FOR THE MERGER - Opinion of McDonald & Company." The GFBC Board therefor recommends that stockholders vote FOR approval of the Agreement at the Special Meeting. OPINION OF MCDONALD & COMPANY McDonald & Company has delivered written opinions to the Board of Directors of GFBC to the effect that, as of July 28, 1997, and as of _______, 1997, the Exchange Ratio was fair to GFBC stockholders from a financial point of view. A copy of the opinion of McDonald & Company, dated as of ___________, 1997, is attached hereto as Appendix B. The opinion should be read in its entirety for a description of the procedures followed, assumptions and qualifications made and matters considered by McDonald & Company and for a description of the limitations of the opinion. See "BACKGROUND AND REASONS FOR THE MERGER - Opinion of McDonald & Company." TERMS OF THE MERGER EXCHANGE OF GFBC SHARES. At the Effective Time, GFBC will merge with and into Camco and Camco will be the continuing and surviving corporation. As a result of the consummation of the Merger, each of the GFBC Shares will be canceled and extinguished in consideration and exchange for 1.616 Camco Shares. As of the date of this Prospectus and Proxy Statement, there were 311,459 GFBC Shares issued and outstanding and 9,246 GFBC Shares subject to outstanding options, the exercise price of each of which was $10.00 (the "GFBC Options"). Each of the GFBC Options that is not exercised prior to the Effective Time will be assumed by Camco and become an option to purchase a number of Camco Shares equal to the product of the number of shares subject to the GFBC Option multiplied by the Exchange Ratio, and the exercise price of each such option shall be an amount equal to the quotient of $10.00 divided by the Exchange Ratio. See "THE MERGER - Exchange of GFBC Shares." FRACTIONAL SHARES. No fractional shares of Camco will be issued in the Merger. In lieu of any such fractional shares, Camco will pay to each holder of GFBC Shares who otherwise would be entitled to receive a fraction of a Camco Share an amount in cash based on the Market Value (hereinafter defined) of a Camco Share. The Market Value of a Camco Share is the mean of the average of the daily closing bid and asked prices of Camco Shares as reported by Nasdaq for the 20 most recent trading days ending at the close of trading on the date three days prior to the date of the closing of the Merger (the "Closing Date") as adjusted for any stock split, stock dividend, recapitalization, combination, readjustment or other reclassification. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of Camco, GFBC, First Federal and Germantown Federal has made certain representations and warranties in the Agreement in respect of various matters, including, but not limited to, the corporate organization and financial condition of each. In addition, GFBC and Germantown Federal have made certain covenants in respect of various matters, including, but not limited to, the conduct of their businesses between the date of the Agreement and the Effective Time. See "THE MERGER - Representations, Warranties and Covenants." CONDITIONS AND EFFECTIVE TIME. The consummation of the Merger is subject to the satisfaction or waiver of a number of conditions, including, but not limited to, the adoption of the Agreement by the affirmative vote of the holders of a majority of the issued and outstanding GFBC Shares, the receipt of all necessary regulatory approvals, the exercise of dissenters' rights by the holders of no more than 7.5% of the outstanding GFBC Shares, the absence of any material adverse change in the business, operations, properties, assets or financial condition of Camco, GFBC, First Federal or Germantown Federal since July 28, 1997, and GFBC having stockholders' equity immediately prior to the Effective Time of at least $6.4 million, exclusive of certain expenses of the Merger and accounting and other adjustments described in the Agreement. Following the satisfaction or waiver of all such conditions, a Certificate of Merger will be filed as soon as practicable with the Secretary of State of Delaware (the "Secretary of State"), after which the Merger will be effective. See "THE MERGER - Conditions; and - Effective Time of Merger." 4 15 On ____________, 1997, the OTS approved Camco's acquisition of Germantown Federal as a result of the Merger. Such approval is conditioned upon the satisfaction of several standard requirements. It is currently anticipated that the Merger will be consummated in January 1998. TERMINATION. The Agreement may be terminated and the Merger abandoned upon the occurrence of certain events, including, but not limited to, the mutual agreement of the parties, the failure to satisfy or waive all conditions or the failure to consummate the Merger on or before June 30, 1998. See "The MERGER - Termination and Amendment." TAX AND ACCOUNTING TREATMENT. The following is a summary discussion of the material federal income tax consequences of the Merger. This summary does not purport to discuss all aspects of federal income taxation that may be applicable to particular stockholders, some of whom may be subject to special rules, nor does it address any aspects of state, local or foreign tax laws. This summary is based upon current federal law, which is subject to change. GFBC stockholders are advised to consult their own tax advisors. The consummation of the Merger is conditioned upon the receipt of an opinion of Camco's counsel to the effect that the Merger will constitute a tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). Camco has received the opinion of Vorys, Sater, Seymour and Pease that the Merger will constitute a reorganization for federal income tax purposes and that no gain or loss will be recognized by the stockholders of GFBC upon the issuance of Camco Shares in exchange for their GFBC Shares. A gain or loss may be recognized, however, on cash received pursuant to the exercise of dissenters' rights by GFBC stockholders. Neither the opinion of counsel nor the discussion of federal income tax consequences in this Prospectus and Proxy Statement is binding upon either the Internal Revenue Service (the "IRS") or the courts. See "THE MERGER - Income Tax Consequences" and "RIGHTS OF GFBC DISSENTING STOCKHOLDERS." The Merger will be treated as a pooling of interests for accounting purposes. Accordingly, under generally accepted accounting principles, on a consolidated basis, the assets and liabilities of GFBC will be combined with those of Camco and carried forward at historical cost. In addition, the statements of income of GFBC will be retroactively combined with the statements of operations of Camco on a consolidated basis. The obligations of Camco under the Agreement are conditioned upon its receipt of an opinion from its independent auditors that Camco may treat the Merger as a pooling of interests for accounting purposes. RECOMMENDATION OF THE BOARD OF DIRECTORS OF GFBC The Board of Directors of GFBC believes that the consummation of the Merger is in the best interests of GFBC and its stockholders. Accordingly, the Board of Directors of GFBC unanimously recommends that the stockholders of GFBC vote FOR the adoption of the Agreement. COMPARISON OF RIGHTS OF HOLDERS OF CAMCO SHARES AND GFBC SHARES The rights of the holders of GFBC Shares are currently governed by Delaware law and by GFBC's Certificate of Incorporation and Bylaws. Upon the consummation of the Merger, GFBC's stockholders, except holders who exercise and perfect dissenters' rights, will become stockholders of Camco and their rights will be governed thereafter by Delaware law and by the Third Restated Certificate of Incorporation, as amended, of Camco (the "Camco Certificate") and the By-laws of Camco. The rights of holders of GFBC Shares and those of holders of Camco Shares differ in some respects, but are similar in most material respects. The differences are attributable to variations between the Camco Certificate and Bylaws and GFBC's Certificate of Incorporation and Bylaws. See "DESCRIPTION OF CAMCO SHARES" and "COMPARISON OF RIGHTS OF HOLDERS OF CAMCO SHARES AND HOLDERS OF GFBC SHARES." EXCHANGE OF CERTIFICATES EVIDENCING GFBC SHARES As soon as practicable after the consummation of the Merger, each GFBC stockholder will be advised of such consummation by a letter accompanied by instructions for use in surrendering the certificate or certificates evidencing GFBC Shares to Registrar and Transfer Company, the exchange agent for the Merger (the "Exchange Agent"). CERTIFICATES FOR GFBC SHARES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF 5 16 THE LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO GFBC WITH THE ENCLOSED PROXY. See "THE MERGER - Exchange of Certificates Evidencing GFBC Shares." RESALE OF CAMCO SHARES BY AFFILIATES OF CAMCO AND GFBC The Camco Shares to be issued upon the consummation of the Merger have been registered with the Commission under the Securities Act and will be freely transferable, except for Camco Shares received by persons who may be deemed to be affiliates of GFBC or Camco. The term "affiliate" is defined in Rule 145 of the Commission under the Securities Act and generally includes executive officers, directors and controlling stockholders. Persons who are affiliates of GFBC prior to the Effective Time or who are affiliates of Camco after the Effective Time may not sell their Camco Shares, except pursuant to an effective registration statement under the Securities Act covering the Camco Shares or in compliance with Rule 145 or another applicable exemption from the registration requirements of the Securities Act. See "THE MERGER - Resale of Camco Shares by Affiliates of Camco and GFBC." GFBC DISSENTERS' RIGHTS Any stockholder of GFBC who does not vote in favor of the adoption of the Agreement and who delivers a written demand for an appraisal by the Delaware Court of Chancery (the "Chancery Court") of the fair value of such stockholder's shares prior to the GFBC Special Meeting and in the manner provided by Delaware General Corporation Law ("DGCL") Section 262, a copy of which is attached hereto as Appendix D, shall be entitled, if and when the Merger is consummated, and upon strict compliance with certain procedures set forth in DGCL Section 262, to receive the fair value of the holders' GFBC Shares, if such dissenter is a stockholder of GFBC at the Effective Time. A GFBC stockholder who wishes to submit a written demand for an appraisal of the fair cash value of GFBC Shares should deliver such notice to GF Bancorp, Inc., One North Plum Street, Germantown, Ohio 45327, Attention: John T. Baker, President. See "RIGHTS OF GFBC DISSENTING STOCKHOLDERS." COMPARATIVE STOCK PRICES AND DIVIDENDS Camco Shares are quoted on Nasdaq under the symbol "CAFI." At _________________, there were _________ holders of record of Camco Shares. The following table sets forth the high and low bid prices for Camco Shares on Nasdaq for the periods indicated and the cash dividends per Camco Share declared during such periods:
Cash Dividend Quarter Ended (1) High Low Declared - ----------------- ---- --- -------- March 31, 1995 $13.29 $11.58 $0.0814 June 30, 1995 12.86 12.44 0.0858 September 30, 1995 16.70 12.86 0.0903 December 31, 1995 16.70 15.11 0.0948 March 31, 1996 $17.15 $15.11 $0.0993 June 30, 1996 18.28 15.91 0.1038 September 30, 1996 18.41 16.63 0.1093 December 31, 1996 17.81 14.73 0.1140 March 31, 1997 $16.53 14.71 0.1188 June 30, 1997 17.53 16.93 0.1235 - --------------------------- (1) Amounts have been restated to give effect to a 5% stock dividend paid in each of 1995, 1996 and 1997.
The GFBC Shares are neither listed on any exchange nor quoted on The Nasdaq Stock Market. Information about GFBC Shares is reported on the OTC Bulletin Board. The last sale of GFBC Common Shares known to the management of GFBC occurred on ________, 1997, and the price per share in such sale was $_________. 6 17 GFBC has declared the following cash dividends per GFBC Share for the periods indicated:
Quarter Ended Cash Dividend Declared - ------------- ---------------------- June 30, 1995 $0.07 September 30, 1995 0.07 December 31, 1995 0.07 March 31, 1996 0.07 June 30, 1996 0.07 September 30, 1996 0.08 December 31, 1996 0.08 March 31, 1997 0.10 June 30, 1997 0.12
The Agreement permits GFBC to pay a regular quarterly cash dividend of not more than $0.12 per share in each calendar quarter between July 28, 1997, and the Effective Time. The following table sets forth the last reported sales prices per Camco Share and GFBC Share and the equivalent per share price for a GFBC Share giving effect to the Merger on (i) July 25, 1997, the last trading day preceding public announcement of the signing of the Agreement; and (ii) ___________, 1997, the last practicable date prior to the mailing of the Prospectus and Proxy Statement.
Price per Price per Equivalent price per Camco Share GFBC Share GFBC Share (1) ----------- ---------- -------------- July 25, 1997 $18.75 $16.75 $30.30 _______, 1997 - ---------------------------- (1) The equivalent price per GFBC Share at each specified date represents the closing market price of a Camco Share on that date multiplied by the Exchange Ratio. See "THE MERGER - Exchange of GFBC Shares."
7 18 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain information regarding the financial condition and earnings of Camco and GFBC at the dates and for the periods indicated. The data for the period ended June 30, 1997, is derived from unaudited consolidated financial statements. However, in the opinion of the respective managements of Camco and GFBC, all adjustments necessary for a fair presentation of consolidated financial condition and results of operations have been made. The following tables should be read in conjunction with the consolidated financial statements and other financial information of Camco and GFBC, respectively, included elsewhere herein.
CAMCO At June 30, At December 31, BALANCE SHEET DATA: --------------------- ----------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- ------- ------- (Unaudited) (In thousands) Assets $489,833 $352,576 $469,450 $346,469 $324,627 $277,098 $269,997 Investment securities - at cost 23,800 18,987 21,844 19,283 27,333 29,104 26,158 Investment securities available for sale - at market 4,689 3,136 5,174 3,131 2,978 - - Mortgage-backed securities - at cost 9,870 4,449 10,700 5,002 5,452 9,315 12,121 Mortgage-backed securities available for sale - at market 504 802 742 985 1,464 - - Loans receivable - net 409,958 295,544 387,992 291,233 260,991 198,608 184,821 Deposits 371,032 291,288 358,009 286,574 266,861 252,219 249,776 FHLB advances 65,399 27,960 57,354 26,078 26,511 1,500 114 Stockholders' equity, restricted 46,858 29,337 45,013 27,693 24,741 19,826 16,965 Six months ended June 30, Year ended December 31, ------------------------- ----------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- ------- ------- INCOME STATEMENT DATA: (Unaudited) (In thousands) Total interest income $ 18,047 $ 13,327 $ 29,260 $ 25,440 $ 19,759 $18,900 $21,937 Total interest expense 10,033 7,187 16,046 14,257 10,233 9,752 12,566 -------- -------- -------- -------- -------- ------- ------- Net interest income 8,014 6,140 13,214 11,183 9,526 9,238 9,371 Provision for loan losses 108 42 111 143 97 310 352 Other income 1,704 1,762 3,596 3,293 2,578 3,106 1,999 General, administrative and other expense 5,673 4,698 12,910(1) 8,775 8,154 6,963 6,752 Federal income taxes 1,303 1,075 1,496 1,910 1,311 1,747 1,444 -------- -------- -------- -------- -------- ------- ------- Net earnings $ 2,634 $ 2,087 $ 3,013 $ 3,648 $ 2,542 $ 3,324 $ 2,531 ======== ======== ======== ======== ======== ======= ======= Earnings per share (2) $ .82 $ .96 $ 1.24(3) $ 1.67 $ 1.33 $ 1.75 $ 1.34 ======== ======== ======== ======== ======== ======= ======= At and for the six months ended June 30, At or for the year ended December 31, --------------------- ----------------------------------------------------- SELECTED FINANCIAL RATIOS: 1997 1996 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- ------- ------- Return on average assets (4) 1.10% 1.19% 0.74%(5) 1.09% 0.84% 1.22% 0.93% Return on average equity (4) 11.47 14.64 8.29(5) 13.91 11.41 18.07 15.96 Average equity to average 9.56 8.16 8.71 7.81 7.41 6.72 5.85 assets (4) Dividend payout ratio (6) 29.55 21.17 34.52 21.07 22.63 17.53 15.42 - -------------------------- (1) Includes a one-time assessment of $1.8 million to recapitalize the SAIF. (2) Based on 3,214,194 and 2,171,912 weighted average shares outstanding for the six months ended June 30, 1997 and 1996, respectively and 2,428,902, 2,172,309, 1,904,938, 1,900,864 and 1,895,324 weighted average shares outstanding for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. (3) Excluding the effect of a one-time assessment to recapitalize the SAIF and assuming a 34% marginal tax rate, the earnings per share would have been $1.52. (4) Ratios are based upon the mathematical average of the balances at the beginning and the end of the period. (5) Excluding the effect of a one-time assessment to recapitalize the SAIF, the return on average assets and the return on average equity would have been 1.54% and 16.10%, respectively. (6) Represents dividends per share divided by earnings per share.
8 19
GFBC At June 30, At March 31, BALANCE SHEET DATA: ------------------- ----------------------------------------------------- 1997 1996 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- ------- ------- (Unaudited) (In thousands) Assets $48,502 $48,461 $48,122 $48,982 $46,541 $49,209 $47,095 Securities held to maturity - at cost - - - - 7,501 7,011 6,021 Securities available for sale - at market 1,500 3,993 2,000 4,493 - - - Mortgage-backed securities held to maturity - at cost - - - - 12,030 11,226 9,574 Mortgage-backed securities available for sale - at market 8,765 9,920 8,848 10,265 - Loans receivable - net 33,658 30,067 32,524 29,411 22,206 21,641 22,365 Deposits 40,384 40,598 40,369 41,090 39,866 42,850 43,573 FHLB advances 1,000 1,000 1,000 1,000 - - - Stockholders' equity 6,577 6,352 6,399 6,316 6,223 5,973 3,051 Three months ended June 30, Year ended March 31, ------------------- --------------------------------------------------- 1997 1996 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- ------ (Unaudited) (In thousands) INCOME STATEMENT DATA: Total interest income $ 906 $877 $3,560 $3,465 $3,194 $3,146 $3,434 Total interest expense 441 440 1,760 1,757 1,764 1,811 2,205 ---- ----- ------- ------- ------ ------ ----- Net interest income 465 437 1,800 1,708 1,431 1,335 1,229 Provision for loan losses - - 33 - - 2 (1) Noninterest income 27 30 122 119 117 107 442 General, administrative and other expense 314 327 1,598(1) 1,279 1,224 1,080 1,075 Income tax provision 59 48 93 177 99 122 214 Cumulative effect of accounting change(2) - - - - - - (72) ---- ----- ------- ------- ------ ------ ----- Net earnings $119 $ 92 $ 198 $ 371 $ 225 $ 238 $ 311 ==== ===== ======= ======= ====== ====== ===== Earnings per share(3) $.41 $ .32 $ .67(4) $ 1.24 $ .73 $ .39 $ N/A ==== ===== ======= ======= ====== ====== ===== At or for the three SELECTED FINANCIAL RATIOS: months ended June 30, At or for the year ended March 31, --------------------- --------------------------------------------------- 1997 1996 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- ------ (Unaudited) Return on average assets(5) 0.99% 0.76% 0.41%(6) 0.78% 0.47% 0.49% 0.65% Return on average equity(5) 7.28 5.74 3.07 (6) 5.85 3.67 5.06 10.21 Average equity to average assets(5) 13.57 13.21 13.30 13.27 12.72 9.71 6.40 Dividend payout ratio(7) 29.27 21.88 49.25 22.58 - - N/A - ------------------------------------ (1) Includes a one-time assessment of $269,558 to recapitalize the SAIF. (2) The cumulative effect of accounting change reflects the adoption of Statement of Financial Accounting Standard ("SFAS") No. 109 for fiscal year 1993. (3) Based on 292,958 weighted average shares outstanding for each of the three months ended June 30, 1997 and 1996, respectively, and 292,958, 299,867, 308,376 and 308,376 weighted average shares outstanding for the years ended March 31, 1997, 1996, 1995 and 1994. 1994 earnings per share is based on net income subsequent to the Conversion on September 16, 1993. (4) Excluding the effect of a one-time assessment to recapitalize the SAIF and assuming a 34% marginal tax rate, the earnings per share would have been $1.24. (5) Ratios are based upon the daily average balances for the period. (6) Excluding the effect of a one-time assessment to recapitalize the SAIF, the return on average assets and the return on average equity would have been 0.77% and 5.82%, respectively. (7) Represents dividends per share divided by earnings per share.
9 20 COMPARATIVE PER SHARE DATA The following table sets forth the book value per common share, cash dividends paid and earnings per common share of (a) Camco on a historical basis; (b) GFBC on a historical basis; and (c) Camco on a pro forma basis adjusted to give effect to the Merger as if the Merger had been consummated as of the dates and at the beginning of the periods presented. The following information should be read in conjunction with the historical consolidated audited financial statements and consolidated unaudited financial information of Camco and GFBC included herein or incorporated by reference in this Prospectus and Proxy Statement. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The information presented below is not necessarily indicative of the results which actually would have been obtained if the Merger had been consummated in the past or which may be obtained in the future.
Six months Year ended ended June 30, 1997 December 31, -------------------- ---------------------------------- 1996 1995 1994 -------- -------- ------ CAMCO HISTORICAL DATA (1) - ------------------------- Earnings per common share $ 0.82 $ 1.24 $ 1.68 $ 1.33 Cash dividends paid per common share 0.25 0.43 0.36 0.30 Book value per common share (2) 14.58 14.00 13.38 11.69 Six months Year ended ended June 30, 1997 March 31, -------------------- ---------------------------------- 1997 1996 1995 -------- -------- ------ GFBC HISTORICAL DATA (3) - ------------------------ Earnings per common share $ 0.80 $ 0.67 $ 1.24 $ 0.73 Cash dividends paid per common share 0.22 0.33 0.28 - Book value per common share (2) 22.45 21.84 21.56 20.18 Six months Twelve months ended June 30, 1997 June 30, -------------------- ---------------------------------- 1996 1995 1994 -------- -------- ------ PRO FORMA COMBINED (4) - ---------------------- Earnings per common share $ 0.77 $1.10 $1.52 $1.16 Cash dividends per common share (5) 0.404 0.695 0.582 0.485 Book value per common share (2) 14.49 13.94 13.37 11.95 - ------------------------------ (1) Earnings, dividends and book value per common share have been restated to give effect to a 5% stock dividend paid in each of 1995, 1996 and 1997. Earnings per common share and cash dividends paid per common share are based on weighted average common shares outstanding totaling 3,214,194 for the six months ended June 30, 1997, and 2,428,902, 2,172,309 and 1,904,938 for each of the years ended December 31, 1996, 1995 and 1994, respectively. (2) At period end. (3) Based on 292,958 weighted average shares outstanding for each of the three months ended June 30, 1997 and 1996, respectively, and 292,958, 299,867 and 308,376 weighted average shares outstanding for the years ended March 31, 1997, 1996 and 1995. (4) Pro forma combined earnings, dividends, and book value per common share is based on Camco's historic earnings, dividends and book value per common share in addition to GFBC's historical fiscal operating results and assumes the issuance of 503,317 Camco Shares as set forth in the Exchange Ratio. (5) Camco's historical dividends multiplied by the Exchange Ratio.
10 21 INTRODUCTION This Prospectus and Proxy Statement constitutes both a Prospectus of Camco with respect to the issuance of up to 628,967 Camco Shares in connection with the Merger and the Proxy Statement of GFBC for use in connection with the solicitation of proxies by the Board of Directors of GFBC to be used at the GFBC Special Meeting. This Prospectus and Proxy Statement is being mailed to stockholders of GFBC commencing on or about November __, 1997. All information contained in this Prospectus and Proxy Statement relating to Camco has been furnished by Camco. All information relating to GFBC and Germantown Federal has been furnished by GFBC. The party furnishing any such information is responsible for the accuracy thereof. BACKGROUND AND REASONS FOR THE MERGER CAMCO Camco's strategic plan is to deliver a wide array of financial products and services through a network of community-based financial institutions which benefit from the centralized support provided by the holding company structure while operating autonomously in their respective markets under the direction of management personnel who maintain close ties to the communities they serve. Since adopting the holding company structure in 1970 with a single thrift charter, the Camco group has expanded over the years to include four geographically distinct financial institution charters and several subsidiaries engaged in mortgage-related activities. Camco identified GFBC as a desirable acquisition for a variety of reasons, including the competitive features of the market area and the opportunities for profitable market expansion. Germantown Federal is based in Montgomery County, Ohio, in the southwestern part of the Dayton metropolitan area. From its offices in Germantown and New Lebanon, Germantown Federal is positioned to serve the population centers in southern Montgomery County, situated on the Interstate 75 corridor between Dayton and Cincinnati, and the south Dayton suburban communities, such as Kettering and Beavercreek. These areas have grown in recent years, connecting the Greater Cincinnati and Greater Dayton areas. The Germantown Federal offices will become branches of First Federal, which is headquartered in Washington Court House, the county seat of Fayette County in south-central Ohio. In 1992, First Federal opened a loan origination office in Clinton County, Ohio, west of Fayette County. Montgomery County is adjacent to Clinton County, continuing First Federal's westward expansion into more densely populated areas. Camco believes that market conditions in the southern Montgomery County area are conducive to increased mortgage lending and deposit growth and that Germantown Federal, as part of First Federal, will be able to compete more effectively than it could independently. First Federal has an experienced management team which will provide the support necessary to expand the range of products and services. As part of First Federal's branch network, the Germantown Federal offices will benefit from the infrastructure of a larger bank and the support it derives from Camco's holding company structure, enhancing the products and services available at the Germantown Federal offices. In addition, the ability to eliminate duplicative functions, such as data processing systems, regulatory reporting, compliance and accounting functions, will produce cost savings. Germantown Federal has historically been a portfolio lender, whereas First Federal, in recent years, has been very active in the secondary market. Camco believes that its consolidated mortgage banking revenue can be enhanced through the expansion of First Federal's mortgage banking operation into Montgomery County. Introduction of Camco's "AdvantageBanking" program, which emphasizes exceptional quality and a broad array of services at a fair price, offers an additional opportunity to expand lending and deposit relationships with its existing Germantown Federal customer base and to attract new customers. Another potential impact of the Merger is increased liquidity of Camco Shares due to the issuance of additional Camco Shares. As a result of the Merger, the number of Camco stockholders will increase by approximately 170 and the number of outstanding Camco Shares will increase by up to 628,967 shares, or 19.6%. 11 22 Based upon all of the foregoing, the directors of Camco concluded that the terms of the Merger, as set forth in the Agreement, were fair to, and in the best interests of, the Camco stockholders and, on July 28, 1997, adopted a resolution approving the Agreement. GFBC Since the consummation of the Conversion in 1993, the Board of Directors of GFBC has continually evaluated various possible strategies for increasing the comparatively low returns on equity and assets of GFBC. For the years ended March 31, 1996, 1995 and 1994, for example, the returns on equity of GFBC equaled 5.85%, 3.67% and 5.06%, respectively. For the same years, the returns on assets of GFBC equaled .49%, .47% and .78%, respectively. The Board of Directors was not satisfied with such returns. Some specific strategies to increase such returns were identified and pursued. Germantown Federal's mortgage loan operations were reorganized in 1994 in an attempt to increase loan volume. Although some increase was experienced, it did not reach the Board of Directors' expectations. In fiscal years 1996 and 1997, automated teller machines ("ATMs") were installed at both offices in an attempt to retain existing customers and attract new customers. The investment in the ATMs and the expense of operating them has negatively affected operating results, and account growth has been below expectations. Both of these strategies have had limited success, and further improvement is uncertain. GFBC also attempted to increase returns to stockholders by repurchasing GFBC Shares. GFBC was able to repurchase only 15,418 shares at a price considered by the Board of Directors of GFBC to be advantageous for the stockholders of GFBC. The GFBC Shares are currently held by approximately 170 stockholders of record, and there is very little trading in GFBC Shares, which the directors recognized as another disadvantage for GFBC stockholders. The Board of Directors considered, therefor, whether a continued attempt to implement a long-term strategy to improve earnings would be in the best interests of stockholders in view of the additional expense associated therewith, the uncertainty of ultimate success and the continued lack of liquidity for GFBC Shares for an unforeseeable period of time even if earnings continued to increase. As part of such consideration, the directors noted the consolidation of the thrift and bank industries and the ways in which the larger thrifts and banks were able to compete more effectively for deposits and loans through the offering of additional products and services that small, community thrifts are unable to provide. The directors also considered legislation being considered that might permit banks to provide additional services and would eliminate the federal thrift charter. As the Board of Directors considered the foregoing matters, it decided to consult McDonald & Company with respect to alternatives for increasing stockholder value through a strategic merger with another financial institution or the sale of GFBC. Upon a comparison of the returns to stockholders over time that might be achieved if GFBC continued to operate independently, if GFBC merged with an institution of similar size and, in the current merger and economic environment, if GFBC entered into a strategic combination with a larger institution, the Board of Directors determined in March 1997 to engage McDonald & Company to investigate possible strategic merger alternatives. With the assistance of McDonald & Company, the directors identified certain thrift and bank holding companies that might be desirable merger partners. McDonald & Company contacted 21 thrift and bank holding companies, of which 16 indicated an interest in receiving preliminary financial and other data regarding GFBC, after signing confidentiality agreements. After reviewing the preliminary information, ten of those companies, including Camco, chose to submit a preliminary nonbinding indication of interest outlining the general terms and conditions, including a proposed price or range of proposed prices, for a merger. With the assistance of McDonald & Company, the Board of Directors thoroughly reviewed such indications of interest. The Board of Directors then decided to invite the four companies offering the most attractive opportunities for the GFBC stockholders, based upon the price proposed and the prospects for stockholders of the combined entity after the merger, to conduct a due diligence review of GFBC. After completion of such due diligence, all four companies submitted final proposals. All four companies proposed a merger of GFBC into the acquiring holding company and a merger of Germantown Federal into a thrift or bank subsidiary. Three of the companies offered alternative forms of consideration to the stockholders of GFBC, permitting the Board of Directors of GFBC to choose, in two proposals, all cash or a mix of cash and stock, or, in another proposal, either all stock or a mix of cash and stock. The fourth proposal, Camco's, permitted only stock of Camco as the consideration, although it offered the alternative of either a fixed exchange ratio of Camco Shares for GFBC Shares or a fixed dollar value of Camco Shares for each GFBC Share. 12 23 The Board of Directors determined to continue consideration only of strategic merger proposals in which the GFBC stockholders would receive stock of the resulting entity, which would enable the GFBC stockholders to maintain an ownership interest in the ongoing entity and perhaps obtain a change of control premium upon a later sale of such entity, and which would enable the GFBC stockholders to defer the taxable gain on their GFBC Shares. With extensive information provided by McDonald & Company, the directors analyzed the value of the consideration to be received under the various proposals. The Board of Directors reviewed historical and prospective earnings of the companies, the pro forma financial impact and earnings per share dilution, if any, of a merger with GFBC, the pro forma impact on the stockholders of GFBC with respect to earnings, book value and dividends per share, the ability of the combined entity to realize cost savings through economies of scale and consolidation of operations, the record of successfully consolidating institutions in prior acquisitions, the additional products and services not offered by GFBC which could be offered by the combined entity, the liquidity of the other companies' stock, the price at which each of the other companies' stock was trading compared to that of other financial institutions using various valuation measures, the possibility that each of such companies might be acquired in the foreseeable future at a favorable price and other relevant factors. The GFBC Board of Directors also carefully considered the advantages and disadvantages of establishing a fixed exchange ratio at the time the Agreement was executed, it being understood that once a fixed exchange ratio was agreed upon, the ultimate value to be received by GFBC stockholders could fluctuate in the period between signing of the Agreement and the consummation of the Merger. Under Camco's fixed exchange ratio proposal and based upon the closing sale price of Camco Shares at the time of the GFBC Board of Directors' deliberation, each GFBC stockholder would receive Camco Shares worth $29.50 in exchange for each GFBC Share. Only one other institution offered stock with a value at that time in excess of Camco's proposal; that proposal would have provided to GFBC's stockholders $31.00 of the other institution's shares for each share of GFBC. However, the information regarding Camco and the other institution indicated that, relative to the other institution, Camco was a substantially larger and more profitable banking organization, with superior resources, operating results and business prospects, and Camco Shares were a more attractive form of consideration than the common stock of the other institution, based on relative peer group valuation information. The Board of Directors also reviewed information with respect to other recently announced mergers and recently completed mergers within the thrift industry and revisited the prospects for GFBC remaining as an independent entity. Camco's proposal represented a multiple of 23.0 times GFBC's fully-diluted earnings per share (adjusted for the one-time SAIF assessment) for the fiscal year ended March 31, 1997, and 135.1% of GFBC's fully-diluted book value per share at March 31, 1997. The most recent price known by the Board of Directors to have been paid for GFBC Shares at the time was $16.75 per share. After extended discussions of the foregoing considerations, the Board of Directors concluded that the proposal by Camco of a fixed ratio of 1.616 Camco Shares for each GFBC Share, with certain provisions for fixing the dollar value of the consideration and for permitting termination of the Agreement upon specified changes in the market price of Camco stock before closing, would be in the best interests of GFBC stockholders. Camco agreed to structure the transaction accordingly. Once the basic structure of the transaction had been agreed upon, representatives and management of GFBC and Camco negotiated the terms and conditions of the Agreement. The Board of Directors then held a special meeting on July 28, 1997, to review, discuss and approve the Agreement. The Board of Directors, together with its financial and legal advisors, reviewed in detail the terms of the Agreement. At that meeting, McDonald & Company delivered its oral opinion to GFBC's Board of Directors, later confirmed in writing, that, as of such date, the Exchange Ratio was fair to the holders of GFBC Shares from a financial point of view. The Board of Directors then unanimously approved the Agreement and the transactions contemplated thereby. The Agreement was then executed and announced on July 28, 1997. OPINION OF MCDONALD & COMPANY GFBC has retained McDonald & Company to render its opinion with respect to the fairness, from a financial point of view, of the Exchange Ratio to the holders of GFBC Shares. McDonald & Company rendered its oral opinion to the GFBC Board of Directors on July 28, 1997, which it subsequently confirmed in writing, that, as of the date of such opinion, the Exchange Ratio was fair, from a financial point of view, to the holders of GFBC Shares. 13 24 THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY, UPDATED AS OF THE DATE OF THIS PROSPECTUS AND PROXY STATEMENT, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROSPECTUS AND PROXY STATEMENT, AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH IN THIS PROSPECTUS AND PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. MCDONALD & COMPANY'S OPINION IS DIRECTED TO THE GFBC BOARD OF DIRECTORS AND ADDRESSES ONLY THE EXCHANGE RATIO. In arriving at its opinion, McDonald & Company reviewed, among other things, the Agreement, together with exhibits and schedules thereto, certain publicly available information relating to the business, financial condition and operations of GFBC and Camco as well as certain other non-public information, primarily financial in nature, furnished to it by GFBC and Camco relating to the respective businesses, earnings, assets and prospects of GFBC and Camco. McDonald & Company also held discussions with members of senior management of GFBC and Camco concerning their respective businesses, assets, financial forecasts and prospects. McDonald & Company also reviewed certain publicly available information concerning the trading of, and the trading market for, GFBC Shares and Camco Shares and certain publicly available information concerning comparable companies and transactions, all as set forth in McDonald & Company's opinion. McDonald & Company was not engaged to and did not conduct a physical inspection of any of the assets, properties, or facilities of either GFBC or Camco and was not engaged to and has not made, obtained or been furnished with any independent evaluation or appraisal of any of such assets, properties, or facilities or any of the liabilities of GFBC or Camco. McDonald & Company has assumed and relied, without independent investigation, upon the accuracy and completeness of the financial and other information provided to it or publicly available, has relied upon the representations and warranties of GFBC and Camco contained in the Agreement and has not independently attempted to verify such information. McDonald & Company has also assumed that all of the conditions to the Merger set forth in the Agreement, including the tax-free nature of the reorganization for federal income tax purposes, would be satisfied and that the Merger would be consummated on a timely basis in the manner contemplated by the Agreement. No limitations were imposed by GFBC upon McDonald & Company with respect to the scope of McDonald & Company's investigation, nor were any specific instructions given to McDonald & Company in connection with its fairness opinion. In connection with rendering its opinion dated July 28, 1997, and as updated to the date of this Prospectus and Proxy Statement, McDonald & Company considered a variety of financial analyses, which are summarized below. McDonald & Company believes that its analyses must be considered as a whole and that selecting portions of such analyses and of the factors considered by McDonald & Company without considering all such analyses and factors may create an incomplete view of the analytical process underlying McDonald & Company's opinion. In its analyses, McDonald & Company made numerous assumptions with respect to industry performance, business and economic conditions and other matters. Any estimates contained in McDonald & Company's analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such estimates. The following is a summary of selected analyses considered by McDonald & Company and discussed with the GFBC Board of Directors in connection with McDonald & Company's opinion dated July 28, 1997: COMPARISON WITH SELECTED COMPANIES. McDonald & Company compared the financial performance and stock market valuation of Camco with corresponding data for the following selected companies: Chester Valley Bancorp, Inc., Emerald Financial Corporation, First Federal Bancorp, Inc., First Keystone Financial, Fidelity Bancorp, Inc., Harleysville Savings Bank, TF Financial Corporation and Winton Financial Corporation. In addition, McDonald & Company compared the same data of GFBC with corresponding data for the following selected companies: AmTrust Capital Corporation, First Federal Bancorporation, Classic Bancshares, Inc., Eagle BancGroup, Inc., First Independence Corporation, Home Building Bancorp, Hardin Bancorp, Inc., Harvest Home Financial Corporation, Horizon Financial Services Corporation, Indiana Community Bank SB, Milton Federal Financial Corporation, North Bancshares, Inc., River Valley Bancorp and Three Rivers Financial Corporation. At the time, none of the companies listed above had announced a merger transaction or disclosed an interest in pursuing a possible merger transaction which would have significantly affected its stock market valuation. CONTRIBUTION ANALYSIS. McDonald & Company analyzed the contribution of each of GFBC and Camco to, among other things, the stockholders' equity and after-tax net income of the pro forma combined company. The analysis showed that, among other factors, GFBC would have contributed 12.7% of the stockholders' equity of the pro forma combined 14 25 company as of March 31, 1997, and 6.1% of the pro forma net income for the combined company for the 12 months ended March 31, 1997, compared to a proposed ownership of 13.1% of the combined company to be held by holders of GFBC Shares. PRO FORMA MERGER ANALYSIS. McDonald & Company analyzed certain pro forma effects resulting from the Merger on the pro forma combined company over a five-year period from 1998 through 2002. This analysis, based upon the financial forecasts of management of GFBC and Camco and including estimates of cost savings provided by the management of GFBC and Camco, showed approximately 3.4% dilution for Camco in pro forma earnings per share in 1998 and approximately 3.7% dilution in pro forma earnings per share in 1999. McDonald & Company also analyzed the changes in the per share amount of earnings, book value and indicated dividend represented by one GFBC Share after the Merger. The analysis was performed on the basis of financial information for both companies as of and for the years ended December 31, 1994, 1995 and 1996 and the year ended March 31, 1997. The analysis indicated that, among other things, exchanging one GFBC Share at the Exchange Ratio for Camco Shares on a pro forma basis would have resulted in a 157.4% increase in earnings per share for each GFBC Share for the 12 months ended March 31, 1997, a 2.7% decrease in fully diluted book value per share for each GFBC Share as of March 31, 1997, and a dividend increase of 75.1% per GFBC Share based on GFBC's indicated annual dividend rate as of July 28, 1997. ANALYSIS OF SELECTED MERGER TRANSACTIONS. McDonald & Company reviewed five groups of selected pending thrift acquisition transactions involving (i) selling thrifts headquartered in Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, Pennsylvania, South Dakota, West Virginia and Wisconsin, (ii) selling thrifts with total assets less than $100 million, (iii) selling thrifts with an equity to assets ratio of between 10% and 20%, (iv) selling thrifts with a return on average assets ratio of between 0.25% and 1.00%, and (v) selling thrifts with a ratio of nonperforming assets to total assets of less than 0.50%. McDonald & Company reviewed the ratios of the offer value to stated book value and tangible book value, the multiple of the last 12 months' earnings of the acquired company (adjusted for the one-time SAIF assessment), and the ratio of offer value to assets in each such transaction, and computed the mean and median ratios and multiples for each group. The calculations yielded ranges of median ratios of price to stated book value and tangible book value of 138% to 167%. Median multiples of earnings among the five groups ranged from 18.4 times earnings to 19.7 times earnings; and median ratios of offer value to assets ranged from 16.3% to 18.9%. This analysis showed an imputed reference range of $24.00 to $29.50 per GFBC Share. NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSIS AS A COMPARISON IS IDENTICAL TO GFBC, CAMCO OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED. MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR COMPARABLE TRANSACTION DATA. DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, McDonald & Company estimated the present value of the future streams of after-tax cash flows that GFBC could produce over a five-year period from 1998 through 2002, under various assumptions, based upon GFBC's management forecasts. McDonald & Company then estimated the terminal value of GFBC after the five-year period by applying an estimated perpetual growth rate to the sixth year's projected after-tax cash flow and then applied to this value multiples ranging from 10.1 to 12.1. The five-year cash flow streams and terminal values were then discounted to present values using different discount rates chosen to reflect different assumptions regarding the estimated required rates of return of prospective buyers of GFBC. On the basis of such varying assumptions, this discounted cash flow analysis indicated a reference range of $25.68 to $31.57 per GFBC Share. This analysis was based upon GFBC's and Camco's management forecasts including variations and assumptions made by McDonald & Company, which included adjustments to reflect the anticipated effects of potential merger-related cost savings estimated by GFBC and Camco. Managements' forecasts are based upon many factors and assumptions, many of which are beyond the control of GFBC or Camco. As indicated above, this analysis is not necessarily indicative of actual values or actual future results and does not purport to reflect the prices at which any securities may trade at the present time or at any time in the future. OTHER ANALYSIS. In addition to performing the analyses summarized above, McDonald & Company also considered its analysis of the general market for bank and thrift mergers, GFBC's relative share of the deposit market that it serves and the general economic conditions and prospects of those markets. In performing its analyses, McDonald & Company made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. The analyses performed by McDonald & 15 26 Company are not necessarily indicative of actual values, which may be significantly more or less favorable than the values suggested by such analyses. Such analyses were prepared solely as part of McDonald & Company's opinion. The term "fair from a financial point of view" is a standard phrase contained in investment banking fairness opinions and refers to the fact that McDonald & Company's opinion as to the fairness of the Exchange Ratio is addressed solely to the financial attributes of the Exchange Ratio. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold. In addition, as described above, McDonald & Company's opinion and related presentation to the GFBC Board of Directors were one of many factors taken into consideration by the GFBC Board of Directors in making its determination to approve the Agreement. Consequently, the McDonald & Company analyses described above should not be viewed as determinative of the GFBC Board's conclusions with respect to the value of GFBC or of the decision of the GFBC Board of Directors to agree to the Merger. McDonald & Company's opinion is based on economic and market conditions and other circumstances existing on, and information made available as of, the date of the opinion. In addition, the opinion does not address the underlying business decision to effect the Merger or any other terms of the Merger. McDonald & Company's opinion does not represent its opinion as to what the value of GFBC Shares or Camco Shares may be at the Closing Date. In connection with its opinion dated as of the date of this Prospectus and Proxy Statement, McDonald & Company performed procedures to update certain of its analyses and reviewed the assumptions on which such analyses were based and the factors considered herewith. McDonald & Company, as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. McDonald & Company has extensive experience with the valuation of financial institutions. GFBC's Board of Directors selected McDonald & Company as its financial advisor because of McDonald & Company's industry expertise with respect to financial institutions and because of its substantial experience in transactions similar to the Merger. McDonald & Company is not affiliated with either GFBC or Camco. In the ordinary course of business, McDonald & Company makes a market in Camco Shares and GFBC Shares and may actively trade securities of Camco or GFBC for its own account and for the accounts of customers. At any time and from time to time, McDonald & Company may hold a short or long position in such securities. For McDonald & Company's services as financial advisor, GFBC has agreed to pay McDonald & Company two percent of the aggregate fair market value of the consideration to be paid to the GFBC stockholders in exchange for their GFBC Shares. Of such amount, GFBC has paid McDonald & Company a retainer of $15,000 and a fee of $25,000 upon rendering of the oral opinion. Assuming the consummation of the Merger and based upon the value of the Merger assuming a Market Value of Camco Shares of $___________, additional fees equal to approximately $__________ would be payable to McDonald & Company upon consummation of the Merger. GFBC has also agreed to reimburse McDonald & Company for its reasonable out-of-pocket expenses and to indemnify McDonald & Company against certain liabilities, including certain liabilities under federal securities laws. RECOMMENDATION OF THE BOARD OF DIRECTORS OF GFBC The Board of Directors of GFBC unanimously recommends that the stockholders of GFBC vote FOR the adoption of the Agreement. The Board of Directors of GFBC believes that the terms of the Merger are fair to, and in the best interests of, GFBC's stockholders. THE MERGER EXCHANGE OF GFBC SHARES If the Agreement is adopted by the affirmative vote of the holders of a majority of the issued and outstanding GFBC Shares, if all necessary regulatory approvals are received and if certain other conditions to the consummation of the Merger are satisfied or waived, GFBC will merge with and into Camco and Camco will be the continuing and surviving corporation 16 27 in the Merger. At the Effective Time, each GFBC Share will be canceled and extinguished in consideration and exchange for the number of Camco Shares indicated by the Exchange Ratio. The Exchange Ratio will be 1.616 Camco Shares for each GFBC Share outstanding at the Effective Time, subject to possible adjustment. If the Market Value of Camco Shares is less than $15.51 per share or more than $20.99 per share, the Exchange Ratio will be changed (the "Market Average Adjustment") as follows: (i) if the Market Value is less than $15.51 but more than $12.78, then the Exchange Ratio shall be the product of multiplying 1.616 by a fraction, the numerator of which is $15.51 and the denominator of which is the Market Value, (ii) if the Market Value is more than $20.99, but less than $23.73, then the Exchange Ratio shall be the product of multiplying 1.616 by a fraction, the numerator of which is $20.99 and the denominator of which is the Market Value, (iii) if the Market Value is less than $12.78, the Agreement shall be terminated, and (iv) if the Market Value is more than $23.73, GFBC may terminate the Agreement and the Merger. As used in this Prospectus and Proxy Statement, the term "Exchange Ratio" shall include the foregoing adjustment, to the extent applicable at the Effective Time in accordance with the Agreement. On November ___, 1997, the last day of trading before the date of this Prospectus and Proxy Statement, the Market Average Adjustment would not have affected the Exchange Ratio. No assurance can be given, however, that the adjustment will not be required at the Effective Time. As of the date of this Prospectus and Proxy Statement, there were 311,459 GFBC Shares issued and outstanding and 9,246 GFBC Shares subject to outstanding GFBC Options, the exercise price of each of which was $10.00. Each GFBC Option not exercised prior to the Effective Time will be assumed by Camco and become an option to purchase a number of Camco Shares equal to the product of the number of the GFBC Shares subject to the option multiplied by the Exchange Ratio. The exercise price for such options will equal the quotient of the $10.00 exercise price of the GFBC Options divided by the Exchange Ratio which, based on the Exchange Ratio on November __, 1997, the last trading date prior to the date of this Prospectus and Proxy Statement, would be $________. Assuming that all of the GFBC Options are exercised before the Effective Time, there will be 320,705 GFBC Shares issued and outstanding at the Effective Time. Assuming no adjustment to the Exchange Ratio is required, the aggregate Exchange Ratio to GFBC stockholders would consist of 518,259 Camco Shares. Such issuance would increase total outstanding Camco Shares, assuming no outstanding Camco options are exercised prior to the Effective Time, to 3,732,452, of which 13.9% would be held by former GFBC stockholders. FRACTIONAL SHARES No fractional shares of Camco will be issued in the Merger. In lieu of any such fractional shares, Camco will pay to each holder of GFBC Shares who otherwise would be entitled to receive a fraction of a Camco Share an amount in cash based on the Market Value of Camco Shares at the Closing Date. No dividend or distribution with respect to Camco Shares will be payable on or with respect to any fractional share, and such fractional share interests will not entitle the owner thereof to vote or to exercise any other rights of a stockholder of Camco. EXCHANGE OF CERTIFICATES EVIDENCING GFBC SHARES As soon as practicable after the Effective Time, the Exchange Agent will mail to each holder of record of a certificate or certificates which immediately before such consummation evidenced outstanding GFBC Shares (the "Certificates") a form letter of transmittal. The letter of transmittal will contain instructions for effecting the surrender of the Certificates in exchange for certificates evidencing Camco Shares. Upon surrender of a Certificate, together with such letter of transmittal, duly executed, to the Exchange Agent for exchange and cancellation, the holder of such Certificate will be entitled to receive a certificate evidencing the number of Camco Shares to which such Certificate holder will have become entitled pursuant to the provisions of the Agreement and cash in lieu of any fractional Camco Share and in payment of any dividend effective with respect to such Camco Shares after the Effective Time. Unless and until Certificates are surrendered for exchange, no dividend or other distribution declared or payable to holders of record of Camco Shares as of any time subsequent to the consummation of the Merger will be paid to the holder of any such unsurrendered Certificate, and such holder's other rights as a stockholder of Camco will be suspended. Any stockholder of GFBC who has lost or misplaced a Certificate should immediately contact John T. Baker, President, GF Bancorp, Inc., in writing at One North Plum Street, Germantown, Ohio 45327, or by telephone at (937) 855- 17 28 4125. A written statement detailing the procedures for replacing the lost Certificate will be mailed to the stockholder following such contact. REPRESENTATIONS, WARRANTIES AND COVENANTS Each of Camco, GFBC, First Federal and Germantown Federal has made certain representations and warranties in the Agreement with respect to various matters. Such matters include, as to each of Camco, GFBC, First Federal and Germantown Federal, representations and warranties regarding corporate organization and authority, capital, financial condition, past conduct of business, legal proceedings and business condition. In addition, GFBC and Germantown Federal have each made certain other representations and warranties regarding investments, properties, taxes, contracts, employee benefit plans and other matters. Camco, GFBC, First Federal and Germantown Federal have also each made certain covenants in the Agreement. GFBC and Germantown Federal have agreed to conduct their business during the period between July 28, 1997, and the Effective Time only in the ordinary course consistent with past practice, except to the extent authorized in writing by Camco. In addition, GFBC and Germantown Federal must not solicit or initiate any proposals or offers from any person, or discuss or negotiate with any such person or entity, in respect of any acquisition or purchase of all or a material amount of the assets of, any equity security of, or any merger, consolidation or business combination with, GFBC or Germantown Federal (collectively, an "Acquisition Transaction"), subject to the good faith exercise of the fiduciary duties of the Board of Directors of GFBC. In the event that GFBC accepts in any manner an Acquisition Transaction before the earlier of June 30, 1998, or the termination of the Agreement other than due to a breach of the Agreement by GFBC or Germantown Federal, GFBC must pay to Camco $250,000 in immediately available federal funds upon the execution before July 28, 1998 of any agreement in respect of such Acquisition Transaction. GFBC and Germantown Federal have also agreed to establish and take, at the request of Camco and to the extent permitted by law and consistent with generally accepted accounting principles and the fiduciary duties of the directors of GFBC, such reserves and accruals to conform Germantown Federal's loan, accrual and reserve policies to First Federal's policies; to implement such policies with respect to excess facilities and equipment capacity, severance costs and litigation matters; and to recognize for financial accounting purposes such expenses of the Merger and the Bank Merger and restructuring charges related to or to be incurred in connection with the Merger and the Bank Merger. GFBC and Germantown Federal do not have to establish and take such reserves and accruals, however, unless certain conditions to closing have been satisfied. In addition, Camco has agreed to indemnify the officers and directors of GFBC from and against certain liabilities for a three-year period beginning at the Effective Time upon a determination that the appropriate standard of conduct under the Camco Certificate, By-laws and applicable law has been met and that indemnification is permissible under applicable law. CONDITIONS The obligation of each of Camco and GFBC to consummate the Merger is subject to a number of conditions, including, but not limited to, the adoption of the Agreement by the affirmative vote of the holders of a majority of the issued and outstanding GFBC Shares and the receipt of all necessary regulatory approvals. The obligations of Camco and First Federal to consummate the Merger and the Bank Merger are also subject to a number of conditions, including, but not limited to, the truth, in all material respects, of all of GFBC's and Germantown Federal's representations and warranties in the Agreement; the performance and compliance by GFBC and Germantown Federal with all agreements, covenants and conditions in the Agreement; the absence of a material adverse change in the financial condition, assets, liabilities, obligations, properties or prospects of GFBC after the date of the Agreement; the exercise of dissenters' rights by the holders of not more than 7.5% of the GFBC Shares; and the balance of GFBC stockholders' equity at the Effective Time, as calculated in accordance with generally accepted accounting principles, being an amount not less than $6.4 million, exclusive of expenses related to the Merger, certain material adverse changes defined in the Agreement and reserves, accruals and charges taken or established by GFBC at the request of Camco. The obligations of GFBC and Germantown Federal to consummate the Merger and the Bank Merger are also subject to a number of conditions, including, but not limited to, the truth, in all material respects, of all of Camco's and First Federal's representations and warranties in the Agreement; the material performance and compliance of Camco and First 18 29 Federal with all agreements, covenants and conditions in the Agreement; the absence of a material adverse change in the financial condition, assets, liabilities, obligations, properties, business or prospects of Camco after the date of the Agreement; and a Market Average of Camco Shares prior to the Closing Date between $12.78 and $23.73. Any of the foregoing conditions may be waived by the party which is entitled to the benefits thereof. On ____________, 1997, the OTS approved the Merger and the Bank Merger. Such approval is conditioned upon the satisfaction of several standard requirements. EFFECTIVE TIME OF MERGER Following the satisfaction or waiver of all conditions set forth in the Agreement, and the filing of a Certificate of Merger in respect of the Merger with the Secretary of State of Delaware, the Merger will be consummated. It is currently anticipated that the Merger will be consummated in January 1998. EFFECTIVE TIME OF BANK MERGER Following the consummation of the Merger, Articles of Combination regarding the Bank Merger shall be filed with the OTS. The Bank Merger shall become effective on the date and at the time the Articles of Combination are declared effective by the OTS. It is currently anticipated that the Bank Merger will be consummated in January 1998. TERMINATION AND AMENDMENT The Agreement may be terminated and the Merger abandoned by either Camco or GFBC upon the occurrence of certain events, including the mutual agreement of Camco and GFBC and the failure to consummate the Merger on or before June 30, 1998. In addition, either Camco or GFBC may terminate the Agreement if any event occurs which, in the reasonable opinion of either Camco or GFBC, precludes compliance with any one of the conditions to the obligation to consummate the Merger. If the Agreement is terminated because (1) the Board of Directors of GFBC is authorized pursuant to the Agreement to recommend an Acquisition Transaction to the GFBC stockholders and GFBC executes a definitive agreement or letter of intent in respect of an Acquisition Transaction within one year of the Agreement; (2) the Board of Directors of GFBC fails to recommend to the shareholders of GFBC approval of the Agreement and the GFBC stockholders do not adopt the Agreement; or (3) the GFBC Special Meeting of stockholders is not held on or before June 30, 1998, other than for reasons beyond the control of GFBC, then, in any of such events, GFBC shall pay to Camco, within two business days, $250,000. The Agreement may be amended by Camco, GFBC, First Federal and Germantown Federal by action of their respective Boards of Directors and in an instrument in writing signed by Camco, GFBC, First Federal and Germantown Federal. The Agreement may be amended at any time before or after the GFBC Special Meeting. An amendment of the Agreement which materially and adversely affects the rights of the stockholders of GFBC and which takes place after the GFBC Special Meeting, however, will not be made without further approval of the affected stockholders. If necessary, such approval would be sought at a subsequent meeting of the affected stockholders. INTERESTS OF CERTAIN PERSONS For a period of three years from the Effective Time, Camco has agreed to indemnify each officer and director of GFBC against losses, claims and liabilities arising out of acts or omissions occurring prior to the Effective Time to the extent Camco is permitted under the Certificate, the By-laws and Delaware law to indemnify such person. The security ownership of directors and affairs of GFBC is set forth under "Security Ownership of GFBC." MANAGEMENT AND OPERATIONS OF CAMCO FOLLOWING THE CONSUMMATION OF THE MERGER After the Effective Time, the Board of Directors and executive officers of Camco will consist of the same persons who presently serve on the Board of Directors and as executive officers of Camco. 19 30 RESALE OF CAMCO SHARES BY AFFILIATES OF CAMCO AND GFBC The Camco Shares to be issued upon the consummation of the Merger have been registered with the Commission under the Securities Act and will be freely transferable, except for Camco Shares received by persons who may be deemed to be affiliates of GFBC or Camco. The term "affiliate" is defined in Rule 145 promulgated under the Securities Act and generally includes executive officers and directors. Persons who are affiliates of GFBC prior to the Effective Time or who are affiliates of Camco after the Effective Time may not sell their Camco Shares, except pursuant to an effective registration statement under the Securities Act covering such Camco Shares or in compliance with Rule 145 or another applicable exemption from the registration requirements of the Securities Act. INCOME TAX CONSEQUENCES THE FEDERAL INCOME DISCUSSION SET FORTH IS INCLUDED FOR GENERAL INFORMATION ONLY. GFBC STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS. NEITHER CAMCO NOR GFBC HAS REQUESTED OR OBTAINED A RULING FROM THE INTERNAL REVENUE SERVICE. Camco and GFBC have received an opinion of Vorys, Sater, Seymour and Pease that the Merger will produce the following material federal income tax consequences: 1. The Merger will constitute a reorganization under Section 368(a)(1)(A) of the Code. Camco and GFBC will each be a party to the reorganization. 2. No gain or loss will be recognized to GFBC upon the transfer of its assets to Camco in exchange for Camco Shares and the assumption by Camco of liabilities of GFBC. 3. No gain or loss will be recognized to Camco on the receipt of the assets of GFBC in exchange for Camco Shares. 4. The basis of the assets of GFBC in the hands of Camco will be the same as the basis of such assets in the hands of GFBC immediately prior to the Merger. 5. The holding period of the assets of GFBC to be received by Camco will include the period during which the assets were held by GFBC. 6. No gain or loss will be recognized by GFBC stockholders who exchange their GFBC Shares for Camco Shares (including fractional share interests) pursuant to the Merger. 7. The basis of the Camco Shares (including fractional share interests) to be received by a GFBC stockholder will be the same as the basis of the GFBC Shares surrendered in exchange therefor, and the holding period of Camco Shares (including fractional share interests) to be received by such GFBC stockholder will be the same as the holding period of the GFBC Shares surrendered in exchange therefor. 8. Where a cash payment is received by a GFBC stockholder in lieu of fractional Camco Shares, the cash payment will be treated as received by such GFBC stockholder as a distribution in redemption of the fractional share interest, subject to the provisions and limitations of Section 302 of the Code. These cash payments will be treated as having been received as distributions in full payment in exchange for the fractional shares redeemed as provided in Section 302(a) of the Code. 9. If a GFBC stockholder dissents to the Merger and receives solely cash in exchange for such stockholder's GFBC Shares, such cash will be treated as having been received by such stockholder as a distribution in redemption of such stockholder's GFBC Shares, subject to the provisions and limitations of Section 302 of the Code. See "RIGHTS OF GFBC DISSENTING STOCKHOLDERS." Such stockholder will recognize gain or loss measured by the difference between the amount of cash received and the proportional tax basis of the GFBC Shares so redeemed. Any such loss will be treated as a loss from the sale of stock and will be taxed as a capital loss if the 20 31 GFBC Shares were held by such stockholder as a capital asset at the time of the Merger. As discussed below, depending upon the particular circumstances of each GFBC stockholder, any such gain from the sale of stock will be taxable as capital gain or as a dividend taxable as ordinary income. If, after the receipt of the cash, a dissenting GFBC stockholder has completely terminated such stockholder's actual and constructive ownership interest in GFBC or Camco within the meaning of Section 302(b)(3) of the Code, then any gain recognized on the receipt of cash will be treated as capital gain if GFBC Shares were held by such stockholder as a capital asset at the Effective Time. If a dissenting GFBC stockholder receiving a cash payment for such stockholder's GFBC Shares does not thereby completely terminate such stockholder's ownership interest in GFBC or Camco within the meaning of Section 302(b)(3) of the Code, any gain recognized on the receipt of cash may be treated as a dividend and taxed at ordinary income rates unless the cash payment received by such stockholder qualifies for treatment as capital gain under the substantially disproportionate redemption exemption of Section 302(b)(2) of the Code, or under one of the other exceptions to dividend treatment contained in Section 302. In order to determine whether there has been a complete termination of actual and constructive interests in Camco, it is necessary to consider Camco Shares owned by persons from whom ownership is attributed to such dissenting stockholder under the rules of Section 318 of the Code. With respect to the Bank Merger, Camco and GFBC have received an opinion of Vorys, Sater, Seymour and Pease that the Bank Merger will produce the following material federal income tax consequences: 1. The Bank Merger will constitute a reorganization under Section 368(a)(1)(A) of the Code. First Federal and Germantown Federal will each be a party to the reorganization. 2. No gain or loss will be recognized to Germantown Federal upon the transfer of its assets to First Federal in constructive exchange for First Federal's shares and the assumption by First Federal of liabilities of Germantown Federal. 3. No gain or loss will be recognized to First Federal on the receipt of the assets of Germantown Federal in constructive exchange for shares of First Federal. 4. The basis of the assets of Germantown Federal in the hands of First Federal will be the same as the basis of such assets in the hands of Germantown Federal immediately prior to the Bank Merger. 5. The holding period of the assets of Germantown Federal to be received by First Federal will include the period during which the assets were held by Germantown Federal. 6. No gain or loss will be recognized by Camco, the sole stockholder of Germantown Federal, which constructively exchanges its Germantown Federal shares for First Federal shares pursuant to the Bank Merger. 7. The basis of the First Federal shares held by Camco will be increased by the same as the basis of the Germantown Federal shares constructively surrendered in exchange for First Federal shares. ACCOUNTING TREATMENT The Merger will be treated as a pooling of interests for accounting purposes. Accordingly, under generally accepted accounting principles, on a consolidated basis, the assets and liabilities of GFBC will be combined with those of Camco and carried forward at historical cost. In addition, the statements of income of GFBC will be retroactively combined with the statements of operations of Camco on a consolidated basis. The obligations of Camco under the Agreement are conditioned upon its receipt of an opinion from its independent auditors that Camco may treat the transactions contemplated thereby as a pooling of interests for accounting purposes. RIGHTS OF GFBC DISSENTING STOCKHOLDERS Holders of GFBC Shares who so desire may obtain an appraisal by the Court of Chancery of the fair value of their GFBC Shares under DGCL sec. 262. A stockholder of GFBC will be entitled to such appraisal, however, only if the stockholder complies strictly with all of the procedural and other requirements of DGCL sec. 262. The following summary does not purport to be a complete statement of the method of compliance with DGCL sec. 262 and is qualified in its entirety by 21 32 reference to the copy of DGCL sec. 262 attached hereto as Appendix C. For a discussion of the tax consequences to a stockholder who exercises dissenters' rights, see "THE MERGER - Income Tax Consequences." A GFBC stockholder who wishes to perfect his rights as a dissenting stockholder in the event the Agreement is adopted: (a) must have been a record holder of the GFBC Shares as to which he seeks an appraisal on the GFBC Record Date and at the Effective Time; (b) must not have voted his GFBC Shares in favor of adoption of the Agreement; and (c) must deliver to GFBC, prior to the GFBC Special Meeting, a written demand for an appraisal from the Chancery Court of the fair cash value of his GFBC Shares. Such written demand must state the name of the stockholder, his address and the number of shares as to which he seeks relief. A vote against the adoption of the Agreement will not satisfy the requirements of a written demand for appraisal. Any written demand for appraisal by a GFBC Dissenting Stockholder must be mailed or delivered to GF Bancorp, Inc., One North Plum Street, Germantown Federal, Ohio 45327, Attention: John T. Baker, President. Because the written demand must be delivered prior to the GFBC Special Meeting, it is recommended, although not required, that a stockholder using the mail should use certified or registered mail, return receipt requested, to confirm that he has made a timely delivery. Unless the GFBC Dissenting Stockholder and GFBC agree on the fair cash value per share of the GFBC Shares, either party may, within 120 days after the service of the written demand by the stockholder, file a petition in the Chancery Court for an appraisal of the fair cash value of the GFBC Shares. As part of such proceeding, the Chancery Court shall appraise the dissenting shares, determining their fair value exclusive of any element of value arising from expectation of the Merger, with a fair interest rate on such amount, based on all relevant factors. The costs of the proceeding may be assessed upon the GFBC Dissenting Stockholders or Camco, as determined equitable by the Chancery Court. GFBC Dissenting Stockholders will have no voting rights with respect to their dissenting GFBC Shares nor will they receive any dividends or distributions on those shares from GFBC or Camco. The rights of any GFBC Dissenting Stockholder will terminate if the dissenting stockholder has not complied with DGCL sec.262. In addition, a dissenting stockholder may withdraw the demand for appraisal within 60 days of the Effective Time and receive the same consideration received by other GFBC stockholders. Because a Proxy that does not contain voting instructions will be voted for the adoption of the Agreement, a GFBC stockholder who wishes to exercise dissenters' rights must either (i) not return a signed Proxy, or (ii) if the stockholder signs and submits a Proxy, vote against or abstain from voting on the adoption of the Agreement. SPECIAL MEETING OF GFBC STOCKHOLDERS DATE, TIME AND PLACE The GFBC Special Meeting will be held on __________, 1997, commencing at _:00 a.m., local time, at the offices of GFBC, One North Plum Street, Germantown, Ohio 45327. PURPOSE OF MEETING The purpose of the GFBC Special Meeting is to consider and act upon (i) a proposal to adopt the Agreement and (ii) such other business as may properly come before the GFBC Special Meeting and any adjournment thereof. SHARES OUTSTANDING AND ENTITLED TO VOTE AND RECORD DATE The close of business on ______________, 1997, has been fixed by the Board of Directors of GFBC as the GFBC Record Date for the determination of holders of GFBC Shares entitled to notice of and to vote at the GFBC Special Meeting and any adjournment thereof. At the close of business on the GFBC Record Date, there were 311,459 GFBC Shares 22 33 outstanding and entitled to vote and held of record by 170 stockholders. Each GFBC Share entitles the holder thereof to one vote on each matter to be submitted to GFBC stockholders at the GFBC Special Meeting. VOTE REQUIRED The affirmative vote of the holders of a majority of the outstanding GFBC Shares, voting in person or by proxy, will be necessary to adopt the Agreement. The affirmative vote, therefor, of the holders of 155,730 GFBC Shares will be necessary to adopt the Agreement. As of the GFBC Record Date, the directors and executive officers of GFBC owned or had voting power, in the aggregate, with respect to 80,313 GFBC Shares then outstanding (excluding GFBC Shares held in a fiduciary capacity), or 25.8% of the outstanding GFBC Shares. The directors and executive officers of GFBC have agreed to vote all such GFBC Shares for the adoption of the Agreement. Assuming the affirmative vote of all of such GFBC Shares, the affirmative vote of the holders of an additional 75,417 GFBC Shares, representing an additional 24.2% of the outstanding GFBC Shares, will be necessary to adopt the Agreement. The Certificate of Incorporation of GFBC provides that in no event shall any record owner of any outstanding GFBC Shares that are beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding GFBC Shares (the "Limit") be entitled or permitted to any vote with respect to the shares held in excess of the Limit. Beneficial ownership includes shares beneficially owned by such person or any of his or her affiliates (as defined in the Certificate of Incorporation), shares which such person or his or her affiliates have the right to acquire upon the exercise of conversion rights or options and shares as to which such person and his or her affiliates have or share investment or voting power, but shall not include shares beneficially owned by any employee stock ownership or similar plan of the issuer or any subsidiary. The presence in person or by proxy of at least a majority of the outstanding GFBC Shares entitled to vote (after subtracting any shares held in excess of the Limit) is necessary to constitute a quorum at the GFBC Special Meeting. In the event there are not sufficient votes for a quorum at the time of the GFBC Special Meeting, the GFBC Special Meeting may be adjourned in order to permit the further solicitation of proxies. Under applicable law, Non-votes will be counted as being present for purposes of establishing a quorum. The effect of an abstention or Non-vote will be the same as a vote against the adoption of the Agreement. If a Proxy is signed and dated by a stockholder, but no vote is specified thereon, the shares represented by such Proxy will be voted FOR the adoption of the Agreement. VOTING AND SOLICITATION AND REVOCATION OF PROXIES A Proxy for use at the GFBC Special Meeting accompanies this Prospectus and Proxy Statement and is solicited by the Board of Directors of GFBC. Whether or not a GFBC Stockholder plans to attend the GFBC Special Meeting, the Board of Directors of GFBC urges each stockholder to use the enclosed Proxy. Without affecting any vote previously taken, any stockholder of GFBC who has executed a Proxy may revoke the executed Proxy at any time before the vote by filing with GFBC, at the address of GFBC set forth on the Notice of Special Meeting, written notice of such revocation; by executing a later-dated proxy which is received by GFBC prior to the GFBC Special Meeting; or by attending the GFBC Special Meeting and voting in person. ATTENDANCE AT THE GFBC SPECIAL MEETING WILL NOT, IN AND OF ITSELF, REVOKE A PROXY. The GFBC Shares represented by each properly executed Proxy received prior to the GFBC Special Meeting and not revoked will be voted at the GFBC Special Meeting, or any adjournment thereof, as specified on such Proxy or, in the absence of specific instructions to the contrary, will be voted FOR the Agreement. As of the date of this Prospectus and Proxy Statement, the Board of Directors of GFBC did not know of any business to be brought before the GFBC Special Meeting, other than as set forth in this Prospectus and Proxy Statement. If, however, any matters other than those referred to in this Prospectus and Proxy Statement should properly come before such GFBC Special Meeting, or any adjournment thereof, the persons named as proxies in the enclosed Proxy intend to vote the GFBC Shares represented by such Proxy on such matters in accordance with their best judgment in light of the conditions then prevailing. GFBC will pay its expenses incurred in connection with preparing and mailing this Prospectus and Proxy Statement, the accompanying proxy and any other related materials to the stockholders of GFBC and all other costs incurred in connection with the solicitation of proxies on behalf of the Board of Directors of GFBC. Camco will pay the costs and expenses incurred by Camco in connection with preparing and printing this Prospectus and Proxy Statement. Proxies will be 23 34 solicited by mail and may be further solicited, for no additional compensation, by officers, directors or employees of GFBC by further mailing, by telephone or by personal contact. GFBC will also pay the standard charges and expenses of brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries, who are record holders of GFBC Shares not beneficially owned by them, for forwarding such materials to and obtaining proxies from the beneficial owners of GFBC Shares entitled to vote at the GFBC Special Meeting. GFBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following is management's analysis of the financial condition and the results of operations of GFBC during recent periods. This discussion is designed to provide a more comprehensive review of the operating results and financial position than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the financial statements and related footnotes and the selected financial data included elsewhere in this Prospectus and Proxy Statement. Management is not aware of any current recommendations by the regulatory authorities which if they were to be implemented, will have, or that are reasonably likely to have, a material effect on the liquidity, capital resources or operations of GFBC. GFBC, a Delaware Corporation, is a unitary holding company which holds all of the capital stock of Germantown Federal. Germantown Federal is a federally chartered stock savings bank whose main office in Germantown and one branch office in New Lebanon are located in southwestern Montgomery County, Ohio. Germantown Federal is primarily engaged in the business of providing loan and deposit products to consumers in Germantown and New Lebanon, Ohio, as well as the surrounding communities. Germantown Federal has a wholly owned service corporation subsidiary, GFS Financial Services, Inc., which was formed to hold shares of Germantown Federal's data processor. FINANCIAL CONDITION AT JUNE 30, 1997 GFBC's assets at June 30, 1997, totaled $48.5 million, representing an increase of $380,000, or 0.8%, from the March 31, 1997, amount. Net loans receivable at June 30, 1997, totaled $33.7 million, representing a $1.1 million, or 3.5%, increase from March 31, 1997. The loan growth was funded primarily by decreases in interest-bearing deposits with other financial institutions, securities available for sale and mortgage-backed securities available for sale, which combined to decrease $804,000 for the three-month period. Virtually all other asset and liability categories remained stable over the three-month period. Asset quality, as measured by the level of nonperforming assets to total assets, has remained relatively constant since March 31, 1997. Nonperforming assets, which were entirely made up of nonperforming loans, totaled $197,000 and $167,000 at June 30, 1997, and March 31, 1997, respectively. Such amounts represent 0.4% and 0.3% of total assets at each of the respective dates. Germantown Federal maintains an allowance for loan losses based upon management's periodic evaluation of known and inherent risks in the loan portfolio, Germantown Federal's past loan loss experience, adverse situations that may affect the borrowers' ability to repay loans, including changes in interest rates, real estate values and the economy, the estimated value of the underlying collateral and current market conditions. At each of June 30, 1997, and March 31, 1997, Germantown Federal's allowance for loan losses, totaling $127,000, exceeded 60% of total nonperforming loans. Because nonperforming loans consist primarily of residential mortgage loans and because of the adequacy of the estimated value of their underlying collateral, management believes Germantown Federal's allowance was adequate at June 30, 1997. There can be no assurance, however, that losses on loans will not exceed estimated amounts. Adjustments to the allowance may be necessary due to changes in any of the factors mentioned above that Germantown Federal's management considers in evaluating the adequacy of the allowance. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 NET INTEREST INCOME. Total interest income for the three months ended June 30, 1997, increased by $29,000 from the comparable 1996 period. The increase in interest income represents the effects of an increase in loans receivable. Interest on loans, including fees, increased $85,000 from $604,000 for the quarter ended June 30, 1996, to $688,000 for the 24 35 1997 three-month period. The increase was partially offset by the decrease of $56,000 in interest income on interest-bearing deposits, securities and mortgage-backed securities. The decline in interest income on those assets is reflective of the decline in the balances of those assets. Interest expense remained relatively constant between the 1996 and 1997 three-month periods, with an increase of $1,000, or 0.2%. As a result of the foregoing, net interest income increased by $28,000, or 6.4%, from the three months ended June 30, 1996, to the three months ended June 30, 1997. PROVISION FOR LOAN LOSSES. No provision was charged to operations for either three-month period. NONINTEREST INCOME. Noninterest income totaled $27,000 for the three months ended June 30, 1997, reflecting a $3,000 decrease from the comparable 1996 three-month period. NONINTEREST EXPENSES. Noninterest expenses decreased by $13,000, or 3.9%, from the three months ended June 30, 1996, to the three months ended June 30, 1997. The decrease was due primarily to a $17,000 reduction in FDIC deposit insurance. FEDERAL INCOME TAXES. GFBC's provision for federal income taxes increased by $11,000, or 22.6%, during the three months ended June 30, 1997. The increase was primarily attributable to a $37,000 increase in earnings before taxes. The effective tax rate was 32.8% for the three months ended June 30, 1997, and 34.3% for the three months ended June 30, 1996. FINANCIAL CONDITION AT MARCH 31, 1997 Total assets decreased $860,000 to $48.1 million at March 31, 1997, from $49.0 million at March 31, 1996. The 1.8% decrease was primarily attributable to the outflow of funds from deposits. At March 31, 1997, the market value of securities available for sale was $2.0 million, which included net unrealized gains of $1,000. Securities available for sale, which are comprised entirely of U.S. Treasury obligations, decreased from $4.5 million at March 31, 1996, to $2.0 million at March 31, 1997, a decrease of 55.5%. During fiscal 1997, security maturities of $2.5 million were used to fund mortgage and consumer loan originations. The securities in the portfolio had varying maturities of one year or lesec. Germantown Federal did not purchase or sell any securities during the year ended March 31, 1997. At March 31, 1997, the market value of mortgage-backed securities was $8.8 million, which included net unrealized losses of $84,000. The mortgage-backed securities portfolio decreased $1.5 million from $10.3 million at March 31, 1996. The decrease was a result of prepayments and repayments of principal on existing securities. Germantown Federal did not purchase or sell any mortgage-backed securities during fiscal 1997. Net loans receivable increased $3.1 million, to $32.5 million at March 31, 1997, from $29.4 million at March 31, 1996. The 10.6% increase was the result of new loan originations. Germantown Federal originated $9.7 million in loans during fiscal 1997. Of the loans originated, 72.7% were mortgage loans secured by single-family residential real estate and the remaining 27.3% were consumer loans. All loans originated were retained for Germantown Federal's portfolio. The allowance for loan losses was $127,000 at March 31, 1997, and $98,000 at March 31, 1996, which represented 0.39% and 0.33% respectively, of net loans. The allowance for loan losses was increased during 1997 by $33,000, because of the increase in portfolio balances of both mortgage and consumer loans over the past two years and the increase in nonperforming loans. The allowance as a percentage of nonperforming loans was 76.0% at March 31, 1997, and 90.7% at March 31, 1996. Nonperforming assets consisted entirely of nonperforming loans at March 31, 1997, and March 31, 1996. Nonperforming loans increased to $167,000 at March 31, 1997, from $108,000 at March 31, 1996. Nonperforming loans were comprised primarily of delinquent residential mortgage loans, an area of minimal loan loss experience for Germantown Federal. A significant portion of the allowance has been established to cover losses from consumer loans. Consumer loan balances increased approximately $856,000 during fiscal 1997, while nonperforming consumer loans were $5,000 at both 25 36 March 31, 1997 and March 31, 1996. Management is aware that consumer loans tend to carry a higher level of credit risk than residential mortgage loans. However, the increase in consumer loans was primarily from second mortgages and equity lines of credit secured by real estate. Therefor, management believes that the allowance for loan losses was adequate at March 31, 1997. See "Financial Condition at June 30, 1997." Loans are reviewed on a regular basis and are generally placed on non-accrual status when the loan becomes 90 days delinquent and, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. There were no loans past-due 90 days or more and still accruing interest at March 31, 1997, or at March 31, 1996. Total deposits decreased $721,000 to $40.4 million at March 31, 1997, compared to $41.1 million at March 31, 1996. The 1.8% decrease was primarily the result of pricing strategies intended to maintain a lower cost of funds. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND MARCH 31, 1996 NET INCOME. Net income for the years ended March 31, 1997 and 1996 was $198,000 and $371,000, respectively. The decrease in net income for fiscal 1997, compared to 1996, was primarily due to the one-time charge of $270,000 ($178,000 after tax, or $0.61 per share) to provide for an assessment to recapitalize the SAIF. The one-time assessment to recapitalize the SAIF was the result of federal legislation enacted in 1996, and had been anticipated for over a year. The one-time assessment resulted in a reduction in the deposit insurance premium of Germantown Federal from 23 basis points to a current rate of 6.4 basis points for each $100 in deposits. GFBC's return on average assets was 0.41% in fiscal 1997 and 0.78% in fiscal 1996. Excluding the SAIF assessment, the return on average assets was 0.77% in 1997. Return on average equity was 3.07% in 1997 and 5.85% in 1996. The return on average equity decreased in 1997 primarily because of the SAIF assessment. Excluding the SAIF assessment, the return on average equity was 5.82% for fiscal 1997. The calculation of earnings per share for fiscal 1997 and 1996 was based on net income of $198,000 and $371,000, respectively. Based on weighted average shares outstanding of 292,958 in 1997, and 299,867 in 1996, the earnings per share were $0.67 and $1.24, respectively. Excluding the SAIF assessment, the 1997 earnings per share were $1.28. NET INTEREST INCOME. Net interest income, the difference between total interest income and total interest expense, is GFBC's principal source of earnings. The amount of net interest income is determined by the volume of interest-earning assets and the level of interest rates earned on those interest-earning assets, compared to the volume of interest-bearing liabilities and the level of interest rates paid on those interest-bearing liabilities. GFBC's net interest income is affected by a variety of regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. Net interest income increased $92,000, or 5.4%, in 1997 compared to 1996. The increase in net interest income is the result of the interest rate spread increasing to 3.36% for the year ended March 31, 1997, from 3.19% for the year ended March 31, 1996. The increase due to the interest rate spread was partially offset by a decrease in the ratio of average interest-earning assets to average interest-bearing liabilities from 113.2% for the year ended March 31, 1996, to 113.0% for the year ended March 31, 1997. 26 37 RATE/VOLUME ANALYSIS. The table below sets forth certain information regarding changes in interest income and interest expense of Germantown Federal for 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 (changes in average volume multiplied by the previous year's rate) and (ii) changes in rates (changes in rate multiplied by previous year's volume). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Year Ended March 31, ------------------------------------------------------------ 1997 vs. 1996 1996 vs. 1995 --------------------------- --------------------------- Increase Increase (decrease) due to (decrease) due to ----------------- ----------------- Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- (In thousands) Interest income: Loans receivable $ 393 $ (70) $ 323 $ 406 $ 48 $ 454 Mortgage-backed securities (112) 8 (104) (17) 18 1 Securities (165) 28 (137) (56) 6 (50) Other interest-earning assets 33 (20) 13 (216) 81 (135) ----- ----- ----- ----- ----- ----- Total interest-earning assets $ 149 $ (54) $ 95 $ 117 $ 153 $ 270 ===== ===== ===== ===== ===== ===== Interest expense: Deposits $ 8 $ (29) $ (21) $ (54) $ 13 $ (41) Federal Home Loan Bank advances 24 - 24 34 - 34 ----- ----- ----- ----- ----- ----- Total interest-bearing liabilities $ 32 $ (29) $ 3 $ (20) $ 13 $ (7) ===== ===== ===== ===== ===== ===== Net change in interest income $ 117 $ (25) $ 92 $ 137 $ 140 $ 277 ===== ===== ===== ===== ===== =====
PROVISION FOR LOAN LOSSES. The provision for loan losses was $33,000 for fiscal 1997. There was no provision for loan losses in fiscal 1996. Germantown Federal continues to experience a low rate of loan charge-offs. For 1997 and 1996, charge-offs totaled $7,000 and $2,000, respectively. Germantown Federal continues to record recoveries of loans charged-off in prior periods. GFBC's decision to increase the allowance for loan losses was based on the increase in mortgage and consumer loan balances over the past year. NONINTEREST INCOME. Noninterest income is comprised primarily of service charges and fees collected by Germantown Federal. Total noninterest income increased by $3,000 in 1997, compared to 1996. The increase was primarily from gains on the sale of assets during 1997. Income from service charges and fees decreased by $3,000 in 1997, compared to 1996, which was primarily the result of the introduction of a no-fee checking account program designed to attract new customers. As anticipated, some current customers have switched to the no-fee checking account, resulting in a decrease in fees collected from NOW accounts. NONINTEREST EXPENSE. Noninterest expense increased by $319,000 in 1997, compared to 1996. The 24.9% increase was primarily due to the $270,000 SAIF assessment. Salaries and employee benefits increased by $29,000, or 4.4%, between years as a result of annual adjustments and the addition of a second mortgage originator. Equipment and outside services expense increased in 1997 with the addition of an ATM at the New Lebanon branch. INCOME TAX PROVISION. The provision for income taxes totaled $93,000 in fiscal 1997, and $177,000 in fiscal 1996, resulting in an effective tax rate of 31.9% and 32.3%, respectively. The volatility in the provision for income taxes is primarily attributable to the change in net income before taxes for each year. ASSET AND LIABILITY MANAGEMENT A key component of asset and liability management is the monitoring and management of interest rate risk. Germantown Federal's exposure to interest rate risk results from the difference in maturities on interest-bearing liabilities and interest-earning assets and the volatility of interest rates. In an effort to reduce interest rate risk and protect it from the 27 38 negative effect of increases in interest rates, Germantown Federal has instituted certain asset and liability management measures. The primary elements of this strategy include: (i) maintaining liquid assets that can be readily reinvested in higher yielding investments should interest rates rise; (ii) emphasizing the solicitation and retention of core deposits; (iii) investing in intermediate-term and adjustable-rate mortgage-backed securities; and (iv) attempting to maintain an even match between interest sensitive assets and liabilities. These measures, while significant, may only partially offset Germantown Federal's interest rate risk. As a part of its effort to monitor its interest rate risk, Germantown Federal reviews the reports of the OTS which set forth the application of the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its capital regulations to the assets and liabilities of Germantown Federal. Although Germantown Federal is not currently subject to the NPV regulation because implementation of the NPV regulation has been delayed and such regulation does not apply to institutions with less than $300 million in assets and risk-based capital in excess of 12%, the application of the NPV methodology may illustrate Germantown Federal's interest rate risk. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV which would result from a theoretical 200 basis point (1 basis point equals .01%) change in market interest rates. Both a 200 basis point increase in market interest rates and a 200 basis point decrease in market interest rates are considered. If the NPV of an institution subject to NPV regulation would decrease more than 2% of the present value of the institution's assets with either an increase or a decrease in market rates, the institution must deduct 50% of the amount of the decrease in excess of such 2% in the calculation of the institution's risk-based capital. At June 30, 1997, the most recent date for which NPV information is available to Germantown Federal, 2% of the present value of Germantown Federal's assets was approximately $1,001,000. Because the interest rate risk of a 200 basis point increase in market interest rates (which was greater than the interest rate risk of a 200 basis point decrease) was $1,766,000 at June 30, 1997, Germantown Federal would have been required to deduct $382,500 (50% of the approximate $765,000 difference) from its capital in determining whether Germantown Federal met its risk-based capital requirement. Regardless of such reduction, however, Germantown Federal's risk-based capital at June 30, 1997, would still have exceeded the regulatory requirement by approximately $3.5 million. Presented below, as of June 30, 1997, is an analysis of Germantown Federal's interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts of 100 basis points in market interest rates. As illustrated in the table, Germantown Federal's NPV is more sensitive to rising rates than declining rates. Such difference in sensitivity occurs principally because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when interest rates are declining. Thus, in a rising interest rate environment, the amount of interest Germantown Federal would receive on its loans could increase relatively slowly as loans are slowly prepaid and new loans at higher rates are made. Moreover, the interest Germantown Federal would pay on its deposits would increase rapidly because Germantown Federal's deposits generally have shorter periods to repricing. Assumptions used in calculating the amounts in this table are OTS assumptions.
At June 30, 1997 Net Portfolio Value ---------------------------- (Dollars in thousands) Change Board Limit in rates $ Change % Change % change -------- -------- -------- -------- +400 bp $(3,634) (48)% (80)% +300 bp (2,711) (36) (60) +200 bp (1,766) (23) (40) +100 bp (838) (11) (20) 0 bp - - 0 -100 bp 559 7 (20) -200 bp 675 9 (40) -300 bp 709 9 (60) -400 bp 937 12 (80)
28 39 As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit could deviate significantly from those assumed in making the risk calculations. 29 40 AVERAGE BALANCE SHEET. The following table sets forth certain information relating to Germantown Federal's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and interests rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from daily average balances.
Year ended March 31, Three months ended -------------------------------- June 30, 1997 1997 ----------------------------- -------------------------------- Average Average Average Average balance Interest yield/ cost balance Interest yield/cost --------- -------- ----------- --------- -------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable (1) $33,138 $688 8.31% $30,867 $ 2,552 8.27% Mortgage-backed securities 8,776 155 7.07 9,716 678 7.00 Securities 1,742 25 5.74 3,072 163 5.31 Other interest-earning assets 2,823 38 5.38 3,111 167 5.37 ------- ---- -------- -------- Total interest-earning assets 46,479 906 7.80 46,766 3,560 7.61 ---- -------- Non-interest-earning assets 1,671 1,686 ------- ------- Total assets 48,150 48,452 ------- ------- Interest-bearing liabilities: Deposits 40,083 427 4.26 40,398 1,702 4.21 Federal Home Loan Bank advances 1,000 14 5.80 1,000 58 5.80 ------- ---- -------- -------- Total interest-bearing liabilities 41,083 441 4.29 41,398 1,760 4.25 ------- ---- -------- -------- Non-interest bearing liabilities 532 609 ------- ------- Total liabilities 41,615 42,007 ------- ------- Stockholders' equity 6,535 6,445 ------- ------- Total liabilities and stockholders' equity $48,150 $48,452 ======= ======== Net interest income $465 $ 1,800 ==== ======== Interest rate spread (2) 3.51 3.36 Net yield on interest-earning 3.86 3.85 assets (3) Ratio of average interest-earning assets to average interest-bearing liabilities 113.13 112.97 Year ended March 31, ------------------------------------------------------------------- 1996 1995 ------------------------------- --------------------------------- Average Average Average Average balance Interest yield/cost balance Interest yield/cost -------- -------- ---------- --------- -------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable (1) $26,130 $ 2,229 8.53% $21,355 $1,775 8.31% Mortgage-backed securities 11,324 782 6.91 11,580 781 6.74 Securities 6,222 300 4.82 7,387 350 4.74 Other interest-earning assets 2,530 154 6.09 6,465 289 4.47 -------- -------- ------- ------ Total interest-earning assets 46,206 3,465 7.50 46,787 3,195 6.83 -------- ------- Non-interest-earning assets 1,605 1,469 ------- ------- Total assets 47,811 48,256 ------- ------- Interest-bearing liabilities: Deposits 40,218 1,723 4.28 41,491 1,764 4.25 Federal Home Loan Bank advances 585 5.81 - - - -------- -------- ------- ------ 34 -------- ------- ------ Total interest-bearing liabilities 40,803 1,757 4.31 41,491 1,764 4.25 -------- -------- ------- ------ Non-interest bearing liabilities 665 627 ------- ------- Total liabilities 41,468 42,118 ------- ------- Stockholders' equity 6,343 6,138 ------- ------- Total liabilities and stockholders' equity $47,811 $48,256 ======== ======= Net interest income $ 1,708 $1,431 ======== ====== Interest rate spread (2) 3.19 2.58 Net yield on interest-earning 3.70 3.06 assets (3) Ratio of average interest-earning assets to average 113.24 112.76 interest-bearing liabilities --------------------------------- (1) Average balances include non-accrual loans, net of allowances for loan losses. (2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.
30 41 LIQUIDITY Germantown Federal is required to maintain minimum levels of liquid assets as defined by the regulations of the OTS. This requirement, which may be varied from time to time depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The required ratio is currently 5%. Germantown Federal has historically maintained a level of liquid assets in excess of regulatory requirements. Germantown Federal's liquidity ratio was 11.1% June 30, 1997, 11.4% at March 31, 1997, and 17.9% at March 31, 1996. The decrease in liquidity at June 30, 1997, and March 31, 1997, compared to March 31, 1996, is the result of increased loan demand in the local market. Loan originations were funded with excess liquidity. Germantown Federal adjusts liquidity as appropriate to meet its asset/liability objectives. Germantown Federal's primary sources of funds are deposits, amortization and prepayment of loans, maturities of securities and funds provided from operations. While scheduled loan repayments are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, Germantown Federal invests excess funds in overnight deposits that provide liquidity to meet lending requirements. Germantown Federal has other sources of liquidity if a need for additional funds arises. Additional sources of funds include FHLB of Cincinnati advances and the ability to borrow against mortgage-backed and other securities. At June 30, 1997, and March 31, 1997, Germantown Federal had a short-term fixed-rate advance for $1,000,000 from the FHLB of Cincinnati. The advance was used to help fund Germantown Federal's increased demand for mortgage loan originations. At maturity, the advance will either be repaid or renewed depending on Germantown Federal's cash demands at that time. CAPITAL RESOURCES At June 30, 1997, and March 31, 1997, GFBC had 15,418 shares of treasury stock carried at cost in the amount of $213,543. The treasury stock will be available for general corporate purposes, including the issuance of shares in connection with the exercise of employee stock options. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to 3.0% of total adjusted assets and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted assets. Under these capital requirements, at June 30, 1997, Germantown Federal had:
Tangible Capital Core Capital Risk-based Capital ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- (Dollars in thousands) Actual $5,511 11.4% $5,511 11.4% $5,638 25.5% Required 727 1.5 1,454 3.0 1,768 8.0 ------ ----- ------ ----- ------ ---- Excess $4,784 9.9% $4,057 8.4% $3,870 17.5% ====== ===== ====== ===== ====== ====
Germantown Federal's tangible capital consists solely of stockholders' equity. Core capital consists of tangible capital plus certain intangible assets, of which Germantown Federal has none. Risk-based capital consists of core capital plus general loan loss allowances. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements of GFBC and notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of GFBC's operations. Unlike most industrial companies, nearly all the assets and liabilities of GFBC are monetary. As a result, interest rates have a greater impact on GFBC's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. 31 42 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," was issued by the FASB in 1996. It revises the accounting for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. It was originally effective for some transactions in 1997 and others in 1998. SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125," was issued in December 1996. SFAS 127 defers, for one year, the effective date of provisions related to securities lending, repurchase agreements and other similar transactions. The remaining portions of SFAS 125 will continue to be effective January 1, 1997. SFAS 125 did not have a material impact on GFBC's financial statements. In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is effective for financial statements for periods ending after December 15, 1997, including interim periods. SFAS 128 simplifies the calculation of earnings per share by replacing primary EPS with basic EPS. It also requires dual presentation of basic EPS and diluted EPS for entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in earnings, such as stock options, warrants or other common stock equivalents. All prior period EPS data will be restated to conform with the new presentation. This statement will not have a material impact on GFBC's financial statements. In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information about Capital Structure." SFAS No. 129 consolidated existing accounting guidance relating to disclosure about a company's capital structure. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. SFAS No. 129 is not expected to have a material impact on GFBC's financial statements. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and loses) in a full set of general-purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. It does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. SFAS No. 130 is not expected to have a material impact on GFBC's financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 significantly changes the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about reportable segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 uses a "management approach" to disclose financial and descriptive information about the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. For many enterprises, the management approach will likely result in more segments being reported. In addition, SFAS No. 131 requires significantly more information to be disclosed for each reportable segment than is presently being reported in annual financial statements and also requires that selected information be reported in interim financial statements. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 is not expected to have a material impact on GFBC's financial statements. BUSINESS OF GFBC GFBC is a Delaware corporation organized on June 2, 1993, to acquire all of the capital stock that Germantown Federal issued upon its conversion from the mutual form of ownership to the stock form of ownership consummated on September 16, 1993. GFBC has not engaged in any significant business to date except for the acquisition of Germantown Federal. 32 43 BUSINESS OF GERMANTOWN FEDERAL Germantown Federal is a federally chartered savings bank located in Germantown, Ohio. Germantown Federal was chartered in 1887 as an Ohio building and loan association under the name Germantown Building and Savings Association. In 1938, Germantown Federal adopted a federal charter and changed its name to Germantown Federal Savings and Loan Association. Its present name, Germantown Federal Savings Bank, was obtained in 1983 at the time it obtained a charter as a savings bank. Germantown Federal's deposits have been federally insured since 1938 by the SAIF, as administered by the FDIC, and its predecessor, the Federal Savings and Loan Insurance Corporation. Germantown Federal has been a member of the FHLB System since 1940. At June 30, 1997, Germantown Federal had no brokered deposits or goodwill. Germantown Federal is primarily engaged in the business of accepting deposits from the general public and using those funds to originate mortgage loans for the purchase and refinancing of single-family homes located in Germantown, Ohio, and surrounding communities and for the purchase of mortgage-backed and investment securities. Germantown Federal also makes deposit loans, automobile loans, personal installment loans, construction loans and second mortgage loans. Germantown Federal conducts operations through its main office located at One North Plum Street, Germantown, Ohio, and an additional office located at 675 West Main Street, New Lebanon, Ohio. Germantown Federal considers its primary market for savings and lending activities to be the villages of Germantown and New Lebanon and the surrounding townships of German, Jackson and Perry in southwestern Montgomery County, Ohio, but such activities also extend to other parts of Montgomery County and parts of the neighboring counties of Preble, Butler and Warren. This area has a business environment which primarily includes the agriculture and service sectors. The population of this primary market area is approximately 19,000. The service and retail industries are the largest employers in Germantown Federal's market area. The unemployment rate in Germantown Federal's market area has been constant since 1987 and is currently below the State of Ohio and national averages. Because nearly all of the assets and liabilities of Germantown Federal are monetary in nature, interest rates have a greater effect on the earnings of Germantown Federal than local economic conditions. LENDING ACTIVITIES GENERAL. Currently the principal lending activity of Germantown Federal is the origination of mortgage loans for the purpose of financing or refinancing one- to four-family residential properties and also the origination of consumer loans. 33 44 ANALYSIS OF LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO. Set forth below is selected data relating to the composition of Germantown Federal's loan and mortgage-backed securities portfolio by type of loan on the dates indicated.
At March 31, At June 30, ------------------------------------------------- 1997 1997 1996 ----------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent --------- --------- ---------- --------- --------- -------- (Dollars in thousands) Real Estate Loans: One- to four-family $ 30,076 89.36% $ 29,367 90.29% $ 27,417 93.22% Construction 345 1.03 457 1.41 - - Participations purchased - - - - 5 0.02 -------- ------ -------- ------ -------- ------ 30,421 90.39 28,824 91.70 27,422 93.24 Consumer Loans: Second mortgage 1,445 4.29 1,256 3.86 1,041 3.54 Savings account 197 0.59 114 0.35 159 0.54 Home improvement 178 0.53 187 0.57 167 0.57 Equity line of credit 1,109 3.29 779 2.40 236 0.80 Automobile 712 2.12 619 1.90 516 1.75 Other 240 0.71 238 0.73 218 0.74 -------- ------ -------- ------ -------- ------ 3,881 11.53 3,193 9.81 2,337 7.94 -------- ------ -------- ------ -------- ------ Total gross loans 34,302 101.92 33,017 101.51 29,759 101.18 Less: Loans in process (308) (0.92) (137) (0.42) (7) (0.02) Deferred loan origination fees and costs, net (116) (0.34) (113) (0.35) (123) (0.42) Loan participations sold (93) (0.28) (116) (0.39) (120) (0.41) Allowance for loan losses (127) (0.38) (127) (0.39) (98) (0.33) -------- ------ -------- ------ -------- ------ Total loans, net $ 33,658 100.0% $ 32,524 100.0% $ 29,411 100.00% ======== ====== ======== ====== ======== ====== Mortgage-backed securities, net $ 8,765 100.0% $ 8,848 100.0% $ 10,265 100.00%
Under federal regulations, Germantown Federal's loans and extensions of credit to a person outstanding at anytime generally may not exceed 15% of Germantown Federal's total capital under the regulatory capital requirements plus any additional loan reserve not included in total capital ("Lending Limit Capital"). A savings association may lend to one borrower an additional amount not to exceed 10% of 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." An exception to these limits permits loans to one borrower of up to $500,000 "for any purpose." Based upon such limits, Germantown Federal was able to lend approximately $832,000 to one borrower at June 30, 1997. The largest amount Germantown Federal had outstanding to one borrower at June 30, 1997, was $231,000. The following table sets forth the dollar amount of loans due after June 30, 1998, which have fixed rates and which have adjustable rates:
Fixed Adjustable ----- ---------- (In thousands) One- to four-family real estate $25,380 $ 4,726 Consumer 2,551 1,109 ------- ------- Total loans $27,931 $ 5,835 ======= ======= Total mortgage-backed securities $ 7,384 $ 1,381 ======= =======
RESIDENTIAL REAL ESTATE LOANS. Germantown Federal's primary lending activity consists of the origination of one- to four-family, owner-occupied, residential mortgage loans secured by property located in Germantown Federal's primary 34 45 market area. The majority of Germantown Federal's residential mortgage loans consist of loans secured by owner-occupied, single-family residences. At June 30, 1997, Germantown Federal had $30.1 million, or 87.7% of its gross loan portfolio, invested in first mortgage loans secured by one- to four-family residences. Germantown Federal generally originates 15- and 30-year fixed-rate mortgage loans for retention in Germantown Federal's loan portfolio. Germantown Federal's fixed-rate mortgage loans are amortized on a monthly basis with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. At June 30, 1996, Germantown Federal had no multi-family residential real estate loans in its portfolio. Germantown Federal also originates 30-year adjustable-rate mortgage loans ("ARMs") for retention in Germantown Federal's loan portfolio. The interest rate adjustment periods on the ARMs are either one year or three years. ARMs presently originated by Germantown Federal are tied to changes in the weekly average yield on the one-year U.S. Treasury constant maturities index. Rate adjustments are computed by adding a stated margin, typically 2.75%, to the index. The maximum allowable adjustment at each adjustment date is usually 2% with a maximum adjustment of 6% over the term of the loan. Germantown Federal's residential first mortgage loans customarily include due-on-sale clauses, which are provisions giving Germantown Federal the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the real property serving as security for the loan. Due-on-sale clauses are an important means of adjusting the rates on Germantown Federal's fixed-rate mortgage portfolio, and Germantown Federal has generally exercised its rights under these clauses. Regulations limit the amount which a savings association may lend in relationship to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination. Germantown Federal's lending policies generally limit the maximum loan-to-value ratio to 97% of the lesser of the appraised value or the purchase price of the property to serve as security for the residential loan. When Germantown Federal makes a loan in excess of 80% of the appraised value or purchase price, private mortgage insurance is required. Germantown Federal's loan policy requires title insurance on all first mortgage loans. Flood hazard insurance (if needed) and fire and casualty insurance are required by Germantown Federal on all properties securing real estate loans. Germantown Federal does originate loans to finance the construction of residential property. At June 30, 1997, Germantown Federal had $345,000, or 1.0%, of its gross loan portfolio, in interim construction loans. Germantown Federal makes construction loans to private individuals and to builders who are building pursuant to a contract for sale. Germantown Federal did not sell any loans to investors in the secondary market during the three months ended June 30, 1997, or during fiscal 1997 or fiscal 1996. COMMERCIAL REAL ESTATE LOANS. Although Germantown Federal will consider offering loans secured by commercial real estate, Germantown Federal did not have any loans secured by commercial properties at June 30, 1997. CONSUMER LOANS. Regulations permit federally-chartered savings associations to make secured and unsecured consumer loans up to 35% of the association's assets. In addition, Germantown Federal has lending authority above the 35% limit for certain consumer loans, such as second mortgage loans and loans secured by deposit accounts. As of June 30, 1997, consumer loans totaled $3,881,000, or 11.3% of Germantown Federal's total gross loan portfolio, and consisted of loans secured with deposits held at Germantown Federal, home improvement loans, equity line of credit loans, other auto loans, second mortgage loans and personal installment loans. LOAN SOLICITATION AND PROCESSING. Loan originations are derived from a number of sources, such as realtors, depositors, borrowers, builders and walk-in customers. Upon receipt of a loan application, a credit report is obtained and employers are contacted to verify specific information relating to the loan applicant's employment, income and credit standing. In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by Germantown Federal. Each loan application file is submitted to the Loan Committee consisting of the President, the Vice 35 46 President-Treasurer, the Deposit Operations Manager and the New Lebanon Branch Manager. Any two of these committee members may approve a one- to four-family residential real estate loan up to $250,000 and residential real estate loans to the same borrower secured by more than one property (blanket loans) up to $300,000. All loans over these limits must be approved by the Board of Directors. In the case of a consumer loan, loan officers are required to follow Germantown Federal's underwriting standards and guidelines and are granted approval authority up to lending limits ranging from $2,000 to $200,000. Individual lending limits are established from time to time by the Board of Directors of Germantown Federal. Consumer loans over $200,000 in amount must be approved by the Board of Directors. Loan applicants are promptly notified of the credit decision by telephone or letter. If the loan is approved in writing, the loan commitment specifies the terms and conditions of the proposed loan, including the amount of the loan, interest rate, amortization term, a brief description of the required collateral and required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral, which insurance must be maintained during the full term of the loan. Generally, a title insurance policy issued to Germantown Federal is required on all mortgage loans. ORIGINATIONS AND PURCHASES OF LOANS AND MORTGAGE-BACKED SECURITIES ORIGINATIONS AND PURCHASES. The following tables set forth Germantown Federal's gross loan originations, mortgage-backed securities purchases and principal repayments for the periods indicated.
Three months Year Ended March 31, ended June 30, ------------------------------ 1997 1997 1996 -------------- ------- ------- (In thousands) Total gross loans receivable (net of participations sold) at beginning of period $32,901 $29,639 $22,653 Loans originated: 1 - 4 family mortgage 1,849 7,051 9,819 Consumer loans 1,292 2,646 1,878 ------- ------- ------- Total loans originated 3,141 9,697 11,697 Loan principal repayments 1,833 6,435 4,711 ------- ------- ------- Net loan activity 1,308 3,262 6,986 ------- ------- ------- Total gross loans receivable (net of participations sold) at end of period $34,209 $32,901 $29,639 ======= ======= ======= Three months Year Ended March 31, ended June 30, ------------------------------ 1997 1997 1996 -------------- ------- ------- (In thousands) Total gross mortgage-backed securities at beginning of period $8,848 $10,265 $12,030 Mortgaged-backed securities purchased - - - Mortgage-backed securities principal repayments (217) (1,341) 1,763 Unrealized gain (loss) on available-for-sale securities 134 (76) (2) ------ ------ ------- Total gross mortgage-backed securities at end of period $8,765 $8,848 $10,265 ====== ====== =======
36 47 LOAN MATURITIES. The following table sets forth certain information at June 30, 1997, regarding the dollar amount of loans in Germantown Federal's portfolio based on the contractual maturity dates.
Due during Due one through Due after the year ending five years after five years after June 30, 1998 June 30, 1997 June 30, 1997 Total ----------------- ----------------- ----------------- ------- (In thousands) One- to four-family (net of participations) $222 $277 $29,484 $29,983 Construction - - 345 345 ---- ---- ------- ------- Total $222 $277 $29,829 $30,328 ==== ==== ======= =======
LOAN COMMITMENTS. Germantown Federal issues standby loan origination commitments to qualified borrowers, primarily for residential real estate loans. Such commitments are made on specified terms and conditions and are made for periods of up to 60 days, during which time the interest rate may be locked-in. At June 30, 1997, Germantown Federal had $444,000 in commitments to originate loans. At June 30, 1997, Germantown Federal also had commitments of $1,443,000 from unused lines of credit related to its home equity and overdraft line of credit programs. LOAN FEES AND SERVICE CHARGES. In addition to interest earned on loans, Germantown Federal generally recognizes fees and service charges which consist primarily of loan servicing fees and late charges. Loan origination and commitment fees are volatile sources of income. Such fees fluctuate with the volume and type of loans and commitments made and purchased and with competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money. DELINQUENCIES AND ASSET CLASSIFICATION. Germantown Federal's collection procedures provide that when a loan is 16 days past due, a late charge is assessed and the borrower is contacted by mail or telephone and payment is requested. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower. Loans delinquent 90 days or more are considered problem loans and are placed on Germantown Federal's loan "watch list." Unless other repayment arrangements are made, additional late charges may be added and Germantown Federal generally initiates foreclosure proceedings. Each delinquent loan is reviewed on a case by case basis. Loans are reviewed on a regular basis and are generally placed on a non-accrual status when the loan becomes 90 days delinquent and, in the opinion of management, the collection of additional interest is doubtful. Germantown Federal will continue to accrue interest on loans more than 90 days past due if such loans are believed to be well secured and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. Real estate acquired by Germantown Federal as a result of foreclosure or by deed in lieu of foreclosure is classified as foreclosed real estate until such time as it is sold. When foreclosed real estate is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair value less its estimated cost of sale. Any additional write-down of foreclosed real estate is charged to the allowance for real estate losses or written down if permanent impairment exists. 37 48 The following table sets forth information regarding Germantown Federal's nonperforming assets, loans which are 90 days or more delinquent but on which Germantown Federal is accruing interest and other real estate at the dates indicated. Germantown Federal, as of and for the three months ended June 30, 1997, and as of and for the years ended March 31, 1997 and 1996, had no loans which were required to be evaluated for impairment on a loan by loan basis within the scope of SFAS No. 114. At June 30, 1997, gross interest income that would have been recorded had non-accruing loans been current in accordance with their original terms amounted to $19,000.
At March 31, At June 30, ------------------------ 1997 1997 1996 ----------- ---------- --------- (In thousands) Loans accounted for on a non-accrual basis: Permanent loans secured by one- to four-family units $ 192 $ 162 $ 103 Consumer 5 5 5 ------- ------- ------- Total 197 167 108 Accruing loans which are contractually past due 90 days or more: - - - ------- ------- ------- Permanent loans secured by one- to four-family units Total nonperforming loans 197 167 108 Real estate owned - - - ------- ------- ------- Total nonperforming assets $ 197 $ 167 $ 108 ======= ======= ======= Total nonperforming loans to net loans 0.59% 0.51% 0.37% Total nonperforming loans to total assets 0.41% 0.35% 0.22% Total nonperforming assets to total assets 0.41% 0.35% 0.22% Net loans $33,658 $32,524 $29,411 Total assets $48,502 $48,122 $48,982
CLASSIFIED ASSETS. OTS regulations provide for a classification system for problem assets of insured institutions. Under this classification system, problem assets are classified as "substandard", "doubtful" or "losec." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard", with the added characteristic that the weaknesses present make "collection of principal in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets classified "special mention" are assets included on Germantown Federal's internal watch list. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss", it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which may order the establishment of additional general or specific loss allowances. 38 49 The following table sets forth Germantown Federal's classified assets and allocation of loan loss allowance at June 30, 1997:
At June 30, 1997 ---------------- (In thousands) Special mention assets $ - Substandard assets 203 Doubtful assets - Loss assets - ---- Total $203 ==== General loss allowance $127 Specific loss allowance - ---- Total allowances $127 ====
The following table sets forth the type and dollar amounts of Germantown Federal's loans more than 60 days delinquent as of June 30, 1997.
At June 30, 1997 ---------------- (In thousands) Residential mortgage loans $372 Consumer loans 5 ---- Total delinquent loans $379 ====
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES. It is management's policy to maintain an allowance for losses on loans in its loan portfolio and other nonperforming assets. A provision for loan losses is charged to operations based on management's evaluation of the potential losses that may be incurred in Germantown Federal's loan portfolio. Such evaluation includes a review and measurement of all impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, and considers, among other matters, the estimated net realizable value of the underlying collateral. When other real estate is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair value less estimated cost to sell. Valuations are periodically performed by management, and an allowance for losses on other real estate is established by a charge to operations if the carrying value of the property exceeds its estimated fair value. Management will continue to review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary. There can be no assurance that the allowance for loan losses will be adequate to cover losses which may in fact be realized in the future or that additional provisions for loan losses will not be required. See "GFBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition at June 30, 1997" for circumstances that could cause the allowance to be inadequate. 39 50 The following table sets forth information with respect to Germantown Federal's allowance for loan losses for the periods indicated:
Three months ended June 30, Year Ended March 31, --------------------------- -------------------- 1997 1997 1996 -------- -------- -------- (Dollars in thousands) Total loans outstanding (at end of period) (1) $ 33,785 $ 32,651 $ 29,509 Average loans outstanding (1) $ 33,265 $ 30,979 $ 26,226 Allowance balances (at beginning of period) $ 127 $ 98 95 Provision - 33 - Charge-offs - (7) (2) Recoveries - 3 5 -------- -------- -------- Allowance balance (at end of period) $ 127 $ 127 $ 98 ======== ======== ======== Allowance for loan losses as a percentage of average loans outstanding 0.38% 0.41 0.37% Net loans charged-off (recovered) as a percentage of average loans outstanding - (0.01)% (0.01)% Allowance for loan losses as a percentage of nonperforming loans (at end of period) 64.47% 76.05% 90.74% - ------------------------------ (1) Gross loans net of loans in process, net deferred fees and costs and loan participations sold.
The distribution of Germantown Federal's allowance for loan losses at the dates indicated is summarized as follows:
March 31, ----------------------------------------------------------- June 30, 1997 1997 1996 --------------------------- -------------------------- ---------------------------- Percent of loans Percent of loans Percent of loans in each category in each category in each category Amount to total loans Amount to total loans Amount to total loans ------ ---------------- ------ ---------------- ------ ---------------- (Dollars in thousands) Residential real estate $ 45 88.7% $ 45 90.3% $30 92.2% Consumer 82 11.3 82 9.7 68 7.8 ---- ----- ---- ----- --- ----- Total $127 100.0% $127 100.0% $98 100.0% ==== ===== ==== ===== === =====
MORTGAGE-BACKED SECURITIES AND INVESTMENT ACTIVITIES GENERAL. Germantown Federal's investment policy, which is established by senior management and approved by the Board of Directors, is based upon its asset and liability management goals and is designed primarily to provide a portfolio of high quality, diversified securities while seeking to optimize net interest income within acceptable limits of safety and liquidity. Germantown Federal's current investment goal is to invest available funds in instruments that generally do not exceed an average life of five to seven years, or that meet specific requirements of Germantown Federal's asset and liability management goals. The investment activities of Germantown Federal consist primarily of investments in mortgage-backed securities and other securities consisting primarily of securities issued or guaranteed by the United States Government or agencies thereof. At June 30, 1997, Germantown Federal had an investment portfolio with a market value of approximately $10.3 million consisting of mortgage-backed securities and U.S. Government securities. At June 30, 1997, the carrying value of Germantown Federal's mortgage-backed securities totaled $8.8 million, or 18.1%, of total assets. Such securities consisted entirely of Federal Home Loan Mortgage Corporation ("FHLMC") pass- 40 51 through securities, whose principal and interest are guaranteed by FHLMC. All mortgage-backed securities are classified as available-for-sale at June 30, 1997, and are carried at market value. At June 30, 1997, the carrying value of Germantown Federal's investment securities available for sale totaled $1.5 million, or 3.1% of total assets. These securities consisted entirely of U.S. Treasury obligations. VALUES AND MATURITIES. The following table sets forth the carrying value of Germantown Federal's fixed-rate and adjustable-rate mortgage-backed securities and securities, all of which are available for sale, at the dates indicated.
At March 31, At June 30, ------------------------------- 1997 1997 1996 ----------- ------- -------- (In thousands) Mortgage-backed securities: Fixed $7,384 $7,463 $ 8,772 Adjustable 1,381 1,385 1,493 ------ ------ -------- Total mortgage-backed securities $8,765 $8,848 $10,265 ====== ====== ======= Securities: Fixed $1,500 $2,000 $ 4,493 Adjustable - - - ------ ------ -------- Total securities $1,500 $2,000 $ 4,493 ====== ====== ========
The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of Germantown Federal's mortgage-backed and investment securities portfolio at June 30, 1997.
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total -------------------- ----------------- ----------------- ------------------- ----------------- Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Value Yield Value Yield Value Yield Value Yield Value Yield ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (Dollars in thousands) Mortgage-backed securities (1) $ - - $1,165 7.97% $1,452 7.14% $6,148 6.76% $8,765 6.98% U.S. Treasury obligations $1,500 5.58% - - - - - - $1,500 5.58% - --------------------------------- (1) Mortgage-backed securities represent a participation interest in a pool of mortgages, the principal and interest payments on which are passed from mortgage originators, through intermediaries (generally quasi-governmental agencies) that pool and repackage the participation interests in the form of securities, to investors such as Germantown Federal. These securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. As interest rates fluctuate, payments on the underlying mortgages will vary. As a result, no maturity data has been shown.
SOURCES OF FUNDS GENERAL. Deposits are the major source of Germantown Federal's funds for lending and other investment purposes. In addition to deposits, Germantown Federal derives funds from amortization and prepayment of loans, maturities of securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer term basis for general business purposes. Germantown Federal had a $1.0 million advance from the FHLB of Cincinnati at June 30, 1997. DEPOSITS. Consumer and commercial deposits are attracted principally from within Germantown Federal's primary market area through the offering of a broad selection of deposit instruments, including demand checking, NOW, passbook savings, money market deposit, term certificate and individual retirement accounts. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. Germantown Federal regularly evaluates the internal cost of funds, surveys rates offered by competing institutions, reviews 41 52 Germantown Federal's cash flow requirements for lending and liquidity and executes rate changes when deemed appropriate. Germantown Federal does not obtain funds through brokers, nor does it actively solicit funds outside of the State of Ohio. Certificates of deposit with principal amounts of $100,000 or more constituted $1.3 million, or 3.1%, of Germantown Federal's total deposit portfolio at June 30, 1997. See "Certificates of Deposit." DEPOSIT PORTFOLIO. Deposits in Germantown Federal were represented by various types of savings programs described below for the periods indicated.
Year ended March 31, Three months ended ---------------------------------------------- 1997 1997 1996 -------------------- --------------------- --------------------- Weighted Weighted Weighted Average average Average average Average average balance rate balance rate balance rate ------- ---- ------- ---- ------- ---- (Dollars in thousands) Transaction accounts: Demand checking $ 396 -% $ 233 -% $ 94 -% NOW accounts 3,625 1.92 3,441 1.92 3,262 1.91 Money market accounts 2,932 2.96 3,079 2.91 3,297 2.91 Passbook savings 9,852 2.49 9,995 2.47 10,028 2.48 ------- ----- ------- Total transaction accounts 16,805 16,749 16,681 Certificates of deposit 23,279 5.61 23,650 5.46 23,537 5.56 ------ ------ ------- Total deposits $40,084 4.27% $40,398 4.21% $40,218 4.28% ======= ======= =======
CERTIFICATES OF DEPOSIT. The following table indicates the amount of Germantown Federal's certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 1997:
Maturity Period Certificates of Deposit --------------- ----------------------- (In thousands) Three through six months $ 774 Six through twelve months 490 ------- Total $1,264 ======
BORROWINGS. Deposits are the primary source of funds for Germantown Federal's lending and investment activities and for its general business purposes. Germantown Federal may supplement its supply of lendable funds by obtaining advances from the FHLB of Cincinnati or by accessing the Federal Reserve Bank discount window. Advances from the FHLB of Cincinnati would typically be secured by a pledge of Germantown Federal's stock in the FHLB of Cincinnati and a portion of Germantown Federal's first mortgage loans and certain other assets. At June 30, 1997, and March 31, 1997 and 1996, Germantown Federal had a five-year fixed-rate advance of $1.0 million from the FHLB of Cincinnati. Germantown Federal pledged $1.5 million of first mortgage loans as security for the advance. The advance will either be repaid or renewed at maturity depending on Germantown Federal's cash demands at that time. The following table sets forth the maximum month-end balance and average balance of FHLB advances and other borrowings for the periods indicated:
Year ended March 31, June 30, ------------------------------------------------ 1997 1997 1996 1995 --------- -------- -------- ------- (In thousands) Maximum balance: FHLB advances $1,000 $1,000 $1,000 $ - Average balance: FHLB advances 1,000 1,000 585 -
42 53 COMPETITION Germantown Federal encounters strong competition both in the attraction of deposits and in the origination of real estate and other loans. Its most direct competition for deposits has historically come from commercial banks, other savings associations and credit unions in its market area. Germantown Federal competes for savings by offering depositors a high level of personal service and convenient office locations. The competition for real estate and other loans comes principally from commercial banks, credit unions, mortgage banking companies and other savings associations. Germantown Federal competes for loans primarily through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers, real estate brokers and builders. Factors which affect competition include the general and local economic conditions, current interest rate levels and volatility in the mortgage markets. SUBSIDIARY ACTIVITIES At June 30, 1997, Germantown Federal had one subsidiary, GFS Financial Services, Inc. GFS Financial Services, Inc. is a wholly-owned service corporation of Germantown Federal. The subsidiary was incorporated in 1980. The purpose of the subsidiary is to facilitate regular and continuing on-line data processing services, electronic transfer services and other data processing services to Germantown Federal. At June 30, 1997, Germantown Federal held an equity investment of $20,000 in its subsidiary. PERSONNEL As of June 30, 1997, Germantown Federal had 19 full-time and one part-time employees. None of Germantown Federal's employees are represented by a collective bargaining group. Germantown Federal believes its relationship with its employees is good. Germantown Federal offers health, disability and life insurance benefits. CHANGE IN ACCOUNTANTS On September 17, 1996, the Board of Directors of GFBC approved a change of GFBC's independent public auditors from Arthur Andersen LLP ("Arthur Andersen") to Crowe, Chizek and Company LLP ("Crowe Chizek"). Arthur Andersen served as GFBC's independent public auditors from 1984 through the fiscal year ended March 31, 1996. The decision to dismiss Arthur Andersen was part of an effort to reduce professional fee expenses. The report of Arthur Andersen on the consolidated financial statements of GFBC for the fiscal years ended March 31, 1996 and 1995, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to audit scope or accounting principles nor did they include an explanatory paragraph for material uncertainties. There has not been any disagreement between GFBC and Arthur Andersen on any matter of accounting principles or practices, consolidated financial statement disclosure or audit scope or procedure. 43 54 SECURITY OWNERSHIP OF GFBC The following table sets forth, as of ___________, 1997, certain information as to those persons who were believed by management to be the beneficial owners of more than 5% of the outstanding GFBC Shares.
Percent of shares of Amount and nature of common stock Name and address of beneficial owner beneficial ownership outstanding - ------------------------------------ -------------------- ----------- Steven F. Goens and Marilyn J. Goens 21,113 6.78% 10451 Kley Road Vandalia, Ohio 45377 Jeffrey S. Halis 24,215 7.77% 500 Park Avenue Fifth Floor New York, New York 10022 John T. Baker 25,902 8.32% One North Plum Street Germantown, Ohio 45327
The following table sets forth certain information with respect to the number of GFBC Shares beneficially owned by each director and executive officer of GFBC and by all directors and executive officers of GFBC as a group as of __________, 1997:
Amount and nature of Percent of shares of Name and address of beneficial owner (1) beneficial ownership (2) common stock outstanding - ---------------------------------------- ------------------------ ------------------------ John T. Baker 25,902 (3) 8.32% Jack L. Cobb 11,847 (4) 3.78 Stephen R. Cox 11,847 (5) 3.78 Bernard W. Falldorf 6,657 (6) 2.13 Thomas L. Fox 14,733 (7) 4.73 Charles E. Hacker 11,157 (8) 3.56 Daniel R. Hill 8,157 (9) 2.61 Bernard R. Kokenge 7,596 (10) 2.43 All directors and executive officers as a group (8 people) 97,018 30.25 - ----------------------------- (1) Each of the individuals in this table may be contacted at the address of GFBC, One North Plum Street, Germantown, OH 45327. (2) The beneficial owner has sole voting and dispositive power unless otherwise indicated. (3) Includes 3,300 shares held by Mr. Baker's spouse, with respect to which Mr. Baker shares voting and dispositive power. (4) Includes 1,541 shares which may be acquired by Mr. Cobb upon the exercise of an option, and 439 shares held by the Germantown Federal Savings Bank Management Stock Bonus Plan (the "MSBP") Trust, with respect to which Mr. Cobb shares voting and dispositive power as a Trustee and a member of the MSBP Committee. (5) Includes 1,541 shares which may be acquired by Mr. Cox upon the exercise of an option, and 439 shares held by the MSBP Trust, with respect to which Mr. Cox shares voting and dispositive power as a Trustee and a member of the MSBP Committee.
(Footnotes continued on next page) 44 55 (6) Includes 3,000 shares held jointly with Mr. Falldorf's spouse; 900 shares held by Mr. Falldorf's spouse, with respect to which Mr. Falldorf shares voting and dispositive power; and 1,541 shares which may be acquired by Mr. Falldorf upon the exercise of an option. (7) Includes 2,500 shares held by Mr. Fox's spouse, with respect to which Mr. Fox shares voting and dispositive power. (8) Includes 6,412 shares held jointly with Mr. Hacker's spouse and 1,541 shares which may be acquired by Mr. Hacker upon the exercise of an option. (9) Includes 3,734 shares held jointly with Mr. Hill's spouse and 1,541 shares which may be acquired by Mr. Hill upon the exercise of an option. (10) Includes 5,000 shares held jointly with Mr. Kokenge's spouse; 1,541 shares which may be acquired by Mr. Kokenge upon the exercise of an option; and 439 shares held by the MSBP Trust. with respect to which Mr. Kokenge shares voting and dispositive power as a Trustee and a member of the MSBP Committee. (11) Because the same 439 shares held in the MSBP Trust are included in the numbers held by three directors individually, the total of all shares beneficially owned by the directors and executive officers is less than the sum of their individual numbers of shares owned. REGULATION OF GFBC GENERAL As a savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933, as amended (the "HOLA"), GFBC is subject to regulation, examination and oversight by the OTS. Germantown Federal is also subject to regulation, examination and oversight by the OTS and the FDIC. GFBC and Germantown Federal must file periodic reports with these governmental agencies concerning their activities and financial condition. Germantown Federal is also subject to certain regulations promulgated by the Board of Governors of the Federal Reserve System ("FRB"). OTS REGULATION SUPERVISION AND EXAMINATION. The OTS is responsible for the regulation and supervision of all savings associations, including Germantown Federal. Germantown Federal must undergo a full-scope, on-site examination by the OTS at least (a) once every twelve months, if it has total assets of $250 million or more, or (b) once every eighteen months, if it has total assets of less than $250 million and satisfies other specified criteria. 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. 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. LIQUIDITY. OTS regulations require that Germantown Federal 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 lesec. 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 lesec. Monetary penalties may be 45 56 imposed upon associations failing to meet liquidity requirements. The average eligible liquidity of Germantown Federal, as computed under current regulations, was approximately $4.7 million or 11.1%, for the month of June 1997, and exceeded the applicable 5% liquidity requirement by approximately $2.6 million. 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 Federal National Mortgage Association ("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 June 30, 1997, Germantown Federal met the QTL test. LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions or requirements on the ability of associations, including Germantown Federal, 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 75% of its net income over the most recent four-quarter period. 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. Germantown Federal meets the requirements for a Tier 1 association and has not been notified of any need for more than normal supervision. 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. Tier 2 associations, which before and after the proposed distribution meet their current minimum, but not fully phased-in, capital requirements, 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. LENDING LIMITS. OTS regulations generally limit the aggregate amount that Germantown Federal can lend to one borrower to an amount equal to 15% of its Lending Limit Capital. A savings association may lend 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." 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 June 30, 1997, Germantown Federal was in compliance with these lending limits, with its largest extension of credit to one borrower being $231,000. REGULATORY CAPITAL REQUIREMENTS. Germantown Federal is 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, and a risk-based capital requirement. 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 Germantown Federal 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." 46 57 Pursuant to the risk-based capital requirement, Germantown Federal 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. The following tables present certain information regarding compliance by Germantown Federal with applicable regulatory capital requirements at June 30, 1997:
At June 30, 1997 --------------------------------------------------------------------------------- Actual capital Regulatory requirement Excess capital ---------------------- ---------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) Tangible capital $5,511 11.4% $ 727 1.5% $4,784 9.9% Core Capital $5,511 11.4% $1,454 3.0% $4,057 8.4% Risk-based capital $5,638 25.5% $1,768 8.0% $3,870 17.5%
The OTS has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings association. 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. In addition, the OTS 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 OTS 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 businesec. Furthermore, critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances. Germantown Federal's capital levels at June 30, 1997, met the standards for the highest category, a "well-capitalized" institution. FEDERAL DEPOSIT INSURANCE CORPORATION 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 BIF for commercial banks and state savings banks and the SAIF for savings associations. Germantown Federal is a member of the SAIF, and its deposit accounts are insured by the FDIC, up to the prescribed limits. The FDIC has examination authority over all insured depository institutions, including Germantown Federal, 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 47 58 per $100 in deposits in late 1995. Such excess equaled approximately $.23 per $100 in deposits beginning in 1996. This premium disparity had a negative competitive impact on Germantown Federal 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. Germantown Federal had $41.0 million in deposits at March 31, 1995. Germantown Federal paid a special assessment of $270,000 in November 1996, which was accounted for and recorded as of September 30, 1996. This assessment was tax-deductible, but reduced earnings for the year ended March 31, 1997. 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 deposits). 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. Germantown Federal was in compliance with such restrictions at June 30, 1997. 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, Germantown Federal 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. Germantown Federal was in compliance with these requirements at June 30, 1997. CHANGE IN CONTROL 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". HOLDING COMPANY REGULATION GFBC is a unitary savings and loan holding company subject to the regulatory oversight, examination and enforcement authority of the OTS. GFBC is required to register and file periodic reports with the OTS. If the OTS determines that the 48 59 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 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. 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 June 30, 1997, Germantown Federal 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, Germantown Federal is 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. GFBC is in compliance with this requirement with an aggregate investment by Germantown Federal in FHLB of Cincinnati stock of $416,000 at June 30, 1997. 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. FEDERAL TAXATION GFBC and Germantown Federal are each subject to the federal tax laws and regulations which apply to corporations generally. In addition to the regular income tax, GFBC and Germantown Federal may be 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, 49 60 75% of the amount by which a corporation's "adjusted current earnings" exceeds its alternative minimum taxable income computed 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. However, the Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain "small corporations" for tax years beginning after December 31, 1997. A corporation initially qualifies as a small corporation if it had average gross receipts of $5,000,000 or less for the three tax years ending with its first tax year beginning after December 31, 1996. Once a corporation is recognized as a small corporation, it will continue to be exempt from the alternative minimum tax for as long as its average gross receipts for the prior three-year period does not exceed $7,500,000. In determining if a corporation meets this requirement, the first year that it achieved small corporation status is not taken into consideration. Germantown Federal's average gross receipts for the three tax years ending on March 31, 1997, is $3,562,000, and as a result, Germantown Federal does qualify as a small corporation exempt from the alternative minimum tax. 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 Germantown Federal, 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, GFBC 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 50 61 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 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 Germantown Federal to GFBC is deemed paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and Germantown Federal's 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 June 30, 1997, Germantown Federal's pre-1988 reserves for tax purposes totaled approximately $538,000. GFBC believes Germantown Federal had approximately $3.5 million of accumulated earnings and profits for tax purposes as of June 30, 1997, which would be available for dividend distributions, provided regulatory restrictions applicable to the payment of dividends are met. See "REGULATION - OTS Regulations -- Limitations on Capital Distributions." The tax returns of GFBC 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 GFBC. OHIO TAXATION GFBC is subject to the Ohio corporation franchise tax, which, as applied to GFBC, is a tax measured by both net earnings and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and 8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times taxable net worth. For tax years beginning after December 31, 1998, the rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or (ii) .400% times taxable net worth. In computing its tax under the net worth method, GFBC may exclude 100% of its investment in the capital stock of Germantown Federal, as reflected on the balance sheet of GFBC, in computing its taxable net worth as long as it owns at least 25% of the issued and outstanding capital stock of Germantown Federal. The calculation of the exclusion from net worth is based on the ratio of the excludable investment (net of any appreciation or goodwill included in such investment) to total assets multiplied by the net value of the stock. As a holding company, GFBC may be entitled to various other deductions in computing taxable net worth that are not generally available to operating companies. A special litter tax is also applicable to all corporations, including GFBC, subject to the Ohio corporation franchise tax other than "financial institutions." If the franchise tax is paid on the net income basis, the litter tax is equal to .11% of the first $50,000 of computed Ohio taxable income and .22% of computed Ohio taxable income in excess of $50,000. If the franchise tax is paid on the net worth basis, the litter tax is equal to .014% times taxable net worth. Germantown Federal is a "financial institution" for State of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on "financial institutions," which is imposed annually at a rate of 1.5% of the book net worth of Germantown Federal determined in accordance with generally accepted accounting principles. For tax year 1999, however, the franchise tax on financial institutions will be 1.4% of the book net worth and for tax year 2000 and years thereafter the tax will be 1.3% of the book net worth. As a "financial institution," Germantown Federal is not subject to any tax based upon net income or net profits imposed by the State of Ohio. DELAWARE TAXATION As a Delaware corporation, GFBC 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, GFBC is exempt from Delaware corporate income tax. 51 62 DESCRIPTION OF CAMCO SHARES The following summary of the material attributes of Camco Shares is qualified in its entirety by reference to applicable provisions of Delaware law and to the provisions of the Camco Certificate and By-Laws. AUTHORIZED STOCK The Camco Certificate authorizes the issuance of up to 4,900,000 shares of common stock, par value $1.00 per share, and 100,000 shares of preferred stock, par value $1.00 per share. The Board of Directors is authorized to issue, without shareholder approval, the preferred shares and to fix the designations, preferences or other special rights of such shares and the qualifications, limitations and restrictions thereof. The issuance of preferred shares and any conversion rights which may be specified by the Board of Directors for the preferred shares could adversely affect the voting power of holders of the common shares. In addition, if the purchase price of the preferred shares is less than the book value of the common shares, the book value of the common shares could be adversely affected. No preferred shares will be issued in connection with this offering, and the Board of Directors has no present intention to issue any of the preferred shares. SPECIAL MEETINGS Special meetings of stockholders of Camco may be called only by the president or by a majority of the Board of Directors of Camco. PREEMPTIVE RIGHTS The Camco Certificate does not grant preemptive rights to the holders of Camco Shares. Under Delaware law, preemptive rights do not exist unless they are specifically granted by the corporation's certificate of incorporation. VOTING RIGHTS The holders of Camco Shares are entitled to cast one vote per share on all matters submitted to stockholders for their approval. Cumulative voting is not provided for in the election of directors. BOARD OF DIRECTORS Camco's By-laws provided for a classified Board of Directors consisting of nine directors, or such other number as determined by the Board, divided into three classes and elected for three-year terms. Pursuant to the By-laws, the number of directors is currently fixed at nine. Therefor, it would take two annual elections to replace a majority of the Board. The By-laws require that any stockholder nomination for the election of directors must be submitted in writing, containing specific information regarding the nominee, by the later of the March 31st immediately preceding the annual meeting of stockholders or the sixtieth day before the first anniversary of the most recent annual meeting. Vacancies on Camco's Board may be filled by a majority of the directors then in office. If a majority of the directors then in office constitutes less than a majority of the Board, any stockholders holding at least 10% of Camco's Shares may ask the Chancery Court to order an election to fill the vacancy and replace directors selected by those directors in office. The Camco Certificate authorizes the removal of a director for cause by a vote of not less than 80% of Camco's Shares. ANTITAKEOVER PROVISIONS IN THE CAMCO CERTIFICATE AND BY-LAWS The Camco Certificate and the Camco By-laws contain certain provisions that could deter or prohibit non-negotiated changes in the control of Camco. The Camco Certificate requires the approval of the holders of (i) at least 80% of Camco's outstanding shares of voting stock, and (ii) at least a majority of Camco's outstanding shares of voting stock, not including shares held by a "Substantial Stockholder," to approve certain "Business Combinations" as defined therein, and related transactions. Under Delaware law, absent this provision, Business Combinations, including mergers, consolidations and sales of substantially all of the assets of Camco must, subject to certain exceptions, be approved by the vote of the 52 63 holders of a majority of Camco's outstanding voting shares. The increased voting requirements in the Camco Certificate apply in connection with Business Combinations involving a "Substantial Stockholder," except in cases where the proposed transaction has been approved in advance by three-fourths of the members of Camco's Board of Directors provided that a majority of the members of the Board are continuing Directors (a continuing Director being defined as a person who was (i) a member of the Board as of May 26, 1987, (ii) elected by the stockholders or appointed by the Board after May 26, 1987 and prior to the date as of which the Substantial Stockholder in question became a Substantial Stockholder, or (iii) appointed as a Director by three-fourths of the Board if and only if a majority of the Board at the time of appointment consisted of continuing Directors). The term "Substantial Stockholder" is defined to include any individual, corporation, partnership or other entity, except for Camco or a subsidiary of Camco, which owns beneficially or controls, directly or indirectly, 15% or more of the outstanding voting shares of Camco. A "Business Combination" is defined to include (i) any merger or consolidation of Camco or a subsidiary of Camco with or into any Substantial Stockholder or with or into any or other corporation which, after such merger or consolidation, would be an Affiliate of a Substantial Stockholder as defined in the Camco Certificate; (ii) any sale, lease, exchange, mortgage, transfer, pledge or other disposition of all or a substantial part of the assets of Camco or of a subsidiary of Camco to any Substantial Stockholder (the terms "substantial part" is defined to include more than 10% of Camco's total assets); (iii) the adoption of any plan or proposal for the liquidation or dissolution of Camco 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 Shareholder; (iv) the issuance or transfer of Camco Equity Securities, as defined in the Camco Certificate, having an aggregate value equaling or exceeding 60% of Camco's shareholders equity to a Substantial Shareholder in exchange for cash, securities or other property; (v) any reclassification of the securities of Camco, any recapitalization involving the securities of Camco or any reorganization, merger, or consolidation of Camco that has the effect of increasing, directly or indirectly, a Substantial Stockholder's proportionate share of outstanding shares of any class of equity securities of Camco or a subsidiary of Camco. In view of the various provisions of the Camco Certificate, the aggregate stock ownership by the directors and officers of Camco may have the effect of facilitating the perpetuation of current management and discouraging proxy contests and takeover attempts. Officers and directors will have a significant influence over the vote on such a transaction and may be able to defeat such a proposal. The Board of Directors of Camco believe that such provisions are in the best interests of shareholders by encouraging prospective acquirers to negotiate a proposed acquisition with the directors. Such provisions could, however, adversely affect the market value of Camco's common shares or deprive shareholders of the opportunity to sell their shares for premium prices. COMPARISON OF RIGHTS OF HOLDERS OF CAMCO SHARES AND HOLDERS OF GFBC SHARES As a result of the Merger, all of the holders of GFBC Shares at the Effective Time will become stockholders of Camco, except holders of GFBC Shares who exercise dissenters' rights. There are certain differences between the rights of holders of Camco shares and the rights of holders of GFBC Shares arising from the distinctions between the Camco Certificate and By-laws and GFBC's Certificate of Incorporation and Bylaws. However, the rights of holders of Camco Shares and those of holders of GFBC Shares are similar in most material respects. The differences are addressed below. AUTHORIZED STOCK The Camco Certificate authorizes 4,900,000 common shares and 100,000 preferred shares. GFBC's Certificate of Incorporation authorizes 1,250,000 common shares and 250,000 preferred shares. DIRECTOR NOMINATIONS Camco stockholders generally must submit director nominations by the March 31st preceding the annual meeting, which is scheduled for the fourth Tuesday in May. GFBC stockholders generally must submit director nominations 30 days prior to the meeting or, if less than 31 days' notice of the meeting is provided, then within 10 days after the mailing of such notice. 53 64 ANTITAKEOVER PROVISIONS Certain provisions of the Camco Certificate and Camco By-laws could deter or prohibit changes in majority control of the Board of Directors or non-negotiated acquisitions of control of Camco. See "DESCRIPTION OF CAMCO SHARES - Antitakeover Provisions in the Camco Certificate and Camco By-laws." GFBC's Certificate of Incorporation and By-laws contain provisions that could have a similar impact. The Certificate of Incorporation of GFBC provides that in no event shall any record owner of any outstanding GFBC Shares which are beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding shares of common stock (the "Beneficial Limit") be entitled or permitted to any vote in respect of the shares held in excess of the Beneficial Limit. This limitation would not inhibit any person from soliciting (or voting) proxies from other beneficial owners for more than 10% of GFBC's common shares or from voting such proxies. Beneficial ownership is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act, and includes shares beneficially owned by any affiliate of such person, shares which such person or his affiliates (as defined in the Certificate of Incorporation) have the right to acquire upon the exercise of conversion rights or options and shares as to which such person and his affiliates have or share investment or voting power but shall not include shares beneficially owned by directors, officers or employees of Germantown Federal or GFBC. This provision may be enforced by the Board of Directors of GFBC to limit the voting rights of persons beneficially owning more than 10% of the stock and thus could be utilized in a proxy contest or other solicitation to defeat a proposal that is desired by a majority of the stockholders. GFBC's Certificate of Incorporation requires that certain business combinations (including transactions initiated by management) between it (or any majority-owned subsidiary thereof) and a 10% or more stockholder either (i) be approved by at least 80% of the total number of outstanding voting shares, voting as a single class, of GFBC, or (ii) be approved by two-thirds of the continuing Board of Directors (i.e., persons serving prior to the 10% stockholder becoming such). Amendments to GFBC's Certificate of Incorporation must be approved by GFBC's Board of Directors and also by a majority of the outstanding GFBC Shares; provided, however, that approval by at least 80% of the outstanding voting stock is generally required for certain provisions (i.e., provisions relating to number, classification, election and removal of directors; amendment of by-laws; call of special stockholder meetings; offers to acquire and acquisitions of control; director liability; certain business combinations; power of indemnification; and amendments to provisions relating to the foregoing in the certificate of incorporation). The By-laws may be amended by a majority vote of the Board of Directors or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders. ANTITAKEOVER STATUTES APPLICABLE TO CAMCO AND GFBC Certain federal and state laws can make a change in control more difficult, even if desired by the holders of the majority of the Camco or GFBC Shares. The statutes described below apply to both Camco and GFBC. DELAWARE ANTI-TAKEOVER STATUTE. The Delaware General Corporation Law (the "DGCL") imposes limits on the ability of persons who acquire more than 15% of the outstanding stock of a Delaware corporation, such as Camco or GFBC, to effect a merger with or acquisition of such corporation for three years after the person's acquisition of stock of the corporation. Such a transaction may be effected, generally, if (i) the buyer, while acquiring the 15% interest, acquires at least 85% of the corporation's outstanding stock (the 85% requirement excludes shares held by directors who are also officers and certain shares held under employee stock plans); (ii) the board of directors of the corporation pre-approves the transaction; or (iii) the transaction is subsequently approved by the target corporation's board of directors and two-thirds of the shares of outstanding stock of the corporation (excluding shares held by the bidder). However, these provisions of the DGCL do not apply to Delaware corporations with less than 2,000 stockholders or which do not have voting stock listed on a national exchange or listed for quotation with a registered national securities association. Neither Camco nor GFBC have 2,000 stockholders. GFBC Shares are not listed for quotation with a national securities association. Camco Shares are traded on a registered national securities association. Both entities could otherwise exempt themselves from the requirements of the statute by adopting an amendment to their respective Certificate of Incorporation or Bylaws electing not to be governed by this provision. At the present time, neither Camco nor GFBC has adopted any such amendment. 54 65 FEDERAL REGULATION. OTS regulations prohibit any person, without the prior approval of the OTS, from acquiring or making an offer to acquire more than 10% of the stock of any converted savings institution if such person is, or after consummation of such acquisition would be, the beneficial owner of more than 10% of such stock. In the event that any person, directly or indirectly, violates this regulation, the securities beneficially owned by such person in excess of 10% may not be counted as shares entitled to vote and may not be voted by any person or counted as voting shares in connection with any matter submitted to a vote of stockholders. Like the charter provisions outlined above, these federal regulations can make a change in control more difficult, even if desired by the holders of a majority of the shares of the stock. The Board of Directors reserves the right to ask the OTS or other federal regulators to enforce these restrictions against persons seeking to obtain control of GFBC, whether in a proxy solicitation or otherwise. Camco and GFBC have requested that OTS not enforce these provisions in the Merger. Federal law provides that no company, "directly or indirectly or acting in concert with one or more persons, or through one or more subsidiaries, or through one or more transactions," may acquire "control" of a savings association at any time without the prior approval of the OTS. In addition, federal regulations require that, prior to obtaining control of a savings association, a person, other than a company, must give 60 days' prior notice to the OTS and have received no OTS objection to such acquisition of control. Any company that acquires such control becomes a "savings and loan holding company" subject to registration, examination and regulation as a savings and loan holding company. Under federal law (as well as the regulations referred to below) the term "savings bank" includes state and federally chartered SAIF-insured institutions and federally chartered savings banks whose accounts are insured by the FDIC's Association Insurance Fund and holding companies thereof. Control, as defined under federal law, in general means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the savings association's directors, or a determination by the OTS that the acquirer has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a savings association's voting stock, if the acquirer also is subject to any one of eight "control factors," constitutes a rebuttable determination of control under the regulations. The determination of control may be rebutted by submission to the OTS, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 10% or more of any class of a savings bank's stock must file with the OTS a certification that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the OTS, as applicable. DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION The By-laws of Camco provide that Camco shall indemnify its directors or officers against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs), judgments, fines, and amounts paid in settlement by reason of the fact that they are or were directors, officers, employees or agents of Camco or, at the request of Camco, were serving another organization in a similar capacity, if the directors or officers acted in good faith and in a manner they reasonably believed to be in the best interest of Camco. With regard to criminal matters, directors and officers must be indemnified by Camco if the directors or officers had no reasonable cause to believe their conduct was unlawful. Directors or officers claiming indemnification shall be presumed to have acted in good faith and in a manner they reasonably believed to be not opposed to the best interests of Camco and, with respect to any criminal matter, to have had no reasonable cause to believe their conduct was unlawful. Camco shall not indemnify any officer or director of Camco who was a party to any completed action or suit instituted by (or in the right of) Camco for any matter asserted in such action as to which the officer or director shall have been adjudged to be liable for acting with reckless disregard for the best interests of Camco or misconduct (other than negligence) in the performance of his duty to Camco. However, should the court in which such action was brought determine that the officer or director is fairly and reasonably entitled to such indemnity, Camco shall indemnify such officer or director to the extent permitted by the court. Any indemnification not precluded by judgment shall be made by Camco only upon a determination that the director has met the applicable standard of conduct. Such determination may be made only (a) by a majority vote of a quorum of disinterested directors, (b) if such a quorum is not obtainable or if a majority of a quorum of disinterested 55 66 directors so directs, in a written opinion by independent legal counsel, (c) by the stockholders or (d) by the court, if any, in which such action was brought. Expenses incurred in defending any action, suit or proceeding shall be paid by Camco in advance upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if the director or officer is not entitled to be indemnified by Camco. In addition, Camco has agreed to indemnify each of its directors and officers against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs), judgments, fines, and amounts paid in settlement by reason of the fact that he is or was a director, officer, employee or agent of Camco or, at the request of Camco, was serving another organization in a similar capacity, if the director or officer acted in good faith and in a manner he reasonably believed to be in the best interest of Camco and if, with respect to any criminal action or proceeding, such director or officer had no reason to believe that his conduct was unlawful. Such indemnification shall be made, however, only upon a determination by the directors or stockholders of Camco, the Court of Common Pleas of Franklin County or written opinion of legal counsel appointed by Camco that the director or officer has adhered to the appropriate standard of conduct. GFBC's Certificate of Incorporation provides that GFBC shall indemnify or agree to indemnify any current or former director, officer, employee or agent against whom an action is threatened, pending, or completed because of that person's position with GFBC or because of that person's performance of his or her duty, for expenses reasonably incurred in such actions, to the fullest extent permitted by the DGCL. LEGAL MATTERS The federal income tax consequences of the Merger, and certain other legal matters in connection with the Merger, will be passed upon for Camco by Vorys, Sater, Seymour and Pease, Suite 2100, Atrium Two, 221 East Fourth Street, P.O. Box 0236, Cincinnati, Ohio. Such counsel has not received nor will receive a substantial interest, direct or indirect, in Camco, nor was such counsel compensated on a contingency fee basis for the rendering of its services. EXPERTS The consolidated financial statements of Camco at December 31, 1996 and 1995, and for each of the three years ended December 31, 1996, 1995 and 1994, incorporated by reference to the Camco's 1996 Annual Report accompanying this Prospectus and Proxy Statement, have been audited by Grant Thornton LLP, independent certified public accountants, as stated in their report appearing therein, and have been included in reliance upon such report and given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of GFBC at March 31, 1997, and for the year ended March 31, 1997, included in this Prospectus and Proxy Statement, have been audited by Crowe, Chizek and Company LLP, independent certified public accountants, to the extent and for the periods indicated in their report appearing herein; the consolidated financial statements of GFBC at March 31, 1996, and for the year ended March 31, 1996, included in the Registration Statement have been audited by Arthur Andersen LLP, independent certified public accountants, to the extent and for the periods indicated in their report; and such financial statements have been included herein in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. OTHER MATTERS The Board of Directors of GFBC is not aware of any business that will be presented at the GFBC Special Meeting other than as set forth herein and in the accompanying Notice of Special Meeting. However, if any other matters are properly presented at the GFBC Special Meeting, the persons designated on the proxies will have discretion to vote thereon. It is anticipated that such persons will vote on any such matters in accordance with the recommendation of the GFBC Board of Directors. 56 67 GF BANCORP, INC. Germantown, Ohio FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT AUDITORS................................................................................F-2 FINANCIAL STATEMENTS Consolidated Balance Sheets at June 30, 1997 (unaudited) and March 31, 1997 and 1996............................................................................F-3 Consolidated Statements of Income for the three months ended June 30, 1997 and 1996 (unaudited) and for the years ended March 31, 1997 and 1996......................................................................F-4 Consolidated Statements of Changes in Stockholders Equity for the three months ended June 30, 1997 (unaudited) and for the years ended March 31, 1997 and 1996 .....................................................................F-5 Consolidated Statements of Cash Flows for the three months ended June 30, 1997 and 1996 (unaudited) and for the years ended March 31, 1997 and 1996......................................................................F-6 Notes to Consolidated Financial Statements...........................................................F-7
All schedules are omitted because the required information is not applicable or is included in the consolidated financial statements and related notes. F-1 68 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors GF Bancorp, Inc. Germantown, Ohio We have audited the accompanying consolidated balance sheet of GF Bancorp, Inc. as of March 31, 1997 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 1996 consolidated financial statements of GF Bancorp, Inc. were audited by other auditors whose report dated May 3, 1996 expressed an unqualified opinion on those statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1997 consolidated financial statements referred to above present fairly, in all material respects, the financial position of GF Bancorp, Inc. as of March 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Columbus, Ohio, May 2, 1997 F-2 69 GF BANCORP, INC. CONSOLIDATED BALANCE SHEETS June 30, 1997 (unaudited) and March 31, 1997 and 1996
June 30, 1997 March 31, ------------- ------------------------------- ASSETS (Unaudited) 1997 1996 ------------ ------------- Cash and due from banks $ 574,255 $ 503,851 $ 506,220 Interest-bearing deposits 2,427,868 2,649,811 2,724,202 ------------ ------------ ------------ Total cash and cash equivalents 3,002,123 3,153,662 3,230,422 Securities available for sale 1,500,390 1,999,760 4,492,895 Mortgage-backed securities available for sale 8,764,847 8,847,794 10,264,500 Loans receivable 33,785,573 32,651,155 29,508,296 Allowance for loan losses (127,296) (126,920) (97,635) ------------ ------------ ------------ Net loans 33,658,277 32,524,235 29,410,661 Premises and equipment, net 833,040 856,406 830,075 Accrued interest receivable 247,958 244,180 271,135 Federal Home Loan Bank stock, at cost 416,300 409,000 381,800 Other assets 79,519 86,717 100,685 ------------ ------------ ------------ Total assets $ 48,502,454 $ 48,121,754 $ 48,982,173 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 40,384,226 $ 40,369,047 $ 41,089,834 Federal Home Loan Bank advances 1,000,000 1,000,000 1,000,000 Advances from borrowers for taxes and insurance 158,483 80,298 86,430 Accrued and deferred federal income taxes 293,746 189,796 376,680 Accrued interest payable 9,489 9,778 10,129 Other liabilities 79,074 73,571 103,402 ------------ ------------ ------------ Total liabilities 41,925,018 41,722,490 42,666,475 Stockholders' equity Preferred stock, $0.01 par value; authorized 250,000 shares; none issued Common stock, $0.01 par value; authorized 1,250,000 shares; issued 308,376 shares 3,084 3,084 3,084 Additional paid-in capital 2,799,640 2,799,640 2,792,445 Retained earnings - substantially restricted 3,985,743 3,901,964 3,801,077 Treasury stock, 15,418 shares at cost (213,543) (213,543) (213,543) Net unrealized gain/(loss) on available-for-sale securities 33,350 (54,876) (5,690) Unearned compensation related to management stock bonus plan (30,838) (37,005) (61,675) ------------ ------------ ------------ Total stockholders' equity 6,577,436 6,399,264 6,315,698 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 48,502,454 $ 48,121,754 $ 48,982,173 ============ ============ ============
See accompanying notes to consolidated financial statements. F-3 70 GF BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME Three months ended June 30, 1997 and 1996 (unaudited) and the years ended March 31, 1997 and 1996
Three months ended June 30, Year ended March 31, ---------------------------- ---------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (Unaudited) INTEREST INCOME Loans, including fees $ 688,462 $ 603,912 $2,552,241 $2,228,853 Mortgage-backed securities 154,883 177,407 678,451 781,677 Securities 25,155 53,241 162,458 300,244 Deposits with banks 30,327 36,275 139,735 128,898 Dividends on FHLB stock 7,393 6,645 27,373 25,327 ---------- ---------- ---------- ---------- Total interest income 906,220 877,480 3,560,258 3,464,999 INTEREST EXPENSE Deposits 426,604 425,903 1,702,429 1,723,345 Borrowings 14,460 14,421 57,880 33,590 ---------- ---------- ---------- ---------- Total interest expense 441,064 440,324 1,760,309 1,756,935 NET INTEREST INCOME 465,156 437,156 1,799,949 1,708,064 Provision for loan losses - - 33,000 - ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 465,156 437,156 1,766,949 1,708,064 ---------- ---------- ---------- ---------- NONINTEREST INCOME Service charges and fees 26,602 30,065 110,889 114,035 Other - - 10,800 5,214 ---------- ---------- ---------- ---------- Total noninterest income 26,602 30,065 121,689 119,249 NONINTEREST EXPENSES Salaries and employee benefits 155,037 164,385 683,293 654,770 Occupancy and equipment expense 37,628 35,977 157,190 142,585 Outside services 44,503 44,545 159,606 153,164 FDIC deposit insurance 6,666 23,793 342,847 95,181 State franchise taxes 26,732 21,064 89,695 87,129 Other 43,758 37,380 165,694 146,652 ---------- ---------- ---------- ---------- Total noninterest expenses 314,324 327,144 1,598,325 1,279,481 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 177,434 140,077 290,313 547,832 Income tax provision 58,500 47,715 92,750 176,750 ---------- ---------- ---------- ---------- NET INCOME $ 118,934 $ 92,362 $ 197,563 $ 371,082 ========== ========== ========== ========== Earnings per share $ 0.41 $ 0.32 $ 0.67 $ 1.24 ========== ========== ========== ========== Dividends per share $ 0.12 $ 0.07 $ 0.33 $ 0.28 ========== ========== ========== ========== Weighted average shares outstanding 292,958 292,958 292,958 299,867 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-4 71 GF BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three months ended June 30, 1997 (unaudited) and years ended March 31, 1997 and 1996
Net Unrealized Gain/(Loss) on Unearned Additional Available- Compensation Total Common Paid-in Retained Treasury for-Sale Related to Stockholders' Stock Capital Earnings Stock Securities MSBP Equity ----- ------- -------- ----- ---------- ---- ------ Balance, April 1, 1995 $3,084 $2,792,445 $3,514,181 - - $(86,345) $ 6,223,365 Amortization of unearned compensation related to management stock bonus plan - - - - - 24,670 24,670 Cash dividends declared on common stock - - (84,186) - - - (84,186) Purchase of 15,418 shares of treasury stock - - - $(213,543) - - (213,543) Change in net unrealized gain/(loss) on available-for-sale securities - - - - $ (5,690) - (5,690) Net income - - 371,082 - - - 371,082 ------ ---------- ---------- --------- -------- -------- ----------- Balance, March 31, 1996 3,084 2,792,445 3,801,077 (213,543) (5,690) (61,675) 6,315,698 Amortization of unearned compensation related to management stock bonus plan - - - - - 24,670 24,670 Tax benefit of management stock bonus plan - 7,195 - - - - 7,195 Cash dividends declared on common stock - - (96,676) - - - (96,676) Change in net gain/(loss) on available-for-sale securities - - - - (49,186) - (49,186) Net income - - 197,563 - - - 197,563 ------ ---------- ---------- --------- -------- -------- ----------- Balance, March 31, 1997 3,084 2,799,640 3,901,964 (213,543) (54,876) (37,005) 6,399,264 Amortization of unearned compensation related to management stock bonus plan - - - - - 6,167 6,167 Cash dividends declared on common stock - - (35,155) - - - (35,155) Change in net unrealized gain/(loss) on available-for-sale securities - - - - 88,226 - 88,226 Net income - - 118,934 - - - 118,934 ------ ---------- ---------- --------- -------- -------- ----------- Balance, June 30, 1997 $3,084 $2,799,640 $3,985,743 $(213,543) $ 33,350 $(30,838) $ 6,577,436 ====== ========== ========== ========= ======== ======== ===========
See accompanying notes to consolidated financial statements. F-5 72 GF BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended June 30, 1997 and 1996 (unaudited) and years ended March 31, 1997 and 1996
Three months ended June 30, Year ended March 31, --------------------------- --------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 118,934 $ 92,362 $ 197,563 $ 371,082 Adjustments to reconcile net income to net cash flows from operating activities Depreciation and amortization 23,366 20,502 89,452 81,042 Net accretion of securities premiums/(discounts) (1,643) (874) (5,620) (3,258) Provision for loan losses - - 33,000 - FHLB stock dividends (7,300) (6,600) (27,200) (25,100) Amortization of unearned compensation related to MSBP 6,167 6,168 24,670 24,670 (Gain)/loss on sale of equipment - 229 (10,571) - Deferred taxes (12,636) - (14,295) (8,615) Change in Accrued interest receivable (3,778) 14,783 26,955 16,657 Other assets 7,198 11,953 13,968 16,326 Federal income taxes payable 71,136 (72,284) (140,056) 140,365 Accrued interest payable (289) (718) (351) (851) Other liabilities 5,503 (43,643) (29,831) 11,078 ----------- ----------- ----------- ----------- Net cash flows from operating activities 206,658 21,878 157,684 623,396 CASH FLOWS FROM INVESTING ACTIVITIES Maturities of available-for-sale securities 500,000 500,000 2,500,000 1,000,000 Maturities of held-to-maturity securities - - - 2,000,000 Maturities and principal repayments on available-for-sale mortgage-backed securities 217,636 282,703 1,340,937 529,975 Maturities and principal repayments on held-to-maturity mortgage-backed securities - - - 1,237,461 Net change in loans (1,134,042) (656,207) (3,146,574) (7,204,240) Proceeds from sale of premises and equipment - 4,172 14,972 - Purchase of premises and equipment - (12,113) (120,184) (62,328) ----------- ----------- ----------- ----------- Net cash flows from investing activities (416,406) 118,555 589,151 (2,499,132) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 15,179 (492,245) (720,787) 1,223,500 Net change in Federal Home Loan Bank advances - - - 1,000,000 Net change in advances from borrowers for taxes and insurance 78,185 72,837 (6,132) (13,325) Purchase of treasury stock - - - (213,543) Dividends paid (35,155) (20,508) (96,676) (84,186) ----------- ----------- ----------- ----------- Net cash flows from financing activities 58,209 (439,916) (823,595) 1,912,446 ----------- ----------- ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (151,539) (299,483) (76,760) 36,710 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,153,662 3,230,422 3,230,422 3,193,712 ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,002,123 $ 2,930,939 $ 3,153,662 $ 3,230,422 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-6 73 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of GF Bancorp, Inc. (the Corporation), Germantown Federal Savings Bank (the Savings Bank), and its wholly owned service corporation subsidiary, GFS Financial Services, Inc. All material intercompany balances and income and expenses have been eliminated in the consolidated statements. NATURE OF OPERATIONS: The Corporation, a Delaware Corporation, is a unitary holding company which holds all of the capital stock of the Savings Bank. The Savings Bank is a federally chartered stock savings bank whose main office in Germantown and one branch office in New Lebanon are located in southwestern Montgomery County, Ohio. The Savings Bank is primarily engaged in the business of providing loan and deposit products to consumers in Germantown and New Lebanon, Ohio, as well as the surrounding communities. GFS Financial Services, Inc. was formed to hold shares of Intrieve, Inc. common stock. Intrieve, Inc. is a data processing center used by the Savings Bank. ESTIMATES: To prepare financial statements in conformity with generally accepted accounting principles, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported in the financial statements, as well as the disclosures provided. Future results could differ from current estimates. The collectibility of loans, fair values of financial instruments and the status of contingencies are particularly subject to change. STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as cash and due from banks and overnight deposits, as well as interest-bearing deposits with original maturities under 90 days. Net cash flows are reported for customer loan and deposit transactions, as well as short-term borrowings. Supplemental disclosure of cash flow information is as follows:
Three months ended June 30, Year ended March 31, --------------------------- ------------------------------ 1997 1996 1997 1996 -------- ------- ---------- ---------- (Unaudited) Cash paid during the period for: Interest $441,353 $441,042 $1,760,660 $1,757,786 Income taxes - 120,000 245,100 45,000
SECURITIES: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported separately in shareholders' equity, net of tax. (Continued) F-7 74 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Gains and losses on sales of securities are determined using amortized cost of the specific security sold. Interest income includes amortization of purchase premiums and discounts. LOANS: Loans are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when payments are past due over 90 days. Generally, payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan impairment is reported when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer and credit card loans and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate. Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when the internal grading system indicates a doubtful classification. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both the straight-line and accelerated methods for income tax and financial reporting purposes. The depreciation methods are designed to amortize the cost of the assets over their estimated useful lives, as follows: Buildings and improvements 10-40 years Furniture and equipment 3-15 years These assets are reviewed for impairment under Statement of Financial Accounting Standards (SFAS) No. 121 when events indicate the carrying amount may not be recoverable. Maintenance and repairs are charged to expense as incurred. When facilities are retired or otherwise disposed of, the cost is removed from the asset accounts and the related accumulated depreciation is adjusted. Any gain or loss on disposition is reflected in operations in the year of disposal. (Continued) F-8 75 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INCOME TAXES: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. STOCK-BASED COMPENSATION: Expense for employee compensation under stock option plans is reported only if options are granted below market price at grant date. During 1997, the Corporation adopted the disclosure provisions of SFAS No. 123, a new Statement regarding stock-based compensation. As required by the Statement, pro forma disclosures of net income and earnings per share will be provided as if the fair value method were used for stock-based compensation for options granted subsequent to April 1, 1996. The Corporation has not granted any options subsequent to April 1, 1996. EARNINGS PER SHARE: Earnings per share of common stock was computed by dividing net income by the weighted average number of shares outstanding. Stock options outstanding do not presently have a dilutive effect greater than or equal to 3% on earnings per share. RECLASSIFICATIONS: Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to correspond with the current year presentation. NOTE 2 - SECURITIES The amortized cost and estimated fair values of securities are as follows:
June 30, 1997 --------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- (Unaudited) U.S. Treasury obligations: Due within one year $1,499,224 $ 1,289 $ (123) $1,500,390 ========== ========== ========== ========== Mortgage-backed securities $8,715,483 $ 142,267 $ (92,903) $8,764,847 ========== ========== ========== ==========
March 31, 1997 --------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Treasury obligations: Due within one year $1,999,083 $ 1,638 $ (961) $1,999,760 ========== ========== ========== ========== Mortgage-backed securities $8,931,617 $ 108,602 $ (192,425) $8,847,794 ========== ========== ========== ==========
(Continued) F-9 76 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 2 - SECURITIES (Continued)
March 31, 1996 ------------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ----------- ----------- U.S. Treasury obligations: Due within one year $ 2,499,936 $ - $ (10,241) $ 2,489,695 One through five years 1,999,180 7,865 (3,845) 2,003,200 ----------- ----------- ----------- ----------- Total $ 4,499,116 $ 7,865 $ (14,086) $ 4,492,895 =========== =========== =========== =========== Mortgage-backed securities $10,266,901 $ 149,510 $ (151,911) $10,264,500 =========== =========== =========== ===========
No securities were sold during the three months ended June 30, 1997 and 1996 (unaudited) and for the years ended March 31, 1997 and 1996. In December 1995, all of the Corporation's securities totaling $16,294,754 were reclassified from held to maturity to available for sale, based upon new interpretations issued for SFAS No. 115. The unrealized gain at the time the securities were transferred was approximately $177,000. As of June 30, 1997 (unaudited), March 31, 1997 and 1996, the Corporation had no pledged securities. NOTE 3 - LOANS RECEIVABLE Loans receivable consisted of the following:
June 30, March 31, ----------- --------------------------- 1997 1997 1996 ----------- ----------- ----------- (Unaudited) First mortgage loans, one- to four- family residences $30,076,052 $29,366,917 $27,416,996 Consumer loans 3,505,908 2,892,522 2,010,376 Construction loans 345,000 456,800 - Loans secured by deposits 196,770 114,216 158,828 Home improvement loans 177,843 186,760 167,004 Participations purchased -- -- 4,625 ----------- ----------- ----------- Total 34,301,573 33,017,215 29,757,829 Less: Loans in process 307,700 136,736 6,627 Deferred loan fees 115,838 113,459 122,852 Loan participation sold 92,462 115,865 120,054 ----------- ----------- ----------- $33,785,573 $32,651,155 $29,508,296 =========== =========== ===========
Certain officers, directors and the companies with which they are affiliated have borrowed funds from the Savings Bank. These loans totaled $192,448 at June 30, 1997 (unaudited) and $194,065 and $199,992 at March 31, 1997 and 1996, respectively. (Continued) F-10 77 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 A summary of activity in the allowance for loan losses is as follows:
Three months ended June 30, Year ended March 31, 1997 1996 1997 1996 --------- --------- --------- --------- (Unaudited) Balance, beginning of period $ 126,920 $ 97,635 $ 97,635 $ 94,682 Charge-offs - (2,175) (7,331) (1,724) Recoveries of loans previously charged off 376 1,869 3,616 4,677 Provision for loan losses - - 33,000 - --------- --------- --------- --------- Balance, end of period $ 127,296 $ 97,329 $ 126,920 $ 97,635 ========= ========= ========= =========
As of and for the three months ended June 30, 1997 and 1996 (unaudited) and as of and for the years ended March 31, 1997 and 1996, no loans were required to be evaluated for impairment on a loan by loan basis within the scope of SFAS No. 114. Nonaccrual loans amounted to approximately $197,000 at June 30, 1997 (unaudited) and $167,000 and $108,000 at March 31, 1997 and 1996, respectively. The Savings Bank evaluates the credit risk of each customer on an individual basis, and when determined to be necessary, obtains collateral to secure the loan. Collateral varies by individual customer and may include real estate, vehicles, deposits, personal and governmental quaranties and general security agreements. Access to collateral is dependent on the type of collateral obtained, and the Savings Bank monitors its collateral and the collateral value related to the loan balance on an ongoing basis. NOTE 4 - PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
June 30, March 31, ----------- ----------------------------- 1997 1997 1996 (Unaudited) Land $ 134,674 $ 134,674 $ 134,674 Buildings and improvements 953,946 953,946 940,311 Furniture and equipment 622,788 622,788 546,626 ----------- ----------- ----------- 1,711,408 1,711,408 1,621,611 Less accumulated depreciation (878,368) (855,002) (791,536) ----------- ----------- ----------- Premises and equipment, net $ 833,040 $ 856,406 $ 830,075 =========== =========== ===========
(Continued) F-11 78 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 5 - DEPOSITS A summary of deposits is as follows:
June 30, March 31, ----------- --------------------------- 1997 1997 1996 ----------- ----------- ----------- (Unaudited) Noninterest-bearing demand deposits $ 403,970 $ 393,721 $ 266,666 NOW accounts 3,638,015 3,512,269 3,399,420 Money market accounts 2,932,387 2,972,402 3,234,194 Passbook savings accounts 9,928,200 9,933,636 10,349,094 Certificate accounts 175,883 179,580 195,946 Certificates of deposit 13,840,423 13,538,284 13,462,381 IRA certificates 9,465,348 9,839,155 10,182,133 ----------- ----------- ----------- $40,384,226 $40,369,047 $41,089,834 =========== =========== ===========
The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $1,264,000 at June 30, 1997 (unaudited), and $1,521,000 and $1,030,000 at March 31, 1997 and 1996, respectively. The scheduled maturities of certificate accounts, certificates of deposit and IRA certificates as of June 30, 1997 (unaudited) are as follows:
Years ended June 30, -------------------- (Unaudited) 1998 $17,881,841 1999 2,740,703 2000 2,272,248 2001 385,739 2002 201,123 ----------- $23,481,654 ===========
The scheduled maturities of certificate accounts, certificates of deposit and IRA certificates as of March 31, 1997 are as follows:
Years Ended March 31, --------------------- 1998 $18,251,847 1999 3,013,255 2000 1,569,043 2001 232,208 2002 446,948 Thereafter 43,718 ----------- $23,557,019 ===========
(Continued) F-12 79 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES Advances from the Federal Home Loan Bank at June 30, 1997 (unaudited), March 31, 1997 and 1996 consisted of a $1,000,000 borrowing due in December, 2000, bearing interest at 5.8%. First mortgage loans with an unpaid principal balance of $1,500,000 were pledged as collateral on this borrowing. NOTE 7 - SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION Included in FDIC deposit insurance expense in the statement of income for the year ended March 31, 1997 is $269,558 for a special assessment resulting from legislation passed and enacted into law on September 30, 1996 to recapitalize the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. Thrifts such as the Savings Bank paid a one-time assessment in November, 1996 of $0.657 for each $100 in deposits as of March 31, 1995. As a result of the recapitalization, the Savings Bank began paying lower deposit insurance premiums in January, 1997. NOTE 8 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES There are various contingent liabilities that are not reflected in the financial statements including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations. The Federal Reserve requires financial institutions to maintain certain average reserve balances. A cash reserve of 3%, which is unavailable for investment, is required for financial institutions with reservable liabilities in excess of $3.8 million (the exception amount) and total deposits in excess of $44.8 million (the deposit cutoff). At June 30, 1997 (unaudited), March 31, 1997 and 1996, the Savings Bank was exempt from such requirements. Some financial instruments are used in the normal course of business to meet the financing needs of customers and to reduce exposure to interest rate changes. These financial instruments include commitments to extend credit. Commitments to extend credit involve, to varying degrees, credit and interest-rate risk in excess of the amount reported in the financial statements. Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit. The same credit policies are used for commitments and conditional obligations as are used for loans. (Continued) F-13 80 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 8 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES (Continued) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being used, the total commitments does not necessarily represent future cash requirements. A summary of unfunded loan commitments follows:
June 30, March 31, ---------- ------------------------- 1997 1997 1996 ---------- ---------- -------- (Unaudited) 30 year fixed rate mortgages $ 310,100 $ 75,000 232,000 20 year fixed rate mortgages - - 139,800 20 year variable rate mortgages - 114,000 - 15 year fixed rate mortgages 70,000 110,000 201,000 10 year fixed rate mortgages - - 97,500 Unused overdraft and home equity lines 1,443,093 1,172,793 563,000
The interest rates on fixed rate commitments ranged from 7.88% to 8.38% at June 30, 1997 (unaudited), 7.50% to 7.88% at March 31, 1997 and 6.88% to 7.75% at March 31, 1996. NOTE 9 - REGULATORY AND CAPITAL MATTERS The Savings Bank is subject to various regulatory capital requirements administered by the federal regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions that, if undertaken, could have a direct material affect on the Savings Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about the Savings Bank's components, risk weightings and other factors. At March 31, 1997 and March 31, 1996, management believes the Savings Bank is in compliance with all regulatory capital requirements. Based on the Savings Bank's computed regulatory capital ratios, the Savings Bank is considered well capitalized under Section 38 of the Federal Deposit Insurance Act at June 30, 1997 (unaudited), March 31, 1997 and March 31, 1996. The minimum requirements are:
Capital to risk- weighted assets Tier 1 (core) --------------- capital to adjusted Total Tier 1 (core) total assets ----- ------------- ------------ Well capitalized 10% 6% 5% Adequately capitalized 8% 4% 3% Undercapitalized 6% 3% 3%
(Continued) F-14 81 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 9 - REGULATORY AND CAPITAL MATTERS (Continued) At June 30, 1997 (unaudited), March 31, 1997 and March 31, 1996, the Savings Bank's actual capital levels (in thousands) and minimum required levels were:
Minimum Required To Be Minimum Required Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Regulations ----------------- ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- JUNE 30, 1997 (UNAUDITED) Total capital (to risk-weighted assets) $5,638 25.5% $1,768 8.0% $2,210 10.0% Tier 1 (core) capital (to risk-weighted assets) 5,511 24.9 884 4.0 1,326 6.0% Tier 1 (core) capital (to adjusted total assets) 5,511 11.4 1,454 3.0 2,425 5.0 Tangible capital (to adjusted total assets) 5,511 11.4 727 1.5 N/A MARCH 31, 1997 Total capital (to risk-weighted assets) 5,506 25.8 1,707 8.0 2,133 10.0 Tier 1 (core) capital (to risk-weighted assets) 5,379 25.2 854 4.0 1,280 6.0 Tier 1 (core) capital (to adjusted total assets) 5,379 11.1 1,448 3.0 2,413 5.0 Tangible capital (to adjusted total assets) 5,379 11.1 724 1.5 N/A MARCH 31, 1996 Total capital (to risk-weighted assets) 5,259 26.9 1,565 8.0 1,955 10.0 Tier 1 (core) capital (to risk-weighted assets) 5,161 26.4 782 4.0 1,173 6.0 Tier 1 (core) capital (to adjusted total assets) 5,161 10.5 1,470 3.0 2,457 5.0 Tangible capital (to adjusted total assets) 5,161 10.5 735 1.5 N/A
In addition to certain federal income tax considerations, the Office of Thrift Supervision (OTS) regulations impose limitations on the payment of dividends and other capital distributions by savings associations. Under OTS regulations applicable to converted savings associations, the Savings Bank is not permitted to pay a cash dividend on its common shares if its regulatory capital would, as a result of payment of such dividends, be reduced below the amount required for the Liquidation Account (the account established for the purpose of granting a limited priority claim on the assets of the Savings Bank in the event of complete liquidation to those members of the Savings Bank before the Conversion who maintain a savings account at the Savings Bank after the Conversion), or below applicable regulatory capital requirements prescribed by the OTS. OTS regulations applicable to all savings and loan associations provide that a savings association which immediately prior to, and on a pro forma basis after giving effect to, a proposed capital distribution (including a dividend) has total capital (as defined by OTS regulations) that is equal to or greater than the amount of its capital requirements is generally permitted without OTS approval (but subsequent to 30 days' prior notice to the OTS) to make capital distributions, including dividends, during a calendar year in an amount not to exceed (Continued) F-15 82 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 9 - REGULATORY AND CAPITAL MATTERS (Continued) the greater of (1) 100% of its net earnings to date during the calendar year, plus an amount equal to one-half that which its total capital to assets ratio exceeded its required capital to assets ratio at the beginning of the calendar year, or (2) 75% of its net earnings for the most recent four-quarter period. Savings associations with total capital in excess of the capital requirements that have been notified by the OTS that they are in need of more than normal supervision will be subject to restrictions on dividends. A savings association that fails to meet current minimum capital requirements is prohibited from making any capital distributions without the prior approval of the OTS. The Savings Bank currently meets all of its capital requirements and, unless the OTS determines that the Savings Bank is an institution requiring more than normal supervision, the Savings Bank may pay dividends in accordance with the foregoing provisions of OTS regulations. NOTE 10 - FEDERAL INCOME TAXES The income tax provision for the periods indicated consisted of the following:
Three months ended June 30, Year ended March 31, -------------------------- ------------------------ 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) Current $ 71,136 $ 47,715 $ 107,045 $ 185,365 Deferred (12,636) - (14,295) (8,615) --------- --------- --------- --------- Total income tax provision $ 58,500 $ 47,715 $ 92,750 $ 176,750 ========= ========= ========= =========
The effective income tax rate was different than the statutory federal income tax rate for the following reasons:
Three months ended June 30, Year ended March 31, --------------------------- -------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) Statutory rate 34.0% 34.0% 34.0% 34.0% Nondeductible expense 0.1 0.1 0.4 0.1 Surtax and other (0.9) - (2.3) (1.8) ---- ---- ---- ---- Effective tax rate 33.0% 34.1% 31.9% 32.3% ==== ==== ==== ====
(Continued) F-16 83 \ GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 10 - FEDERAL INCOME TAXES (Continued) The sources of gross deferred tax assets and deferred tax liabilities were comprised of the following:
June 30, March 31, --------- ------------------------- 1997 1997 1996 --------- --------- ---------- (Unaudited) Deferred tax assets: Deferred loan fees and costs $ 26,988 $ 26,179 $ 20,534 Allowance for loan losses 43,153 43,153 33,196 Unrealized loss on securities available for sale - 28,270 2,931 Other 2,869 774 774 --------- --------- --------- 73,010 98,376 57,435 --------- --------- --------- Deferred tax liabilities: Accrued income and expense (45,378) (59,818) (70,859) Accumulated depreciation (92,114) (91,151) (86,788) Special bad debt deduction (74,016) (72,753) (74,016) FHLB stock dividends (67,468) (64,986) (55,738) Unrealized gain on securities available for sale (17,180) - - --------- --------- --------- (296,156) (288,708) (287,401) --------- --------- --------- Net deferred tax liabilities $(223,146) $(190,332) $(229,966) ========= ========= =========
No valuation allowance was recorded against deferred tax assets at June 30, 1997 (unaudited), March 31, 1997 or March 31, 1996. The Corporation, in accordance with SFAS No. 109, has not recorded a deferred tax liability of approximately $183,000 in retained earnings related to approximately $538,000 of cumulative special bad debt deductions arising prior to December 31, 1987, which is the end of the Savings Bank's base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it will be added to future taxable income. NOTE 11 - 401(K) PROFIT SHARING PLAN The Corporation sponsors a tax-qualified defined contribution 401(k) profit sharing plan (the "Plan"), for the benefit of its employees. Employees become eligible to participate under the Plan after age 21 and completing one year of service. Under the Plan, employees may voluntarily elect to defer up to 10% of compensation, not to exceed applicable limits under the Internal Revenue Code. (Continued) F-17 84 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 11 - 401(K) PROFIT SHARING PLAN (Continued) Additionally, the Savings Bank may contribute an annual discretionary contribution to the Plan, not to exceed 10% of compensation. The annual discretionary contribution includes a 50% match up to a certain percentage of employee 401(k) contributions. The percentage of employee 401(k) contributions that is eligible for the match is set annually by the board of directors and was 6% for 1997 and 1996. Employer contributions shall be 100% vested following completion of six years of service. Employee contributions are always 100% vested. Compensation expense related to the Plan for the three months ended June 30, 1997 and 1996 (unaudited) was $6,900 and $6,000, respectively. Compensation expense related to the Plan for the years ended March 31, 1997 and 1996 was approximately $30,000 and $24,000, respectively. NOTE 12 - MANAGEMENT STOCK BONUS PLANS The Savings Bank has two Management Stock Bonus Plans (collectively, the "MSBP") The objective of the MSBP is to enable the Savings Bank to retain personnel of experience and ability in key positions of responsibility. All employees and directors of the Savings Bank are eligible to receive benefits under the MSBP. Benefits to employees may be granted at the sole discretion of a committee appointed by the Board of Directors of the Corporation and the MSBP provides for automatic grants to nonemployee directors. The MSBP is managed by trustees who are nonemployee directors of the Corporation and who have the responsibility to invest all funds contributed by the Savings Bank to the trusts created for the MSBP. At the time of the stock conversion, the MSBP purchased 12,335 shares of the Corporation's stock for $123,350. Of these shares, 11,896 shares were granted in the form of restricted stock payable over a five-year period at the rate of one-fifth of such shares per year following the date of grant of the award. Compensation expense in the amount of the fair market value of the common stock at the date of the grant to the employee or director will be recognized pro rata over the five years during which the shares are payable. Compensation expense related to the plan was $6,167 and $6,168 for the three months ended June 30, 1997 (unaudited) and 1996 (unaudited), respectively, and $24,670 for the years ending March 31, 1997 and 1996, respectively. A recipient of such restricted stock will be entitled to all voting and other stockholder rights, except that the shares, while restricted, may not be sold, pledged or otherwise disposed of and are required to be held in escrow. If a holder of such restricted stock terminates employment or directorship for reasons other than death, disability, a change in control or imminent change in control or, in the case of nonemployee directors, retirement after at least 10 years of service as a director, the recipient forfeits all rights to the allocated shares under restriction. If the participant's service terminates as a result of death, disability, or a change in control or imminent change in control of the Savings Bank or, in the case of nonemployee directors, retirement after at least 10 years of service as a director, all restrictions expire and all shares allocated become unrestricted. The Board of Directors can terminate the MSBP at any time, and if it does so, any shares not allocated will revert to the Corporation. (Continued) F-18 85 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 13 - STOCK OPTION PLAN In connection with the stock conversion, the Corporation's Board of Directors adopted the 1993 Stock Option Plan (the "Option Plan"). Pursuant to the Option Plan, 30,837 shares of common stock are reserved for issuance by the Corporation upon exercise of stock options granted to officers, directors and employees of the Corporation from time to time under the Option Plan. The purpose of the Option Plan is to provide additional incentive to certain officers, directors and key employees by facilitating their purchase of a stock interest in the Corporation. The Option Plan provides for a term of ten years, after which no awards may be made, unless earlier terminated by the Board of Directors pursuant to the Option Plan. The Option Plan is administered by a committee of at least three nonemployee directors designated by the Board of Directors (the "Option Committee"). The Option Committee selects the employees to whom options are to be granted and the number of shares to be granted. The Option Plan provides for automatic grants to nonemployee directors. The option price may not be less than 100% of the fair market value of the shares on the date of the grant, and no option shall be exercisable after the expiration of ten years from the grant date. In the case of any employee who owns more than 10% of the outstanding common stock at the time the option is granted, the option price may not be less than 110% of the fair market value of the shares on the date of the grant, and the option shall not be exercisable after the expiration of five years from the grant date. The exercise price may be paid in cash, shares of the common stock, or a combination of both. As of the date of conversion, the Option Committee granted options on 27,747 shares of common stock, at an exercise price of $10 per share. One-third of the granted options became exercisable on January 19, 1995; two-thirds of the granted options became exercisable on September 17, 1995 and each option was exercisable in full on September 17, 1996. The options expire on September 16, 2003. No options have been exercised through June 30, 1997 (unaudited). NOTE 14 - EMPLOYMENT AGREEMENTS The Savings Bank has entered into employment agreements with certain officers of the Savings Bank. In general, the agreements provide that if the Savings Bank terminates the employee for reasons other than "just cause" as defined in the agreement, the employee will be entitled to a continuation of his current salary from the date of termination for a period of eighteen months thereafter. The employment agreements also contain provisions stating that in the event of termination of employment in connection with, or within one year after, any change in control of the Savings Bank, the employee will be paid in a lump sum an amount equal to 2.99 times the employee's average compensation received during the prior five calendar years. The aggregate amount if payments were to be made in accordance with such provisions at June 30, 1997 (unaudited) and March 31, 1997, would have been approximately $424,000. (Continued) F-19 86 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION BALANCE SHEETS
June 30, March 31, ----------- ----------------------------- 1997 1997 1996 ----------- ----------- ----------- (Unaudited) ASSETS Investment in subsidiary $ 5,544,581 $ 5,330,854 $ 5,155,217 Cash and cash equivalents 1,023,383 1,076,419 1,170,361 Accrued interest receivable 1,674 1,848 1,823 Other assets 12,500 -- -- ----------- ----------- ----------- Total assets $ 6,582,138 $ 6,409,121 $ 6,327,401 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accrued liabilities $ 4,702 $ 9,857 $ 11,703 Common stock 3,084 3,084 3,084 Additional paid-in capital 2,799,640 2,799,640 2,792,445 Retained earnings 3,988,255 3,810,083 3,733,712 Treasury stock (213,543) (213,543) (213,543) ----------- ----------- ----------- Total liabilities and stockholders' equity $ 6,582,138 $ 6,409,121 $ 6,327,401 =========== =========== ===========
STATEMENTS OF INCOME
For the three months ended June 30, For the year ended March 31, ----------------------------------- ---------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- INCOME (Unaudited) Equity in earnings of subsidiary $ 119,334 $ 92,683 $ 192,958 $ 367,713 Interest income 7,792 8,827 33,666 38,490 --------- --------- --------- --------- Total income 127,126 101,510 226,624 406,203 --------- --------- --------- --------- EXPENSES Outside services 6,475 5,100 18,095 22,000 State franchise taxes 1,551 1,233 4,932 4,932 Other 666 2,990 3,684 6,439 --------- --------- --------- --------- Total expenses 8,692 9,323 26,711 33,371 --------- --------- --------- --------- NET INCOME BEFORE INCOME TAXES 118,434 92,187 199,913 372,832 Income tax benefit/(provision) 500 175 (2,350) (1,750) --------- --------- --------- --------- NET INCOME $ 118,934 $ 92,362 $ 197,563 $ 371,082 ========= ========= ========= =========
(Continued) F-20 87 GF BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996 (unaudited) and March 31, 1997 and 1996 NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION (Continued) STATEMENTS OF CASH FLOWS
For the three months ended June 30, For the year ended March 31, ----------------------------------- ---------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) Net income $ 118,934 $ 92,362 $ 197,563 $ 371,082 Adjustments to reconcile net income to net cash provided by operating activities Equity in undistributed earnings of subsidiary (119,334) (92,683) (192,958) (367,713) Net change in accrued interest receivable 174 (54) (25) (520) Net change in other assets (12,500) - - - Net change in accrued liabilities (5,155) (4,449) (1,846) 4,532 ----------- ----------- ----------- ----------- Net cash flows provided from operating (17,881) (4,824) 2,734 7,381 ----------- ----------- ----------- ----------- activities CASH FLOWS FROM FINANCING ACTIVITIES Purchase of treasury stock - - - (213,543) Dividends paid (35,155) (20,507) (96,676) (84,187) ----------- ----------- ----------- ----------- Net cash flows from financing activities (35,155) (20,507) (96,676) (297,730) ----------- ----------- ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (53,036) (25,331) (93,942) (290,349) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,076,419 1,170,361 1,170,361 1,460,710 ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,023,383 $ 1,145,030 $ 1,076,419 $ 1,170,361 =========== =========== =========== ===========
(Continued) F-21 88 APPENDIX A AGREEMENT OF MERGER AND PLAN OF REORGANIZATION THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (hereinafter referred to as the "AGREEMENT") is made and entered into this 28 day of July, 1997, by and among Camco Financial Corporation, a Delaware corporation (hereinafter referred to as "CAMCO"); First Federal Savings Bank of Washington Court House, a savings bank organized under the laws of the United States (hereinafter referred to as "FIRST FEDERAL"); GF Bancorp, Inc., a Delaware corporation (hereinafter referred to as "GFBC"); and Germantown Federal Savings Bank, a savings bank organized under the laws of the United States (hereinafter referred to as "GERMANTOWN"); WITNESSETH: WHEREAS, the authorized capital of CAMCO consists of 4,900,000 shares of common stock, par value One Dollar ($1.00) per share (hereinafter referred to as the "CAMCO SHARES"), 3,214,193 of which are issued and outstanding and 235,828 of which are reserved for issuance upon the exercise of outstanding stock options, and 100,000 preferred shares, par value One Dollar ($1.00) per share, none of which is issued or outstanding; WHEREAS, the authorized capital of FIRST FEDERAL consists of 500,000 common shares, par value One Dollar ($1.00) per share, 180,000 of which are issued and outstanding and are owned of record by CAMCO and 500,000 preferred shares, par value One Dollar ($1.00) per share, none of which is issued or outstanding; WHEREAS, the authorized capital of GFBC consists of 1,250,000 common shares, par value One Cent ($0.01) per share, 292,958 of which are issued and outstanding and held of record by approximately 170 shareholders (hereinafter referred to as the "GFBC SHARES"), and 27,747 of which are reserved for issuance upon the exercise of outstanding stock options (hereinafter referred to as the "GFBC OPTIONS"), and 250,000 preferred shares, par value One Cent ($0.01) per share, none of which is issued or outstanding; WHEREAS, the authorized capital of GERMANTOWN consists of 1,250,000 common shares, par value One Cent ($0.01) per share, 100,000 of which are issued and outstanding and are owned of record by GFBC and 250,000 preferred shares, par value One Cent ($0.01) per share, none of which is issued or outstanding; and WHEREAS, the Boards of Directors of CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN believe that the merger of GFBC with and into CAMCO, followed by the merger of GERMANTOWN with and into FIRST FEDERAL is in the best interest of each party and its respective shareholders; A-1 89 NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN, each intending to be legally bound, hereby agree as follows: ARTICLE ONE THE MERGERS SECTION 1.01. MERGER OF CAMCO AND GFBC. Subject to the terms and conditions of this AGREEMENT, and pursuant to the provisions of the Delaware General Corporation Law (hereinafter referred to as the "DGCL"), the Home Owners Loan Act ("HOLA") and the rules and regulations promulgated thereunder (the "THRIFT REGULATIONS"), GFBC shall merge with and into CAMCO (hereinafter referred to as the "COMPANY MERGER") at the COMPANY EFFECTIVE TIME (hereinafter defined). CAMCO shall be the continuing, surviving and resulting corporation in the COMPANY MERGER and shall continue to exist as a Delaware corporation. CAMCO shall be the only one of CAMCO and GFBC to continue its separate corporate existence after the COMPANY EFFECTIVE TIME. The name of the continuing, surviving and resulting corporation shall remain "Camco Financial Corporation". From and after the COMPANY MERGER, CAMCO, as the surviving corporation, shall possess all assets and property of every description, and every interest in the assets and property, wherever located, and the rights, privileges, immunities, powers, franchises and authority, of a public as well as a private nature, of CAMCO and GFBC and all obligations belonging or due to each of them. SECTION 1.02. MERGER OF FIRST FEDERAL AND GERMANTOWN. Subject to the terms and conditions of this AGREEMENT, and pursuant to the provisions of the HOLA and the THRIFT REGULATIONS, GERMANTOWN shall merge with and into FIRST FEDERAL (hereinafter referred to as the "BANK MERGER") at the BANK EFFECTIVE TIME (hereinafter defined). FIRST FEDERAL shall be the continuing, surviving and resulting corporation in the BANK MERGER and shall continue to exist as a savings and loan association incorporated under the HOLA. FIRST FEDERAL shall be the only one of FIRST FEDERAL and GERMANTOWN to continue its separate corporate existence after the BANK EFFECTIVE TIME. SECTION 1.03. EXECUTION OF AGREEMENT OF MERGER. FIRST FEDERAL and GERMANTOWN shall duly execute and deliver a merger agreement in the form of the Merger Agreement attached hereto as Exhibit A (hereinafter referred to as the "BANK MERGER AGREEMENT"). SECTION 1.04. CLOSINGS. (a) The closing of the COMPANY MERGER pursuant to this AGREEMENT (hereinafter referred to as the "COMPANY CLOSING") shall take place at a date and time selected by CAMCO as soon as practicable after the satisfaction or waiver of the last of the conditions to the COMPANY MERGER set forth in Article Seven of this AGREEMENT to be satisfied, which date shall not be later than 30 days after such satisfaction or waiver. A-2 90 (b) On the day of the COMPANY CLOSING, CAMCO and GFBC shall cause a Certificate of Merger in respect of the COMPANY MERGER to be filed in the Office of the Delaware Secretary of State in accordance with Title 8, Chapter 1, Subchapter IX, Section 251 of the Delaware Code. The COMPANY MERGER shall become effective at the date and time indicated on such filing made with the Delaware Secretary of State (hereinafter referred to as the "COMPANY EFFECTIVE TIME"). (c) The closing of the BANK MERGER pursuant to this AGREEMENT and the BANK MERGER AGREEMENT (hereinafter referred to as the "BANK CLOSING") shall take place at a date and time selected by CAMCO after the COMPANY EFFECTIVE TIME. (d) FIRST FEDERAL and GERMANTOWN shall cause Articles of Combination in respect of the BANK MERGER to be filed with the Office of Thrift Supervision (hereinafter referred to as the "OTS") in accordance with the THRIFT REGULATIONS. The BANK MERGER shall become effective at the date specified in the BANK MERGER AGREEMENT and the endorsement of the Articles of Combination (herein referred to as the "BANK EFFECTIVE TIME"), which date and time shall be after the COMPANY EFFECTIVE TIME. SECTION 1.05. ADOPTION BY SHAREHOLDERS. (a) This AGREEMENT shall be submitted for consideration and adoption by the shareholders of GFBC entitled to vote at an annual meeting of shareholders or a special meeting of shareholders called for such purpose to be held at a time, date and place to be determined by the Board of Directors of GFBC, subject to applicable laws and regulations. (b) This AGREEMENT and the BANK MERGER AGREEMENT shall be considered and adopted by CAMCO, as the sole shareholder of FIRST FEDERAL, and by GFBC, as the sole shareholder of GERMANTOWN. SECTION 1.06. REGULATORY FILINGS. (a) CAMCO shall prepare and cause to be filed with the OTS, such applications, notices or other instruments as may be required for approval of the COMPANY MERGER and the BANK MERGER (hereinafter referred to collectively as the "REGULATORY APPLICATIONS"). (b) CAMCO shall prepare and cause to be filed with the Securities and Exchange Commission (hereinafter referred to as the "SEC") a registration statement on Form S-4, or such other form as may be required by the SEC (hereinafter referred to as the "REGISTRATION STATEMENT"), to register under the Securities Act of 1933 the CAMCO SHARES to be issued to shareholders of GFBC in the COMPANY MERGER as provided in Section 2.01 of this AGREEMENT. SECTION 1.07. CERTIFICATE OF INCORPORATION AND BYLAWS OF CAMCO AS THE SURVIVING CORPORATION. The Certificate of Incorporation and Bylaws of Camco Financial Corporation, as in effect immediately prior to the COMPANY EFFECTIVE TIME, shall be the A-3 91 Certificate of Incorporation and Bylaws of the surviving corporation of the COMPANY MERGER, until either is thereafter amended in accordance with applicable law. ARTICLE TWO CONVERSION AND CANCELLATION OF GFBC SHARES SECTION 2.01. CONVERSION AND CANCELLATION OF GFBC SHARES. At the COMPANY EFFECTIVE TIME and as a result of the COMPANY MERGER, automatically and without further act of CAMCO, FIRST FEDERAL, GFBC, GERMANTOWN or the holders of CAMCO SHARES or GFBC SHARES, the following shall occur: (a) Each GFBC SHARE shall be cancelled and extinguished and, in substitution and exchange therefor, the holders thereof shall be entitled, subject to and upon compliance with Section 2.03 of this AGREEMENT, to receive from CAMCO 1.616 CAMCO SHARES, subject to possible adjustment as set forth below (the "EXCHANGE RATIO"). (i) If the AVERAGE CLOSING PRICE (as hereinafter defined) of CAMCO SHARES is greater than $20.99 or is less than $15.51, the EXCHANGE RATIO shall be adjusted to become the product of multiplying 1.616 by a fraction, the numerator of which is $20.99 if the AVERAGE CLOSING PRICE is greater than $20.99, and $15.51 if the AVERAGE CLOSING PRICE is less than $15.51 and the denominator of which is the AVERAGE CLOSING PRICE. The AVERAGE CLOSING PRICE shall be the mean of the average of the daily closing bid and asked prices of CAMCO SHARES as reported on The Nasdaq National Market System (as reported by a mutually agreed upon authoritative source) for the twenty most recent trading days ending at the close of trading on the date three days prior to the COMPANY CLOSING. (ii) The EXCHANGE RATIO shall be adjusted to reflect any stock split, stock dividend or distributions in, or combinations or subdivisions of, CAMCO SHARES, between the date hereof and the COMPANY EFFECTIVE TIME. (iii) No fractional shares will be issued, and cash will be paid in lieu of fractional shares based on the AVERAGE CLOSING PRICE. No interest shall be payable with respect to such cash payment. (b) CAMCO SHARES issued and outstanding before the COMPANY EFFECTIVE TIME shall remain issued and outstanding after the COMPANY EFFECTIVE TIME. A-4 92 (c) Any treasury shares held by GFBC and any GFBC SHARES owned by CAMCO for its own account shall be cancelled and retired at the COMPANY EFFECTIVE TIME and no consideration shall be issued in exchange therefor. SECTION 2.02. GFBC OPTIONS. (a) At the COMPANY EFFECTIVE TIME, the GF Bancorp, Inc. Stock Option Plan (the "OPTION PLAN") and GFBC OPTIONS not yet exercised at such time, representing a right to purchase not more than 27,747 GFBC SHARES, shall be assumed by CAMCO. No option to purchase GFBC SHARES granted on or after July 9, 1997 shall be valid in any respect. The number of CAMCO SHARES to be issued upon the exercise of a GFBC OPTION which is exercised after the COMPANY EFFECTIVE TIME shall be equal to the number of GFBC SHARES subject to such GFBC OPTIONS immediately prior to the date of the COMPANY CLOSING multiplied by the EXCHANGE RATIO (with the product rounded down to the next whole share), and the per share exercise price shall be adjusted by dividing the per share exercise price under each such GFBC OPTION by the EXCHANGE RATIO (with the quotient rounded up to the next whole cent). CAMCO and its Compensation Committee shall be substituted for GFBC and the Committee of the GFBC Board of Directors administering the OPTION PLAN. Each GFBC OPTION shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, dividends payable in stock, recapitalization or other similar transaction subsequent to the COMPANY EFFECTIVE TIME. (b) The CAMCO SHARES covered by the GFBC OPTIONS to be issued pursuant to Section 2.02(a) shall be covered by a registration statement filed with the SEC and effective at the COMPANY EFFECTIVE TIME, and CAMCO shall take all actions necessary to maintain the effectiveness of such registration statement until all GFBC OPTIONS have been exercised or terminated. When CAMCO SHARES are issued upon the exercise of GFBC OPTIONS, such CAMCO SHARES shall be duly authorized, validly issued, fully paid and non-assessable and not subject to or in violation of any preemptive rights. CAMCO shall reserve sufficient CAMCO SHARES for issuance with respect to such options. CAMCO shall also take any reasonable action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares. (c) Except as provided in this Section 2.02, all other terms and conditions of the OPTION PLAN and award grants thereunder shall remain as now existing. (d) In respect of any stock option which is an "Incentive Stock Option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (hereinafter referred to as the "CODE"), the conversion hereby provided for shall comply with the requirements of Section 424(a) of the CODE, including the requirement that such converted options shall not give to the holder thereof any benefits additional to those which such holder had prior to such conversion under the option as originally granted. It is intended that the foregoing A-5 93 assumption shall be undertaken in a manner that will not constitute a "modification" as defined in Section 424(h) of the CODE as to any stock option which is an "Incentive Stock Option". (e) Any holder of any GFBC OPTION may exercise such options at any time, prior to the date of the COMPANY CLOSING as provided in the OPTION PLAN. SECTION 2.03. SHARE CERTIFICATES IN THE COMPANY MERGER. (a) As soon as practicable after the COMPANY EFFECTIVE TIME, CAMCO shall mail to each holder of record of GFBC SHARES a form letter of transmittal and instructions for use in effecting the surrender for exchange of the certificates formerly evidencing the GFBC SHARES cancelled and extinguished as a result of the COMPANY MERGER (hereinafter referred to collectively as the "CERTIFICATES" and individually as the "CERTIFICATE"). Such letter of transmittal shall specify that the risk of loss and title to CERTIFICATES shall pass only upon delivery of such certificates as specified in the Letter of Transmittal. Upon surrender of a CERTIFICATE for cancellation, together with such letter of transmittal, duly executed, the holder of such CERTIFICATE shall be entitled to receive in exchange therefor the consideration to which the holder is entitled in accordance with the provisions of this AGREEMENT, and the CERTIFICATE so surrendered shall thereafter be cancelled forthwith. CAMCO may, at its election, designate an exchange agent to discharge its duties pursuant to this Section 2.03. (b) In the event that any holder of GFBC SHARES cancelled and extinguished in accordance with this AGREEMENT is unable to deliver the CERTIFICATE which evidences such GFBC SHARES, CAMCO, in the absence of actual notice that any GFBC SHARES theretofore evidenced by any such CERTIFICATE have been acquired by a bona fide purchaser, shall deliver to such holder the consideration to which such holder is entitled in accordance with the provisions of this AGREEMENT upon the presentation of all of the following: (i) Evidence to the reasonable satisfaction of CAMCO that any such CERTIFICATE has been lost, wrongfully taken or destroyed; (ii) Such security or indemnity as may be reasonably requested by CAMCO to indemnify and hold CAMCO harmless; and (iii) Evidence to the reasonable satisfaction of CAMCO that such person is the owner of the GFBC SHARES theretofore represented by each CERTIFICATE claimed by him to be lost, wrongfully taken or destroyed and that he is the person who would be entitled to present each such CERTIFICATE for exchange pursuant to this AGREEMENT. (c) In the event that delivery of the consideration provided for herein is to be made to a person other than the person in whose name the CERTIFICATE surrendered is registered, the CERTIFICATE so surrendered shall be properly endorsed or otherwise in proper form for transfer and the person requesting such issuance or payment shall pay any transfer or A-6 94 other taxes required by reason of the issuance or payment to a person other than the registered holder of the CERTIFICATE surrendered or establish to the satisfaction of CAMCO that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 2.03, each CERTIFICATE shall represent for all purposes only the right to receive the number of CAMCO SHARES determined pursuant to this AGREEMENT. (d) No dividends or other distributions declared after the COMPANY EFFECTIVE TIME with respect to CAMCO SHARES and payable to the holders of record thereof after the COMPANY EFFECTIVE TIME shall be paid to the holder of any unsurrendered CERTIFICATE until the holder thereof shall surrender such CERTIFICATE. Subject to the effect, if any, of applicable law, after the subsequent surrender and exchange of a CERTIFICATE, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to the CAMCO SHARES represented by such CERTIFICATE. (e) No CAMCO SHARES or payment in lieu of fractional shares shall be delivered by CAMCO to any former holder of GFBC SHARES in accordance with this AGREEMENT until such holder shall have complied with this Section 2.03. SECTION 2.04. PAYMENT IN SATISFACTION OF RIGHTS. All payments made upon the surrender of CERTIFICATES pursuant to this Article Two shall be deemed to have been made in full satisfaction of all rights pertaining to the shares evidenced by such CERTIFICATES. SECTION 2.05. NO FURTHER REGISTRATION OR TRANSFER. After the COMPANY EFFECTIVE TIME, there shall be no further registration or transfer of GFBC SHARES on the stock transfer books of GFBC. In the event that, after the COMPANY EFFECTIVE TIME, CERTIFICATES evidencing such GFBC SHARES are presented for transfer, they shall be cancelled and exchanged as provided in this Article Two. SECTION 2.06. DISSENTING SHARES. Any GFBC SHARES held by a holder who dissents from the COMPANY MERGER in accordance with Section 262 of the DGCL (hereinafter referred to as "DISSENTING SHARES"), notwithstanding any other provisions of this AGREEMENT, shall not, after the COMPANY EFFECTIVE TIME, be entitled to vote for any purpose or to receive any dividends or other distribution and shall be entitled only to such rights as are afforded in respect of DISSENTING SHARES pursuant to the DGCL. ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF GFBC AND GERMANTOWN GFBC and GERMANTOWN represent and warrant to CAMCO and FIRST FEDERAL that each of the following statements is true and accurate in all material respects, except as otherwise disclosed in a schedule provided by GFBC and GERMANTOWN to A-7 95 CAMCO prior to the execution of this AGREEMENT (hereinafter referred to as the "GFBC DISCLOSURE SCHEDULE"): SECTION 3.01. ORGANIZATION AND STANDING. (a) GFBC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own or hold under lease all of its properties and assets and to conduct its business and operations as presently conducted. GFBC is registered as a savings and loan holding company under the HOLA. GFBC is in compliance in all material respects with all applicable local, state or federal laws and regulations, including without limitation, the THRIFT REGULATIONS. (b) GERMANTOWN is a savings association duly organized and validly existing under the laws of the United States and has the corporate power and authority to own or hold under lease all of its properties and assets and to conduct its business and operations as presently conducted. GERMANTOWN is a member of the Federal Home Loan Bank of Cincinnati (hereinafter referred to as the "FHLB"). The deposit accounts of GERMANTOWN are insured up to applicable limits by the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation (the "FDIC") (hereinafter referred to as the "SAIF"). GERMANTOWN is in compliance in all material respects with all applicable local, state or federal laws and regulations, including, without limitation, the regulations of the FDIC and THRIFT REGULATIONS, except to the extent that failure to be in compliance would not have a material adverse effect on GFBC and GERMANTOWN taken as a whole. GERMANTOWN is a "domestic building and loan association" as defined in Section 7701a(19) of the CODE and a "qualified thrift lender" as defined in 12 U.S.C. 1467(a)(m) and the THRIFT REGULATIONS. SECTION 3.02. QUALIFICATION. GFBC and GERMANTOWN are each either duly qualified to do business and in good standing in each jurisdiction in which such qualification is required or the failure to so qualify would not have a material adverse effect on the business of GFBC or GERMANTOWN. SECTION 3.03. AUTHORITY OF GFBC AND GERMANTOWN. This AGREEMENT has been duly executed and delivered by GFBC and GERMANTOWN. The BANK MERGER AGREEMENT has been duly executed and delivered by GERMANTOWN. Subject to the adoption of this AGREEMENT by the GFBC shareholders, to the adoption of this AGREEMENT and the BANK MERGER AGREEMENT by GFBC as the sole shareholder of GERMANTOWN, and to the filing of all requisite regulatory notices and the receipt of all requisite regulatory approvals, (a) GFBC has all requisite corporate power and authority to enter into this AGREEMENT and to perform all of its obligations hereunder; (b) GERMANTOWN has all requisite corporate power and authority to enter into this AGREEMENT and the BANK MERGER AGREEMENT and to perform all of its obligations hereunder and thereunder; (c) the execution and delivery of this AGREEMENT and the BANK MERGER AGREEMENT and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action by GFBC and GERMANTOWN; and (d) subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors' rights generally, and the effect of rules of law A-8 96 governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents, and except to the extent such enforceability may be limited by laws relating to safety and soundness of insured depository institutions as set forth in 12 U.S.C. section 1818(b) or by the appointment of a conservator by the FDIC, (i) this AGREEMENT is the valid and binding agreement of GFBC, enforceable against GFBC in accordance with its terms, and (ii) this AGREEMENT and the BANK MERGER AGREEMENT are the valid and binding agreements of GERMANTOWN, enforceable against GERMANTOWN in accordance with their terms. SECTION 3.04. GOVERNING DOCUMENTS. GFBC has made available, or will promptly make available, to CAMCO true and accurate copies of its Certificate of Incorporation and Bylaws and has granted CAMCO access to all records of all meetings and other corporate actions occurring before the COMPANY EFFECTIVE TIME by the shareholders, Board of Directors and Committees of the Board of Directors of GFBC. GERMANTOWN has made available, or will promptly make available, to CAMCO true and accurate copies of its Charter and Bylaws and has granted or will grant to CAMCO access to all records of all meetings and other corporate actions occurring before the COMPANY EFFECTIVE TIME by the shareholders, Board of Directors and Committees of the Board of Directors of GERMANTOWN. The minute books of GFBC and GERMANTOWN contain, in all material respects, complete and accurate records of all meetings and other corporate actions of their shareholders, Boards of Directors and Committees of the Boards of Directors, except for minutes of meetings held after July 1, 1997 which are not yet in the minute books. SECTION 3.05. NO CONFLICTS. The execution and delivery of this AGREEMENT and, subject to the adoption of this AGREEMENT by the shareholders of GFBC and to the regulatory filings and approvals referenced in Section 1.06 of this AGREEMENT, the consummation of the transactions contemplated hereby will not (a) conflict with or violate any provision of or result in the breach of any provision of the Certificate of Incorporation or Bylaws of GFBC or the Charter or Bylaws of GERMANTOWN; (b) conflict with or violate any provision of or result in the breach or the acceleration of or entitle any party to accelerate (whether upon or after the giving of notice or lapse of time or both) any obligation under, or otherwise materially affect the terms of, any mortgage, lien, lease, agreement, license, instrument, order, arbitration award, judgment or decree to which GFBC or GERMANTOWN is a party or by which GFBC or GERMANTOWN or their property or assets is bound; (c) require the consent of any party to any agreement or commitment to which GFBC or GERMANTOWN is a party or by which GFBC or GERMANTOWN or their property or assets is bound, the failure to obtain which could, individually or in the aggregate with all the other failures to obtain required consents, have a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of GFBC or GERMANTOWN; (d) result in the creation or imposition of any lien, charge, pledge, security interest or other encumbrance upon any property or assets of GFBC or GERMANTOWN; or (e) violate or conflict with any applicable law, ordinance, rule or regulation, including, without limitation, the rules and regulations of the OTS or the FDIC. SECTION 3.06. CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with A-9 97 the execution and delivery of this AGREEMENT by GFBC or GERMANTOWN or the consummation by GFBC or GERMANTOWN of the transactions contemplated hereby, except for the filings, authorizations consents or approvals referenced in Sections 1.04, 1.05 and 1.06 of this AGREEMENT. SECTION 3.07. CAPITALIZATION. (a) The authorized capital of GFBC consists solely of (i) 1,250,000 common shares, One Cent ($0.01) par value per share, 292,958 of which are issued and outstanding and held of record by approximately 170 shareholders and 27,747 of which are reserved for issuance upon the exercise of GFBC OPTIONS (all at the option exercise price of $10.00 per share) and (ii) 250,000 preferred shares, One Cent ($0.01) par value, none of which is issued or outstanding. All of the outstanding GFBC SHARES are duly authorized, validly issued, fully paid and nonassessable, were issued in full compliance with all applicable laws and regulations, and were not issued in violation of the preemptive right of any shareholder of GFBC. Upon the exercise of the GFBC OPTIONS prior to the date of the COMPANY CLOSING, the GFBC SHARES to be issued in connection with the exercise of such GFBC OPTIONS will be duly authorized, validly issued, fully paid and nonassessable, will be issued in full compliance with all applicable laws and regulations, and will not be issued in violation of the preemptive right of any shareholder of GFBC. Except for the GFBC OPTIONS, each of which is identified by type (e.g. incentive stock options or non-qualified stock options), name of recipient, award date, expiration date, number of shares and exercise price per share in Section 3.07 of the GFBC DISCLOSURE SCHEDULE, there are no outstanding subscription rights, options, conversion rights, warrants or other agreements or commitments of any nature whatsoever (either firm or conditional) obligating GFBC to issue, deliver or sell, cause to be issued, delivered or sold, or restricting GFBC from selling any additional GFBC SHARES, or obligating GFBC to grant, extend or enter into any such agreement or commitment. (b) The authorized capital of GERMANTOWN consists of 1,250,000 common shares, par value One Cent ($0.01) per share, 100,000 of which are issued and outstanding and held of record by GFBC and 250,000 preferred shares, par value One Cent ($0.01) per share, none of which is issued or outstanding. All of the outstanding common shares of GERMANTOWN are duly authorized, validly issued, fully paid and nonassessable, were issued in full compliance with all applicable laws and regulations, and were not issued in violation of the preemptive right of any shareholder of GERMANTOWN. There are no outstanding subscription rights, options, conversion rights, warrants or other agreements or commitments of any nature whatsoever (either firm or conditional) obligating GERMANTOWN to issue, deliver or sell, or to cause to be issued, delivered or sold, any additional GERMANTOWN SHARES. SECTION 3.08. SEC REPORTS. GFBC has delivered or made available to CAMCO copies of the following documents, each of which has been filed with the SEC (hereinafter referred to as the "GFBC SEC FILINGS"): (a) The Annual Report on Form 10-KSB filed by GFBC with the SEC for each of the fiscal years ended March 31, 1996, 1995 and 1994; A-10 98 (b) The Annual Report to Shareholders for each of the fiscal years ended March 31, 1996, 1995 and 1994; and (c) The Proxy Statement for use in connection with each of the 1996, 1995 and 1994 Annual Meetings of Shareholders. The GFBC SEC FILINGS did not, as of the dates on which such reports were filed with the SEC, contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. GFBC has also delivered to CAMCO copies of the 1997 Annual Report to Stockholders and Proxy Statement for use in connection with the 1997 annual meeting of shareholders (not filed with the SEC) which did not, as of the date on which said documents were delivered to CAMCO, contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. GFBC has filed a Form 15, effective September 18, 1996, with the SEC deregistering the GFBC SHARES under Section 12(g) of the Securities Exchange Act of 1934 (hereinafter referred to as the "1934 ACT"). Since September 18, 1996, GFBC has not been required to make any filings with the SEC pursuant to Section 13 or 15(d) of the 1934 ACT, except a Post-Effective Amendment to Form S-8.. SECTION 3.09. FINANCIAL STATEMENTS. (a) The consolidated statement of financial condition of GFBC as of March 31, 1997, and the related statements of income, stockholders' equity and cash flows for the year ended March 31, 1997, audited and reported upon by Crowe Chizek and Company, certified public accountants (hereinafter referred to as "CROWE") and the consolidated statement of financial condition of GFBC as of March 31, 1996 and the related statements of income, stockholders' equity and cash flows for each of the two years ended March 31, 1996 and 1995, audited and reported upon by Arthur Andersen, L.L.P., complete copies of which have previously been delivered to CAMCO (hereinafter referred to as the "GFBC AUDITED FINANCIALS"), have been prepared in conformity with generally accepted accounting principles (hereinafter referred to as "GAAP") applied on a consistent basis and fairly present the financial position of GFBC at such dates and the results of its operations and cash flows for such periods. (b) Except as disclosed in the GFBC AUDITED FINANCIALS, as of March 31, 1997, GFBC had no liabilities or obligations material to the business condition (financial or otherwise) of GFBC and its consolidated subsidiaries taken as a whole, whether accrued, absolute, contingent or otherwise, and whether due or to become due. (c) The GFBC AUDITED FINANCIALS did not, as of the dates thereof, contain any untrue statement of a material fact or omit to state any material fact necessary A-11 99 to make the information contained therein, in light of the circumstances under which they were made, not misleading. SECTION 3.10. ABSENCE OF MATERIAL ADVERSE CHANGE: CONDUCT OF BUSINESS. Since March 31, 1997, there have been no material adverse changes in the financial condition, assets, liabilities, obligations, properties, business or prospects of GFBC or GERMANTOWN, taken as a whole; GFBC and GERMANTOWN have conducted business only in the ordinary and usual course; and GFBC and GERMANTOWN have not: (a) Authorized the creation or issuance of, issued, sold or disposed of, or created any obligation to issue, sell or dispose of, any stock, notes, bonds or other securities, or any obligation convertible into or exchangeable for, any shares of their capital stock; (b) Declared, set aside, paid or made any dividend or other distributions on their capital stock or directly or indirectly redeemed, purchased or acquired any shares thereof or entered into any agreement in respect of the foregoing; except a cash dividend paid by GFBC on May 15, 1997 in the amount of $0.12 per share; (c) Effected any stock split, recapitalization, combination, exchange of shares, readjustment or other reclassification; (d) Amended their Certificate of Incorporation, Charter or Bylaws; (e) Purchased, sold, assigned or transferred any material tangible asset or any material patent, trademark, trade name, copyright, license, franchise, design or other intangible asset or property; (f) Mortgaged, pledged or granted or suffered to exist any lien or other encumbrance or charge on any assets or properties, tangible or intangible, except for liens for taxes not yet due and payable and such other liens, encumbrances or charges which do not materially adversely affect their financial position; (g) Cancelled any material debts or waived any material claims other than for adequate consideration; (h) Incurred any material obligation or liability (absolute or contingent), including, without limitation, any tax liability or any liability for borrowings from the FHLB, or paid any material liability or obligation (absolute or contingent) other than liabilities and obligations incurred or paid in the ordinary course of business and consistent with past practice; A-12 100 (i) Experienced any material change in the amount or general composition of their deposit liabilities; (j) Entered into or amended any employment contract with any of their employees, increased the compensation payable to any officer or director or any relative of any such employee or director, or become obligated to increase any such compensation, except as set forth in the DISCLOSURE SCHEDULE; (k) Adopted or amended in any material respect any employee benefit plan, severance plan or collective bargaining agreement or made any awards or distributions under any employee benefit plan not consistent with past practice or custom; (l) Incurred any damage, destruction or similar loss, whether or not covered by insurance, materially affecting their businesses or properties, except as set forth in the DISCLOSURE SCHEDULE; (m) Acquired any stock or other equity interest in any corporation, partnership, trust, joint venture or other entity; (n) Made any (i) material investment (except investments made in the ordinary course of business and consistent with past practice) or (ii) material capital expenditure or commitment for any material addition to property, plant or equipment; or (o) Agreed, whether in writing or otherwise, to take any action described in this Section 3.10. SECTION 3.11. PROPERTIES. (a) A list and brief description of all material fixed assets owned by GFBC or GERMANTOWN (hereinafter referred to as the "PERSONAL PROPERTY") carried on the books of GFBC or GERMANTOWN as of the date hereof, is set forth in Section 3.11(a) of the GFBC DISCLOSURE SCHEDULE. All PERSONAL PROPERTY has been maintained in good working order, ordinary wear and tear excepted. GFBC or GERMANTOWN owns and has good title to all of the PERSONAL PROPERTY, free and clear of any mortgage, lien, pledge, charge, claim, conditional sales or other agreement, lease, right or encumbrance, except (i) to the extent stated or reserved against in the GFBC AUDITED FINANCIALS and (ii) such other exceptions which are not material in character, amount or extent and do not materially detract from the value of or interfere with the use of the properties or assets subject thereto or affected thereby. (b) The documentation governing or relating to the loan and credit-related assets (hereinafter referred to as the "LOAN ASSETS") representing the loan portfolio of GERMANTOWN (hereinafter referred to as "LOAN DOCUMENTATION") is legally sufficient in all material respects for the purposes intended thereby and creates enforceable rights of A-13 101 GERMANTOWN in accordance with the terms of such LOAN DOCUMENTATION, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors' rights generally, and the effect of rules of law governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents. To the knowledge of GERMANTOWN, no debtor under any of the LOAN DOCUMENTATION has asserted any claim or defense with respect to the subject matter thereof. (c) A description of each parcel of real property owned by GFBC or GERMANTOWN (hereinafter referred to as the "REAL PROPERTIES") is set forth in Section 3.11(c) of the GFBC DISCLOSURE SCHEDULE. GFBC or GERMANTOWN is the owner of the REAL PROPERTIES in fee simple and has good and marketable title to the REAL PROPERTIES free of any liens, claims, charges, encumbrances or security interests of any kind, except (i) liens for real estate taxes and assessments not yet delinquent and (ii) utility, access and other easements, rights of way, restrictions and exceptions which do not impair the REAL PROPERTIES for the use and business being conducted thereon. No party leases any of the REAL PROPERTIES from GFBC or GERMANTOWN. (d) Except as set forth in the DISCLOSURE SCHEDULE, neither GFBC nor GERMANTOWN has received notification from any governmental entity within the two-year period immediately preceding the date hereof of contemplated improvements to the REAL PROPERTIES or surrounding area or community by a public authority, the costs of which are to be assessed as special taxes against the REAL PROPERTIES in the future. (e) A description of all real property leased by GFBC or GERMANTOWN from a third party (hereinafter referred to as the "LEASED REAL PROPERTY") is set forth in Section 3.11(e) of the GFBC DISCLOSURE SCHEDULE. True and correct copies of all leases in respect of the LEASED REAL PROPERTY (hereinafter referred to as the "REAL PROPERTY LEASES") and all attachments, amendments and addenda thereto have been delivered by GFBC and GERMANTOWN to CAMCO. The REAL PROPERTY LEASES create, in accordance with their terms, valid, binding and assignable leasehold interests of GFBC or GERMANTOWN in all of the LEASED REAL PROPERTY, free and clear of all liens, claims, charges, encumbrances or security interests of any kind. GFBC and GERMANTOWN have complied in all material respects with all of the provisions of the REAL PROPERTY LEASES required on their part to be complied with and are not in default with respect to any of their obligations (including payment obligations) under any of the REAL PROPERTY LEASES. (f) A description of all personal property leased by GFBC or GERMANTOWN from a third party (hereinafter referred to as the "LEASED PERSONAL PROPERTY") is set forth in Section 3.11(f) of the GFBC DISCLOSURE SCHEDULE. The PERSONAL PROPERTY LEASES create, in accordance with their terms, valid, binding and assignable leasehold interests of GFBC or GERMANTOWN in all of the LEASED PERSONAL PROPERTY, free and clear of all liens, claims, charges, encumbrances or security interests of any kind. GFBC and GERMANTOWN have complied in all material respects with all of the provisions under the PERSONAL PROPERTY LEASES required on their part to be complied A-14 102 with and are not in default with respect to any of their obligations (including payment obligations) under any of the PERSONAL PROPERTY LEASES. SECTION 3.12. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected on the GFBC AUDITED FINANCIALS is adequate as of the date hereof in all material respects under the requirements of GAAP to provide for reasonably anticipated losses on outstanding loans. SECTION 3.13. INVESTMENTS. Section 3.13 of the GFBC DISCLOSURE SCHEDULE sets forth (a) a true, accurate and complete list of all investments, other than investments in the PERSONAL PROPERTY, LOAN ASSETS and REAL PROPERTIES, owned by GFBC or GERMANTOWN (hereafter referred to as the "INVESTMENTS") as of the date hereof, the name of the registered holder thereof, the location of the certificates therefor or other evidence thereof and any stock powers or other authority for transfer granted with respect thereto and (b) a true, accurate and complete list of the names of each bank or other depository in which either GFBC or GERMANTOWN has an account or safe deposit box, including, without limitation, accounts with the FHLB, and the names of all persons authorized to draw thereon or to have access thereto. The INVESTMENTS are owned by GFBC or GERMANTOWN free and clear of all liens, pledges, claims, security interests, encumbrances, charges or restrictions of any kind and may be freely disposed of by GFBC or GERMANTOWN at any time. Neither GFBC nor GERMANTOWN is a party to or has any interest in any repurchase agreements or reverse repurchase agreements. There are no outstanding letters of credit issued by GERMANTOWN. SECTION 3.14. REPORTS AND RECORDS. GFBC and GERMANTOWN have filed all reports and maintained all records required to be filed or maintained by them under various rules and regulations of the SEC, the OTS or the FDIC, except where the failure to file or maintain such reports or records would not have a material adverse effect on GFBC or GERMANTOWN. All such documents and reports complied in all material respects with applicable requirements of laws and regulations in effect at the time of filing such documents and contained in all material respects the information required to be stated therein. None of such documents which have been filed since January 1, 1993, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent that such statements or omissions would not have a material adverse effect on GFBC and GERMANTOWN taken as a whole. A-15 103 SECTION 3.15. TAXES. (a) GFBC and GERMANTOWN have duly and timely filed all federal, state, county and local income, profits, franchise, excise, sales, customs, property, use, occupation, withholding, social security and other tax and information returns and reports required to have been filed by them through the date hereof, and have paid or accrued all taxes and duties (and all interest and penalties with respect thereto) due or claimed to be due by GFBC or GERMANTOWN. Neither GFBC nor GERMANTOWN has, to their knowledge, any liability for any taxes or duties (or interest or penalties with respect thereto) of any nature whatsoever, and there is no basis for any additional material claims or assessments. True copies of the federal, state and local income tax returns of GFBC or GERMANTOWN for each of the three tax years ended March 31, 1994, 1995 and 1996, have been delivered to CAMCO. (b) There are no federal, state or local tax returns or reports not filed which would be due but for an extension of time for filing having been granted, except as disclosed in Section 3.15(b) of the DISCLOSURE SCHEDULE. Neither GFBC nor GERMANTOWN has executed or filed with the Internal Revenue Service (hereinafter referred to as the "IRS") or any state or local tax authority any agreement extending the period for assessment and collection of any tax, nor is GFBC or GERMANTOWN a party to any action or proceeding of any governmental authority for assessment or collection of taxes, except tax liens or levies against customers of GERMANTOWN. There is no outstanding assessment or claim for collection of taxes against GFBC or GERMANTOWN. Neither GFBC nor GERMANTOWN has received any notice of deficiency, proposed deficiency or assessment from the IRS or any other governmental agency with respect to any federal, state or local taxes. No tax return of GFBC or GERMANTOWN is currently the subject of any audit by the IRS or any other governmental agency. No material deficiencies have been asserted in connection with the tax returns of GFBC or GERMANTOWN, and GFBC and GERMANTOWN have no reason to believe that any deficiency would be asserted relating thereto. Except as disclosed in Section 3.15(b) of the DISCLOSURE SCHEDULE: (i) neither GFBC nor GERMANTOWN has ever been a member of an "affiliated group of corporations" (within the meaning of Section 1504(a) of the CODE) filing consolidated returns, other than the affiliated group of which GFBC is the parent; and (ii) neither GFBC nor GERMANTOWN is a party to any tax sharing agreement. SECTION 3.16. MATERIAL CONTRACTS. (a) Except as set forth in Section 3.16(a) of the GFBC DISCLOSURE SCHEDULE, neither GFBC nor GERMANTOWN is a party to or bound by any written or oral (i) contract or commitment for capital expenditures in excess of $10,000 for any one project or $20,000 in the aggregate; (ii) contract or commitment made in the ordinary course of business for the purchase of materials or supplies or for the performance of services involving payments to or by GFBC or GERMANTOWN of an amount exceeding $10,000 in the aggregate or extending for more than six months from the date hereof; (iii) contract or option for the purchase of any property, real or personal, for an amount exceeding $10,000; (iv) letter of credit or indemnity calling for payment of more than $10,000; (v) guarantee agreement; (vi) instrument granting any person authority to transact business on behalf of GFBC or GERMANTOWN; (vii) contracts or commitments to make loans (including unfunded commitments and lines of credit) to any one person (together with "affiliates" of that person) in excess of $100,000 in the aggregate, except for contracts or commitments entered into in the ordinary course of business; (viii) employment, management, consulting, deferred A-16 104 compensation, severance or other similar contract with any director, officer or employee of GFBC or GERMANTOWN; (ix) note, debenture or loan agreement pursuant to which GFBC or GERMANTOWN has incurred indebtedness other than deposit liabilities and advances from the FHLB; (x) loan participation agreement; (xi) loan servicing agreement; (xii) contract or commitment relating to a real estate development project consisting of the development of more than one single family dwelling; (xiii) commitment to make any acquisition, development and construction loan; (xiv) commitment or agreement to do any of the foregoing; or (xv) other contract, agreement or commitment made outside the ordinary course of business. (The contracts, agreements, commitments and other arrangements described in clauses (i) through (xv) of this Section 3.16(a) are hereinafter collectively referred to as the "CONTRACTS"). (b) Except as set forth in the DISCLOSURE SCHEDULE, GFBC or GERMANTOWN has previously delivered to CAMCO (i) copies of all of the CONTRACTS and (ii) all form lending agreements and deposit forms used by GERMANTOWN in the ordinary course of business. (c) Neither GFBC nor GERMANTOWN is in material default under any CONTRACT and no claim of such default by any party has been made or is now, to the knowledge of GFBC or GERMANTOWN, threatened, except to the extent such a default would not have a material adverse effect on GFBC and GERMANTOWN taken as a whole. There does not exist any event which, with notice or lapse of time or both, would constitute a material default by GFBC or GERMANTOWN under, or would excuse performance by any party thereto from, any CONTRACT, except to the extent such a default would not have a material adverse effect on GFBC and GERMANTOWN taken as a whole. SECTION 3.17. INSURANCE. All material properties and operations of GFBC and GERMANTOWN are insured in amounts and types as are customary for savings associations similarly situated. The performance by the officers and employees of GFBC and GERMANTOWN of their duties is bonded in such amounts and against such risks as are usually insured against or bonded by entities similarly situated, under valid and enforceable policies of insurance or bonds issued by insurers or bonding companies of recognized responsibility, financial or otherwise. SECTION 3.18. LITIGATION. Except as set forth in Section 3.18 of the GFBC DISCLOSURE SCHEDULE, (a) there are no material actions, suits, proceedings or investigations pending or threatened against or affecting the business, operations or financial condition of GFBC or GERMANTOWN in any court or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, (b) neither the management of GFBC nor GERMANTOWN has any knowledge of any basis for any such action, suit, proceeding or investigation, and (c) neither GFBC nor GERMANTOWN is in default in respect of any judgment, order, writ, injunction or decree of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. A-17 105 SECTION 3.19. PERMITS AND LICENSES. GFBC and GERMANTOWN each has all material permits, licenses, orders and approvals of all federal, state or local governmental or regulatory bodies required for it to conduct its business as presently conducted, and all such material permits, licenses, orders and approvals are in full force and effect, without the threat of suspension or cancellation. None of such permits, licenses, orders or approvals will be adversely affected by the consummation of the transactions contemplated by this AGREEMENT. SECTION 3.20. EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 3.20(a) of the GFBC DISCLOSURE SCHEDULE sets forth a true and complete list of all qualified pension or profit-sharing plans, deferred compensation, consulting, bonus, group insurance plans or agreements and all other incentive, welfare or employee benefit plans or agreements maintained for the benefit of employees or former employees of GFBC or GERMANTOWN. Copies of such plans and agreements, together with (i) , when applicable, the most recent actuarial and financial reports prepared with respect to any such plan, (ii) the most recent annual reports filed with any government agency and (iii) all rulings and determination letters received from governmental agencies and any open requests for rulings or letters that pertain to any such plan, have been delivered or will be delivered to CAMCO. (b) Except as may be disclosed in Section 3.20(d) of the GFBC DISCLOSURE SCHEDULE, GFBC and GERMANTOWN do not currently maintain any "employee pension benefit plan," as defined in Section 3(2) of ERISA, (each such plan, together with any related trust or other funding mechanism, as maintained by GFBC or GERMANTOWN, hereinafter referred to as a "PENSION BENEFIT PLAN"), which is intended to be qualified under Section 401(a) of the CODE. (c) Neither GFBC nor GERMANTOWN currently maintains, nor have they ever maintained, any PENSION BENEFIT PLAN subject to the provisions of Title IV of The Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as "ERISA"). (d) GFBC and GERMANTOWN do not currently participate in, nor have they ever participated in, any multiemployer plan, as such term is defined in Section 3(37) of ERISA. (e) Since January 1, 1993, all of the PENSION BENEFIT PLANS have complied and comply currently in all material respects, both as to form and operation, with the provisions of ERISA and the CODE, where required in order to be tax-qualified under Section 401(a) of the CODE, and all other applicable laws, rules and regulations. Neither GFBC nor GERMANTOWN is aware of any event which might jeopardize the tax qualified status of any PENSION BENEFIT PLAN. Each PENSION BENEFIT PLAN which is intended to be qualified under Section 401(a) of the CODE has received a determination letter from the IRS which considers amendments made to the CODE by the Tax Reform Act of 1986. All reports required by any governmental agency with respect to each PENSION BENEFIT PLAN have been timely filed with such agency and, where required, distributed to participants and beneficiaries of such PENSION BENEFIT PLAN within the time required by law. A-18 106 (f) Each "employee welfare benefit plan," as defined in Section 3(1) of ERISA, (each such plan together with any related trust or other funding mechanism, as maintained by GFBC or GERMANTOWN, hereinafter referred to as a "WELFARE BENEFIT PLAN") has been administered to date in all material respects in compliance with the requirements of the CODE and ERISA, and all reports required by any governmental agency with respect to each WELFARE BENEFIT PLAN has been timely filed with such agency and, where required, distributed to participants and beneficiaries of such WELFARE BENEFIT PLAN within the time required by law. (g) Neither GFBC nor GERMANTOWN nor, to the knowledge of GFBC or GERMANTOWN, any plan fiduciary of any WELFARE BENEFIT PLAN or PENSION BENEFIT PLAN has engaged in any transaction in violation of Section 406(a) or (b) of ERISA (for which no exemption exists under Section 408 of ERISA) or any "prohibited transaction" (as defined in Section 4975(c)(1) of the CODE) for which no exemption exists under Section 4975(c)(1) of the CODE. SECTION 3.21. ENVIRONMENTAL MATTERS. (a) GFBC and GERMANTOWN, to the knowledge of GFBC or GERMANTOWN, are in material compliance with all applicable ENVIRONMENTAL LAWS (hereinafter defined). GFBC and GERMANTOWN have not received any written or oral communication from any organization, person or otherwise, which alleges that either (i) GFBC or GERMANTOWN is not in compliance with all applicable ENVIRONMENTAL LAWS or (ii) any properties or assets of GFBC or GERMANTOWN may have been affected by any MATERIALS OF ENVIRONMENTAL CONCERN (hereinafter defined). All permits and other governmental authorizations currently held or being applied for by GFBC or GERMANTOWN pursuant to the ENVIRONMENTAL LAWS are set forth in Section 3.21(a) of the GFBC DISCLOSURE SCHEDULE. (b) There is no ENVIRONMENTAL CLAIM (hereinafter defined) pending or, to the knowledge of GFBC or GERMANTOWN, threatened (i) against GFBC or GERMANTOWN, (ii) against any person or entity whose liability for any ENVIRONMENTAL CLAIM has or may have been retained or assumed by GFBC or GERMANTOWN either contractually or by operation of law, or (iii) against any real or personal property which GFBC or GERMANTOWN owns, leases, manages, supervises or participates in the management of, or, to the knowledge of GFBC or GERMANTOWN, in which GFBC or GERMANTOWN holds a security interest in connection with a loan or loan participation, other than such as would not, either individually or in the aggregate, have a material adverse effect on GFBC or GERMANTOWN. (c) There are no present or, to the knowledge of GFBC and GERMANTOWN, past activities, conditions, or incidents, including, without limitation, the release or disposal of any MATERIAL OF ENVIRONMENTAL CONCERN, that could reasonably form the basis of any ENVIRONMENTAL CLAIM against GFBC or GERMANTOWN or against any person or entity whose liability for any ENVIRONMENTAL CLAIM has or may have been retained or assumed by GFBC or GERMANTOWN, either A-19 107 contractually or by operation of law, other than such as would not, either individually or in the aggregate, have a material adverse effect on GFBC or GERMANTOWN. (d) Section 3.21(d) of the GFBC DISCLOSURE SCHEDULE sets forth an accurate and complete list of outstanding loans of GERMANTOWN as to which the borrower has submitted (or is required to submit) to GERMANTOWN any environmental audits or reports regarding any real property securing such loan and a brief description of the environmental audit or report, to the extent applicable. GFBC and GERMANTOWN will make available to CAMCO all such environmental audits and reports. (e) As used in this AGREEMENT: (i) "ENVIRONMENTAL CLAIM" means any claim, cause of action or notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (I) the presence, or release into the environment, of any MATERIAL OF ENVIRONMENTAL CONCERN at any location, whether or not owned by GFBC or GERMANTOWN or (II) circumstances forming the basis of any violation, or alleged violation, of any ENVIRONMENTAL LAW; (ii) "ENVIRONMENTAL LAWS" means all laws and regulations relating to pollution or protection of human health or the environment including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of MATERIALS OF ENVIRONMENTAL CONCERN, or otherwise relating to the use, treatment, storage, disposal, transport or handling of MATERIALS OF ENVIRONMENTAL CONCERN; and (iii) "MATERIALS OF ENVIRONMENTAL CONCERN" shall mean (I) any "hazardous waste" as defined in 42 U.S.C. Section 6903, as amended from time to time, and regulations promulgated thereunder from time to time; (II) any "hazardous substance" as defined in 42 U.S.C. Section 9601, as amended from time to time, and regulations promulgated thereunder from time to time; (III) asbestos; (IV) PCB's; (V) any substance the presence of which on GFBC's or GERMANTOWN's property is prohibited by any applicable law, ordinance, or regulation; (VI) petroleum products; and (VII) underground storage tanks and above ground storage tanks. SECTION 3.22. EMPLOYMENT MATTERS. GFBC and GERMANTOWN are in compliance with all federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours and have not and are not engaged in any unfair labor practice, except where such failure to comply or such practice would not have a material adverse effect on the financial condition, results of operations, business or prospects of GFBC and GERMANTOWN taken as a whole. No unfair labor practice complaint against GFBC or GERMANTOWN is pending before any governmental agency or court and there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving GFBC or GERMANTOWN. No representation question exists in respect of A-20 108 the employees of GFBC or GERMANTOWN and no labor grievance which might have a material adverse effect upon GFBC or GERMANTOWN or the conduct of their businesses is pending or, to the knowledge of GFBC or GERMANTOWN, threatened. Neither GFBC nor GERMANTOWN has entered into any collective bargaining agreement with any labor organization with respect to any group of employees of GFBC or GERMANTOWN, and, to the knowledge of GFBC and GERMANTOWN, there is no present effort nor existing proposal to attempt to unionize any group of employees of GFBC or GERMANTOWN. SECTION 3.23. UNTRUE STATEMENTS AND OMISSIONS. The certificates, statements and other information furnished to CAMCO in writing by or on behalf of GFBC and GERMANTOWN in connection with the transactions contemplated hereby, including, but not limited to, disclosures and information set forth in the GFBC DISCLOSURE SCHEDULE, but excluding statements or information pertaining to parties unrelated to GFBC or GERMANTOWN, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 3.24. PROXY MATERIALS. None of the information relating to GFBC or GERMANTOWN included in any proxy statement which is to be mailed to the shareholders of GFBC in connection with any meeting of shareholders convened in accordance with Sections 1.05(a) and 6.06 of this AGREEMENT (hereinafter referred to as the "PROXY STATEMENT") will, at the time the PROXY STATEMENT is mailed or at the time of the meeting to which the PROXY STATEMENT relates, contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not false or misleading, except to the extent it contains information about CAMCO or FIRST FEDERAL provided in writing to GFBC or GERMANTOWN by CAMCO or FIRST FEDERAL. SECTION 3.25. BROKERS. Except for amounts payable to McDonald & Company Securities, Inc., as disclosed in Section 3.25 of the GFBC DISCLOSURE SCHEDULE, there are no claims or agreements for brokerage commission, finder's fees, or similar compensation in connection with the transactions contemplated by this AGREEMENT payable by GFBC or GERMANTOWN. SECTION 3.26. REGULATORY ENFORCEMENT. Neither GFBC nor GERMANTOWN is subject to, or has received any notice or advice that it is or may become subject to, any order, agreement or memorandum of understanding of any federal or state agency charged with the supervision or regulation of savings banks or savings associations or engaged in the insurance of deposits or any other governmental agency having supervisory or regulatory authority with respect to GFBC or GERMANTOWN; neither GFBC nor GERMANTOWN has received any notice or advice that it is not in substantial compliance with any statute or regulation, except where failure to comply would not have a material adverse effect upon GFBC and GERMANTOWN taken as a whole; and GFBC and GERMANTOWN have received no notice from any governmental authority threatening to revoke any license, franchise, permit or governmental authorization. A-21 109 SECTION 3.27. TAX TREATMENT OF COMPANY MERGER. Neither GFBC nor GERMANTOWN has, to their knowledge, taken any action that is reasonably likely to prevent the transactions contemplated hereby, including the COMPANY MERGER, from qualifying as a reorganization within the meaning of Section 368(a) of the CODE. SECTION 3.28. SUBSIDIARIES: EQUITY INTEREST. The term "subsidiary" means an organization or entity which is consolidated or is eligible to be consolidated with a party to this AGREEMENT for financial reporting purposes. Except for GERMANTOWN and GFS Financial Services, Inc., which is a subsidiary of GERMANTOWN, GFBC has no subsidiaries. Except for shares of GERMANTOWN owned by GFBC and shares of stock of GFS Financial Services, Inc., and the Federal Home Loan Bank of Cincinnati owned by GERMANTOWN and stock of Intrieve, Inc., owned by GFS Financial Services, Inc., or as set forth in Section 3.29 of the GFBC DISCLOSURE SCHEDULE, neither GFBC nor GERMANTOWN owns, beneficially or otherwise, any shares of EQUITY SECURITIES (as defined below) or similar interest of any corporation, bank, business trust, association or similar organization. "EQUITY SECURITIES" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other equity securities of any issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other equity securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other equity securities. Neither GFBC nor GERMANTOWN is a party to any partnership or joint venture. SECTION 3.29. MANAGEMENT STOCK BONUS PLAN. The GFBC DISCLOSURE SCHEDULE lists the names of the recipients, award dates, expiration dates and number of shares relating to and arising out of the Management Stock Bonus Plan of GFBC. ARTICLE FOUR REPRESENTATIONS AND WARRANTIES OF CAMCO AND FIRST FEDERAL CAMCO and FIRST FEDERAL represent and warrant to GFBC and GERMANTOWN that each of the following statements is true and accurate in all material respects: SECTION 4.01. ORGANIZATION AND STANDING. (a) CAMCO is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own or hold under lease all of its properties and assets and to conduct its business and operations as presently conducted. CAMCO is registered as a savings and loan holding company under the HOLA. CAMCO is in compliance in all material respects with all applicable local, state and federal laws and regulations, including without limitation, the THRIFT REGULATIONS. A-22 110 (b) FIRST FEDERAL is a savings and loan association duly organized, validly existing and in good standing under the laws of the United States and has the corporate power and authority to own or hold under lease all of its properties and assets and to conduct its business and operations as presently conducted. FIRST FEDERAL is a member of the FHLB. The deposit accounts of FIRST FEDERAL are insured up to applicable limits by the SAIF. FIRST FEDERAL is in compliance in all material respects with all applicable local, state and federal laws and regulations, including, without limitation, the regulations of the FDIC and the OTS. FIRST FEDERAL is a "domestic building and loan association" as defined in Section 7701a(19) of the Internal Revenue Code and a "qualified thrift lender" as defined in 12 U.S.C. 1467(a)(m) and the THRIFT REGULATIONS. SECTION 4.02. QUALIFICATION. CAMCO and FIRST FEDERAL are either duly qualified to do business and in good standing in each jurisdiction in which such qualification is required or the failure to so qualify would not have a material adverse effect on the business of CAMCO or FIRST FEDERAL. SECTION 4.03. AUTHORITY OF CAMCO AND FIRST FEDERAL. This AGREEMENT has been duly executed and delivered by CAMCO and FIRST FEDERAL. The BANK MERGER AGREEMENT has been duly executed and delivered by FIRST FEDERAL. Subject to the adoption of this AGREEMENT and the BANK MERGER AGREEMENT by CAMCO as the sole shareholder of FIRST FEDERAL, and to the filing of all requisite regulatory notices and the receipt of all requisite regulatory approvals,(a) CAMCO has all requisite corporate power and authority to enter into this AGREEMENT and to perform its obligations hereunder; (b) FIRST FEDERAL has all requisite corporate power and authority to enter into this AGREEMENT and the BANK MERGER AGREEMENT and to perform all of its obligations hereunder and thereunder; (c) the execution and delivery of this AGREEMENT and the BANK MERGER AGREEMENT and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action by CAMCO and FIRST FEDERAL; and (d) subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors' rights generally, and the effect of rules of law governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents, and except to the extent such enforceability may be limited by laws relating to safety and soundness of insured depository institutions as set forth in 12 U.S.C ss.1818(b) or by the appointment of a conservator by the FDIC, (i) this AGREEMENT is the valid and binding agreement of CAMCO, enforceable against CAMCO in accordance with its terms, and (ii) this AGREEMENT and the BANK MERGER AGREEMENT are valid and binding agreements of FIRST FEDERAL, enforceable against FIRST FEDERAL in accordance with their terms. SECTION 4.04. GOVERNING DOCUMENTS. CAMCO has made available, or will promptly make available, to GFBC true and accurate copies of the CAMCO Certificate of Incorporation and Bylaws and has granted GFBC access to all records of all meetings and other corporate actions occurring before the COMPANY EFFECTIVE TIME by the stockholders, Board of Directors and Committees of the Board of Directors of CAMCO. FIRST FEDERAL A-23 111 has made available, or will promptly make available, to GFBC true and accurate copies of its Charter and Bylaws and has granted GFBC access to all records of all meetings and other corporate actions occurring before the COMPANY EFFECTIVE TIME by the shareholders, Board of Directors and Committees of the Board of Directors of FIRST FEDERAL. The minute books of CAMCO and FIRST FEDERAL contain, in all material respects, complete and accurate records of all meetings and other corporate actions of their shareholders, Boards of Directors and Committees of the Boards of Directors. SECTION 4.05. NO CONFLICTS. The execution and delivery of this AGREEMENT and, subject to the regulatory filings and approvals referenced in Section 1.06 of this AGREEMENT, the consummation of the transactions contemplated hereby will not (a) conflict with or violate any provision of or result in the breach of any provision of the Certificate of Incorporation or Bylaws of CAMCO or the Charter or Bylaws of FIRST FEDERAL; (b) conflict with or violate any provision of or result in the breach or the acceleration of or entitle any party to accelerate (whether upon or after the giving of notice or lapse of time or both) any obligation under, or otherwise materially affect the terms of, any mortgage, lien, lease, agreement, license, instrument, order, arbitration award, judgment or decree to which CAMCO or FIRST FEDERAL is a party or by which CAMCO or FIRST FEDERAL or their property or assets is bound; (c) require the consent of any party to any agreement or commitment to which CAMCO or FIRST FEDERAL is a party or by which CAMCO or FIRST FEDERAL or their property or assets is bound, the failure to obtain which could, individually or in the aggregate with all the other failures to obtain required consents, have a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of CAMCO or FIRST FEDERAL; (d) result in the creation or imposition of any lien, charge, pledge, security interest or other encumbrance upon any property or assets of CAMCO or FIRST FEDERAL or give rise to any meritorious cause of action against CAMCO or FIRST FEDERAL; or (e) violate or conflict with any applicable law, ordinance, rule or regulation, including, without limitation, the rules and regulations of the OTS or the FDIC. SECTION 4.06. CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution and delivery of this AGREEMENT by CAMCO or FIRST FEDERAL or the consummation by CAMCO or FIRST FEDERAL of the transactions contemplated hereby, except for filings, authorizations, consents or approvals referenced in Section 1.05 and Section 1.06 of this AGREEMENT. SECTION 4.07. CAPITALIZATION. (a) The authorized capital of CAMCO consists solely of (i) 4,900,000 shares of common stock, par value One Dollar ($1.00) per share, 3,214,193 of which are issued and outstanding and 235,828 of which are reserved for issuance upon the exercise of outstanding stock options, and (ii) 100,000 preferred shares, One Dollar ($1.00) par value per share, none of which is issued or outstanding. All of the outstanding CAMCO SHARES are, and, when issued in accordance with this AGREEMENT, the CAMCO SHARES to be issued upon exchange for the GFBC SHARES shall be, duly authorized, validly issued, fully paid and nonassessable, issued in full compliance with all applicable laws, and not issued in violation of the preemptive right of any person. Except for the CAMCO OPTIONS, A-24 112 there are no outstanding subscription rights, options, conversion rights, warrants or other agreements or commitments of any nature whatsoever (either firm or conditional) obligating CAMCO to issue, deliver or sell, cause to be issued, delivered or sold, or restricting CAMCO from selling any additional CAMCO SHARES, or obligating CAMCO to grant, extend or enter into any such agreement or commitment. (b) The authorized capital of FIRST FEDERAL consists solely of (i) 500,000 common shares, One Dollar ($1.00) par value per share, 180,000 of which are issued and outstanding and held of record by CAMCO, and (ii) 500,000 preferred shares, par value One Dollar ($1.00) per share, none of which is issued or outstanding. All of the outstanding common shares of FIRST FEDERAL are duly authorized, validly issued, fully paid and nonassessable, were issued in full compliance with all applicable laws and regulations, and were not issued in violation of the preemptive right of any shareholder of FIRST FEDERAL. There are no outstanding subscription rights, options, conversion rights, warrants or other agreements or commitments of any nature whatsoever (either firm or conditional) obligating FIRST FEDERAL to issue, deliver or sell, or cause to be issued, delivered or sold any additional FIRST FEDERAL SHARES. SECTION 4.08. SEC REPORTS. CAMCO has delivered to GFBC copies of the following documents, each of which has been filed with the SEC (hereinafter referred to as the "CAMCO SEC FILINGS"): (a) The Annual Reports on Form 10-KSB for each of the fiscal years ended December 31, 1996, 1995 and 1994; (b) The Annual Report to Stockholders for each of the fiscal years ended December 31, 1996, 1995 and 1994; (c) The Proxy Statement for use in connection with each of the 1997, 1996 and 1995 Annual Meetings of Stockholders; and (d) The Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997. CAMCO has not filed any Forms 8-K since December 31, 1996. The CAMCO SEC FILINGS did not, as of the dates on which such reports were filed with the SEC, contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. SECTION 4.09. FINANCIAL STATEMENTS. (a) The consolidated statements of financial condition of CAMCO as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years ended December 31, 1996, 1995 and 1994, examined and reported upon by Grant Thornton, L.L.P., (hereinafter referred to as "GRANT") complete copies of which have previously been delivered A-25 113 to GFBC (hereinafter referred to as the "CAMCO AUDITED FINANCIALS"), have been prepared in conformity with GAAP applied on a consistent basis and fairly present the financial position of CAMCO at such dates and the results of its operations and cash flows for such periods. (b) The unaudited consolidated statements of financial condition of CAMCO as of March 31, 1997, and the related unaudited consolidated statements of earnings, stockholders' equity and cash flows for each of the three months ended March 31, 1997 and 1996, complete copies of which have previously been delivered to GFBC (hereinafter referred to as the "CAMCO INTERIM FINANCIALS"), have been prepared in conformity with GAAP as applicable to condensed interim financial statements and as applied on a consistent basis with the CAMCO AUDITED FINANCIALS and fairly present the financial position of CAMCO at such dates and the results of its operations and cash flows for such periods. (c) Except as disclosed in the CAMCO INTERIM FINANCIALS, as of March 31, 1997, CAMCO had no liabilities or obligations material to the business condition (financial or otherwise) of CAMCO taken as a whole, whether accrued, absolute, contingent or otherwise, and whether due or to become due. (d) The CAMCO AUDITED FINANCIALS and the CAMCO INTERIM FINANCIALS did not, as of the dates thereof, contain any untrue statement of a material fact or omit to state any material fact necessary to make the information contained therein, in light of the circumstances under which they were made, not misleading. SECTION 4.10. ABSENCE OF MATERIAL ADVERSE CHANGE. Since March 31, 1997, there have been no material adverse changes in the financial condition, assets, liabilities, obligations, properties, business or prospects of CAMCO and its consolidated subsidiaries, taken as a whole. SECTION 4.11. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected on the CAMCO INTERIM FINANCIALS is adequate as of the date hereof in all material respects under the requirements of GAAP to provide for reasonably anticipated losses on outstanding loans. SECTION 4.12. REPORTS AND RECORDS. CAMCO and FIRST FEDERAL have filed all reports and maintained all records required to be filed or maintained by them under various rules and regulations of the SEC, the OTS or the FDIC. All such documents and reports complied in all material respects with applicable requirements of laws and regulations in effect at the time of the filing of such documents and contained in all material respects the information required to be stated therein. None of such documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. A-26 114 SECTION 4.13. TAXES. CAMCO and FIRST FEDERAL have duly and timely filed all federal, state, county and local income, profits, franchise, excise, sales, customs, property, use, occupation, withholding, social security and other tax and information returns and reports required to have been filed by them through the date hereof, and have paid or accrued all taxes and duties (and all interest and penalties with respect thereto) due or claimed to be due by CAMCO or FIRST FEDERAL. Neither CAMCO nor FIRST FEDERAL has any liability for any taxes or duties (or interest or penalties with respect thereto) of any nature whatsoever, and there is no basis for any additional material claims or assessments, other than with respect to liabilities for taxes and duties which may have accrued since December 31, 1996, in the ordinary course of business. No proposed additional taxes, interest or penalties have been asserted by applicable taxing authorities. SECTION 4.14. PERMITS AND LICENSES. CAMCO and FIRST FEDERAL each has all material permits, licenses, orders and approvals of all federal, state or local governmental or regulatory bodies required for it to conduct its business as presently conducted and all such material permits, licenses, orders and approvals are in full force and effect, without the threat of suspension or cancellation. None of such permits, licenses, orders or approvals will be adversely affected by the consummation of the transactions contemplated by this AGREEMENT. SECTION 4.15. UNTRUE STATEMENTS AND OMISSIONS. The certificates, statements and other information furnished to GFBC in writing by or on behalf of CAMCO and FIRST FEDERAL in connection with the transactions contemplated hereby do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4.16. PROXY MATERIALS. None of the information relating to CAMCO or FIRST FEDERAL included in the PROXY STATEMENT will, at the time the PROXY STATEMENT is mailed or at the time of the meeting to which the PROXY STATEMENT relates, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not false or misleading. SECTION 4.17. BROKERS. Except for amounts payable to National Capital Companies, L.L.C., there are no claims or agreements for brokerage commissions, finder's fees, or similar compensation in connection with the transactions contemplated by this AGREEMENT payable by CAMCO. SECTION 4.18. REGULATORY ENFORCEMENT. CAMCO and FIRST FEDERAL are not subject to, nor have they received any notice or advice that either of them is not in substantial compliance with any statute or regulation, or that either of them is or may become subject to, any order, agreement or memorandum of understanding of any federal or state agency charged with the supervision or regulation of savings banks, savings associations or holding companies of savings banks or savings associations or engaged in the insurance of deposits or any other governmental agency having supervisory or regulatory authority with respect to CAMCO or FIRST FEDERAL, and CAMCO and FIRST FEDERAL have received no notice from any A-27 115 governmental agency threatening to revoke any license, franchise, permit or governmental authority. SECTION 4.19. TAX TREATMENT OF COMPANY MERGER. Neither CAMCO nor FIRST FEDERAL has taken any action or has any knowledge of any fact or circumstance that is reasonably likely to prevent the transactions contemplated hereby, including the COMPANY MERGER, from qualifying as a "reorganization" within the meaning of Section 368(a) of the CODE. SECTION 4.20. GFBC SHARES OWNED BY CAMCO. Neither CAMCO nor any of its subsidiaries beneficially owns any GFBC SHARES. SECTION 4.21. LOAN DOCUMENTATION. The documentation governing or relating to the loan and credit-related assets (hereinafter referred to as the "FIRST FEDERAL LOAN ASSETS") representing the loan portfolio of FIRST FEDERAL (hereinafter referred to as "FIRST FEDERAL LOAN DOCUMENTATION") is legally sufficient in all material respects for the purposes intended thereby and creates enforceable rights of FIRST FEDERAL in accordance with the terms of such FIRST FEDERAL LOAN DOCUMENTATION, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general applicability affecting the enforcement of creditors' rights generally, and the effect of rules of law governing specific performance, injunctive relief and other equitable remedies on the enforceability of such documents. To the knowledge of FIRST FEDERAL, no debtor under any of the FIRST FEDERAL LOAN DOCUMENTATION has asserted any claim or defense with respect to the subject matter thereof which would be materially adverse to the financial condition or operating results of FIRST FEDERAL. SECTION 4.22. MATERIAL CONTRACTS. Neither CAMCO nor FIRST FEDERAL is in material default under any CONTRACT and no claim of such default by any party has been made or is now, to the knowledge of CAMCO or FIRST FEDERAL, threatened. There does not exist any event which, with notice or lapse of time or both, would constitute a material default by CAMCO or FIRST FEDERAL under, or would excuse performance by any party thereto from, any CONTRACT. SECTION 4.23. INSURANCE. All material properties and operations of CAMCO or FIRST FEDERAL are adequately insured for their benefit. The performance by the officers and employees of CAMCO and FIRST FEDERAL of their duties is bonded in such amounts and against such risks as are usually insured against or bonded by entities similarly situated, under valid and enforceable policies of insurance or bonds issued by insurers or bonding companies of recognized responsibility, financial or otherwise. SECTION 4.24. LITIGATION. Except as disclosed in the CAMCO SEC FILINGS, (a) there are no material actions, suits, proceedings or investigations pending or threatened against or affecting the business, operations or financial condition of CAMCO or FIRST FEDERAL in any court or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, (b) neither the management of CAMCO or FIRST A-28 116 FEDERAL has any knowledge of any basis for any such action, suit, proceeding or investigation, and (c) neither CAMCO nor FIRST FEDERAL is in default in respect of any judgment, order, writ, injunction or decree of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. SECTION 4.25. ENVIRONMENTAL MATTERS. (a) CAMCO and FIRST FEDERAL, to the knowledge of CAMCO or FIRST FEDERAL, are in material compliance with all applicable ENVIRONMENTAL LAWS. CAMCO and FIRST FEDERAL have not received any written or oral communication from any organization, person or otherwise, which alleges that either (i) CAMCO or FIRST FEDERAL is not in compliance with all applicable ENVIRONMENTAL LAWS or (ii) any properties or assets of CAMCO or FIRST FEDERAL may have been affected by any MATERIALS OF ENVIRONMENTAL CONCERN. (b) There is no ENVIRONMENTAL CLAIM pending or, to the knowledge of CAMCO or FIRST FEDERAL, threatened (i) against CAMCO or FIRST FEDERAL, (ii) against any person or entity whose liability for any ENVIRONMENTAL CLAIM has or may have been retained or assumed by CAMCO or FIRST FEDERAL either contractually or by operation of law, or (iii) against any real or personal property which CAMCO or FIRST FEDERAL owns, leases, manages, supervises or participates in the management of, or, to the knowledge of CAMCO or FIRST FEDERAL, in which CAMCO or FIRST FEDERAL holds a security interest in connection with a loan or loan participation, other than such as would not, either individually or in the aggregate, have a material adverse effect on CAMCO or FIRST FEDERAL. (c) There are no present or, to the knowledge of CAMCO and FIRST FEDERAL, past activities, conditions, or incidents, including, without limitation, the release or disposal of any MATERIAL OF ENVIRONMENTAL CONCERN, that could reasonably form the basis of any ENVIRONMENTAL CLAIM against CAMCO or FIRST FEDERAL or against any person or entity whose liability for any ENVIRONMENTAL CLAIM has or may have been retained or assumed by CAMCO or FIRST FEDERAL, either contractually or by operation of law, other than such as would not, either individually or in the aggregate, have a material adverse effect on CAMCO or FIRST FEDERAL. SECTION 4.26. EMPLOYMENT MATTERS. CAMCO and FIRST FEDERAL are in compliance with all federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours and have not and are not engaged in any unfair labor practice, except where such failure to comply or such practice would not have a material adverse effect on the financial condition, results of operations, business or prospects of CAMCO and FIRST FEDERAL taken as a whole. No unfair labor practice complaint against CAMCO or FIRST FEDERAL is pending before any governmental agency or court and there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving CAMCO or FIRST FEDERAL. No representation question exists in respect of the employees of CAMCO or FIRST FEDERAL and no labor grievance which might have a material adverse effect upon CAMCO or FIRST FEDERAL or the conduct of their businesses is pending or, to the knowledge of CAMCO or FIRST FEDERAL, threatened. Neither CAMCO nor FIRST FEDERAL has entered into any collective bargaining agreement A-29 117 with any labor organization with respect to any group of employees of CAMCO or FIRST FEDERAL, and, to the knowledge of CAMCO and FIRST FEDERAL, there is no present effort nor existing proposal to attempt to unionize any group of employees of CAMCO or FIRST FEDERAL. ARTICLE FIVE COVENANTS SECTION 5.01. CONDUCT OF GFBC'S AND GERMANTOWN'S BUSINESS. From the date of this AGREEMENT until the COMPANY EFFECTIVE TIME, GFBC and GERMANTOWN, except with the prior written consent of CAMCO, which shall not be unreasonably withheld, will each conduct its business only in the ordinary course, in accordance with past practices and policies and in compliance with all applicable statutes, rules and regulations. Notwithstanding the foregoing, without the prior written consent of CAMCO, which shall not be unreasonably withheld, neither GFBC nor GERMANTOWN will: (a) Authorize or agree to authorize the creation or issuance of, or issue, sell or dispose of, or create any obligation to issue, sell or dispose of, any stock, notes, bonds or other securities of which GFBC or GERMANTOWN is the issuer, or any obligations convertible into or exchangeable for any shares of its capital stock, other than GFBC SHARES issued in connection with the exercise of GFBC OPTIONS; (b) Declare, set aside, pay or make any dividend or other distribution on its capital stock, or directly or indirectly redeem, purchase or otherwise acquire any shares thereof or enter into any agreement with respect to the foregoing, except that GFBC may (i) declare and pay a regular quarterly cash dividend of $0.12 per share in each calendar quarter between the date of this AGREEMENT and the COMPANY EFFECTIVE TIME. CAMCO and GFBC will coordinate dividends so that only one dividend will be paid in each calendar quarter. (c) Effect any stock split, recapitalization, combination, exchange of shares, readjustment or other reclassification; (d) Amend their Certificate of Incorporation, Charter or Bylaws; (e) Purchase, sell, assign or transfer any material tangible asset or any material patent, trademark, trade name, copyright, license, franchise, design or other intangible assets or property; (f) Mortgage, pledge, grant or suffer to exist any lien or other encumbrance or charge on any assets or properties, tangible or intangible, except for liens A-30 118 for taxes not yet delinquent, assets pledged as collateral to secure borrowings from the FHLB or to secure public deposits and such other liens, encumbrances or charges which do not materially or adversely affect its financial position; (g) Waive any rights of material value or cancel any material debts or claims; (h) Incur any material obligation or liability (absolute or contingent), including, without limitation, any tax liability, or pay any material liability or obligation (absolute or contingent), other than liabilities and obligations incurred in the ordinary course of business and borrowings from the FHLB; (i) Cause any material adverse change in the amount or general composition of deposit liabilities or other liabilities; (j) Enter into or amend any employment contract with any of its employees, increase the compensation payable to any employee or director or any relative of any such employee or director or become obligated to increase any such compensation; (k) Adopt or amend in any material respect any employee benefit plan, severance plan or collective bargaining agreement or make awards or distributions under any employee benefit plan not consistent with past practice or custom; (l) Acquire any stock or other equity interest in any corporation, partnership, trust, joint venture or other entity; (m) Make any material capital expenditure or commitment for any material addition to property, plant, or equipment; (n) Originate or issue a commitment to originate any loan secured by one- to four-family residential real estate in a principal amount of $250,000 or more or any loan secured by nonresidential real estate in a principal amount of $100,000 or more; (o) Except for FHLB advances, the aggregate amount of which at any time shall not exceed Three Million Dollars ($3,000,000), plus such additional amount as may be obtained with the right of prepayment at any time without penalty or premium, and deposit taking in the ordinary course of its business, borrow or agree to borrow any funds, including but not limited to repurchase transactions, or indirectly guarantee or agree to guarantee any obligations of others; A-31 119 (p) Establish any new lending programs or make any changes in its policies concerning which persons may approve loans; (q) Enter into any securities transactions for its own account or purchase or otherwise acquire any investment security for its own account other than U.S. government and U.S. agency obligations and deposits in an overnight account at the FHLB; (r) Increase or decrease the rate of interest paid on time deposits or certificates of deposits, except in a manner and pursuant to policies consistent with past practices in relation to rates prevailing in GERMANTOWN's market; (s) Foreclose upon or otherwise take title to or possession or control of any real property without first obtaining a Phase I Environmental Report thereon which indicates that the property is free of pollutants, contaminants or hazardous or toxic waste materials including petroleum products; provided, however, that GERMANTOWN shall not be required to obtain such a report with respect to single-family, non-agriculture residential property of one acre or less to be foreclosed upon unless it has reason to believe such property may contain any such pollutants, contaminants, waste materials or petroleum products; or (t) Agree, whether in writing or otherwise, to take any action described in this Section 5.01. SECTION 5.02. ACQUISITION TRANSACTIONS. GFBC and GERMANTOWN shall (i) not, directly or indirectly, solicit or initiate any proposals or offers from any person or entity, or discuss or negotiate with any such person or entity, regarding any acquisition or purchase of all or a material amount of the assets of, any equity securities of, or any merger, consolidation or business combination with, GFBC or GERMANTOWN (hereinafter collectively referred to as "ACQUISITION TRANSACTIONS"), (ii) not disclose to any person any information not customarily disclosed publicly or provide access to its properties, books or records or otherwise assist or encourage any person in connection with any of the foregoing, and (iii) give CAMCO prompt notice of any such inquiries, offers or proposals. The foregoing shall not apply however to the consideration of an inquiry, offer or proposal not solicited by GFBC or GERMANTOWN or any of their respective officers, directors, agents or affiliates which relates to the possible sale or other disposition of GFBC SHARES or GERMANTOWN SHARES by shareholders or the possible sale or other disposition of all or substantially all of GFBC's or GERMANTOWN's assets to, or merger or consolidation with, another corporation or association if and to the extent that the board of directors of GFBC reasonably determines in good faith after consultation with McDonald & Company Securities, Inc. and counsel to GFBC that failure to consider such ACQUISITION TRANSACTION could reasonably be expected to constitute a breach of its fiduciary duties to the shareholders of GFBC; provided, however, that GFBC shall give CAMCO prompt notice of any such proposal of an ACQUISITION TRANSACTION and keep CAMCO A-32 120 promptly informed regarding the substance thereof and the response of the board of directors of GFBC thereto. SECTION 5.03. ACCOUNTING POLICIES. Before the COMPANY EFFECTIVE TIME and at the request of CAMCO, GFBC or GERMANTOWN shall promptly (a) establish and take such reserves and accruals to conform GERMANTOWN's loan, accrual and reserve policies to FIRST FEDERAL's policies; (b) establish and take such accruals, reserves and charges in order to implement such policies in respect of excess facilities and equipment capacity, severance costs, litigation matters, write-off or write-down of various assets and other appropriate accounting adjustments; and (c) recognize for financial accounting purposes such expenses of the COMPANY MERGER and the BANK MERGER and restructuring charges related to or to be incurred in connection with the COMPANY MERGER and BANK MERGER, to the extent permitted by law and consistent with GAAP and with the fiduciary duties of the officers and directors of GFBC or GERMANTOWN; provided, however, that neither GFBC nor GERMANTOWN shall be obligated to make any such changes or adjustments until the satisfaction of all conditions set forth in Sections 7.01(a) through (g), and further provided that no basis for termination of this AGREEMENT by any party pursuant to Article Eight is then extant. SECTION 5.04 TAX REPRESENTATION. GFBC and GERMANTOWN will use their reasonable efforts to cause the COMPANY MERGER, and will take no action which would cause the COMPANY MERGER not, to qualify for treatment as a "reorganization" within the meaning of Section 368(a) of the CODE for federal income tax purposes. SECTION 5.05 POOLING. GFBC and GERMANTOWN shall not intentionally take or cause to be taken any action whether before or after the COMPANY EFFECTIVE TIME which would disqualify the COMPANY MERGER or BANK MERGER as a "pooling of interests" for accounting purposes. ARTICLE SIX FURTHER AGREEMENTS SECTION 6.01. REGULATORY APPROVALS; COOPERATION. (a) CAMCO and FIRST FEDERAL shall use their best efforts to file within 60 days of the date hereof all REGULATORY APPLICATIONS required in order to consummate the COMPANY MERGER and the BANK MERGER. CAMCO shall keep GFBC reasonably informed as to the status of such applications and make available to GFBC copies of such applications as filed and any supplementary filed materials and all responses from the regulatory authorities. (b) GFBC and GERMANTOWN will cooperate and will cause their respective directors, officers, employees, agents and advisors to cooperate, to the extent reasonable or necessary, with CAMCO and FIRST FEDERAL in connection with the A-33 121 preparation of the REGULATORY APPLICATIONS and the REGISTRATION STATEMENT described in Section 6.03 hereof. (c) CAMCO and FIRST FEDERAL will cooperate and will cause their respective directors, officers, employees, agents and advisors to cooperate, to the extent reasonable or necessary, with GFBC in connection with the preparation of the REGISTRATION STATEMENT described in Section 6.03 hereof and the PROXY STATEMENT. SECTION 6.02. SPECIAL MEETING OF SHAREHOLDERS OF GFBC. GFBC shall take all steps necessary to duly call, give notice of, convene and hold a meeting of its shareholders for the purpose of voting upon this AGREEMENT as required by applicable law. GFBC shall use its reasonable efforts to hold such meeting as soon as practicable following the date of this AGREEMENT. GFBC shall prepare the PROXY STATEMENT (in cooperation with CAMCO) for use in connection with the GFBC Shareholders Meeting. The Board of Directors of GFBC shall (i) to the extent consistent with their fiduciary duties, recommend to their respective shareholders the adoption of this AGREEMENT and the approval of the transactions contemplated hereby and thereby and any other matters to be submitted to the shareholders in connection therewith and (ii) use their reasonable efforts to obtain the necessary adoptions by the shareholders of this AGREEMENT, any amendments hereto, and the transactions contemplated hereby. Notwithstanding the foregoing, if the Board of Directors of GFBC shall have reasonably determined in good faith in accordance with the provisions of Section 5.02 of this AGREEMENT that such recommendation is reasonably likely to constitute a breach of its fiduciary duties to the shareholders of GFBC, then the Board of Directors of GFBC shall not be obligated to recommend to its shareholders adoption of this AGREEMENT or to present this AGREEMENT to the shareholders of GFBC for their adoption at the GFBC Shareholders Meeting or to hold the GFBC Shareholders Meeting for such purpose. SECTION 6.03. REGISTRATION STATEMENT. (a) CAMCO shall, as soon as reasonably practicable, prepare in accordance with the Securities Act of 1933, as amended (hereinafter referred to as the "1933 ACT"), and file with the SEC a REGISTRATION STATEMENT in respect of the CAMCO SHARES to be issued to the holders of GFBC SHARES in accordance with Article Two of this AGREEMENT (hereinafter referred to as the "REGISTRATION STATEMENT"), and shall use all reasonable efforts to have the REGISTRATION STATEMENT, as amended, declared effective by the SEC as promptly as practicable. (b) CAMCO shall provide copies of the REGISTRATION STATEMENT and all amendments to GFBC immediately upon filing, keep GFBC reasonably informed as to the status of the REGISTRATION STATEMENT and provide GFBC with copies of all responses from the SEC. All costs related to the REGISTRATION STATEMENT and the Prospectus and its printing and delivery shall be borne by CAMCO. SECTION 6.04. EMPLOYEES. Upon satisfactory review of employment files, all employees of GERMANTOWN immediately prior to the BANK EFFECTIVE TIME except those employees covered by a written employment contract, shall become at will employees of A-34 122 FIRST FEDERAL at the same base compensation they are receiving from GERMANTOWN and subject to the employment practices and procedures of FIRST FEDERAL, with prior service credit for purposes of FIRST FEDERAL's vacation policy. Any employee who is currently covered by a written employment agreement will continue his employment in accordance with the terms of such written agreement. With respect to employees of GERMANTOWN not covered by written employment contracts, CAMCO, in accordance with its severance policy applicable to employees of companies that are merged with a subsidiary of CAMCO, shall provide severance benefits as follows: each former employee of GERMANTOWN terminated other than for cause within one year of the BANK EFFECTIVE TIME shall receive one week of base pay (bonus and benefits excluded) for each full year of service to GERMANTOWN prior to the BANK EFFECTIVE TIME, with a minimum payment of four weeks' base pay; provided, that an employee employed by GERMANTOWN less than six months at the BANK EFFECTIVE TIME shall not be eligible for severance benefits. Upon request of CAMCO, GFBC shall take all steps necessary to commence termination of GFBC's 401(k) Plan prior to the COMPANY EFFECTIVE TIME. Notice of termination shall be made prior to the COMPANY EFFECTIVE TIME. At the COMPANY EFFECTIVE TIME all employees of GERMANTOWN shall be eligible to participate in the CAMCO 401(k) Plan, effective immediately, subject to the terms of the Plan, and shall receive prior service credit for eligibility and vesting purposes under the CAMCO 401(k) Plan. CAMCO shall, in its discretion, (i) provide coverage for the GERMANTOWN employees who become employees of FIRST FEDERAL under the health insurance plan maintained by CAMCO for the benefit of the employees of CAMCO and its subsidiaries, including FIRST FEDERAL; provided, however, that any employee of GFBC or GERMANTOWN who has been insured under the health insurance plan maintained by GFBC or GERMANTOWN for at least 12 months prior to the COMPANY EFFECTIVE TIME shall be covered by CAMCO's health insurance plan without regard to any waiting periods and limitations on pre-existing conditions; or (ii) maintain in place the health insurance plan currently maintained by GERMANTOWN for the benefit of its employees. SECTION 6.05. AFFILIATES COMPLIANCE WITH THE 1933 ACT. (a) Within 45 days after the date of this AGREEMENT, GFBC shall identify to CAMCO all persons who GFBC reasonably believes to be "affiliates," as defined in paragraphs (c) and (d) of Rule 145 under the 1933 ACT (hereinafter referred to as the "AFFILIATES"). Thereafter and until the COMPANY EFFECTIVE TIME, GFBC shall identify to CAMCO each additional person whom it reasonably believes to have thereafter become its AFFILIATE. (b) GFBC shall use its best efforts to obtain from each person who is identified as an AFFILIATE for delivery to CAMCO before the COMPANY EFFECTIVE DATE a written agreement in which such AFFILIATE confirms that the CAMCO SHARES received by such AFFILIATE in the COMPANY MERGER shall be transferable only in A-35 123 accordance with Rule 145 of the 1933 ACT, and are subject to rules relating to the transfer of shares received in a transaction deemed a "pooling of interests" for accounting purposes. SECTION 6.06. ADVISORY BOARD AND BOARD OF DIRECTORS OF FIRST FEDERAL. (a) Subject to THRIFT REGULATIONS and OTS directives and conditions of approval, the members of the present Board of Directors of GERMANTOWN will continue for one year as an advisory board to FIRST FEDERAL. The Advisory Board shall meet one time in each calendar quarter, and the members of the Advisory Board shall receive $500 for each such meeting attended by them. No director or executive officer of FIRST FEDERAL shall be paid for attending a meeting of the Advisory Board. (b) CAMCO and FIRST FEDERAL will add one current member of the Board of Directors of GFBC to the Board of Directors of FIRST FEDERAL. SECTION 6.07. MANAGEMENT STOCK BONUS PLAN. The existing Management Stock Bonus Plans (A and B) and grants of awards made on or prior to July 9, 1997 as listed in Section 3.30 of the GFBC DISCLOSURE SCHEDULE in an amount not to exceed 12,335 GFBC shares shall be honored by CAMCO in accordance with the terms of said plans and grants of awards and THRIFT REGULATIONS. No award granted subsequent to July 9, 1997 will be valid in any respect. SECTION 6.08. ACCESS. Until the COMPANY EFFECTIVE TIME, GFBC shall afford to CAMCO, and CAMCO shall afford to GFBC and to their respective officers and representatives (including, without limitation, counsel, financial advisers and independent accountants), reasonable access to their properties, personnel, books, records and affairs. Such access shall include, but shall not be limited to, (i) permitting verification, by audit or otherwise, of any representation or warranty made hereunder; (ii) authorizing release of any information (including the work papers of such independent auditors) and financial consultants; (iii) consistent with applicable regulations or procedures, furnishing regular and special examination reports since the date of this AGREEMENT; and (iv) delivering copies of all documents or reports or correspondence filed and any correspondence with any federal regulatory or supervisory agency from the date of this AGREEMENT. Each party shall furnish the other party with such additional financial and operating data and other information as to its businesses and properties as may be reasonably requested. SECTION 6.09. CONFIDENTIALITY. The parties acknowledge the confidential and proprietary nature of the information as hereinafter described which has heretofore been exchanged and which will be received from each other hereunder (hereinafter referred to as the "INFORMATION") and agree to hold and keep the same confidential. Such INFORMATION will include any and all financial, technical, commercial, marketing, customer or other information concerning the business, operations and affairs of a party that may be provided to the other, irrespective of the form of the communications, by such party's employees or agents. Such INFORMATION shall not include information that is or becomes generally available to the public other than as a result of a disclosure by a party or its representatives in violation of this A-36 124 AGREEMENT, or INFORMATION which is required to be furnished or used in connection with legal proceedings. The parties agree that the INFORMATION will be used solely for the purposes contemplated by this AGREEMENT and that such INFORMATION will not be disclosed to any person other than employees and agents of a party who are directly involved in evaluating the transaction. The INFORMATION shall not be used in any way detrimental to a party, including use directly or indirectly in the conduct of the other party's business or enterprise in which such party may have an interest, now or in the future, and whether or not now in competition with such other party. Upon the written request of the disclosing party, upon termination of this AGREEMENT, the other parties will promptly return or destroy INFORMATION in their possession and certify to the disclosing party that the party has done so. SECTION 6.10. PRESS RELEASES. CAMCO and GFBC shall consult with each other before issuing any press release or otherwise making any public statements with respect to the COMPANY MERGER or the BANK MERGER and shall not issue any such press release or make any such public statement without obtaining the prior consent of the other party, except as may be required by law or by obligations pursuant to any listing agreement with any national securities association. SECTION 6.11. COSTS AND EXPENSES; TERMINATION FEE. Whether or not the COMPANY MERGER is consummated, all costs and expenses incurred in connection with this AGREEMENT, the PROXY STATEMENT, the REGISTRATION STATEMENT and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Notwithstanding the foregoing, (i) in the event the Board of Directors of GFBC or GERMANTOWN accepts in any manner an ACQUISITION TRANSACTION prior to the earlier of termination of this AGREEMENT other than due to a breach of this AGREEMENT by GFBC or GERMANTOWN, or June 30, 1998, or (ii) in the event the Board of Directors of GFBC fails to recommend to the shareholders of GFBC approval of the AGREEMENT and the AGREEMENT is rejected by the shareholders of GFBC; or (iii) in the event no meeting of shareholders is held on or before June 30, 1998, other than for reasons beyond the control of GFBC, then, in any of such events, GFBC shall pay to CAMCO $250,000 in immediately available federal funds (i) in the case of the execution of any definitive agreement or letter of intent in respect of an ACQUISITION TRANSACTION within one year of the date of this AGREEMENT, such payment to be made within two days of the execution of such agreement or letter of intent, (ii) in the case of the disapproval by the shareholders of GFBC of this AGREEMENT where the Board of Directors of GFBC has failed to recommend approval, such payment to be made within two days after the date of the shareholder meeting, and (iii) if no meeting of shareholders is held by June 30, 1998, other than for reasons beyond the control of GFBC, such payment to be made within two days after June 30, 1998. SECTION 6.12. REASONABLE EFFORTS. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this AGREEMENT. A-37 125 SECTION 6.13. NOTIFICATION OF EVENTS. At all times from the date of this AGREEMENT until the COMPANY EFFECTIVE TIME, each party shall promptly notify the other in writing of any materially adverse business conditions threatening its normal business operations or of the occurrence of any event or the failure of any event to occur which might reasonably be expected to result in a breach of or a failure to comply with any representation, warranty, covenant, condition or agreement contained in this AGREEMENT or of the commencement of any action, suit, proceeding or investigation against it. SECTION 6.14. VOTING AGREEMENT. Concurrently with the execution and delivery of this AGREEMENT, or not later than ten days thereafter, and as a condition and material inducement to CAMCO's willingness to enter into this AGREEMENT, each of the directors and executive officers of GFBC and GERMANTOWN shall enter into a shareholder agreement in the form attached hereto as Exhibit B. SECTION 6.15. POOLING. GRANT has reviewed the proposed terms and conditions of the COMPANY MERGER and has issued their opinion on the proposed accounting that the COMPANY MERGER qualifies as a "pooling of interests" for accounting purposes. Neither CAMCO nor FIRST FEDERAL shall intentionally take or cause to be taken any action, whether before or after the COMPANY EFFECTIVE TIME or BANK EFFECTIVE TIME which would disqualify the COMPANY MERGER or BANK MERGER as a "pooling of interests" for accounting purposes or as a "reorganization" within the meaning of Section 368(a) of the CODE. SECTION 6.16. INDEMNIFICATION. Nothing in this AGREEMENT is intended to affect any rights to indemnification to which any officer or director of GFBC or GERMANTOWN may be entitled pursuant to the Certificate of Incorporation, Charter or Bylaws of GFBC or GERMANTOWN in effect prior to the COMPANY EFFECTIVE TIME. From the COMPANY EFFECTIVE TIME and continuing for a period of three years thereafter, the current and former officers and directors of GFBC shall be indemnified by CAMCO from their acts and omissions occurring prior to the COMPANY EFFECTIVE TIME to the maximum extent permitted by the Certificate of Incorporation and Bylaws of CAMCO but subject to any applicable limitations of Delaware law. From the BANK EFFECTIVE TIME and continuing for a period of three years thereafter, the current and former officers and directors of GERMANTOWN shall be indemnified by FIRST FEDERAL for their acts and omissions occurring prior to the BANK EFFECTIVE TIME to the extent permitted by the THRIFT REGULATIONS. As a condition to receiving such indemnification, the party claiming indemnification shall assign to CAMCO, by separate writing, all right, title and interest in and to the proceeds of the claiming party's applicable insurance coverage, if any, including insurance maintained or provided by CAMCO or GFBC or GERMANTOWN to the extent of such indemnity. No person shall be entitled to such indemnification with respect to a claim (i) if such person fails to cooperate in the defense and investigation of such claim as to which indemnification may be made, (ii) made by such person against CAMCO, its subsidiaries, GFBC or GERMANTOWN arising out of or in connection with this AGREEMENT, the transactions contemplated hereby or the conduct of the business of CAMCO, its subsidiaries, GFBC or GERMANTOWN, or (iii) if such person fails to deliver such notices as may be required under any applicable directors and officers liability insurance policy to preserve any possible claims of A-38 126 which the claiming party is aware, to the extent such failure results in the denial of payment under such policy. Subject to GFBC and GERMANTOWN providing all requested information and representations to CAMCO's directors' and officers' liability insurance carrier, CAMCO shall add a rider, to be effective at the COMPANY EFFECTIVE TIME, to CAMCO's existing directors' and officers' liability insurance policy covering the acts and omissions of the officers and directors of GFBC and GERMANTOWN occurring prior to the COMPANY EFFECTIVE TIME and to continue such rider for a period of three years. SECTION 6.17. AMENDMENT OF CHARTER. Prior to the COMPANY EFFECTIVE TIME, GERMANTOWN shall take all steps necessary to amend its Charter to remove Section 8(A). SECTION 6.18. CONDUCT OF CAMCO BUSINESS. From the date of this AGREEMENT until the COMPANY EFFECTIVE TIME, CAMCO shall: (a) Use all reasonable efforts to preserve intact its business organization and assets and maintain its rights, franchises and existing relationships with customer, suppliers, employees and business associates; (b) Notify GFBC in writing within five business days of (i) the existence of any adverse business conditions threatening the normal business operations of CAMCO, (ii) the occurrence of any event or the failure of any event to occur which might result in a breach of or a failure to comply with any representations, warranty, covenant, condition or agreement by or pertaining to CAMCO contained in this AGREEMENT, (iii) the commencement of any material action, suit, proceeding, or investigation against CAMCO and (iv) the tender of any offer to acquire CAMCO by merger or otherwise; (c) Take no action that would adversely affect the ability of CAMCO to obtain any necessary approvals of governmental authorities required for the transactions contemplated hereby without the imposition of a burdensome restriction or condition, or adversely affect the ability of CAMCO to perform its covenants and agreements under this AGREEMENT; and (d) Take all action necessary to cause to be listed on The Nasdaq Stock Market the CAMCO SHARES to be issued pursuant to this AGREEMENT. ARTICLE SEVEN CLOSING MATTERS SECTION 7.01. CONDITIONS TO OBLIGATIONS OF CAMCO, FIRST FEDERAL GFBC AND GERMANTOWN. Notwithstanding any other provision of this AGREEMENT, the obligations of CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN to effect the A-39 127 COMPANY MERGER and the BANK MERGER shall be subject to the fulfillment of each of the following conditions: (a) This AGREEMENT shall have been validly adopted by the affirmative vote of the holders of at least the number of outstanding GFBC SHARES required under Delaware law and GFBC's Certificate of Incorporation and Bylaws and the BANK MERGER AGREEMENT shall have been duly authorized and approved by the shareholder of FIRST FEDERAL and the shareholder of GERMANTOWN; (b) All permits, approvals, consents, authorizations, exemptions or waivers of any federal or state governmental body or agency necessary or appropriate for consummation of the COMPANY MERGER and the BANK MERGER shall have been obtained and all notices required to be filed shall have been filed and any objection or waiting period with respect to such notice shall have expired; (c) All waivers, consents and approval of every person, in addition to those required under subsections (a) and (b) of this Section 7.01, necessary or appropriate for the consummation of the COMPANY MERGER and the BANK MERGER shall have been obtained; (d) GFBC shall have received a written fairness opinion of McDonald & Company Securities, Inc., dated the date of this AGREEMENT and as of a date reasonably proximate to the date of the PROXY STATEMENT, to the effect that the EXCHANGE RATIO is fair to the holders of the GFBC SHARES from a financial point of view, and CAMCO shall have received a written fairness opinion from National Capital Companies, L.L.C. dated as of the date of the AGREEMENT, to the effect that the EXCHANGE RATIO is fair to the holders of the CAMCO SHARES from a financial point of view; (e) There shall not be in effect any federal or state law, rule or regulation or any order or decision of a court of competent jurisdiction which prevents or materially delays the consummation of the COMPANY MERGER or the BANK MERGER; (f) CAMCO and GFBC shall have received an opinion of Vorys, Sater, Seymour and Pease to the effect that the COMPANY MERGER and the BANK MERGER, when consummated in accordance with the terms hereof and the BANK MERGER AGREEMENT, will each constitute a reorganization within the meaning of Section 368(a)(1)(A) of the CODE and that no gain or loss will be recognized by GFBC shareholders to the extent they receive CAMCO SHARES in exchange for GFBC SHARES; A-40 128 (g) The REGISTRATION STATEMENT (including any post-effective amendment thereto) shall have been declared effective by the SEC, and no proceeding shall be pending or, to the knowledge of CAMCO or GFBC, threatened by the SEC to suspend the effectiveness of the REGISTRATION STATEMENT; and (h) With respect to the BANK MERGER only, the COMPANY MERGER shall have been effected. SECTION 7.02. CONDITIONS TO OBLIGATIONS OF CAMCO AND FIRST FEDERAL. In addition to the conditions contained in Section 7.01 of this AGREEMENT, the obligations of CAMCO and FIRST FEDERAL to effect the COMPANY MERGER and the BANK MERGER shall also be subject to the fulfillment of each of the following conditions unless fulfillment is waived by CAMCO and FIRST FEDERAL in writing: (a) The representations and warranties of GFBC and GERMANTOWN contained in Article Three of this AGREEMENT shall be true in all material respects at and as of the date hereof and at and as of the day of the COMPANY CLOSING as if made at and as of such time, except where such representation or warranty is expressly made as of a specific date; (b) GFBC and GERMANTOWN shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this AGREEMENT to be performed or complied with by GFBC and GERMANTOWN before or on the day of the COMPANY CLOSING; (c) There shall not have been a material adverse change in the financial condition, assets, liabilities, obligations, properties, business or prospects of GFBC or GERMANTOWN after the date of this AGREEMENT, except changes resulting from action taken by GFBC or GERMANTOWN pursuant to Section 5.03 of this AGREEMENT and changes resulting from or attributable to expenses incurred in connection with the transactions contemplated by this AGREEMENT; (d) GFBC and GERMANTOWN shall each have delivered to CAMCO a certificate dated the day of the COMPANY CLOSING and signed by the President and the chief financial officer of each of GFBC and GERMANTOWN to the effect set forth in subsections (a), (b) and (c) of this Section 7.02; (e) CAMCO shall have received an opinion of GFBC's counsel dated the date of the COMPANY CLOSING in form reasonably acceptable to CAMCO's counsel opining with respect to matters listed on Exhibit C hereto; A-41 129 (f) There shall not be any action or proceeding commenced by or before any court or governmental agency or authority in the United States, or threatened by any governmental agency or authority in the United States, that challenges or seeks to prevent or delay the consummation of the COMPANY MERGER or the BANK MERGER or seeks to impose material limitations on the ability of CAMCO or FIRST FEDERAL to exercise full rights of ownership of the assets or business of GFBC and GERMANTOWN; (g) There shall not have been proposed, nor shall there be in effect, any federal or state law, rule, regulation, order or statement of policy that, in the reasonable judgment of CAMCO, would: (i) prevent or delay the consummation of the COMPANY MERGER or the BANK MERGER or interfere with the reasonable operation of the business of GFBC or GERMANTOWN (ii) materially adversely affect the ability of CAMCO to enjoy the economic or other benefits of the COMPANY MERGER or the BANK MERGER or (iii) impose any material adverse condition, limitation or requirement on CAMCO in connection with the COMPANY MERGER or the BANK MERGER; (h) GFBC and GERMANTOWN shall not have incurred any damage, destruction or similar loss, not covered by insurance, materially affecting its businesses or properties; (i) Immediately prior to the COMPANY EFFECTIVE TIME no more than Seven and One Half Percent (7.5%) of the outstanding GFBC SHARES shall qualify as DISSENTERS SHARES; (j) The shareholders' equity of GFBC on the day of the COMPANY CLOSING and as calculated in accordance with GAAP shall not be less than $6,399,264, without giving effect to (i) reserves, accruals and charges taken or established by GFBC or GERMANTOWN at the request of CAMCO in accordance with Section 5.03 of this AGREEMENT, (ii) expenses incurred in connection with the transactions contemplated by this AGREEMENT; and (iii) realized or unrealized losses on securities classified as available for sale in the GFBC AUDITED STATEMENTS; (k) CAMCO shall have received from GRANT a written opinion dated the date of COMPANY CLOSING that CAMCO will be entitled to account for the COMPANY MERGER under the "pooling of interests" method; (l) GFBC and GERMANTOWN shall have complied with Section 5.03 hereof to the reasonable satisfaction of CAMCO; A-42 130 (m) CAMCO shall have received the affiliate letters required by Section 6.05 of this AGREEMENT; (n) The Amendment to the Charter of GERMANTOWN described in Section 6.17 of this AGREEMENT, shall be effective; and (o) CAMCO shall have received documentation from GFBC with respect to the GERMANTOWN liquidation account, which documentation shall be reasonably acceptable to CAMCO. SECTION 7.03. CONDITIONS TO OBLIGATIONS OF GFBC AND GERMANTOWN. In addition to the conditions contained in Section 7.01 of this AGREEMENT, the obligations of GFBC and GERMANTOWN to effect the COMPANY MERGER and the BANK MERGER shall also be subject to the fulfillment of each of the following conditions: (a) The representations and warranties of CAMCO and FIRST FEDERAL contained in Article Four of this AGREEMENT shall be true in all material respects at and as of the date hereof and at and as of the date of the COMPANY CLOSING as if made at and as of such time; (b) CAMCO and FIRST FEDERAL shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this AGREEMENT to be performed or complied with by them before or at the COMPANY CLOSING; (c) There shall not have been a material adverse change in the financial condition, assets, liabilities, obligations, properties, business or prospects of CAMCO or FIRST FEDERAL after the date of this AGREEMENT; (d) CAMCO and FIRST FEDERAL shall have delivered to GFBC a certificate dated the day of the COMPANY CLOSING and signed by the President and the Chief Financial Officer of each of CAMCO and FIRST FEDERAL to the effect set forth in subsections (a), (b) and (c) of this Section 7.03; and (e) GFBC shall have received an opinion of CAMCO's counsel dated the date of the COMPANY CLOSING in form reasonably acceptable to GFBC's counsel opining with respect to matters listed on Exhibit D hereto. A-43 131 ARTICLE EIGHT TERMINATION SECTION 8.01. TERMINATION. This AGREEMENT shall be terminated if the AVERAGE CLOSING PRICE, as adjusted for any stock split, stock dividend, recapitalization, combination, readjustment or other reclassification, is less than $12.78. This AGREEMENT may be terminated at any time prior to the date of the COMPANY CLOSING, whether before or after approval by the shareholders of GFBC: (a) By mutual consent of the Boards of Directors of GFBC and CAMCO; or (b) By the Board of Directors of GFBC or CAMCO if: (i) The COMPANY MERGER shall not have been consummated on or before June 30, 1998; provided, however, that a party who is then in breach of any of its representations, warranties, covenants or agreements under this AGREEMENT in any material respect may not exercise such right of termination if it has received notice from the non-breaching party that the non-breaching party is seeking specific performance of the breaching party's obligations under this AGREEMENT; provided further, however, that no such termination shall relieve the breaching party from liability for a breach that occurs prior to such termination; or (ii) Any event occurs which, in the reasonable opinion of either Board, would preclude satisfaction of any of the conditions set forth in Section 7.01 of this AGREEMENT; or (c) By the Board of Directors of CAMCO if any event occurs which, in the reasonable opinion of such Board, would preclude compliance with any of the conditions set forth in Section 7.02 of this AGREEMENT; or (d) By the Board of Directors of GFBC if any event occurs which, in the reasonable opinion of such Board, would preclude compliance with any of the conditions set forth in Section 7.03 of this AGREEMENT, or if the AVERAGE CLOSING PRICE is more than $23.73, as adjusted for any stock split, stock dividend, recapitalization, combination, readjustment or other reclassification. SECTION 8.02. WRITTEN NOTICE OF TERMINATION. In order to terminate this AGREEMENT pursuant to Section 8.01(a), (b), (c) and (d), the party so acting shall give written notice of such termination to the other party. This AGREEMENT shall terminate on the date such notice is given. A-44 132 SECTION 8.03. EFFECT OF TERMINATION. In the event of the termination of this AGREEMENT, the provisions of this AGREEMENT shall become void and have no effect; provided, however, that (a) the provisions set forth in Sections 6.09, 6.10 and 6.11 of this AGREEMENT shall survive such termination and shall remain in full force and effect and (b) a termination of this AGREEMENT shall not affect the liability of any party for an uncured breach of any term or condition of this AGREEMENT. SECTION 8.04. AMENDMENT. This AGREEMENT may be amended at any time before or after approval of this AGREEMENT by the shareholders of GFBC, but after such approval no amendment shall be made which materially and adversely affects the rights of such shareholders without the further approval of such shareholders. This AGREEMENT may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 8.05. WAIVER. Any term or provision of this AGREEMENT (other than the requirement for shareholder approval) may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. ARTICLE NINE MISCELLANEOUS SECTION 9.01. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If addressed to CAMCO or FIRST FEDERAL: Larry A. Caldwell President, Chief Executive Officer and Chairman of the Board Camco Financial Corporation 814 Wheeling Avenue Cambridge, Ohio 43725 with a copy to: Roger A. Yurchuck or Terri Reyering Abare Vorys, Sater, Seymour and Pease 221 East Fourth Street Atrium Two, Suite 2100 Cincinnati, Ohio 45202 A-45 133 If addressed to GFBC or GERMANTOWN: John T. Baker President and Chief Executive Officer GF Bancorp, Inc. One North Plum Street Germantown, Ohio 45327 with a copy to: Cynthia A. Shafer Vorys, Sater, Seymour and Pease 221 East Fourth Street Atrium Two, Suite 2100 Cincinnati, Ohio 45202 SECTION 9.02. ENTIRE AGREEMENT. This AGREEMENT (including the exhibits, documents and instruments referred to herein or therein) (a) constitutes the entire agreement of the parties and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof; (b) is not intended to and shall not confer any rights or remedies hereunder upon any person other than CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN; (c) shall not be assigned by operation of law or otherwise; and (d) shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Delaware, except to the extent that federal law may be applicable. SECTION 9.03. EXECUTION IN COUNTERPARTS. This AGREEMENT may be executed in two or more counterparts which together shall constitute a single AGREEMENT. SECTION 9.04. HEADINGS. The headings of articles and sections herein are for convenience of reference only, do not constitute a part of this AGREEMENT and shall not be deemed to limit or affect any of the provisions hereof. SECTION 9.05. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or warranty shall survive the COMPANY EFFECTIVE TIME. SECTION 9.06. LIABILITIES AND SPECIFIC PERFORMANCE. The termination fee provided for in Section 6.11 shall be the exclusive fee and remedy for a termination of this AGREEMENT with respect to the matters described in Section 6.11. Other than with respect to such specific remedy, each party to this AGREEMENT recognizes that, if it fails to perform, observe or discharge any of its obligations under this AGREEMENT, remedies at law may not provide adequate relief to the other party or parties. Therefore, each party is hereby authorized to demand specific performance of this AGREEMENT, and is entitled to temporary and permanent injunctive relief, in a court of competent jurisdiction at any time when any other party fails to comply with any of the provisions of this AGREEMENT applicable to it, in addition to any other remedy that may be available in law or equity. To the extent permitted by applicable law, each A-46 134 party hereby irrevocably waives any defense that it might have based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance or injunctive relief. IN WITNESS WHEREOF, CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN have caused this AGREEMENT to be signed by their respective duly authorized officers on the date first above written.
ATTEST: CAMCO FINANCIAL CORPORATION Anthony J. Popp By: Larry A. Caldwell - --------------- ----------------- Anthony J. Popp Larry A. Caldwell Secretary President, Chief Executive Officer and Chairman of the Board ATTEST: FIRST FEDERAL SAVINGS BANK OF WASHINGTON COURT HOUSE Harold H. Thompson By: William W. Whipple - ------------------ ------------------ Harold H. Thompson William W. Whipple Secretary President and Chief Executive Officer ATTEST: GF BANCORP, INC. Barbara L. Mullis By: John T. Baker - ----------------- ------------- Barbara L. Mullis John T. Baker Secretary President and Chief Executive Officer ATTEST: GERMANTOWN FEDERAL SAVINGS BANK Barbara L. Mullis By: John T. Baker - ----------------- ------------- Barbara L. Mullis John T. Baker Secretary President and Chief Executive Officer
A-47 135 ACKNOWLEDGMENT STATE OF OHIO ) ) SS: COUNTY OF GUERNSEY ) BE IT REMEMBERED that on this 24th day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, Larry A. Caldwell, President of Camco Financial Corporation, and duly executed the Agreement and Plan of Reorganization before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day of July, 1997. Sandra S. Flood --------------- Notary Public SANDRA S. FLOOD Notary Public, State of Ohio My Commission Expires 4-20-98 STATE OF OHIO ) ) SS: COUNTY OF FAYETTE ) BE IT REMEMBERED that on this 24th day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, Larry A. Caldwell, President of Camco Financial Corporation, and duly executed the Agreement and Plan of Reorganization before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day of July, 1997. Vicki Pendleton --------------- Notary Public VICKI PENDLETON Notary Public, State of Ohio My Commission Expires August 18, 1999 A-48 136 STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) BE IT REMEMBERED that on this 28th day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, Larry A. Caldwell, President of Camco Financial Corporation, and duly executed the Agreement and Plan of Reorganization before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day of July, 1997. Cynthia Anne Shafer --------------- Notary Public CYNTHIA ANNE SHAFER, Attorney at Law Notary Public, State of Ohio My Commission has no Expiration Date. Section 147.03 Rev. Code. STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) BE IT REMEMBERED that on this 28th day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, Larry A. Caldwell, President of Camco Financial Corporation, and duly executed the Agreement and Plan of Reorganization before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day of July, 1997. Cynthia Anne Shafer --------------- Notary Public CYNTHIA ANNE SHAFER, Attorney at Law Notary Public, State of Ohio My Commission has no Expiration Date. Section 147.03 Rev. Code. A-49 137 EXHIBIT A MERGER AGREEMENT THIS MERGER AGREEMENT (hereinafter referred to as this "AGREEMENT"), made and entered into on July ___, 1997, by and between First Federal Savings Bank of Washington Court House (hereinafter referred to as "FIRST FEDERAL"), a savings bank incorporated under the laws of the United States and a wholly-owned subsidiary of Camco Financial Corporation, a Delaware corporation (hereinafter referred to as "CAMCO"), and Germantown Federal Savings Bank (hereinafter referred to as "GERMANTOWN"), a savings bank incorporated under the laws of the United States and a wholly-owned subsidiary of GF Bancorp, Inc., a Delaware corporation (hereinafter referred to as "GFBC"); WITNESSETH: WHEREAS, CAMCO, FIRST FEDERAL, GFBC and GERMANTOWN are parties to an Agreement of Merger and Plan of Reorganization dated July ___, 1997 (hereinafter referred to as the "PLAN OF REORGANIZATION"), pursuant to which GFBC would be merged with and into CAMCO and thereafter GERMANTOWN would be merged with and into FIRST FEDERAL; WHEREAS, the authorized capital of FIRST FEDERAL consists of 500,000 common shares, One Dollar ($1.00) par value per share, 180,000 of which are issued and outstanding and are owned of record by CAMCO and 500,000 preferred shares, One Dollar ($1.00) par value per share, none of which is issued or outstanding; WHEREAS, the authorized capital of GERMANTOWN consists of 1,250,000 common shares, One Cent ($0.01) par value per share, 100,000 of which are issued and outstanding and owned of record by GFBC and 250,000 preferred shares, One Cent ($0.01) par value per share, none of which is issued or outstanding; and WHEREAS, the Boards of Directors of FIRST FEDERAL and GERMANTOWN believe that the merger of GERMANTOWN with and into FIRST FEDERAL is in the best interest of GERMANTOWN and FIRST FEDERAL; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, FIRST FEDERAL and GERMANTOWN, each intending to be legally bound, hereby agree that the terms of the merger shall be as follows: ARTICLE ONE SECTION 1.01. At the EFFECTIVE TIME (hereinafter defined), which shall occur after both the closing and effective time of the merger of GFBC into CAMCO, GERMANTOWN shall merge with and into FIRST FEDERAL (the "MERGER") and FIRST FEDERAL shall be the continuing, surviving and resulting institution in the MERGER, shall continue to exist as a federal savings bank organized under the laws of the United States and shall be the only one of 138 GERMANTOWN and FIRST FEDERAL to continue its separate corporate existence at and after the EFFECTIVE TIME. As used in this AGREEMENT, the term "RESULTING INSTITUTION" refers to FIRST FEDERAL at and after the EFFECTIVE TIME. The name of the RESULTING INSTITUTION shall be "First Federal Savings Bank of Washington Court House". SECTION 1.02. At the EFFECTIVE TIME, each common share of GERMANTOWN issued and outstanding prior to the MERGER shall, by virtue of the MERGER and without any action on the part of the parties hereto, be cancelled and extinguished and, at and after the EFFECTIVE TIME, the capital of the RESULTING INSTITUTION shall consist of 500,000 common shares of FIRST FEDERAL, One Dollar ($1.00) par value per share, 180,000 of which are issued and outstanding and owned of record by CAMCO and 500,000 preferred shares of FIRST FEDERAL, One Dollar ($1.00) par value per share, none of which is issued or outstanding. Any common shares of GERMANTOWN held in the Treasury of GERMANTOWN immediately prior to the EFFECTIVE TIME shall be retired, cancelled and extinguished. Each common share of FIRST FEDERAL issued and outstanding immediately prior to the EFFECTIVE TIME shall be unchanged and shall remain issued and outstanding. SECTION 1.03. The Amended Charter of FIRST FEDERAL shall be the Amended Charter of the RESULTING INSTITUTION until amended in accordance with law. SECTION 1.04. The Bylaws of FIRST FEDERAL shall be the Bylaws of the RESULTING INSTITUTION until amended in accordance with law. SECTION 1.05. At and after the EFFECTIVE TIME and until changed in accordance with law, the home office of FIRST FEDERAL at 134 E. Court Street, Washington Court House, Ohio 43160, shall be the home office of the RESULTING INSTITUTION and the existing branch office of FIRST FEDERAL at 1050 Washington Avenue, Washington Court House, Ohio 43160 shall be a branch office of the RESULTING INSTITUTION. At and after the EFFECTIVE TIME and until changed in accordance with law, the former offices of GERMANTOWN at the following locations shall be branch offices of the RESULTING INSTITUTION: One North Plum Street 675 West Main Street Germantown, Ohio 45323 New Lebanon, Ohio 45345 139 SECTION 1.06. At and after the EFFECTIVE TIME and until changed in accordance with law, the number of directors of the RESULTING INSTITUTION shall be eight, the names, residence addresses and office terms of whom are as follows:
NAMES RESIDENCE TERM - ----- ADDRESS EXPIRES ------- ------- James R. Hanawalt 10 Royal Court January 2000 Washington Court House, Ohio 43160 Larry A. Caldwell 10491 Rock Hill Road January 2000 Cambridge, Ohio 43725 Anthony J. Popp 507 Tupper Street January 1998 Marietta, Ohio 45750 Philip L. French P.O. Box 82 January 1998 Washington Court House, Ohio 43160 Jeffrey D. Teeters 540 Highland Avenue January 1999 Washington Court House, Ohio 43160 Terry A. Feick 321 N. North Street January 1999 Washington Court House, Ohio 43160 William W. Whipple 1521 Mark Road January 1998 Washington Court House, Ohio 43160
ARTICLE TWO SECTION 2.01. At and after the EFFECTIVE TIME, the separate existence of GERMANTOWN shall cease; provided, however, that whenever a conveyance, assignment, transfer, deed or other instrument or act is necessary to vest property or rights in the RESULTING INSTITUTION, the officers of FIRST FEDERAL and GERMANTOWN shall execute, acknowledge and deliver such instruments and do such acts. SECTION 2.02. At and after the EFFECTIVE TIME, all of the assets and property of every kind and character, real, personal and mixed, tangible and intangible, choses in action, rights and credits owned by FIRST FEDERAL and GERMANTOWN at the EFFECTIVE TIME, or which would inure to any of them, shall immediately, by operation of law and without any conveyance or transfer and without any further act or deed, be vested in and become the property of the RESULTING INSTITUTION, which shall have, hold and enjoy the same in its 140 own right as fully and to the same extent as the same were possessed, held and enjoyed by FIRST FEDERAL and GERMANTOWN before the MERGER. The RESULTING INSTITUTION shall be deemed to be and shall be a continuation of the entity and identity of FIRST FEDERAL. All of the rights and obligations of FIRST FEDERAL and GERMANTOWN shall remain unimpaired and the RESULTING INSTITUTION shall succeed to all of such rights and obligations and the duties and liabilities connected therewith. Title to any real estate or any interest therein vested in any of either FIRST FEDERAL or GERMANTOWN shall not revert or in any way be impaired by reason of the MERGER. Any claim existing, or action or proceeding pending, by or against either FIRST FEDERAL or GERMANTOWN, may be prosecuted to judgment with right of appeal as if the MERGER had not taken place or the RESULTING INSTITUTION may be substituted in its place. SECTION 2.03. At and after the EFFECTIVE TIME, all the rights of creditors of each of FIRST FEDERAL and GERMANTOWN shall be preserved unimpaired, and all liens upon the property of FIRST FEDERAL and GERMANTOWN shall be preserved unimpaired on only the property affected by any such lien immediately before the EFFECTIVE TIME. SECTION 2.04. At the EFFECTIVE TIME and as a result of the MERGER, each GERMANTOWN savings deposit or other account then existing shall, automatically and without further act of FIRST FEDERAL or GERMANTOWN or the holder thereof, be cancelled and extinguished. In substitution and exchange for each GERMANTOWN passbook savings deposit so cancelled and extinguished, the holder thereof shall automatically receive from the RESULTING INSTITUTION a FIRST FEDERAL passbook savings account with a beginning balance equal in dollar amount to the dollar amount of the GERMANTOWN passbook savings deposit account so cancelled and extinguished and otherwise on the same terms as other FIRST FEDERAL passbook savings accounts accepted by FIRST FEDERAL at the EFFECTIVE TIME. In substitution for each GERMANTOWN savings deposit other than a passbook savings deposit so cancelled and extinguished, the holder thereof shall automatically receive from the RESULTING INSTITUTION a FIRST FEDERAL savings account with a beginning balance equal in dollar amount to the dollar amount of the GERMANTOWN savings deposit account so cancelled and extinguished and otherwise having the same terms as the GERMANTOWN savings deposit so cancelled and extinguished. SECTION 2.05. The holder of each GERMANTOWN savings deposit or other account cancelled and extinguished in accordance with Section 2.04 of this Merger Agreement shall forthwith be entered on the records of the RESULTING INSTITUTION as the holder of an appropriate FIRST FEDERAL savings deposit or other account in an amount determined as provided in Section 2.04 and, until Section 2.06 of this AGREEMENT shall have been complied with, each passbook, certificate of deposit or other account issued by GERMANTOWN shall be deemed, for all purposes, to evidence a savings deposit or other account of the RESULTING INSTITUTION. 141 SECTION 2.06. Each person who, as a result of the MERGER, holds a passbook, certificate of deposit or other document issued by GERMANTOWN which theretofore evidenced a GERMANTOWN savings deposit or other account shall surrender each such passbook, certificate or other document to the RESULTING INSTITUTION. Upon such surrender, the RESULTING INSTITUTION shall deliver in substitution therefor an account book or other document evidencing the FIRST FEDERAL savings deposit or other account received by such person in accordance with Section 2.04 of this AGREEMENT. ARTICLE THREE Notwithstanding any other provision of this AGREEMENT, the obligation of FIRST FEDERAL and GERMANTOWN to effect the MERGER shall be subject to: (i) the satisfaction at or before the EFFECTIVE TIME of each of the conditions set forth in Article Seven of the PLAN OF REORGANIZATION; (ii) the approval of this AGREEMENT by GFBC as the sole shareholder of GERMANTOWN and by CAMCO as the sole shareholder of FIRST FEDERAL at meetings of shareholders duly called and held (or by consent or consents in lieu thereof); (iii) receipt of approval of the MERGER from all governmental authorities whose approval is required; (iv) receipt of any necessary regulatory approval to operate the offices of GERMANTOWN as offices of FIRST FEDERAL; and (v) the close and the effective time of the merger of GFBC and CAMCO before the EFFECTIVE TIME. ARTICLE FOUR SECTION 4.01. The closing of the transactions contemplated by this AGREEMENT shall take place on a date selected by FIRST FEDERAL which date shall be after the effective time of the merger of GFBC into CAMCO. FIRST FEDERAL and GERMANTOWN shall cause Articles of Combination to be filed with the Office of Thrift Supervision. The MERGER shall become effective on the date and at the time that Articles of Combination are declared effective by the Office of Thrift Supervision unless a later date and time is specified as the effective time on the endorsement of said Articles of Combination (the "EFFECTIVE TIME"). SECTION 4.02. In the event of the termination of the PLAN OF REORGANIZATION in accordance with Article Eight thereof, this AGREEMENT shall terminate and shall thereafter be of no further force or effect. ARTICLE FIVE SECTION 5.01. The MERGER shall have no effect upon the GERMANTOWN Liquidation Account which is assumed by FIRST FEDERAL at the EFFECTIVE TIME in accordance with 12 C.F.R. 563b3(f). SECTION 5.02. The MERGER shall not be effective unless and until said MERGER receives any necessary approval from the Office of Thrift Supervision. 142 ARTICLE SIX SECTION 6.01. This AGREEMENT may be executed in two or more counterparts which shall be deemed to constitute a single AGREEMENT. SECTION 6.02. This AGREEMENT shall be governed by and construed in accordance with the laws of the United States. IN WITNESS WHEREOF, FIRST FEDERAL and GERMANTOWN caused this AGREEMENT to be signed by their respective duly authorized officers on the date first above written. ATTEST: FIRST FEDERAL SAVINGS BANK OF WASHINGTON COURT HOUSE _____________________________ By:_______________________________ Harold H. Thompson William W. Whipple Secretary President ATTEST: GERMANTOWN FEDERAL SAVINGS BANK _____________________________ By:_______________________________ Barbara L. Mullis John T. Baker Secretary President fp 143 ACKNOWLEDGMENTS STATE OF OHIO ) ) SS: COUNTY OF ____________ ) BE IT REMEMBERED that on this ____ day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, William W. Whipple, President of First Federal Savings Bank of Washington Court House, and duly executed the Merger Agreement before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ___ day of July, 1997. _______________________________ Notary Public STATE OF OHIO ) ) SS: COUNTY OF _____________ ) BE IT REMEMBERED that on this ___ day of July, 1997, personally came before me, a Notary Public in and for the State and County aforesaid, John T. Baker, President of Germantown Federal Savings Bank, and duly executed the Merger Agreement before me and acknowledged the same to be his act and deed and the act and deed of said corporation and that the facts therein are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ___ day of July, 1997. _______________________________ Notary Public 144 Appendix B [To be updated as of the date of the Prospectus and Proxy Statement] McDONALD & COMPANY SECURITIES, INC. Member New York Stock Exchange McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114-2603 (216) 443-2300 July 28, 1997 Board of Directors GF Bancorp, Inc. 1 North Plum Street Germantown, Ohio 45327 Gentlemen: You have requested our opinion with respect to the fairness, from a financial point of view, as of the date hereof, to the holders of common stock, par value $0.01 per share ("GFBC Shares"), of GF Bancorp, Inc. ("GFBC") of the exchange ratio as set forth in Section 2.01 (a) of the Agreement of Merger and Plan of Reorganization dated July 28, 1997, by and among Camco Financial Corporation ("Camco"), First Federal Savings Bank of Washington Court House ("First Federal"), GFBC, and Germantown Federal Savings Bank. The Agreement of Merger and Plan of Reorganization dated July 28, 1997 (the "Agreement") provides for the merger (the "Merger") of GFBC with and into Camco, pursuant to which, among other things, at the Company Effective Time (as defined in the Agreement), outstanding shares of GFBC Shares will be exchanged for 1.616 shares of common stock, par value $1.00 per share ("Camco Shares"), of Camco, subject to adjustment, as set forth in Section 2.01 (a) of the Agreement (the "Exchange Ratio"). The terms and conditions of the Merger are more fully set forth in the Agreement. McDonald & Company Securities, Inc., as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. 145 Board of Directors July 28, 1997 Page 2 We have acted as GFBC's financial advisor in connection with, and have participated in certain negotiations leading to, the execution of the Agreement. In connection with rendering our opinion set forth herein, we have among other things: (i) Reviewed GFBC's Annual Reports to Shareholders and Annual Reports on Form 10-KSB for each of the years ended March 31, 1996, March 31, 1995, and March 31, 1994, including the audited financial statements contained therein; and GFBC's audited financial statements for the year ended March 31, 1997; (ii) Reviewed Camco's Annual Reports to Shareholders and Annual Reports on Form 10-KSB for each of the years ended December 31, 1996, December 31,1995 and December 31, 1994, including the audited financial statements contained therein; and Camco's Quarterly Report on Form 10-Q for the three month period ended March 31, 1997; (iii) Reviewed certain other public and non-public information, primarily financial in nature, relating to the respective businesses, earnings, assets and prospects of GFBC and Camco provided to us or publicly available: (iv) Participated in meetings and telephone conferences with members of senior management of GFBC and Camco concerning the financial condition, business, assets, financial forecasts and prospects of the respective companies, as well as other matters we believed relevant to our inquiry; (v) Reviewed certain stock market information for GFBC Shares and Camco Shares, and compared it with similar information for certain companies, the securities of which are publicly traded; (vi) Compared the results of operations and financial condition of GFBC and Camco with that of certain companies which we deemed to be relevant for purposes of this opinion; (vii) Reviewed the financial terms, to the extent publicly available, of certain acquisition transactions which we deemed to be relevant for purposes of this opinion; (viii) Reviewed the Agreement and its schedules and exhibits and certain related documents; and (ix) Performed such other reviews and analyses as we have deemed appropriate. In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all of the financial and other information reviewed by us 146 Board of Directors July 28, 1997 Page 3 and have relied upon the accuracy and completeness of the representations, warranties and covenants of GFBC and Camco contained in the Agreement. We have not been engaged to undertake, and have not assumed any responsibility for, nor have we conducted, an independent investigation or verification of such matters. We have not been engaged to and we have not conducted a physical inspection of any of the assets, properties or facilities of either GFBC or Camco nor have we made or obtained or been furnished with any independent valuation or appraisal of any of such assets, properties or facilities or any of the liabilities of either GFBC or Camco. With respect to financial forecasts used in our analysis, we have assumed that such forecasts have been reasonably prepared by management of GFBC and Camco, as the case may be, on a basis reflecting the best currently available estimates and judgments of the management of GFBC and Camco, as to the future performance of GFBC, Camco and GFBC and Camco combined, as the case may be. We have not been engaged to assess the reasonableness or achievability of such financial forecasts or the assumptions on which they are based, and we express no view as to such financial forecasts or assumptions. We have also assumed that all of the conditions to the consummation of the Merger, as set forth in the Agreement, including the tax-free nature of the reorganization for federal income tax purposes, would be satisfied and that the Merger would be consummated on a timely basis in the manner contemplated by the Agreement. We will receive a fee for our services as financial advisor to GFBC, a substantial portion of which is contingent upon closing of the Merger. We will also receive a fee for our services in rendering this opinion. In the ordinary course of business, we may actively trade securities of GFBC or Camco for our own account and for the accounts of customers and, accordingly, we may at any time hold a long or short position in such securities. This opinion is based on economic and market conditions and other circumstances existing on, and information made available as of, the date hereof. In addition, our opinion is, in any event, limited to the fairness, as of the date hereof, from a financial point of view, of the financial consideration to the holders of GFBC Shares, and does not address the underlying business decision by GFBC's Board of Directors to effect the Merger, does not compare or discuss the relative merits of any competing proposal or any other terms of the Merger, and does not constitute a recommendation to any GFBC shareholder as to how such shareholder should vote with respect to the Merger. This opinion does not represent an opinion as to what the value of GFBC Shares or Camco Shares may be at the Effective Time of the Merger or as to the prospects of GFBC's business or Camco's business. This opinion is directed to and has been prepared solely for the confidential use of the Board of Directors of GFBC. We do not believe that we are acting as agents of the GFBC Board of Directors nor the holders of the GFBC Shares, and we do not believe that any person other than the GFBC Board of Directors has any legal right under state law to rely on this opinion. 147 Board of Directors July 28, 1997 Page 4 This opinion shall not be reproduced, summarized, described or referred to or given to any other person without our prior written consent. Notwithstanding the foregoing, this opinion may be included in the proxy statement to be mailed to the holder of GFBC Shares in connection with the Merger, provided that this opinion will be reproduced in such proxy statement in full, and any description of or reference to us or our actions, or any summary of the opinion in such proxy statement, will be in a form acceptable to us and our counsel. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to the holders of GFBC Shares from a financial point of view. Very truly yours, /s/ McDonald & Company Securities, Inc. MCDONALD & COMPANY SECURITIES, INC. 148 APPENDIX C SECTION 262. APPRAISAL RIGHTS (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to the provisions of subsection (d) of this section with respect to such shares, who continuously hold such shares through the effective date of the merger or consolidation, who has otherwise complied with the provisions of subsection (d) of this Section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to Section 228 of this Chapter shall be entitled to an appraisal by the Court of Chancery of the fair value of his shares of stock under the circumstances described in subsections (b) and (c) of this Section. As used in this Section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a non-stock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a non-stock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sections 251 (other than a merger effected pursuant to subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title; (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the holders of the surviving corporation as provided in subsection (f) of Section 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except (a) shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; (b) shares of stock of any other corporation or depository receipts in respect thereof, which shares of stock or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system 149 by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; (c) cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs (a), (b) and (c) of this paragraph; or (d) any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing clauses (a), (b) and (c) of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under Section 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger of consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with the provisions of this subsection and has not voted in favor of or consented to the merger or consolidation of the date and the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to Section 228 or Section 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this 150 section; provided that, if then notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within twenty days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identify of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given; provided that, if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with the provisions of subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. 151 (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Registrar in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such as duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by one or more publications at least one week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publications as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with the provisions of this Section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and in the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the 152 Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any other state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all of the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this Section or thereafter and the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation into which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (As amended by Ch. 186, Laws of 1967, Ch. 148, Laws of 1969, Ch. 106, Laws of 1973, Ch. 371, Laws of 1976, Chs. 25 and 152, Laws of 1981, Ch. 112, Laws of 1983, Ch. 136, Laws of 1987, Ch. 352, Laws of 1988, Ch. 376, Laws of 1990, Ch. 337, Laws of 1992, Ch. 61, Laws of 1993, Ch. 262, Laws of 1994 and Ch. 349, Laws of 1996.) 153 PART II Item 20. Indemnification of Directors and Officers. - -------- ------------------------------------------ (a) DELAWARE GENERAL CORPORATION LAW Section 145 of the Delaware General Corporation Law, which governs indemnification by a corporation of officers, directors and agents, provides as follows: (a) A corporation may indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (b) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no directors, or if such directors so direct, by independent legal counsel in a written opinion or (3) by the stockholders. (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit, or proceeding may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Section. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. II-1 154 (g) A corporation shall have power to purchase and maintain insurance or on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. (h) For purposes of this section, references to "corporation" shall include, in addition to the resulting corporation, all constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this section, references to "other enterprises" shall include employee benefit plans, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any services as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee health plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided with authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions or advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation's obligation to advance expenses (including attorneys' fees). (As amended by Ch. 186, Laws of 1967, Ch. 421, Laws of 1970, Ch. 437, Laws of 1974, Ch. 25, Laws of 1981, Ch. 112, Laws of 1983, Ch. 289, Laws of 1986, Ch. 376, Laws of 1990, and Ch. 261, Laws of 1994.) (b) BY-LAWS OF CAMCO The By-laws of Camco contain the following provisions with respect to the indemnification of directors and officers: SECTION 7.01. MANDATORY INDEMNIFICATION. The corporation shall indemnify any officer or director of the corporation, and any officer (other than an assistant officer) or a director (i) of a subsidiary of the corporation or (ii) of a subsidiary of any such subsidiary, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without the limitation, any action threatened or instituted by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or a subsidiary of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. A person claiming indemnification under this Section 7.01 shall be presumed, in respect of any act or omission giving rise to such claim for indemnification, to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal matter, to have had no reasonable cause to believe his conduct was unlawful, and the termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, rebut such presumption. II-2 155 SECTION 7.02. COURT-APPROVED INDEMNIFICATION. Anything contained in the by-laws or elsewhere to the contrary notwithstanding: (A) the corporation shall not indemnify any officer or director of the corporation who was a party to any completed action or suit instituted by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, in respect of any claim, issue or matter asserted in such action or suit as to which he shall have been adjudged to be liable for gross negligence or misconduct (other than negligence) in the performance of his duty to the corporation unless and only to the extent that the Court of Common Pleas of Franklin County, Ohio or the court in which such action or suit was brought shall determine upon application that, despite such adjudication of liability, and in view of all the circumstances of the case, he is fairly and reasonably entitled to such indemnity as such Court of Common Pleas of Franklin County, Ohio or such other court shall deem proper; and (B) the corporation shall promptly make any such unpaid indemnification as is determined by a court to be proper as contemplated by this Section 7.02. SECTION 7.03. INDEMNIFICATION FOR EXPENSES. Anything contained in the by-laws or elsewhere to the contrary notwithstanding, to the extent that an officer or director of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01, or in any defense of any claim, issue or matter therein, he shall be promptly indemnified by the corporation against expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs) actually and reasonably incurred by him in connection therewith. SECTION 7.04. DETERMINATION REQUIRED. Any indemnification required under Section 7.01 and not precluded under Section 7.02 shall be made by the corporation only upon a determination that such indemnification of the officer or director is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.01. Such determination may be made only (A) by a majority vote of a quorum consisting of directors of the corporation who were not and are not parties to, any such action, suit or proceeding, or (B) if such a quorum is not obtainable or if a majority of a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (C) by the stockholders, or (D) by the Court of Common Pleas of Franklin County, Ohio or (if the corporation is a party thereto) the court in which such action, suit or proceeding was brought, if any; any such determination may be made by a court under division (D) of this Section 7.04 at any time [including, without limitation, any time before, during or after the time when any such determination may be requested of, be under consideration by or have been denied or disregarded by the disinterested directors under division (A) or by independent legal counsel under division (B) or by the stockholders under division (C) of this Section 7.04]; and no failure for any reason to make any such determination, and no decision for any reason to deny any such determination, by the disinterested directors under division (A) or by independent legal counsel under division (B) or by stockholders under division (C) of this Section 7.04 shall be evidence in rebuttal of the presumption recited in Section 7.01. SECTION 7.05. ADVANCES FOR EXPENSES. Expenses (including, without limitation, attorneys' fees, filing fees, court reporters' fees and transcript costs) incurred in defending any action, suit or proceeding referred to in Section 7.01 shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding to or on behalf of the officer or director promptly as such expenses are incurred by him, but only if such officer or director shall first agree, in writing, to repay all amounts so paid in respect of any claim, issue or other matter asserted in such action, suit or proceeding in defense of which he shall not have been successful on the merits or otherwise: (A) if it shall ultimately be determined as provided in Section 7.04 that he is not entitled to be indemnified by the corporation as provided under Section 7.01; or (B) if, in respect of any claim, issue or other matter asserted by or in the right of the corporation in such action or suit, he shall have been adjudged to be liable for gross negligence or misconduct (other than negligence) in the performance of his duty to the corporation, unless and only to the extent that the Court of Common Pleas of Franklin County, Ohio or the court in which such action or suit was brought shall determine upon application that, despite such adjudication of liability, and in view of all the circumstances, he is fairly and reasonably entitled to all or part of such indemnification. SECTION 7.06. ARTICLE SEVEN NOT EXCLUSIVE. The indemnification provided by this Article Seven shall not be exclusive of any other rights to which any person seeking indemnification may be entitled under the certificate of II-3 156 incorporation or any by-law agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an officer or director of the corporation and shall inure to the benefit of the heirs, executors, and administrators of such a person. SECTION 7.07. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (domestic or foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the obligation or the power to indemnify him against such liability under the provisions of this Article Seven. SECTION 7.08. CERTAIN DEFINITIONS. For purposes of this Article Seven, and as examples and not by way of limitation: (A) a person claiming indemnification under this Article Seven shall be deemed to have been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01, or in defense of any claim, issue or other matter therein, if such action, suit or proceeding shall be terminated as to such person, with or without prejudice, without the entry of a judgment or order against him, without a conviction of him, without the imposition of a fine upon him and without his payment or agreement to pay any amount in settlement thereof (whether or not any such termination is based upon a judicial or other determination of the lack of merit of the claims made against him or otherwise results in a vindication of him); and (B) references to an "other enterprise" shall include employee benefit plans; references to a "fine" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and references to a "subsidiary of the corporation" shall include another corporation if securities representing at least a majority of the voting power of such other corporation are owned by the corporation; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" within the meaning of that term as used in this Article Seven. Section 7.09. Venue. Any action, suit or proceeding to determine a claim for indemnification under this Article Seven may be maintained by the person claiming such indemnification, or by the corporation, in the Court of Common Pleas of Franklin County, Ohio. The corporation and (by claiming such indemnification) each such person consent to the exercise of jurisdiction over its or his person by the Court of Common Pleas of Franklin County, Ohio in any such action, suit or proceeding. II-4 157 Item 21. Exhibits and Financial Statements Schedules - -------- ------------------------------------------- (a) Exhibits -------- Exhibit No. Description - ----------- ----------- 2 Agreement of Merger and Plan of Reorganization dated July 28, 1997, by and among Camco, GFBC, First Federal and Germantown. 3(i) Third Restated Certificate of Incorporation of Camco, as amended. 3(ii) 1987 Amended and Restated By-laws of Camco. 4 Articles Fourth, Sixth, Eighth, Ninth, Tenth, Eleventh, Thirteenth, Fourteenth and Fifteenth of the Certificate of Incorporation of Camco and all Sections of Article Two, Section 3.03 of Article Three, and Section 8.01 of Article Eight of the By-laws of Camco, defining the rights of Camco stockholders. 5 Opinion of Vorys, Sater, Seymour and Pease regarding the legality of the shares of Camco being registered. 8 Opinion of Vorys, Sater, Seymour and Pease regarding the tax consequences of the Merger. 10(i) Employment Agreement between Camco and Larry A. Caldwell. 10(ii) Employment Agreement between Camco and Anthony J. Popp. 10(iii) Employment Agreement between Marietta Savings and Anthony J. Popp. 13(i) Annual Report to Stockholders for the year ended December 31, 1996. 13(ii) Quarterly Report on Form 10-Q for the six-month period ended June 30, 1997. 20 Notice of Special Meeting for GFBC. 21 Subsidiaries of Camco. 23(i) Consent of Grant Thornton LLP. 23(ii) Consent of Crowe, Chizek and Company LLP 23(iii) Consent of Arthur Andersen LLP 23(iv) Consent of McDonald & Company Securities, Inc. 23(v) Consent of Vorys, Sater, Seymour and Pease 27(a) Financial Data Schedule for GFBC at, and for the period ended, March 31, 1997. 27(b) Financial Data Schedule for GFBC at, and for the period ended June 30, 1997. 99(i) Form of Proxy for GFBC. 99(ii) Reissued report of Arthur Andersen LLP 99(iii) Camco Proxy Statement for 1997 Annual Meeting II-5 158 (b) Financial Statement Schedules ----------------------------- All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under related instructions or are inapplicable and, therefore, have been omitted. (c) Opinion of McDonald & Company Securities, Inc. ----------------------------------------------- The Opinion of McDonald & Company Securities, Inc. has been provided as part of the Prospectus and Proxy Statement as Appendix B. Item 22. Undertakings - -------- ------------ 1. Insofar as indemnification for liabilities arising under the Securities Act of 1993, as amended (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 2. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. 3. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 159 SIGNATURES ---------- Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, State of Ohio, on September 22, 1997. CAMCO FINANCIAL CORPORATION By: Larry A. Caldwell ---------------------------------- Larry A. Caldwell its President, Chief Executive Officer, Chairman of the Board and Director Pursuant to the requirements of the Securities Act of 1933, this report has been duly signed below by the following persons in the capacities and on the dates indicated. Signature Title --------- ----- By: Anthony J. Popp By: James R. Hanawalt ---------------------------------- ------------------------------- Anthony J. Popp James R. Hanawalt Principal Financial Officer, Director Principal Accounting Officer and Director Date: September 22, 1997 Date: September 22, 1997 By: Samuel W. Speck By: Robert C. Dix, Jr. ---------------------------------- ------------------------------- Samuel W. Speck Robert C. Dix, Jr. Director Director Date: September 22, 1997 Date: September 22, 1997 By: Jeffrey T. Tucker By: Kenneth R. Elshoff ---------------------------------- ------------------------------- Jeffrey T. Tucker, Kenneth R. Elshoff Director Director Date: September 22, 1997 Date: September 22, 1997 By: Paul D. Leake By: Eric G. Spann ---------------------------------- ------------------------------- Paul D. Leake Eric G. Spann Director Director Date: September 22, 1997 Date: September 22, 1997 II-7 160 CAMCO FINANCIAL CORPORATION Registration Statement on Form S-4 INDEX TO EXHIBITS -----------------
Exhibit No. Description ----------- ----------- 2 Agreement of Merger and Plan of Reorganization Included as Appendix A to the Prospectus dated July 28, 1997, by and among Camco, GFBC, and Joint Proxy Statement First Federal and Germantown 3(i) Third Restated Certificate of Incorporation of Incorporated by reference to the Annual Camco, as amended. Report on 10-KSB for the fiscal year ended December 31, 1996, filed with the Securities and Exchange Commission (the "SEC") on March 31, 1997 (the "1996 Form 10-KSB") 3(ii) 1987 Amended and Restated By-laws of Camco Incorporated by reference to the Annual Report on Form 10-KSB for the fiscal year ended December 31, 1990, filed with the SEC on April 29, 1991 4 Articles Fourth, Sixth, Eighth, Ninth, Tenth, Incorporated by reference to the Eleventh, Thirteenth, Fourteenth and Fifteenth of Registration Statement on Form S-4 filed the Certificate of Incorporation of Camco and all by Camco with the SEC on June 20, 1996, Sections of Article Two, Section 3.03 of Article Exhibit 4 Three, all Sections of Article Four, all Sections of Article Six and Section 8.01 of Article Eight of the By-laws of Camco, defining the rights of Camco stockholders 5 Opinion of Vorys, Sater, Seymour and Pease regarding the legality of the shares of Camco 8 Opinion of Vorys, Sater, Seymour and Pease regarding the tax consequences of the Merger 10(i) Employment Agreement between Camco and Larry A. Incorporated by reference to the Annual Caldwell Report on Form 10-KSB for the fiscal year ended December 31, 1995, filed with the Securities and Exchange Commission (the "SEC") on April 1, 1996 (the "1995 Form 10-KSB"), Exhibit 10(ii) 10(ii) Employment Agreement between Camco and Anthony J. Incorporated by reference to the Annual Popp Report on Form 10-KSB for the fiscal year ended December 31, 1993, filed with the SEC on March 31, 1994 (the "1993 form 10-KSB"), Exhibit 10(ii)
161
Exhibit No. Description ----------- ----------- 10(iii) Employment Agreement between Marietta Savings and Incorporated by reference to the 1993 Form Anthony J. Popp 10-KSB, Exhibit 10(ii) 13(i) Portions of the Annual Report to Stockholders for the year ended December 31, 1997 13(ii) Quarterly Report on Form 10-Q for the six months ended June 30, 1997 20 Notice of Special Meeting of GFBC 21 Subsidiaries of Camco Incorporated by reference to the 1996 Form 10-KSB, Exhibit 21 23(i) Consent of Grant Thornton LLP 23(ii) Consent of Crowe, Chizek and Company LLP 23(iii) Consent of Arthur Andersen LLP 23(iv) Consent of McDonald & Company Securities, Inc. 23(v) Consent of Vorys, Sater, Seymour and Pease 27(i) Financial Data Schedule for GFBC at, and for the period ended, March 31, 1997 27(ii) Financial Data Schedule for GFBC at, and for the period ended, June 30, 1997 99(i) Form of Proxy for GFBC 99(ii) Reissued Report for Arthur Andersen LLP 99(iii) Camco Proxy Statement for 1997 Annual Meeting Incorporated by reference to the Definitive Proxy Statement for the 1997 Annual Meeting filed by Camco with the SEC on April 23, 1997
EX-5 2 EXHIBIT 5 1 EXHIBIT 5 [LOGO - LETTERHEAD] Writers Direct Dial Number (513) 723-4000 September 25, 1997 Board of Directors Camco Financial Corporation 814 Wheeling Avenue Cambridge, Ohio 43725 Gentlemen: We are familiar with the proceedings taken and proposed to be taken by Camco Financial Corporation ("Camco") in connection with the issuance and sale by Camco of up to 606,773 shares of its common stock, $1.00 par value (the "Shares"), in connection with the merger of GF Bancorp, Inc. ("GFBC") with and into Camco (the "Merger"). We have collaborated in the preparation of the Registration Statement on Form S-4 (the "Registration Statement") filed by Camco with the Securities and Exchange Commission for registration of the Shares under the Securities Act of 1933, as amended. In connection therewith, we have examined, among other things, such records and documents as we have deemed necessary in order to express the opinions hereinafter set forth. Based upon the foregoing, we are of the opinion that Camco is a duly organized and legally existing corporation under the laws of the State of Delaware. In addition, we are of the opinion that the Shares will be legally issued, fully-paid and non-assessable assuming: (i) the Merger has been declared effective, (ii) all applicable state and federal securities laws have been complied with and (iii) certificates representing the Shares have been duly executed, 2 Board of Directors Camco Financial Corporation September 25, 1997 Page 2 countersigned and registered and duly delivered in accordance with the Agreement of Merger and Plan of Reorganization dated July 28, 1997. Very truly yours, Vorys, Sater, Seymour and Pease EX-8 3 EXHIBIT 8 1 EXHIBIT 8 (614) 464-0000 September 25, 1997 Board of Directors Board of Directors Camco Financial Corporation GF Bancorp, Inc. 814 Wheeling Avenue 1 North Plum Street Cambridge, Ohio 43725 Germantown, Ohio 45327 Board of Directors Board of Directors First Federal Savings Bank Germantown Federal Savings Bank of Washington Courthouse 1 North Plum Street 134 East Court Street Germantown, Ohio 45327 P.O. Box 600 Washington Courthouse, Ohio 43160 Dear Directors: We have reviewed the Agreement of Merger and Plan of Reorganization (the "Agreement") dated July 28, 1997, by and among Camco Financial Corporation, a Delaware corporation ("Camco"), First Federal Savings Bank of Washington Courthouse, a savings bank organized under the laws of the United States ("First Federal"), which is a wholly owned subsidiary of Camco, GF Bancorp, Inc., a Delaware corporation ("GFBC"), and Germantown Federal Savings Bank, a savings bank organized under the laws of the United States ("Germantown"), which is a wholly owned subsidiary of GFBC, with a view to rendering our opinion on the federal income tax consequences of the proposed mergers of GFBC with and into Camco and Germantown with and into First Federal. THE MERGERS - ----------- The transactions contemplated by the Agreement are (1) a merger under the laws of the State of Delaware of GFBC with and into Camco (the "Company Merger") as a result of which Camco will be the surviving corporation followed by (2) the merger under the laws of the United States of Germantown with and into First Federal as a result of which First Federal will be the surviving corporation. 2 September 25, 1997 Page 2 At the Effective Time of the Company Merger, each outstanding GFBC Share shall be canceled and extinguished and, in substitution and exchange therefor, the holders thereof shall be entitled to receive from Camco 1.616 Camco Shares (the "Exchange Ratio"), subject to possible adjustment as follows: (1) If the average closing price (as hereinafter defined) ("Average Closing Price") of Camco Shares is greater than $20.99 or is less than $15.51, the Exchange Ratio shall be adjusted to become the product of multiplying 1.616 by a fraction, the numerator of which is $20.99 if the Average Closing Price is greater than $20.99, and $15.51 if the Average Closing Price is less than $15.51, and the denominator of which is the Average Closing Price. The Average Closing Price shall be the mean of the average of the daily closing bid and asked prices of Camco Shares as reported on the Nasdaq National Market System (as reported by a mutually agreed upon authoritative source) for the twenty (20) most recent trading days ending at the close of trading on the date three (3) days prior to the closing of the Company Merger; (2) The Exchange Ratio shall be adjusted to reflect any stock split, stock dividend or distributions in, or combinations or subdivisions of, Camco Shares, between the date of the Agreement and the Effective Time of the Company Merger; (3) No fractional shares will be issued, and cash will be paid in lieu of fractional shares based on the Average Closing Price. No interest shall be payable with respect to such cash payment. Any GFBC Shares held by a holder who dissents from the Company Merger in accordance with Section 262 of the Delaware General Corporation Law ("DGCL"), shall not, after the Effective Time of the Company Merger, be entitled to vote for any purpose or to receive any dividends or other distribution and shall be entitled to receive only the fair value of such holder's GFBC Shares. At the Effective Time of the Bank Merger, each of the outstanding Germantown Shares will be canceled and extinguished and the shares of First Federal held by Camco prior to the Bank Merger will remain the only issued and outstanding shares of First Federal after the merger. In connection with the Company Merger, management of Camco or GFBC have made the following representations: 3 September 25, 1997 Page 3 1. The fair market value of the Camco Shares to be received by each GFBC shareholder will be approximately equal to the fair market value of the GFBC Shares surrendered by each such shareholder pursuant to the Company Merger. 2. There is no plan or intention by the GFBC shareholders who own one percent (1%) or more of GFBC Shares and, to the best of the knowledge of GFBC's management, there is no plan or intention on the part of the remaining GFBC shareholders to sell, exchange, or otherwise dispose of a number of Camco Shares received in the Company Merger which would reduce the GFBC's shareholders' ownership of Camco Shares to a number of Camco Shares having a value, as of the date of the Company Merger, of less than fifty percent (50%) of the value of all of the formerly outstanding stock of GFBC as of the same date. 3. The liabilities of GFBC assumed by Camco, and the liabilities to which the transferred assets of GFBC are subject, were incurred by GFBC in the ordinary course of its business. 4. Camco has no plan or intention to reacquire any of the Camco Shares issued in the Company Merger. 5. Camco has no plan or intention to sell or otherwise dispose of any of the assets of GFBC acquired in the Company Merger, except for dispositions made in the ordinary course of business or transferred described in Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended ("the Code"). 6. Following the Company Merger, Camco will continue the historic business of GFBC or use a significant portion of GFBC's business assets in a business. 7. GFBC, GFBC's shareholders, and Camco will pay their respective expenses, if any, incurred in connection with the Company Merger. 8. There is no intercorporate indebtedness existing between Camco and GFBC that was issued, acquired, or will be settled, at a discount. 9. No two parties to the Company Merger are "investment companies" as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 10. GFBC is not under the jurisdiction of a court in a Title XI or similar case within the meaning of Section 368(a)(3)(A) of the Code. 4 September 25, 1997 Page 4 11. The fair market value of the assets of GFBC transferred to Camco will equal or exceed the sum of the liabilities assumed by Camco, plus the amount of liabilities, if any, to which the transferred assets are subject. 12. The payment of cash in lieu of fractional Camco Shares is solely for the purpose of avoiding the expense and inconvenience to Camco of issuing fractional shares and does not represent separately bargained for consideration. The total cash consideration that will be paid in the Company Merger to GFBC shareholders instead of issuing fractional Camco Shares, will not exceed one percent (1%) of the total consideration that will be issued in the Company Merger to the GFBC shareholders in exchange for the GFBC Shares. The fractional share interests of each shareholder will be aggregated, and no GFBC shareholder will receive cash in an amount equal to or greater than the value of one (1) full Camco Share. In connection with the Bank Merger, management of Camco, GFBC, Germantown or First Federal have made the following representations: 1. The fair market value of the First Federal Shares constructively received by Camco will be approximately equal to the fair market value of the Germantown Shares surrendered and canceled pursuant to the Bank Merger. 2. The liabilities of Germantown assumed by First Federal and the liabilities to which the transferred assets of Germantown are subject were incurred by Germantown in the ordinary course of its business. 3. First Federal has no plan or intention or sell or otherwise dispose of any of the assets of Germantown acquired in the Bank Merger, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code. 4. Following the Bank Merger, First Federal will continue the historic business of Germantown or use a significant portion of Germantown's business assets in a business. 5. There is no intercorporate indebtedness existing between Germantown and First Federal that was issued, acquired, or will be settled, at a discount. 6. No two parties to the Bank Merger are "investment companies" as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 7. Germantown is not under the jurisdiction of a court in a Title XI or similar case within the meaning of Section 368(a)(3)(A) of the Code. 5 September 25, 1997 Page 5 8. The fair market value of the assets of Germantown transferred to First Federal will equal or exceed the sum of the liabilities assumed by First Federal, plus the amount of liabilities, if any, to which the transferred assets are subject. DISCUSSION - ---------- Section 368(a)(1)(A) of the Code defines a reorganization to include a statutory merger. Since the Company Merger will be a statutory merger under the laws of the State of Delaware and Bank Merger will be a merger under the laws of the United States, this statutory requirement is satisfied. In addition, certain non-statutory requirements have been imposed by the courts and by the Internal Revenue Service in determining whether reorganizations are in compliance with Section 368 of the Code. These include requirements that there be a business purpose for the reorganization, that there be a continuity of the business enterprise of the acquired corporation, and that the shareholders of all corporate parties to the reorganization emerge with some continuing proprietary interest in the entity resulting from the reorganization. Section 3.02 of Revenue Procedure 77-37, 1977-2 C.B. 568, provided that the continuity of interest requirement is satisfied "if there is a continuing interest through stock ownership in the acquiring or transferee corporation ... on the part of the former shareholders of the acquired or transferor corporation which is equal in value, as of the effective date of the reorganization, to at least fifty percent (50%) of the value of all of the formerly outstanding stock of the acquired or transferor corporation as of the same date." Pursuant to the representations that have been made, it is our opinion that the non-statutory requirements of business purpose and continuity of business enterprise are satisfied. Furthermore, assuming that the value of Camco Shares to be received by GFBC shareholders in the Company Merger exceeds the cash paid for fractional shares and cash paid for dissenters' shares, the continuity of interest requirement will be satisfied in that GFBC shareholders will receive Camco Shares equal in value to the GFBC Shares exchanged therefor, which will ensure that GFBC shareholders will have a continuing interest through stock ownership in Camco which is equal in value to at least fifty percent (50%) of the value of all the formerly outstanding GFBC Shares as of the effective date of the Company Merger. Since Camco is the sole shareholder of Germantown and First Federal at the time of the Bank Merger and will remain the sole shareholder of First Federal after the Bank Merger, the Bank Merger also satisfies the continuity of interest test. 6 September 25, 1997 Page 6 OPINIONS - -------- Therefore, based on the description of the Company Merger in the Agreement, the representations set forth above upon which we have relied, and the foregoing legal authorities, it is our opinion with respect to the Company Merger that: 1. The Company Merger will constitute a reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended ("the Code"). Camco and GFBC will each be a party to the reorganization. 2. No gain or loss will be recognized to GFBC upon the transfer of its assets to Camco in exchange for Camco's shares and the assumption by Camco of liabilities of GFBC. 3. No gain or loss will be recognized to Camco on the receipt of the assets of GFBC in exchange for Camco Shares. 4. The basis of the assets of GFBC in the hands of Camco will be the same as the basis of such assets in the hands of GFBC immediately prior to the Company Merger. 5. The holding period of the assets of GFBC to be received by Camco will include the period during which the assets were held by GFBC. 6. No gain or loss will be recognized by GFBC shareholders who exchange their GFBC Shares for Camco Shares (including fractional share interests) pursuant to the Company Merger. 7. The basis of the Camco Shares (including fractional share interests) to be received by a GFBC shareholder will be the same as the basis of the GFBC Shares surrendered in exchange therefore and the holding period of Camco Shares (including fractional share interests) to be received by such GFBC shareholder will be the same as the holding period of the GFBC Shares surrendered in exchange therefore. 8. Where a cash payment is received by a GFBC shareholder in lieu of fractional Camco Shares, the cash payment will be treated as received by such GFBC shareholder as a distribution in redemption of the fractional share interest, subject to the provisions and limitations of Section 302 of the Code. These cash payments will be treated as having been received as distributions in full payment in exchange for the fractional shares redeemed as provided in Section 302(a) of the Code. 7 September 25, 1997 Page 7 9. If a GFBC shareholder dissents to the Company Merger and receives solely cash in exchange for such shareholder's GFBC Shares, such cash will be treated as having been received by such shareholder as a distribution in redemption of such shareholder's GFBC Shares, subject to the provisions and limitations of Section 302 of the Code. Such shareholder will recognize gain or loss measured by the difference between the amount of cash received and the proportional tax basis of the GFBC Shares so redeemed. Any such loss will be treated as a loss from the sale of stock and will be taxed as a capital loss if the GFBC Shares were held by such shareholder as a capital asset at the time of the Company Merger. As discussed below, depending upon the particular circumstances of each GFBC shareholder, any such gain from the sale of stock will be taxable as capital gain or as a dividend taxable as ordinary income. If, after the receipt of the cash, a dissenting GBFC shareholder has completely terminated such shareholder's actual and constructive ownership interest in GFBC or Camco within the meaning of Section 302(b)(3) of the Code, then any gain recognized on the receipt of cash will be treated as capital gain if GFBC Shares were held by such shareholder as a capital asset at the Effective Time of the Company Merger. If a dissenting GFBC shareholder receiving a cash payment for such shareholder's GFBC Shares does not thereby completely terminate such shareholder's ownership interest in GFBC or Camco within the meaning of Section 302(b)(3) of the Code, any gain recognized on the receipt of cash may be treated as a dividend and taxed at ordinary income rates unless the cash payment received by such shareholder qualifies for treatment as capital gain under the substantially disproportionate redemption exemption of Section 302(b)(2) of the Code, or under one of the other exceptions to dividend treatment contained in Section 302. In order to determine whether there has been a complete termination of actual and constructive interests in Camco, it is necessary to consider Camco Shares owned by persons from whom ownership is attributed to such dissenting shareholder under the rules of Section 318 of the Code. Based on the description of the Bank Merger in the Agreement, the representations set forth above upon which we have relied, and the foregoing authorities, it is our opinion that: 1. The Bank Merger will constitute a reorganization under Section 368(a)(1)(A) of the Code. First Federal and Germantown will each be a party to the reorganization. 2. No gain or loss will be recognized to Germantown upon the transfer of its assets to First Federal in constructive exchange for First Federal's shares and the assumption by First Federal of liabilities of Germantown. 8 September 25, 1997 Page 8 3. No gain or loss will be recognized to First Federal on the receipt of the assets of Germantown in constructive exchange for First Federal Shares. 4. The basis of the assets of Germantown in the hands of First Federal will be the same as the basis of such assets in the hands of Germantown immediately prior to the Bank Merger. 5. The holding period of the assets of Germantown to be received by First Federal will include the period during which the assets were held by Germantown. 6. No gain or loss will be recognized by Camco, the sole shareholder of Germantown, which constructively exchanges its Germantown Shares for First Federal Shares pursuant to the Bank Merger. 7. The basis of the First Federal Shares held by Camco will be increased by the same as the basis of the Germantown Shares constructively surrendered in exchange for First Federal Shares. OVERALL EVALUATION - ------------------ Based upon, and subject to, the foregoing, it is our opinion that the Merger should result in the federal income tax consequences described above. This opinion is not binding on the Internal Revenue Service and no ruling has been, or will be, requested from the Internal Revenue Service as to any federal income tax consequence described above. Although this opinion is based upon our best interpretation of current provisions of the Code and the Treasury Department regulations promulgated thereunder, as well as existing court decisions and administrative rulings and procedures, and sets forth the conclusions we believe would be reached by a court if the issues were properly briefed and presented to it, no assurance can be provided that a court in fact would agree with our interpretation. Further, no assurance can be provided that the applicable law will not change in a manner that will adversely affect these consequences, and any such adverse change could be retroactive. 9 September 25, 1997 Page 9 No opinion is expressed as to any federal income tax consequence other than as specifically set forth herein, and no opinion is expressed with respect to the amount or timing of any federal income tax deduction or credit or with respect to any tax issue arising under state, local, or foreign tax provisions. Further, any change in the facts as set forth herein or in the Agreement or the representations could affect this opinion, perhaps in an adverse manner. Very truly yours, Vorys, Sater, Seymour and Pease gnc/bjs EX-13.1 4 EXHIBIT 13.1 1 EXHIBIT 13(i) 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. 2 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 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. 3 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 delinquent 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 attributable to the aforementioned increase in nonperforming loans and $62.1 million in loan portfolio growth during that period. 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 to the purchase of single premium key man life insurance, of which Camco is the beneficiary, to supplement retirement benefits for certain key officers and directors of Camco and its subsidiaries. As a result of the Merger, goodwill and other intangible assets totalled $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. 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 4 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 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. 5 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 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. 6 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. 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 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 7 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. 8 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 9 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 ======== ========
10
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. 11 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. 12 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. 13 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)
14 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. 15 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 16 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 17 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 18 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. 19 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. 20 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. 21 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. 22 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 388,923 388,329 292,751 291,671 Federal Home Loan Bank stock 3,942 3,942 2,832 2,832 Accrued interest receivable 3,011 3,011 2,129 2,129 Cash surrender value of life insurance 4,880 4,880 -- -- -------- -------- -------- -------- $458,071 $457,490 $341,441 $340,244 ======== ======== ======== ======== Financial liabilities Deposits $358,009 $361,821 $286,574 $290,243 Advances from the Federal Home Loan Bank 57,354 57,313 26,078 26,139 Advances by borrowers for taxes and insurance 2,864 2,864 2,964 2,964 -------- -------- -------- -------- $418,227 $421,998 $315,616 $319,346 ======== ======== ======== ========
13. Cash and Cash Equivalents ------------------------- Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of three months or less. 23 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 ======= === ===== =======
24 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 ====== === ==== ======
25 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. 26 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. 27 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 ======== =======
28 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
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 ========== ========
29 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 ====== ====== ======
30 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. 31 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. 32 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 FOR CAPITAL ACTUAL ADEQUACY PURPOSES ------------------ ------------------------------------------ AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $13,176 13.4% = Greater than $7,840 = Greater than 8.0% Tier I Capital (to risk-weighted assets) $12,786 13.0% = Greater than $3,920 = Greater than 4.0% Tier I Leverage $12,786 7.2% = Greater than $7,087 = Greater than 4.0% CAMBRIDGE TO BE "WELL-CAPITALIZED" UNDER PROMPT CORRECTIVE ACTION PROVISIONS ---------------------------------------------- AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) = Greater than $9,800 = Greater than 10.0% Tier I Capital (to risk-weighted assets) = Greater than $5,880 = Greater than 6.0% Tier I Leverage = Greater than $8,859 = Greater than 5.0%
33 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 FOR CAPITAL ACTUAL ADEQUACY PURPOSES -------------- ---------------------------- AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $8,726 12.3% Greater than $5,654 Greater than 8.0% Tier I Capital (to risk-weighed assets) $8,354 11.8% Greater than $2,827 Greater than 4.0% Tier I Leverage $8,354 7.3% Greater than $4,547 Greater than 4.0% MARIETTA AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER PROMPT CORRECTIVE ACTION PROVISIONS ------------------------------------------- AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) Greater than $7,067 Greater than 10.0% Tier I Capital (to risk-weighed assets) Greater than $4,240 Greater than 6.0% Tier I Leverage Greater than $5,684 Greater than 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 FOR CAPITAL ACTUAL ADEQUACY PURPOSES -------------- ---------------------------- AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $6,232 7.2% Greater than $1,300 Greater than 1.5% Core Capital $6,232 7.2% Greater than $2,601 Greater than 3.0% Risk-based capital $6,482 13.7% Greater than $3,788 Greater than 8.0% FIRST FEDERAL AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER PROMPT CORRECTIVE ACTION PROVISIONS ------------------------------------------- AMOUNT RATIO (In thousands) Tangible capital Greater than $4,334 Greater than 5.0% Core Capital Greater than $5,201 Greater than 6.0% Risk-based capital Greater than $4,735 Greater than 10.0%
34 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 FOR CAPITAL ACTUAL ADEQUACY PURPOSES -------------- ---------------------------- AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $12,709 14.7% Greater than $1,299 Greater than 1.5% Core Capital $12,709 14.7% Greater than $2,598 Greater than 3.0% Risk-based capital $12,802 27.8% Greater than $3,680 Greater than 8.0% ASHLAND AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER PROMPT CORRECTIVE ACTION PROVISIONS ------------------------------------------- AMOUNT RATIO (In thousands) Tangible capital Greater than $4,330 Greater than 5.0% Core Capital Greater than $5,196 Greater than 6.0% Risk-based capital Greater than $4,601 Greater than 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. 35 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. 36 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE K - BENEFIT PLANS (continued) 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. 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 - $ - $ - ====== ===== =======
37 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. 38 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 ======= =======
39 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 ======= ======= =======
40 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 ======= ======= =======
41 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 ========= ========= =========
42 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. 43 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. EX-13.2 5 EXHIBIT 13.2 1 EXHIBIT 13(ii) FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 -------------------------------- 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 (Zip Code) executive office) Registrant's telephone number, including area code: (614) 432-5641 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ------- ------- As of August 11, 1997, the latest practicable date, 3,214,193.9 shares of the registrant's common stock, $1.00 par value, were issued and outstanding. Page 1 of 18 pages 2 Camco Financial Corporation INDEX
Page ---- PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition 3 Consolidated Statements of Earnings 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION 17 SIGNATURES 18
2 3 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data)
JUNE 30, DECEMBER 31, ASSETS 1997 1996 Cash and due from banks $ 10,977 $ 10,587 Interest-bearing deposits in other financial institutions 2,518 7,278 -------- -------- Cash and cash equivalents 13,495 17,865 Certificates of deposit in other financial institutions -- 990 Investment securities available for sale - at market 4,689 5,174 Investment securities - at cost, approximate market value of $23,799 and $21,822 as of June 30, 1997 and December 31, 1996 23,800 21,844 Mortgage-backed securities available for sale - at market 504 742 Mortgage-backed securities - at cost, approximate market value of $9,867 and $10,735 as of June 30, 1997 and December 31, 1996 9,870 10,700 Loans held for sale - at lower of cost or market 2,995 931 Loans receivable - net 409,958 387,992 Office premises and equipment - net 6,863 6,811 Real estate acquired through foreclosure 97 53 Federal Home Loan Bank stock - at cost 4,448 3,942 Accrued interest receivable on loans 2,615 2,443 Accrued interest receivable on mortgage-backed securities 61 69 Accrued interest receivable on investment securities and interest-bearing deposits 561 499 Prepaid expenses and other assets 842 495 Cash surrender value of life insurance 4,995 4,880 Goodwill and other intangible assets 3,626 3,701 Prepaid federal income taxes 414 319 -------- -------- Total assets $489,833 $469,450 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $371,032 $358,009 Advances from the Federal Home Loan Bank 65,399 57,354 Advances by borrowers for taxes and insurance 2,122 2,864 Accounts payable and accrued liabilities 2,658 4,490 Dividends payable 398 368 Deferred federal income taxes 1,366 1,352 -------- -------- Total liabilities 442,975 424,437 Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding -- -- Common stock - $1 par value; 4,900,000 shares authorized; outstanding, 3,214,194 shares at June 30, 1997 and 3,062,893 shares at December 31, 1996 3,063 3,063 Additional paid-in capital 24,474 21,917 Retained earnings - substantially restricted 19,301 20,005 Unrealized gains on securities designated as available for sale, net of related tax effects 20 28 -------- -------- Total stockholders' equity 46,858 45,013 -------- -------- Total liabilities and stockholders' equity $489,833 $469,450 ======== ========
3 4 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share data)
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Interest income Loans $ 16,320 $ 12,233 $ 8,349 $ 6,154 Mortgage-backed securities 375 187 185 89 Investment securities 899 612 453 299 Interest-bearing deposits and other 453 295 218 142 ---------- ---------- ---------- ---------- Total interest income 18,047 13,327 9,205 6,684 Interest expense Deposits 8,343 6,492 4,243 3,255 Borrowings 1,690 695 843 330 ---------- ---------- ---------- ---------- Total interest expense 10,033 7,187 5,086 3,585 ---------- ---------- ---------- ---------- Net interest income 8,014 6,140 4,119 3,099 Provision for losses on loans 108 42 60 21 ---------- ---------- ---------- ---------- Net interest income after provision for losses on loans 7,906 6,098 4,059 3,078 Other income Late charges, rent and other 679 581 402 334 Loan servicing fees 252 363 132 177 Service charges and other fees on deposits 238 196 112 101 Gain on sale of loans 505 622 349 206 Gain on sale of real estate acquired through foreclosure 30 -- 10 -- ---------- ---------- ---------- ---------- Total other income 1,704 1,762 1,005 818 General, administrative and other expense Employee compensation and benefits 2,657 2,093 1,310 1,079 Occupancy and equipment 694 555 350 295 Federal deposit insurance premiums 131 327 66 164 Data processing 268 202 129 102 Advertising 263 197 165 111 Franchise taxes 223 211 109 105 Amortization of goodwill 75 -- 38 -- Other 1,362 1,113 721 634 ---------- ---------- ---------- ---------- Total general, administrative and other expense 5,673 4,698 2,888 2,490 ---------- ---------- ---------- ---------- Earnings before federal income taxes 3,937 3,162 2,176 1,406 Federal income taxes Current 1,285 954 718 431 Deferred 18 121 5 47 ---------- ---------- ---------- ---------- Total federal income taxes 1,303 1,075 723 478 ---------- ---------- ---------- ---------- NET EARNINGS $ 2,634 $ 2,087 $ 1,453 $ 928 ========== ========== ========== ========== EARNINGS PER SHARE $ .82 $ .96 $ .45 $ .43 ========== ========== ========== ========== Weighted average number of common shares outstanding 3,216,038 2,171,912 3,216,038 2,172,658 ========== ========== ========== ==========
4 5 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, (In thousands)
1997 1996 Cash flows from operating activities: Net earnings for the period $ 2,634 $ 2,087 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of deferred loan origination fees (235) (274) Amortization of premiums and discounts on investment and mortgage-backed securities - net (9) 21 Amortization of goodwill 75 -- Depreciation and amortization 324 242 Provision for losses on loans 108 42 Gain on sale of real estate acquired through foreclosure (30) -- Federal Home Loan Bank stock dividends (146) (102) Gain on sale of loans (213) (309) Loans originated for sale in the secondary market (24,406) (39,105) Proceeds from sale of loans in the secondary market 22,555 36,533 Increase (decrease) in cash due to changes in: Accrued interest receivable (226) (136) Prepaid expenses and other assets (346) (894) Accrued interest and other liabilities (1,802) (485) Federal income taxes: Current (95) (479) Deferred 18 121 --------- -------- Net cash used in operating activities (1,794) (2,738) Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities and interest-bearing deposits 6,996 4,275 Purchases of investment securities (7,511) (4,020) Loan principal repayments 55,884 46,240 Loan disbursements (77,965) (50,406) Principal repayments on mortgage-backed securities 1,079 753 Additions to office premises and equipment (376) (643) Proceeds from sale of real estate acquired through foreclosure 247 -- Purchase of Federal Home Loan Bank stock (360) (200) Net increase in cash surrender value of life insurance (115) (1,540) --------- -------- Net cash used in investing activities (22,121) (5,541) Cash flows provided by (used in) financing activities: Net increase in deposits 13,023 4,714 Proceeds from advances from the Federal Home Loan Bank and other borrowings 462,100 29,500 Repayment of Federal Home Loan Bank advances and other borrowings (454,055) (27,618) Dividends paid on common stock (781) (424) Proceeds from exercise of stock options -- 30 Decrease in advances by borrowers for taxes and insurance (742) (1,769) --------- -------- Net cash provided by financing activities 19,545 4,433 --------- -------- Decrease in cash and cash equivalents (4,370) (3,846) Cash and cash equivalents at beginning of period 17,865 15,328 --------- -------- Cash and cash equivalents at end of period $ 13,495 $ 11,482 ========= ========
5 6 CAMCO FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the six months ended June 30, (In thousands)
1997 1996 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 10,035 $ 7,169 ======== ======= Income taxes $ 922 $ 1,068 ======== ======= Supplemental disclosure of noncash investing activities: Unrealized losses on securities designated as available for sale, net of related tax effects $ (8) $ (24) ======== ======= Recognition of gains on sale of loans in accordance with SFAS No. 122 $ 292 $ 313 ======== ======= Transfer of loans to real estate acquired through foreclosure $ 260 $ 36 ======== =======
6 7 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Camco Financial Corporation ("Camco" or "the Company") included in Camco's Annual Report on Form 10-KSB for the year ended December 31, 1996. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three and six month periods ended June 30, 1997 and 1996, are not necessarily indicative of the results which may be expected for the entire year. 2. Principles of Consolidation --------------------------- Camco has five wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings"), First Federal Savings Bank of Washington Court House ("First Federal"), First Federal Bank for Savings ("First Savings") (collectively hereinafter "the Banks") and East Ohio Land Title Agency, Inc., as well as two second tier subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company. The Company's consolidated financial statements include the accounts of Camco and its wholly-owned and second tier subsidiaries. All significant intercompany balances and transactions have been eliminated. 3. Effects of Recent Accounting Pronouncements ------------------------------------------- In October 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("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 method are required 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 7 8 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Effects of Recent Accounting Pronouncements (continued) ------------------------------------------- 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 material 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 adoption of SFAS No. 125 will have a material adverse effect on Camco's consolidated financial position or results of operations. 8 9 CAMCO FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Effects of Recent Accounting Pronouncements (continued) ------------------------------------------- In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which requires companies to present basic earnings per share and, if applicable, diluted earnings per share, instead of primary and fully diluted earnings per share, respectively. Basic earnings per share is computed without including potential common shares, i.e., no dilutive effect. Diluted earnings per share is computed taking into consideration common shares outstanding and potentially dilutive common shares, including options, warrants, convertible securities and contingent stock agreements. SFAS No. 128 is effective for periods ending after December 15, 1997. Early application is not permitted. Based upon the provisions of SFAS No. 128, the Corporation's basic and diluted earnings per share for the six months ended June 30, 1997, would have been $.82 and $.81, and basic and diluted earnings per share for the three months ended June 30, 1997, would have been $.45 and $.44, respectively. 4. Reclassifications ----------------- Certain reclassifications have been made to the June 30, 1996 consolidated financial statements to conform to the June 30, 1997 presentation. 5. Proposed Legislation -------------------- Congress is considering legislation to eliminate the federal savings and loan charter and separate federal regulation of savings and loan associations. Pursuant to such legislation, Congress may develop a common charter for all financial institutions, eliminate the OTS and regulate First Federal and First Savings as banks or require them to change their charters. First Federal and First Savings would then be subject to the more restrictive activity limits imposed on national banks. 9 10 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and six month periods ended June 30, 1997 and 1996 General - ------- Camco's profitability depends primarily on the level of its 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. Finally, Camco's operations are also influenced by the level of general, administrative and other expenses, including employee compensation and benefits, occupancy, federal deposit insurance premiums, as well as various other operating expense categories, including 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 banking subsidiaries. Utilizing a common marketing theme committed to personalized customer service, Camco and its affiliates have grown from $22.4 million in consolidated assets in 1970 to $489.8 million of consolidated assets at June 30, 1997. Camco's level of growth is largely attributable to the acquisitions of Marietta Savings, First Federal and First Savings and the continued expansion of product lines from the previously limited deposit and loan offerings of a heavily regulated 1970's savings and loan association, to the full 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 the establishment of mortgage banking operations in the Banks' primary market areas and, to a lesser extent, the chartering of a title insurance agency. Management believes that continued success in the financial services industry will be achieved by those institutions with a rigorous dedication to bringing value-added services to their customers. 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 are essential in order to compete against the larger regional and money-center bank holding companies. Discussion of Financial Condition Changes from December 31, 1996 to June 30, - ---------------------------------------------------------------------------- 1997 - ---- At June 30, 1997, Camco's consolidated assets totaled $489.8 million, an increase of $20.4 million, or 4.3%, over the December 31, 1996 total. The increase in total assets is primarily attributable to an increase of $24.0 million in loans receivable and loans held for sale, which was funded through growth in deposits totaling $13.0 million, an increase in advances from the Federal Home Loan Bank of $8.0 million and undistributed net earnings of $1.9 million. 10 11 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Discussion of Financial Condition Changes from December 31, 1996 to June 30, - ---------------------------------------------------------------------------- 1997 (continued) - ---- Cash and interest-bearing deposits in other financial institutions totaled $13.5 million at June 30, 1997, a decline of $4.4 million, or 24.5%, from December 31, 1996 levels. Management elected to utilize excess liquidity to fund purchases of higher-yielding investment securities and to fund loan portfolio growth. Investment securities and certificates of deposit in other financial institutions totaled $28.5 million at June 30, 1997, an increase of $481,000, or 1.7%, over the total at December 31, 1996. During the 1997 period, investment securities totaling $7.5 million were purchased, while maturities amounted to $7.0 million. Mortgage-backed securities totaled $10.4 million at June 30, 1997, a decrease of $1.1 million from December 31, 1996, due primarily to principal repayments during the period. Loans receivable and loans held for sale increased by $24.0 million, or 6.2%, during the six months ended June 30, 1997, to a total of $413.0 million. The increase was primarily attributable to loan disbursements of $102.4 million which was partially offset by principal repayments of $55.9 million and loan sales of $22.3 million. Loan origination volume during the 1997 six month period exceeded that of the 1996 period by $12.9 million, or 14.4%. Nonperforming loans (90 days or more delinquent plus nonaccrual loans), totaled $2.3 million and $2.4 million at June 30, 1997 and December 31, 1996, respectively, constituting .56% and .61% of total net loans, including loans held for sale at those dates. The consolidated allowance for loan losses totaled $1.2 million both at June 30, 1997 and December 31, 1996, representing 52.0% and 52.5% of nonperforming loans, respectively, at those dates. The provision for loan losses for the six months ended June 30, 1997 is primarily attributable to growth in the loan portfolio during that period. Deposits totaled $371.0 million at June 30, 1997, an increase of $13.0 million, or 3.6%, over December 31, 1996 levels. The increase resulted primarily from management's continuing efforts to achieve a moderate rate of growth through advertising and pricing strategies. Advances from the Federal Home Loan Bank increased by $8.0 million, or 14.0%, to a total of $65.4 million at June 30, 1997. The proceeds from deposit growth and Federal Home Loan Bank advances were primarily used to fund growth in the loan portfolio. The Banks are required to maintain minimum regulatory capital pursuant to federal regulations. At June 30, 1997, the Banks' regulatory capital exceeded all regulatory capital requirements. 11 12 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Six Months Ended June 30, 1997 and - ------------------------------------------------------------------------------ 1996 - ---- Increases in the level of income and expenses during the six month period ended June 30, 1997, as compared to the comparable period in 1996, are primarily due to the inclusion of the accounts of First Savings, which was acquired by Camco on October 4, 1996, in a transaction accounted for using the purchase method of accounting. Accordingly, the statement of earnings and the statement of cash flows for the six month period ended June 30, 1996, were not restated for the Acquisition. General - ------- Camco's net earnings for the six months ended June 30, 1997 totaled $2.6 million, an increase of $547,000, or 26.2%, over the $2.1 million of net earnings reported in the comparable 1996 period. The increase in earnings is primarily attributable to an increase in net interest income of $1.9 million, which was partially offset by an increase in the provision for loan losses of $66,000, a decrease in other income of $58,000, an increase in general, administrative and other expense of $975,000, and an increase in the provision for federal income taxes of $228,000. Net Interest Income - ------------------- Total interest income for the six months ended June 30, 1997, amounted to $18.0 million, an increase of $4.7 million, or 35.4%, generally reflecting the effects of $122.0 million, or 37.2%, of growth in average interest-earning assets outstanding, which was partially offset by a decrease of 11 basis points in the yield year to year, from 8.11% in 1996 to 8.00% in 1997. Interest income on loans and mortgage-backed securities totaled $16.7 million for the six months ended June 30, 1997, an increase of $4.3 million, or 34.4%, over the comparable 1996 period. The increase resulted primarily from a $108.8 million, or 36.3%, increase in the average balance outstanding year to year. Interest income on investments and interest-bearing deposits increased by $445,000, or 49.1 %, due to an increase in average outstanding balances of $13.2 million. Interest expense on deposits increased by $1.9 million, or 28.5%, to a total of $8.3 million for the six months ended June 30, 1997, due primarily to an increase of $75.1 million in the average balance of deposits outstanding. Interest expense on borrowings increased by $995,000, or 143.2%, to a total of $1.7 million for the six months ended June 30, 1997. The increase resulted primarily from a $35.7 million, or 151.5%, increase in the average balance outstanding year to year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $1.9 million, or 30.5%, for the six months ended June 30, 1997, compared to the comparable period in 1996. The interest rate spread declined by 28 basis points for the six months ended June 30, 1997, to 3.25%, from 3.53% in the 1996 period, while the net interest margin amounted to 3.56% in 1997 compared to 3.74% in 1996. 12 13 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Six Months Ended June 30, 1997 and - ------------------------------------------------------------------------------ 1996 (continued) - ---- Provision for Losses on Loans - ----------------------------- A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Banks, the amount of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Banks' market area, and other factors related to the collectibility of the Banks' loan portfolio. The provision for losses on loans totaled $108,000 for the six months ended June 30, 1997, an increase of $66,000 from the comparable period in 1996. The current period provision generally reflects the effects of loan portfolio growth and a decrease in the level of nonperforming loans. While management believes that its allowance for loan losses at June 30, 1997, is adequate based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on nonperforming assets in the future. The foregoing statement 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 loan borrowers; (3) decrease in the value of collateral securing consumer loans to amounts equal to less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that the Banks must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. Other Income - ------------ Other income decreased for the six months ended June 30, 1997, by $58,000, or 3.3%, from the comparable 1996 period. The decrease in other income is primarily attributable to a $117,000 decrease in gains on sale of loans and a $111,000 decrease in loan servicing fees, which were partially offset by an increase of $98,000, or 16.9%, in late charges, rent and other, a $42,000 increase in service charges and other fees on deposits and a $30,000 increase in gain on sale of real estate acquired through foreclosure. The decrease in gains on sale of loans reflects a $13.9 million, or 38.3%, decline in the volume of loan sales during the 1997 period. The increase in late charges, rent and other was primarily attributable to an increase in fees on loans and deposit accounts as a result of the growth in the respective portfolios. 13 14 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Six Months Ended June 30, 1997 and - ------------------------------------------------------------------------------ 1996 (continued) - ---- General, Administrative and Other Expense - ----------------------------------------- General, administrative and other expense totaled $5.7 million for the six months ended June 30, 1997, an increase of $975,000, or 20.8%, over the comparable period in 1996. The increase resulted primarily from a $564,000, or 26.9%, increase in employee compensation and benefits, a $139,000, or 25.0%, increase in occupancy and equipment, a $66,000, or 32.7%, increase in data processing, a $66,000, or 33.5%, increase in advertising, a $75,000 increase in amortization of goodwill and a $249,000, or 22.4%, increase in other operating costs, which were partially offset by a $196,000, or 59.9%, decrease in federal deposit insurance premiums. As previously discussed, the 1997 consolidated statement of earnings includes the accounts of First Savings, while the 1996 balances have not been restated to include the effects of the acquisition of First Savings. First Savings had approximately $771,000 of general, administrative and other expense for the six month period ended June 30, 1997. Excluding the effects of First Savings, the increase in employee compensation and benefits is attributable to an increase in staffing levels, normal merit salary increases and increased costs related to employee benefit plans. The increase in occupancy and equipment is attributable to increased depreciation expense on office equipment and general repairs of office buildings. The increase in data processing, advertising and other operating costs generally reflects the effects of the Company's growth year to year. Federal Income Taxes - -------------------- The provision for federal income taxes increased in the six months ended June 30, 1997 by $228,000, or 21.2%. This increase is primarily attributable to an $775,000, or 24.5%, increase in pre-tax earnings. The effective tax rates were 33.1% and 34.0% for the six months ended June 30, 1997 and 1996, respectively. Comparison of Results of Operations for the Three Months Ended June 30, 1997 and - -------------------------------------------------------------------------------- 1996 - ---- Increases in the level of income and expenses during the three month period ended June 30, 1997, as compared to the comparable period in 1996, are primarily due to the inclusion of the accounts of First Savings, which was acquired by Camco on October 4, 1996, in a transaction accounted for using the purchase method of accounting. Accordingly, the statement of earnings for the three month period ended June 30, 1996, was not restated for the Acquisition. General - ------- Net earnings for the three months ended June 30, 1997 totaled $1.5 million, an increase of $525,000, or 56.6%, over the $928,000 in net earnings reported in the comparable 1996 period. The increase in net earnings is primarily attributable to a $1.0 million increase in net interest income and a $187,000 increase in other income, which were partially offset by a $39,000 increase in the provision for loan losses, a $398,000 increase in general, administrative and other expense and a $245,0000 increase in the provision for federal income taxes. 14 15 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Three Months Ended June 30, 1997 and - -------------------------------------------------------------------------------- 1996 (continued) - ---- Net Interest Income - ------------------- Total interest income for the three months ended June 30, 1997, increased by $2.5 million, or 37.7%, compared to the 1996 quarter. Interest income on loans increased by $2.2 million, or 35.7%, due primarily to a $107.3 million increase in the average balance outstanding year to year. Interest income on investment securities and interest-bearing deposits increased by $230,000, or 52.2%, due primarily to an $11.9 million increase in the average balance outstanding. Total interest expense increased by $1.5 million , or 41.9%, for the three months ended June 30, 1997. Interest expense on deposits increased by $988,000, or 30.4%, due primarily to a $76.5 million increase in the average balance outstanding year to year. Interest expense on borrowings increased by $513,000, or 155.5%, due primarily to a $35.9 million increase in the average outstanding balance. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $1.0 million, or 32.9%, for the three months ended June 30, 1997, as compared to the comparable quarter in 1996. The interest rate spread was 3.35% for the 1997 quarter, compared to 3.53% in 1996, while the net interest margin was 3.63% in the 1997 quarter, compared to 3.74% in 1996. Provision for Losses on Loans - ----------------------------- The provision for losses on loans increased during the three months ended June 30, 1997, by $39,000. The current period provision generally reflects the effects of loan portfolio growth year to year as integrated with a stable level of nonperforming loans. Other Income - ------------ Other income increased for the quarter ended June 30, 1997 by $187,000, or 22.9%, compared to the 1996 quarter. The increase is primarily attributable to a $143,000 increase in gain on sale of loans and a $68,000 increase in late charges, rent and other, which were partially offset by a $45,000 decrease in loan servicing fees. The increase in the gain on sale of loans is due primarily to the increased volume of fixed-rate loans originated for sale. General, Administrative and Other Expense - ----------------------------------------- General, administrative and other expense increased by $398,000, or 16.0%, during the three months ended June 30, 1997. The increase is primarily attributable to a $231,000, or 21.4%, increase in employee compensation and benefits, a $55,000, or 18.6%, increase in occupancy and equipment, an $87,000, or 13.7%, increase in other operating expense and a $98,000, or 59.8%, decrease in federal deposit insurance premiums. First Savings had general, administrative and 15 16 CAMCO FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Three Months Ended June 30, 1997 and - -------------------------------------------------------------------------------- 1996 (continued) - ---- General, Administrative and Other Expense (continued) - ----------------------------------------------------- other expense totaling $392,000 for the three month period ended June 30, 1997. Excluding the effects of First Savings, the increase in employee compensation and benefits resulted primarily from normal merit increases, as well as an increase due to the hiring of additional personnel. The increase in occupancy and equipment related primarily to increased depreciation and building maintenance costs. The increase in other operating expenses generally reflects increased costs attendant to the Company's growth year to year. Federal Income Taxes - -------------------- Camco's provision for federal income taxes increased for the three months ended June 30, 1997, by $245,000, or 51.3%, generally reflecting the $770,000, or 54.8%, increase in pre-tax earnings year to year. The effective tax rates were 33.2% and 34.0% for the three month periods ended June 30, 1997 and 1996, respectively. 16 17 Camco Financial Corporation PART II ITEM 1. Legal Proceedings ----------------- Not applicable ITEM 2. Changes in Securities --------------------- None ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On May 27, 1997, Camco held its Annual Meeting of Stockholders. Two matters were submitted to stockholders, for which the following votes were cast: Three directors were elected to terms expiring in 2000, as follows:
For Against Abstain Withheld Robert C. Dix, Jr. 2,322,855 - - 4,257 Kenneth R. Elshoff 2,326,291 - - 821 Paul D. Leake 2,326,291 - - 821
Ratification of Grant Thornton LLP as auditors of Camco for the current fiscal year.
For Against Abstain Withheld 2,325,817 110 1,185 -
ITEM 5. Other Information ----------------- None ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- Reports on Form 8K: None. Exhibits: Financial Data Schedule. 17 18 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 12, 1997 By: /s/Larry A. Caldwell ----------------------- -------------------- Larry A. Caldwell President and Chief Executive Officer Date: August 12, 1997 By: /s/Anthony J. Popp ----------------------- ------------------ Anthony J. Popp Chief Financial Officer 18 EX-20 6 EXHIBIT 20 1 EXHIBIT 20 GF BANCORP, INC. ONE NORTH PLUM STREET GERMANTOWN, OHIO 45327 (937) 855-4125 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS Notice is hereby given that a Special Meeting of the Stockholders of GF Bancorp, Inc., a Delaware corporation ("GFBC"), will be held at the executive offices of GFBC at One North Plum Street, Germantown, Ohio 45327 on __________________, 1997, at ______ .m., local time (the "Special Meeting"), for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement: 1. To consider and vote upon the adoption of the Agreement of Merger and Plan of Reorganization dated July 28, 1997, by and among GFBC, Camco Financial Corporation, a Delaware corporation ("Camco"), First Federal Savings Bank of Washington Court House, a federal savings bank and wholly-owned subsidiary of Camco ("First Federal"), and Germantown Federal Savings Bank, a federal savings bank and wholly-owned subsidiary of GFBC ("Germantown"), pursuant to which, upon the satisfaction of certain conditions, (i) GFBC will merge with and into Camco, (ii) each outstanding share of GFBC common stock will be canceled and extinguished in consideration and exchange for the right to receive 1.616 shares of common stock of Camco, subject to certain adjustments based on changes in the market value of the issued and outstanding Camco stock before the merger becomes effective, and (iii) Germantown will be merged with and into First Federal; and 2. To transact such other business as may properly come before the Special Meeting or any adjournments thereof. Only stockholders of GFBC of record at the close of business on _____________, 1997, will be entitled to receive notice of and to vote at the Special Meeting and at any adjournments thereof. Whether or not you expect to attend the Special Meeting, we urge you to consider the accompanying Proxy Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The giving of a Proxy does not affect your right to vote in person in the event you attend the Special Meeting. By Order of the Board of Directors, John T. Baker, President Germantown, Ohio ____________, 1997 EX-23.1 7 EXHIBIT 23.1 1 EXHIBIT 23(i) Suite 900 625 Eden Park Drive Cincinnati, Ohio 45202-4181 513 762-5000 FAX 513 241-6125 ACCOUNTANTS' CONSENT We have issued our report dated February 19, 1997, accompanying the consolidated financial statements of Camco Financial Corporation for the year ended December 31, 1996 which are incorporated by reference in the Corporation's Form S-4 to be filed with the Securities and Exchange Commission on or about September 26, 1997. We hereby consent to the incorporation by reference of said report in the Proxy/Prospectus. Grant Thornton LLP Cincinnati, Ohio September 29, 1997 EX-23.2 8 EXHIBIT 23.2 1 EXHIBIT 23(ii) ACCOUNTANTS' CONSENT We consent to the incorporation by reference in the Registration Statement of Camco Financial Corporation on Form S-4 of our report dated May 2, 1997 on the consolidated financial statements of GF Bancorp, Inc. as of March 31, 1997 and for the year then ended. We also consent to the reference to us under the heading "Experts" in the registration statement. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Columbus, Ohio September 29, 1997 EX-23.3 9 EXHIBIT 23.3 1 Exhibit 23 (iii) Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Arthur Andersen LLP Arthur Andersen LLP Cincinnati, Ohio September 26, 1997 EX-23.4 10 EXHIBIT 23.4 1 Exhibit 23(iv) CONSENT OF MCDONALD & COMPANY SECURITIES, INC. We consent to the inclusion in the Prospectus and Proxy Statement of Camco Financial Corporation and GF Bancorp, Inc. of the use of the form of our opinion and to the summarization of our opinion in the Prospectus and Proxy Statement under the caption "Opinion of McDonald & Company." Further, we consent to all references to our firm in such Prospectus and Proxy Statement. /s/ McDonald & Company Securities, Inc. McDONALD & COMPANY SECURITIES, INC. Cleveland, Ohio September 29, 1997 EX-23.5 11 EXHIBIT 23.5 1 EXHIBIT 23(v) CONSENT Board of Directors Camco Financial Corporation 814 Wheeling Avenue Cambridge, Ohio 43725 Gentlemen: We hereby consent to the use of our firm's name in the Registration Statement on Form S-4 (the "Registration Statement") filed by Camco Financial Corporation ("Camco") with the Securities and Exchange Commission for registration of up to 628,967 shares of its common stock, $1.00 par value (the "Shares"), in connection with Camco's acquisition of GF Bancorp, Inc. ("GFBC"); to the statements with respect to our firm appearing under the heading "LEGAL MATTERS" in the Prospectus and Proxy Statement which is included in the Form S-4 (the "Prospectus"); to the reference to our firm name under the heading "THE MERGER - Income Tax Consequences" in the Prospectus; and to the filing of our opinions which concern tax matters and the legality of the Shares being registered, as exhibits to the Form S-4. Very truly yours, /s/ Vorys, Sater, Seymour and Pease Vorys, Sater, Seymour and Pease Cincinnati, Ohio September 29, 1997 EX-27.1 12 EXHIBIT 27.1 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000906787 GF BANCORP, INC. YEAR MAR-31-1997 APR-30-1996 MAR-31-1997 503,851 2,649,811 0 0 10,847,554 0 0 32,651,155 (126,920) 48,121,754 40,369,047 1,000,000 353,443 0 3,084 0 0 6,396,180 48,121,754 2,552,241 840,909 167,108 3,560,258 1,702,429 1,760,309 1,799,949 33,000 0 1,598,325 290,313 197,563 0 0 197,563 0.67 0.67 3.85 167,317 0 0 0 97,635 7,331 3,616 126,920 0 0 126,920
EX-27.2 13 EXHIBIT 27.2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000906787 GF BANCORP, INC. 3-MOS MAR-31-1998 APR-30-1997 JUN-30-1997 574,255 2,427,868 0 0 10,265,237 0 0 33,785,573 127,296 48,502,454 40,384,226 1,000,000 540,792 0 3,084 0 0 6,574,352 48,502,454 688,462 180,038 37,720 906,220 426,604 441,064 465,156 0 0 314,324 177,434 118,934 0 0 118,934 0.41 0.41 4.00 197,116 0 0 0 126,920 0 376 127,296 0 0 127,296
EX-99.1 14 EXHIBIT 99.1 1 EXHIBIT 99(i) REVOCABLE PROXY GF BANCORP, INC. SPECIAL MEETING OF STOCKHOLDERS ___________, 1997 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GF BANCORP, INC. The undersigned stockholder of GF Bancorp, Inc. ("GFBC"), hereby nominates, constitutes and appoints ________________ and __________________, or either one of them, as proxy or proxies for the undersigned, each with full power of substitution and resubstitution, to vote all of the shares of common stock of GFBC that the undersigned is entitled to vote at the Special Meeting of the Stockholders of GFBC to be held at the executive offices of GFBC, One North Plum Street, Germantown, Ohio, on ____________, 1997, at ______ __.m., and at any adjournments thereof (the "Special Meeting"), on the following matters, all of which are described in the accompanying Proxy Statement: 1. The adoption of the Agreement of Merger and Plan of Reorganization dated July 28, 1997, by and among GFBC, Germantown Federal Savings Bank, a wholly-owned subsidiary of GFBC ("Germantown"), Camco Financial Corporation ("Camco") and First Federal Savings Bank of Washington Court House, a wholly-owned subsidiary of Camco ("First Federal"), pursuant to which, upon the satisfaction or the waiver of certain conditions, (i) GFBC will merge with and into Camco (the "Merger"), (ii) each outstanding share of common stock of GFBC will be converted into the right to receive 1.616 shares of common stock of Camco, subject to certain adjustments based on changes in the market value of the issued and outstanding Camco common stock before the Merger becomes effective, and (iii) Germantown will be merged with and into First Federal after the Merger becomes effective. FOR AGAINST ABSTAIN / / / / / / 2. In their discretion, upon such other matters as may properly come before the Special Meeting. THE BOARD OF DIRECTORS OF GFBC RECOMMENDS A VOTE FOR THE PROPOSAL. PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE. 2 This Revocable Proxy will be voted as directed by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS REVOCABLE PROXY WILL BE VOTED FOR THE PROPOSAL. All proxies previously given by the undersigned are hereby revoked. Receipt of the Notice of the Special Meeting of GFBC and of the accompanying Proxy Statement is hereby acknowledged. This Revocable Proxy may be revoked by the undersigned at any time before it is exercised by (i) executing and delivering to GFBC a later dated proxy, or (ii) giving notice of revocation in open meeting or in writing to the Secretary of GFBC at the Special Meeting. IF YOU ARE PLANNING TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THIS BOX: / / NOTE: Please sign your name exactly as it appears on your stock certificate(s). Jointly owned shares require only one signature. If you are signing this Proxy as an attorney, administrator, agent, corporation, officer, executor, trustee or guardian, etc., please add your full title to your signature. - ----------------------------------- ----------------------------------- Signature Signature - ----------------------------------- ----------------------------------- Print Name Print Name - ----------------------------------- ----------------------------------- Print Title (if applicable) Print Title (if applicable) Dated: _____________________ Dated: _______________________ THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GFBC. PLEASE DATE, SIGN AND RETURN IT TO GFBC PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE U.S.A. EX-99.2 15 EXHIBIT 99.2 1 EXHIBIT 99(ii) Report of Independent Public Accountants ---------------------------------------- To the Stockholders and Board of Directors of GF Bancorp, Inc. We have audited the accompanying consolidated statement of financial condition of GF BANCORP, INC. (a Delaware corporation) and subsidiary as of March 31, 1996, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GF Bancorp, Inc. and subsidiary as of March 31, 1996, and the results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles. Cincinnati, Ohio May 3, 1996 /s/ Arthur Andersen LLP Arthur Andersen LLP -----END PRIVACY-ENHANCED MESSAGE-----