-----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, Gj0ugjuoBqBZ7MmVKcLzFwOnlu7WMwuWM4YUHsXj3VROAUS4wLq3dJZcc+IRVt7s Ojo5MK4fkZvtVeMJsAzZ4A== 0001046386-02-000032.txt : 20020415 0001046386-02-000032.hdr.sgml : 20020415 ACCESSION NUMBER: 0001046386-02-000032 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMCO FINANCIAL CORP CENTRAL INDEX KEY: 0000016614 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 510110823 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25196 FILM NUMBER: 02590836 BUSINESS ADDRESS: STREET 1: 6901 GLENN HIGHWAY CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 7404325641 10-K 1 camco10k_123101.txt CAMCO FINANCIAL CORPORATION (10-K) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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) 6901 Glenn Highway, Cambridge, Ohio 43725 -------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (740) 435-2020 Securities registered pursuant to Section 12(b) of the Act: None None ---------------------------- ------------------------------------- (Title of Each Class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value per share ----------------------------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale reported as of March 21, 2002, was $103.9 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) The registrant's revenues for the fiscal year ended December 31, 2001, were $81.5 million. 7,964,119 shares of the registrant's common stock were outstanding on March 21, 2002. DOCUMENTS INCORPORATED BY REFERENCE: Part III of Form 10-K: Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders -1- PART I Item 1. Business. General Camco Financial Corporation ("Camco") is a savings and loan holding company which was organized under Delaware law in 1970. Camco is engaged in the financial services business in Ohio, Kentucky and West Virginia, through its wholly-owned subsidiaries, Advantage Bank ("Advantage" or the "Bank") and Camco Title Insurance Agency, Inc. ("Camco Title"), and its second-tier subsidiaries, Camco Mortgage Corporation ("CMC") and WestMar Mortgage Company ("WestMar"). In June 2001, Camco completed a reorganization in which it combined its banking activities under one Ohio savings bank charter which is now known as Advantage Bank. Prior to the reorganization, Camco operated five separate banking subsidiaries serving distinct geographic areas. The branch office groups in each of the regions previously served by the five subsidiary banks now operate as divisions of Advantage Bank utilizing the names under which their respective offices were chartered prior to the restructuring (Cambridge Savings Bank, Marietta Savings Bank, First Savings Bank, First Bank for Savings and Westwood Homestead Savings Bank). Hereinafter, the terms "Advantage" or the "Bank" will be used to include all the preexisting individual financial institutions owned by Camco. During the periods for which financial information is presented Camco completed several business combinations. In 1998, Camco acquired GF Bancorp, Inc, and its wholly-owned subsidiary, Germantown Federal Savings Bank in a combination accounted for as a pooling-of-interests ("Germantown Merger"). Accordingly, the financial information for 1997 had previously been restated to give effect to the combination as of January 1, 1997. During 2000, Camco completed a business combination with Westwood Homestead Financial Corporation ("WFC") and its wholly-owned subsidiary, Westwood Homestead Saving Bank ("Westwood Savings"). The acquisition was accounted for using the purchase method of accounting and, therefore, the financial statements for prior periods have not been restated. In November 2001, Camco completed a business combination with Columbia Financial of Kentucky, Inc. ("Columbia Financial"), and its wholly-owned subsidiary, Columbia Federal Savings Bank ("Columbia Federal"). The merger was accounted for using the purchase method of accounting and, therefore, the financial statements for prior periods have not been restated. Advantage is regulated by the Ohio Department of Financial Institutions, Division of Savings Banks (the "Division"), and the Federal Deposit Insurance Corporation (the "FDIC"), as its primary regulators. Advantage Bank is a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati, and its deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund (the "SAIF") administered by the FDIC. Camco is regulated by the Office of Thrift Supervision (the "OTS") as a savings and loan holding company. Camco's primary lending activities include the origination of conventional fixed-rate and variable-rate mortgage loans for the acquisition, construction or refinancing of single-family homes located in Camco's primary market areas. Camco also originates construction and permanent mortgage loans on condominiums, two- to four-family, multi-family (over four units) and nonresidential properties. In addition to mortgage lending, Camco makes a variety of consumer loans. The financial statements for Camco and its subsidiaries are prepared on a consolidated basis. The principal source of revenue for Camco on an unconsolidated basis has historically been dividends from the Bank. Payment of dividends to Camco by the Bank is subject to various regulatory restrictions and tax considerations. References in this report to various aspects of the business, operations and financial condition of Camco may be limited to Advantage, as the context requires. -2- Lending Activities General. Camco's primary lending activities include the origination of conventional fixed-rate and variable-rate mortgage loans for the construction, acquisition or refinancing of single-family homes located in Advantage's primary market areas. Construction and permanent mortgage loans on condominiums, multifamily (over four units) and nonresidential properties are also offered by Camco. In addition to mortgage lending, Camco makes a variety of consumer loans. Loan Portfolio Composition. The following table presents certain information regarding the composition of Camco's loan portfolio, including loans held for sale, at the dates indicated:
At December 31, ---------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------------- --------------- ------------------- ----------------- ---------------- Percent Percent Percent Percent Percent of total of total of total of total of total Amount loans Amount loans Amount loans Amount loans Amount loans ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- (Dollars in thousands) Type of loan: Construction $ 42,666 4.9% $ 56,039 6.0% $ 60,565 8.3% $ 37,169 6.8% $ 14,505 3.0% Existing residential properties (1) 705,056 80.9 764,828 82.2 619,621 85.3 485,107 88.4 431,646 89.7 Nonresidential real estate 70,239 8.1 54,722 5.9 20,831 2.9 15,019 2.7 11,294 2.3 Developed building lots 5,908 0.7 5,640 0.6 4,649 0.6 3,895 0.7 1,870 0.4 Education loans 1,198 0.1 1,459 0.2 1,847 0.3 2,096 0.4 2,224 0.5 Consumer and other loans (2) 67,918 7.8 71,719 7.7 49,232 6.8 29,835 5.5 32,430 6.7 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total 892,985 102.5 954,407 102.6 756,745 104.2 573,121 104.5 493,969 102.6 Less: Undisbursed loans in (15,343) (1.8) (19,911) (2.2) (27,569) (3.8) (22,262) (4.1) (10,059) (2.1) process Unamortized yield (1,940) (0.2) (918) (0.1) (1,088) (0.1) (407) (0.1) (813) (0.2) adjustments Allowance for loan losses (4,256) (0.5) (2,906) (0.3) (1,863) (0.3) (1,783) (0.3) (1,596) (0.3) ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total loans, net $871,446 100.0% $930,672 100.0% $726,225 100.0% $548,669 100.0% $481,501 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- ------------------------------------- (1) Includes loans held for sale. (2) Includes second mortgage loans. Camco's loan portfolio was approximately $871.4 million at December 31, 2001, and represented 79.0% of total assets. -3- Loan Maturity Schedule. The following table sets forth certain information as of December 31, 2001, regarding the dollar amount of loans maturing in Camco's portfolio based on the contractual terms to maturity of the loans. Demand loans, loans having no stated schedule of repayments and loans having no stated maturity, are reported as due in one year or less.
Due during the year ending Due in December 31, Due in years years after 2002 2003-2007 2007 Total ---------------- ------------- -------- ------- (In thousands) Real estate loans (1): One- to four- family $ 7,873 $42,163 $617,797 $667,833 Multifamily and nonresidential 6,003 15,642 97,603 119,248 Consumer and other loans 13,796 31,882 23,438 69,116 ------ ------ ------- ------- Total $27,672 $89,687 $738,838 $856,197 ====== ====== ======= =======
- -------------------------- (1) Excludes loans held for sale of $21.4 million and does not consider the effects of unamortized yield adjustments of $1.9 million and the allowance for loan losses of $4.3 million. The following table sets forth at December 31, 2001, the dollar amount of all loans due after one year from December 31, 2001, which have predetermined interest rates and have floating or adjustable interest rates: Due after December 31, 2002 (In thousands) Fixed rate of interest $319,666 Adjustable rate of interest 508,859 ------- Total $828,525 ======= Generally, loans originated by Advantage are on a fully amortized basis. Advantage has no rollover provisions in its loan documents and anticipates that loans will be paid in full by the maturity date. Residential Loans. The primary lending activity of Advantage is the origination of fixed-rate and adjustable-rate conventional loans for the acquisition, refinancing or construction of single-family residences. At December 31, 2001, 74.8% of the total outstanding loans consisted of loans secured by mortgages on one- to four-family residential properties. Advantage also originates loans on multifamily housing (over four units) and condominiums. Each of such loans is secured by a mortgage on the underlying real estate and improvements thereon. Federal regulations and Ohio law limit the amount which Advantage may lend in relationship to the appraised value of the underlying real estate at the time of loan origination (the "Loan-to-Value Ratio" or "LTV"). In accordance with such regulations and law, Advantage makes loans on single-family residences up to 100% of the value of the real estate and improvements. Advantage generally requires the borrower on each loan which has an LTV in excess of 80% to obtain private mortgage insurance, or a guarantee by a federal agency. -4- The interest rate adjustment periods on adjustable-rate mortgage loans ("ARMs") offered by Advantage are generally one, three, five or seven years. The interest rates initially charged on ARMs and the new rates at each adjustment date are determined by adding a stated margin to a designated interest rate index. For the past several years, Advantage has used the one-year, three-year, five-year and seven-year United States Treasury bill rates, adjusted to a constant maturity, as the index for their one-year, three-year, five-year and seven-year adjustable-rate loans, respectively. The initial interest rate for a three-year, a five-year and a seven-year ARM is set slightly higher than for the one-year ARM to compensate for the reduced interest rate sensitivity. The maximum adjustment at each adjustment date for ARMs is usually 2%, with a maximum adjustment of 6% over the term of the loan. From time to time, Advantage originates ARMs which have an initial interest rate that is lower than the sum of the specified index plus the margin. Such loans are subject to increased risk of delinquency or default due to increasing monthly payments as the interest rates on such loans increase to the fully indexed level. Advantage attempts to reduce the risk by underwriting such loans at the fully indexed rate. None of Advantage's ARMs have negative amortization features. Residential mortgage loans offered by Advantage are usually for terms of 10 to 30 years, which could have an adverse effect upon earnings if the loans do not reprice as quickly as the cost of funds. To minimize such effect, Advantage emphasizes the origination of ARMs and sells fixed-rate loans when conditions favor such a sale. Furthermore, experience reveals that, as a result of prepayments in connection with refinancings and sales of the underlying properties, residential loans generally remain outstanding for periods which are substantially shorter than the maturity of such loans. Of the total mortgage loans originated by Advantage during the year ended December 31, 2001, 26.3% were ARMs and 73.7% were fixed-rate loans. Adjustable-rate loans comprised 58.6% of Camco's total outstanding loans at December 31, 2001. Construction Loans. Advantage offers residential construction loans both to owner-occupants and to builders for homes being built under contract with owner-occupants. Advantage also makes loans to persons constructing projects for investment purposes. At December 31, 2001, a total of $42.7 million, or approximately 4.9% of Advantage's total loans, consisted of construction loans, primarily for one- to four-family properties. Construction loans to owner-occupants are typically adjustable-rate long-term loans on which the borrower pays only interest on the disbursed portion during the construction period. Some construction loans to builders, however, have terms of up to 24 months at fixed or adjustable rates of interest. Construction loans for investment properties involve greater underwriting and default risks to Advantage than do loans secured by mortgages on existing properties or construction loans for single-family residences. Loan funds are advanced upon the security of the project under construction, which is more difficult to value in the case of investment properties before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate precisely the total loan funds required to complete a project and the related Loan-to-Value Ratios. In the event a default on a construction loan occurs and foreclosure follows, Camco could be adversely affected in that it would have to take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project. At December 31, 2001, Advantage had 11 construction loans in the amount of $8.8 million on investment properties. Nonresidential Real Estate Loans. Advantage originates loans secured by mortgages on nonresidential real estate, including retail, office and other types of business facilities and apartment projects containing 36 or more units. Nonresidential real estate loans are generally made on an adjustable-rate basis for terms of up to 20 years. Nonresidential real estate loans originated by Advantage generally have an LTV of 80% or less. The largest nonresidential real estate loan outstanding at December 31, 2001, was a $4.5 million loan secured by an apartment complex, commercial properties, and leasing business residuals. Nonresidential real estate loans comprised 8.1% of total loans at December 31, 2001. -5- Nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. Advantage has endeavored to reduce this risk by carefully evaluating the credit history and past performance of the borrower, the location of the real estate, the quality of the management constructing or operating the property, the debt service ratio, the quality and characteristics of the income stream generated by the property and appraisals supporting the property's valuation. Federal law limits an association's investment in nonresidential real estate loans to 400% of the association's capital. At December 31, 2001, Advantage's investment in nonresidential real estate loans was approximately 80.5% of its total capital. Consumer Loans. Advantage makes various types of consumer loans, including loans made to depositors on the security of their savings deposits, automobile loans, education loans, home improvement loans, home equity line of credit loans and unsecured personal loans. Home equity loans and unsecured loans are generally made at a variable rate of interest for terms of up to 10 years. Most other consumer loans are generally made at fixed rates of interest for terms of up to 10 years. The risk of default on consumer loans during an economic recession is greater than for residential mortgage loans. At December 31, 2001, education, consumer and other loans constituted 7.9% of Camco's total loans. Loan Solicitation and Processing. Loan originations are developed from a number of sources, including: solicitations by Camco's lending staff; referrals from real estate brokers and builders; continuing business with depositors, other borrowers and real estate developers; and walk-in customers. Camco does not use loan brokers. Camco's management stresses the importance of individualized attention to the financial needs of its customers. The loan origination process is decentralized, with each of Advantage's divisions having autonomy in loan processing and approval for its respective market area. Mortgage loan applications from potential borrowers are taken by one of the loan officers of the Bank originating the loan, after which they are forwarded to the Bank's loan department for processing. On new loans, the loan department typically obtains a credit report, verification of employment and other documentation concerning the borrower and orders an appraisal of the fair market value of the real estate which will secure the loan. The real estate is thereafter physically inspected and appraised by a staff appraiser or by a designated fee appraiser approved by the Board of Directors of Advantage. Upon the completion of the appraisal and the receipt of all necessary information regarding the borrower, the mortgage loan application is submitted to the Bank's underwriter for approval. If the loan is approved, an attorney's opinion of title or title insurance is obtained on the real estate which will secure the loan. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name Advantage as an insured mortgagee. The procedure for approval of construction loans is the same as for residential mortgage loans, except that the appraiser evaluates the building plans, construction specifications and construction cost estimates. Advantage also evaluates the feasibility of the proposed construction project and the experience and record of the builder. Consumer loans are underwritten on the basis of the borrower's credit history and an analysis of the borrower's income and expenses, ability to repay the loan and the value of the collateral, if any. Loan Originations, Purchases and Sales. Advantage has been actively originating new 30-year, 15-year and 10-year fixed-rate real estate loans as well as adjustable-rate real estate loans and consumer loans. Generally all residential fixed-rate loans made by Advantage are originated on documentation -6- which will permit a possible sale of such loans to the Federal Home Loan Mortgage Corporation ("FHLMC") or other secondary mortgage market participants. When a mortgage loan is sold to the FHLMC, Advantage generally services the loan by collecting monthly payments of principal and interest and forwarding such payments to the FHLMC, net of a servicing fee. During the year ended December 31, 2001, Advantage also sold loans with servicing released. Fixed-rate loans not sold to the FHLMC and substantially all of the ARMs originated by Advantage are held in Advantage's loan portfolios. During the year ended December 31, 2001, Camco sold approximately $295.6 million in loans to the FHLMC and others. Gross income from loans serviced by Camco for others was $1.4 million, which was offset by the amortization and impairment of mortgage servicing rights of $2.8 million for the year ended December 31, 2001. From time to time, Advantage sells participation interests in mortgage loans originated by them and purchases whole loans or participation interests in loans originated by other lenders. Advantage held whole loans and participations in loans originated by other lenders of approximately $21.7 million at December 31, 2001. Loans which Advantage purchases must meet or exceed the underwriting standards for loans originated by Advantage. In recent years, Camco has purchased mortgage-backed securities insured or guaranteed by U.S. Government agencies in order to improve Camco's asset yield by profitably investing excess funds. Camco intends to continue to purchase such mortgage-backed securities when conditions favor such an investment. See "Investment Activities." The following table presents Camco's mortgage loan origination, purchase, sale and principal repayment activity for the periods indicated:
Year ended December 31, 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (In thousands) Loans originated: Construction $ 35,330 $ 71,929 $ 66,437 $ 49,152 $ 34,293 Permanent 320,973 202,004 324,648 328,046 168,519 Consumer and other 83,126 84,526 34,158 67,243 54,351 ------- ------- ------- ------- ------- Total loans originated 439,429 358,459 425,243 444,441 257,163 ------- ------- ------- ------- ------- Loan purchased (1) 17,755 8,639 31,430 18,982 12,514 Reductions: Principal repayments (1) 276,060 178,663 176,804 194,594 134,794 Loans sold (1) 295,637 124,496 96,892 205,899 77,665 Transfers from loans to real estate owned 3,208 1,432 1,220 477 978 ------- ------- ------- ------- ------- Total reductions 574,905 304,591 274,916 400,970 213,437 Increase (decrease) in other items, net (2) (314) (2,552) (277) (3,444) 137 Increase due to mergers (3) 81,426 147,196 - - - ------- ------- ------- ------- ------- Net increase (decrease) $(36,609) $207,151 $181,480 $ 59,009 $ 56,377 ======= ======= ======= ======= =======
- ----------------------- (1) Includes mortgage-backed securities. (2) Other items primarily consist of amortization of deferred loan origination fees, the provision for losses on loans and unrealized gains on mortgage-backed securities designated as available for sale. (3) The 2001 increase resulted from the merger with Columbia Financial and the 2000 increase resulted from the merger with WFC. -7- Lending Limit. Federal regulations and Ohio law generally impose a lending limit on the aggregate amount that a savings association can lend to one borrower to an amount equal to 15% of the association's total capital for risk-based capital purposes plus any loan reserves not already included in total capital (the "Lending Limit Capital"). A savings association may loan to one borrower an additional amount not to exceed 10% of the association's Lending Limit Capital, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." In applying this limit, the regulations require that loans to certain related or affiliated borrowers be aggregated. An exception to this limit permits loans of any type to one borrower of up to $500,000. The largest amount which Advantage could have loaned to one borrower at December 31, 2001, was approximately $13.1 million. The largest amount Advantage had outstanding to one borrower and related persons or entities at December 31, 2001, was $6.8 million, which consisted of five loans secured by personal residences, commercial properties, leasing business residuals, and an apartment complex, a warehouse and a golf course. These loans are not in violation of the applicable federal regulation. Loan Origination and Other Fees. In addition to interest earned on loans, Advantage may receive loan origination fees or "points" of up to 2.0% of the loan amount, depending on the type of loan, plus reimbursement of certain other expenses. Loan origination fees and other fees are a volatile source of income, varying with the volume of lending and economic conditions. All nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment to yield over the life of the related loan in accordance with Statement of Financial Accounting Standards ("SFAS") No. 91. Delinquent Loans, Nonperforming Assets and Classified Assets. Advantage attempts to minimize loan delinquencies through the assessment of late charges and adherence to established collection procedures. Generally, after a loan payment is 15 days delinquent, a late charge of 5% of the amount of the payment is assessed and a collection officer contacts the borrower by mail or phone to request payment. In certain limited instances, Advantage may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs. Advantage generally initiates foreclosure proceedings, in accordance with applicable laws, when it appears that a modification or moratorium would not be productive. Real estate which has been or will be acquired by Advantage as a result of foreclosure or by deed in lieu of foreclosure is classified as "real estate owned" until it is sold. "Real estate owned" is recorded at the lower of the book value of the loan or the fair value of the property less estimated selling expenses at the date of acquisition. Periodically, "real estate owned" is reviewed to ensure that fair value is not less than carrying value, and any write-down resulting therefrom is charged to earnings as a provision for losses on real estate acquired through foreclosure. All costs incurred from the date of acquisition are expensed in the period paid. The following table reflects the amount of loans in a delinquent status as of the dates indicated:
At December 31, 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (Dollars in thousands) Loans delinquent for: 30 to 89 days $14,238 $10,557 $13,792 $10,028 $6,723 90 or more days 7,885 4,726 3,975 4,296 1,939 ------ ------ ------ ------ ----- Total delinquent loans $22,123 $15,283 $17,767 $14,324 $8,662 ====== ====== ====== ====== ===== Ratio of total delinquent loans to total net loans (1) 2.54% 1.64% 2.45% 2.61% 1.80% ==== ==== ==== ==== ====
(1) Total net loans includes loans held for sale. -8- Nonaccrual status denotes loans for which, in the opinion of management, the collection of additional interest is unlikely, or loans that meet nonaccrual criteria as established by regulatory authorities. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on management's assessment of the collectibility of the loan. The following table sets forth information with respect to Camco's nonaccruing and delinquent loans for the periods indicated.
At December 31, 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (Dollars in thousands) Loans accounted for on nonaccrual basis: Real estate: Residential $3,677 $2,068 $1,980 $1,328 $ 830 Nonresidential 367 197 429 233 27 Consumer and other 393 157 141 64 79 ----- ----- ----- ----- ----- Total nonaccrual loans 4,437 2,422 2,550 1,625 936 ----- ----- ----- ----- ----- Accruing loans delinquent 90 days or more: Real estate: Residential 2,564 1,836 1,140 2,030 710 Nonresidential 206 -- -- -- -- Consumer and other 678 468 285 641 293 ----- ----- ----- ----- ----- Total loans 90 days past due 3,448 2,304 1,425 2,671 1,003 ----- ----- ----- ----- ----- Total nonperforming loans $7,885 $4,726 $3,975 $4,296 $1,939 ===== ===== ===== ===== ===== Allowance for loan losses $4,256 $2,906 $1,863 $1,783 $1,596 ===== ===== ===== ===== ===== Nonperforming loans as a percent of total net loans .90% .51% .55% .78% .40% === === === === === Allowance for loan losses as a percent of nonperforming loans 54.0% 61.5% 46.9% 41.5% 82.3% ==== ==== ==== ==== ====
The amount of interest income that would have been recorded had nonaccrual loans performed in accordance with contractual terms totaled approximately $278,000 for the year ended December 31, 2001. Interest collected on such loans and included in net earnings was $54,000. At December 31, 2001, there were no loans which were not classified as nonaccrual, 90 days past due or restructured which management considered classifying in the near future due to concerns as to the ability of the borrowers to comply with repayment terms. Federal regulations require the Bank to classify its assets on a regular basis. Problem assets are to be classified as either (i) "substandard," (ii) "doubtful" or (iii) "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the same weaknesses as substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of existing facts, conditions and value. Assets classified as "loss" are considered uncollectible and of such little value that their treatment as assets without the establishment of a specific reserve is unwarranted. Federal regulations provide for the reclassification of real estate assets by federal examiners. -9- At December 31, 2001, the aggregate amounts of Camco's classified assets were as follows: At December 31, 2001 (In thousands) Classified assets: Substandard $7,775 Doubtful 27 Loss 83 ----- Total classified assets $7,885 ===== The regulations also include a "special mention" category, consisting of assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification, but which possess credit deficiencies or potential weaknesses deserving management's close attention. Camco had assets in the amount of $4.4 million designated as "special mention" at December 31, 2001. Allowance for Loan Losses. The allowance for loan losses is maintained at a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market areas, and other factors related to the collectibility of the Bank's loan portfolio. The following table sets forth an analysis of Camco's allowance for loan losses:
Year ended December 31, 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (Dollars in thousands) Balance at beginning of year $2,906 $1,863 $1,783 $1,596 $1,373 Charge-offs: 1-4 family residential real estate 66 9 82 9 30 Multifamily and nonresidential real estate 12 41 12 - 124 Consumer and other 657 122 79 61 22 ----- ----- ----- ----- ----- Total charge-offs 735 172 173 70 176 ----- ----- ----- ----- ----- Recoveries: 1-4 family residential real estate 3 - - - 2 Multifamily and nonresidential real estate - - 2 - 4 Consumer and other 23 6 4 7 8 ----- ----- ----- ----- ----- Total recoveries 26 6 6 7 14 ----- ----- ----- ----- ----- Net charge-offs (709) (166) (167) (63) (162) Provision for losses on loans 759 568 247 250 385 Increase attributable to mergers (1) 1,300 641 - - - ----- ----- ----- ----- ----- Balance at end of year $4,256 $2,906 $1,863 $1,783 $1,596 ===== ===== ===== ===== ===== Net charge-offs to average loans .08% .02% .03% .01% .04% === === === === ===
(1) The 2001 increase resulted from the merger with Columbia Financial and the 2000 increase resulted from the merger with WFC. -10- The following table sets forth the allocation of Camco's allowance for loan losses by type of loan at the dates indicated:
At December 31, 2001 2000 1999 1998 1997 ---------------- ---------------- ---------------- ---------------- ---------------- Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in each in each in each in each in each category category category category category to total to total to total to total to total Amount loans Amount loans Amount loans Amount loans Amount loans ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- (Dollars in thousands) Balance at year end applicable to: Mortgage loans $3,418 92.1% $2,440 92.1% $1,350 92.9% $1,340 94.1% $1,030 92.8% Consumer and other 838 7.9 466 7.9 513 7.1 443 5.9 566 7.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- loans Total $4,256 100.0% $2,906 100.0% $1,863 100.0% $1,783 100.0% $1,596 100.0% ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Investment Activities Federal regulations require that Advantage maintain a minimum amount of liquid assets, which may be invested in United States Treasury obligations, securities of various agencies of the federal government, certificates of deposit at insured banks, bankers' acceptances and federal funds sold. Advantage is also permitted to make limited investments in commercial paper, corporate debt securities and certain mutual funds, as well as other investments permitted by federal laws and regulations. It has generally been Camco's policy to maintain liquid assets at Advantage in excess of regulatory requirements in order to shorten the maturities of the investment portfolios and improve the matching of short-term investments and interest rate sensitive savings deposit liabilities. The following table sets forth the composition of Camco's investment securities portfolio, except its stock in the FHLB of Cincinnati, at the dates indicated:
At December 31, 2001 2000 1999 ---------------------------------- -------------------------------- -------------------------------- Amortized % of Fair % of Amortized % of Fair % of Amortized % of Fair % of cost total value total cost total value total cost total value total ------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Held to maturity: (Dollars in thousands) U.S. Government agency obligations $18,682 33.0% $18,891 33.1% $16,482 51.4% $16,427 51.3% $16,584 55.8% $16,166 55.7% Municipal bonds 190 .3 192 .3 190 .6 190 .6 280 .9 286 1.0 Mortgage-backed 30,765 54.2 30,744 53.9 5,273 16.4 5,247 16.4 5,944 20.0 5,818 20.0 ------ ---- ------ ---- ------ ----- ------ ------ ------ ---- ------ ---- securities Total 49,637 87.5 49,827 87.3 21,945 68.4 21,864 68.3 22,808 76.7 22,270 76.7 Available for sale: Corporate equity 245 .4 305 .5 245 .7 309 1.0 228 .8 273 1.0 securities Mortgage-backed securities 6,872 12.1 6,975 12.2 9,908 30.9 9,850 30.7 6,704 22.5 6,475 22.3 ------ ---- ------ ---- ------ ----- ------ ------ ------ ---- ------ ---- Total 7,117 12.5 7,280 12.7 10,153 31.6 10,159 31.7 6,932 23.3 6,748 23.3 ------ ---- ------ ---- ------ ----- ------ ------ ------ ---- ------ ---- Total investments and mortgage-backed securities $56,754 100.0%$57,107 100.0% $32,098 100.0% $32,023 100.00% $29,740 100.0% $29,018 100.0% ====== ===== ====== ===== ====== ===== ====== ====== ====== ===== ====== =====
-11- The following table presents the contractual maturities or terms to repricing of Camco's investment securities, except its stock in the FHLB of Cincinnati and corporate equity securities, and the weighted-average yields at December 31, 2001:
At December 31, 2001 -------------------------------------------------------------------------------------------------------- After one After five One year or less through five years through ten years After ten years Total ------------------ ------------------ ------------------ ----------------- ------------------------- Weighted- Amortized Average Amortized Average Amortized Average Amortized Average Amortized Fair average cost yield cost yield cost yield cost yield cost value yield ------ ------- ------ ------- ------ ------- --------- ------ ------ ------ ----- (Dollars in thousands) U.S. Government agency obligations $1,000 5.98% $16,867 5.26% $ - - % $ 815 4.75% $18,682 $18,891 5.28% Municipal bonds 100 4.10 - - - - 90 6.66 190 192 5.31 Mortgage-backed securities 115 7.54 8,592 5.06 7,979 5.97 20,951 6.09 37,637 37,719 5.83 ----- ---- ------ ---- ----- ---- ------ ---- ------ ------ ---- Total $1,215 5.97% $25,459 5.19% $7,979 5.97% $21,856 6.04% $56,509 $56,802 5.65% ===== ==== ====== ==== ===== ==== ====== ==== ====== ====== =====
Deposits and Borrowings General. Deposits have traditionally been the primary source of Camco's funds for use in lending and other investment activities. In addition to deposits, Camco derives funds from interest payments and principal repayments on loans, advances from the FHLB of Cincinnati and income on earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to general interest rate and money market conditions. As part of Camco's asset and liability management strategy, FHLB advances and other borrowings are used to fund loan originations and for general business purposes. FHLB advances are also used on a short-term basis to compensate for reductions in the availability of funds from other sources. Deposits. Deposits are attracted principally from within Camco's primary market area through the offering of a broad selection of deposit instruments, including interest and non-interest bearing checking accounts, money market deposit accounts, regular passbook savings accounts, term certificate accounts and retirement savings plans. Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by management of Advantage based on its liquidity requirements, growth goals and interest rates paid by competitors. Interest rates paid by Camco on deposits are not limited by federal or state law or regulation. Camco generally does not obtain funds through brokers or offer premiums to attract deposits. Camco does not have a significant amount of savings accounts from outside its primary market area. -12- The following table sets forth the dollar amount of deposits in the various types of savings programs offered by Advantage at the dates indicated:
At December 31, --------------------------------------------------------------------- 2001 2000 1999 Weighted- ------------------- ------------------- ------------------- average Percent Percent Percent rate at of total of total of total 12/31/01 Amount deposits Amount deposits Amount deposits (Dollars in thousands) Withdrawable accounts: Interest and non-interest bearing checking accounts 0.99% $111,649 15.3% $ 90,830 14.4% $ 71,582 15.5% Money market demand accounts 3.59 64,539 8.8 45,047 7.1 26,898 5.8 Passbook and statement savings accounts 1.70 85,443 11.7 69,706 11.0 71,128 15.4 ---- ------- ----- ------- ----- ------- ----- Total withdrawable accounts 1.86 261,631 35.8 205,583 32.5 169,608 36.7 Certificates accounts: Term: Seven days to one year 3.49 51,472 7.0 64,693 10.2 41,093 8.9 One to two years 5.29 136,859 18.8 139,103 22.0 108,118 23.4 Two to eight years 5.95 163,226 22.4 117,146 18.5 83,299 18.1 Negotiated rate certificates 5.13 54,998 7.5 56,552 9.0 28,618 6.2 Individual retirement accounts 5.40 61,889 8.5 49,211 7.8 31,051 6.7 ---- ------- ----- ------- ----- ------- ----- Total certificate accounts 5.32 468,444 64.2 426,705 67.5 292,179 63.3 ---- ------- ----- ------- ----- ------- ----- Total deposits 4.08% $730,075 100.0% $632,288 100.0% $461,787 100.0% ==== ======= ===== ======= ===== ======= =====
The following table presents the amount and contractual maturities of Camco's time deposits at December 31, 2001:
Amount Due ------------------------------------------------------------------------- Up to Over one year 1-3 years 3-5 years 5 years Total -------- --------- --------- ------- -------- (Dollars in thousands) Amount maturing $312,484 $122,891 $24,670 $8,399 $468,444 ======= ======= ====== ===== ======= Average rate 5.20% 5.47% 5.56% 6.91% 5.32% ==== ==== ==== ==== ====
The following table sets forth the amount and maturities of Camco's time deposits in excess of $100,000 at December 31, 2001: Maturity At December 31, 2001 -------- -------------------- (In thousands) Three months or less $ 39,023 Over three to six months 26,700 Over six to twelve months 23,649 Over twelve months 33,885 ------- Total $123,257 ======= Borrowings. The twelve regional FHLBs function as central reserve banks, providing credit for their member institutions. As a member in good standing of the FHLB of Cincinnati, Advantage is authorized to apply for advances from the FHLB of Cincinnati, provided certain standards of creditworthiness have been met. Advances are made pursuant to several different -13- programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution's regulatory capital or on the FHLB's assessment of the institution's creditworthiness. Under current regulations, a member institution must meet certain qualifications to be eligible for FHLB advances. The extent to which an association is eligible for such advances will depend upon whether it meets the Qualified Thrift Lender ("QTL") test. If an institution meets the QTL test, it will be eligible for 100% of the advances it would otherwise be eligible to receive. If an institution does not meet the QTL test, it will be eligible for such advances only to the extent it holds QTL test assets. At December 31, 2001, Advantage met the QTL test. The following table sets forth the maximum amount of Camco's FHLB advances outstanding at any month end during the periods shown and the average aggregate balances of FHLB advances for such periods:
Year ended December 31, 2001 2000 1999 ------ ------ ------ (Dollars in thousands) Maximum amount outstanding $313,472 $357,411 $279,125 Average amount outstanding $280,747 $325,805 $200,285 Weighted-average interest cost of FHLB advances based on month end balances 6.09% 6.37% 5.39%
The following table sets forth certain information with respect to Camco's FHLB advances at the dates indicated:
At December 31, 2001 2000 1999 ------ ------ ------ (Dollars in thousands) Amount outstanding $258,850 $313,471 $279,125 Weighted-average interest rate 6.02% 6.20% 5.71%
Competition Advantage competes for deposits with other savings associations, savings banks, commercial banks and credit unions and with the issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, Advantage competes with other savings banks, savings associations, commercial banks, consumer finance companies, credit unions and other lenders. Advantage competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of the services it provides to borrowers. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable. Service Corporation Activities Federal regulations permit savings associations to invest an amount up to 2% of their assets in the stock, paid-in surplus and unsecured obligations of subsidiary service corporations engaged in certain activities. In addition, -14- federal regulations generally authorize such institutions which meet the minimum regulatory capital requirements to invest up to 50% of their regulatory capital in conforming first mortgage loans made by service corporations. At December 31, 2001, Advantage had a direct investment in the capital stock of CMC in the amount of approximately $1.9 million. The principal business of CMC is originating first mortgage loans on residential real estate located primarily in Coshocton, Muskingum, Stark and Tuscarawas Counties, Ohio. Loans originated by CMC are generally sold to Advantage. CMC originated $104.6 million of mortgage loans in 2001, $57.9 million of which were sold to Advantage, compared to $88.1 million which were sold in 2000. Advantage had a direct investment in the capital stock of WestMar in the amount of approximately $509,000 at December 31, 2001. The principal business of WestMar is originating first mortgage loans on residential real estate located in Wood County, West Virginia. WestMar originated $15.3 million of mortgage loans in 2001, $13.0 million of which were sold to Advantage, compared to $7.6 million of mortgage loans sold in 2000. Advantage is in the process of converting the WestMar office into a limited purpose branch of Advantage. First S&L Corporation did not conduct any business during the year ended December 31, 2001, and was capitalized on a nominal basis at December 31, 2001. Employees As of December 31, 2001, Camco had 235 full-time employees and 47 part-time employees. Camco believes that relations with its employees are good. Camco offers health and disability benefits and a 401(k) salary savings plan. None of the employees of Camco are represented by a collective bargaining unit. REGULATION General As a savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933, as amended (the "HOLA"), Camco is subject to regulation, examination and oversight by the OTS. Advantage is subject to regulation by the Division and the FDIC. Camco and Advantage must file periodic reports with these governmental agencies, as applicable, concerning their activities and financial condition. Examinations are conducted periodically by the applicable regulators to determine whether Camco and Advantage are in compliance with various regulatory requirements and are operating in a safe and sound manner. Advantage is a member of the FHLB of Cincinnati and is also subject to certain regulations promulgated by the Board of Governors of the Federal Reserve System ("FRB"). Ohio Regulation As a savings bank incorporated under Ohio law, Advantage is subject to regulation by the Division. Such regulation affects the internal organization of Advantage, as well as its savings, mortgage lending and other investment activities. Ohio law requires that Advantage maintain at least 60% of its assets in housing-related and other specified investments. At December 31, 2001, Advantage had at least 60% of its assets in such investments. Periodic examinations by the Division are usually conducted on a joint basis with the federal examiners. Ohio law requires that Advantage maintain federal deposit insurance as a condition of doing business. The ability of Ohio savings banks to engage in certain state-authorized investments is subject to oversight and approval by the FDIC. See "Federal Deposit Insurance Corporation - State Chartered Bank Activities." -15- Any mergers involving, or acquisitions of control of, Ohio savings banks must be approved by the Division. The Division may initiate certain supervisory measures or formal enforcement actions against Ohio savings banks. Ultimately, if the grounds provided by law exist, the Division may place an Ohio savings bank in conservatorship or receivership. In addition to being governed by the laws of Ohio specifically governing savings banks, Advantage is also governed by Ohio corporate law, to the extent such law does not conflict with the laws specifically governing savings banks. Federal Deposit Insurance Corporation Supervision and Examination. The FDIC is responsible for the regulation and supervision of all commercial banks and state savings banks that are not members of the Federal Reserve System ("Non-member Banks"), including Advantage. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial banks and state savings banks and the SAIF for savings associations. Advantage is a member of the SAIF and its deposit accounts are insured by the FDIC, up to the prescribed limits. The FDIC issues regulations governing the operations of Non-member Banks, examines such institutions and may initiate enforcement actions against such institutions and certain persons affiliated with them for violations of laws and regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the FDIC may appoint a conservator or a receiver for a Non-member Bank. Non-member Banks and savings associations are subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of an institution to open a new branch or engage in a merger transaction. State Chartered Bank Activities. The ability of Advantage to engage in any state-authorized activities or make any state-authorized investments, as principal, is limited if such activity is conducted or investment is made in a manner different than that permitted for, or subject to different terms and conditions than those imposed on, national banks. Engaging as a principal in any such activity or investment not permissible for a national bank is subject to approval by the FDIC. Such approval will not be granted unless certain capital requirements are met and there is not a significant risk to the FDIC insurance fund. Most equity and real estate investments (excluding office space and other real estate owned) authorized by state law are not permitted for national banks. Certain exceptions are granted for activities deemed by the FRB to be closely related to banking and for FDIC-approved subsidiary activities. Liquidity. Advantage is not required to maintain a specific level of liquidity; however, the FDIC expects it to maintain adequate liquidity to protect safety and soundness. Regulatory Capital Requirements. Advantage 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 capital requirement is a minimum level of Tier 1 capital to average total consolidated assets of 3%, if Advantage has the highest regulatory examination rating, well diversified risk and minimal anticipated growth or expansion, and between 4% and 5% of average total consolidated assets if it does not meet those criteria. "Tier 1" capital includes common -16- stockholders equity, noncumulative perpetual preferred stock and minority interest in the equity accounts of consolidated subsidiaries, less all intangibles, other than includable purchased mortgage servicing rights and credit card relationships. Pursuant to the risk-based capital requirement, Advantage 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 Advantage with applicable regulatory capital requirements at December 31, 2001:
At December 31, 2001 -------------------------------------------------------------------------------------- To be "well-capitalized" For capital under prompt corrective Actual adequacy purposes action provisions --------------------- --------------------- ------------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) Total capital (to risk-weighted assets) $88,017 12.5% =>$56,346 =>8.0% =>$70,433 =>10.0% Tier I capital (to risk-weighted assets) $83,761 11.9% =>$28,173 =>4.0% =>$42,260 => 6.0% Tier I leverage $83,761 7.6% =>$43,868 =>4.0% =>$54,835 => 5.0%
The FDIC has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings associations and Non-member Banks. At each successively lower defined capital category, an institution is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the applicable agency has less flexibility in determining how to resolve the problems of the institution. In addition, the agency generally can downgrade an institution's capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the institution is deemed to be engaging in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. An undercapitalized institution must submit a capital restoration plan to the applicable agency within 45 days after it becomes undercapitalized. Such institution will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching and engaging in new lines of business. Furthermore, critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances. Advantage's capital level at December 31, 2001, met the standards for well-capitalized institutions. Federal law prohibits a financial institution from making a capital distribution to anyone or paying management fees to any person having control of the institution if, after such distribution or payment, the institution would be undercapitalized. In addition, each company controlling an undercapitalized institution must guarantee that the institution will comply with its capital restoration plan until the institution has been adequately capitalized on average during each of the four preceding calendar quarters and must provide adequate assurances of performance. The aggregate liability pursuant to such guarantee is limited to the lesser of (a) an amount equal to 5% of the institution's total assets at the time it became undercapitalized or (b) the amount necessary to bring the institution into compliance with all capital standards applicable to such institution at the time the institution fails to comply with its capital restoration plan. -17- Transactions with Affiliates and Insiders Loans to executive officers, directors and principal shareholders and their related interests must conform to the lending limit on loans to one borrower, and the total of such loans to executive officers, directors, principal shareholders and their related interests cannot exceed the association's Lending Limit Capital (or 200% of Lending Limit Capital for qualifying institutions with less than $100 million in assets). Most loans to directors, executive officers and principal shareholders must be approved in advance by a majority of the "disinterested" members of the board of directors of the association with any "interested" director not participating. All loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions with the general public or as offered to all employees in a company-wide benefit program, and loans to executive officers are subject to additional limitations. Advantage was in compliance with such restrictions at December 31, 2001. 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. Exemptions from Sections 23A or 23B of the FRA may be granted only by the FRB. Advantage was in compliance with these requirements at December 31, 2001. Change in Control Federal Law. The Federal Deposit Insurance Act (the "FDIA") provides that no person, acting directly or indirectly or in concert with one or more persons, shall acquire control of any insured depository institution or holding company, unless 60-days prior written notice has been given to the primary federal regulator for that institution and such regulator has not issued a notice disapproving the proposed acquisition. Control, for purposes of the FDIA, means the power, directly or indirectly, alone or acting in concert, to direct the management or policies of an insured institution or to vote 25% or more of any class of securities of such institution. Control exists in situations in which the acquiring party has direct or indirect voting control of at least 25% of the institution's voting shares, controls in any manner the election of a majority of the directors of such institution or is determined to exercise a controlling influence over the management or policies of such institution. In addition, control is presumed to exist, under certain circumstances where the acquiring party (which includes a group "acting in concert") has voting control of at least 10% of the institution's voting stock. These restrictions do not apply to holding company acquisitions. See "Holding Company Regulation". Ohio Law. A statutory limitation on the acquisition of control of an Ohio savings bank requires the written approval of the Division prior to the acquisition by any person or entity of a controlling interest in an Ohio association. Control exists, for purposes of Ohio law, when any person or entity which, either directly or indirectly, or acting in concert with one or more other persons or entities, owns, controls, holds with power to vote, or holds proxies representing, 15% or more of the voting shares or rights of an association, or controls in any manner the election or appointment of a majority of the directors. A director will not be deemed to be in control by virtue of an annual solicitation of proxies voted as directed by a majority of the board of directors. Ohio law also requires that certain acquisitions of voting securities that would result in the acquiring shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of Camco must be approved in advance by the holders of at least a majority of the outstanding voting shares represented at a meeting at which a quorum is present and a majority of the portion of the outstanding voting shares represented at such a meeting, excluding the voting -18- shares by the acquiring shareholder. This statute was intended, in part, to protect shareholders of Ohio corporations from coercive tender offers. Under certain circumstances, interstate mergers and acquisitions involving savings banks incorporated under Ohio law are permitted by Ohio law. A financial institution or financial institution holding company with its principal place of business in another state may acquire a savings and loan association or savings and loan holding company incorporated under Ohio law if, in the discretion of the Division, the laws of such other state give an Ohio institution or an Ohio holding company reciprocal rights. Holding Company Regulation As a savings and loan holding company within the meaning of the HOLA, Camco has registered with the OTS and is subject to OTS regulations, examination, supervision and reporting requirements. The HOLA generally prohibits a savings and loan holding company from controlling any other savings association or savings and loan holding company, without prior approval of the OTS, or from acquiring or retaining more than 5% of the voting shares of a savings association or holding company thereof, which is not a subsidiary. Under certain circumstances, a savings and loan holding company is permitted to acquire, with the approval 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 Camco. Except with the prior approval 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 holding company's stock may also acquire control of any savings institution, other than a subsidiary institution, or any other savings and loan holding company. As a unitary savings and loan holding company in existence on May 4, 1999, Camco generally has no restrictions on its activities. If the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association, however, the OTS may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings association, (ii) transactions between the savings association and its affiliates, and (iii) any activities of the savings association that might create a serious risk that the liabilities of Camco and its affiliates may be imposed on the savings association. Notwithstanding the foregoing rules as to permissible business activities of a unitary savings and loan holding company, if the savings association subsidiary of a holding company is not a qualified thrift lender ("QTL"), then such unitary savings and loan holding company would become subject to the activities restrictions applicable to multiple holding companies. In order to be a QTL, a savings association must meet one of two tests. The first test requires a savings association to maintain a specified level of investments in assets that are designated as qualifying thrift investments ("QTIs"). Generally, QTIs are assets related to domestic residential real estate and manufactured housing, although they also include credit card, student and small business loans and stock issued by any FHLB, the FHLMC or the FNMA. Under the QTL 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 nine out of every 12 months. The second test permits a savings association to qualify as a QTL by meeting the definition of "domestic building and loan association" under the Internal Revenue Code of 1986, as amended (the "Code"). In order for an institution to meet the definition of a "domestic building and loan association" under the Code, at least 60% of its assets must consist of specified types of property, including cash, loans secured by residential real estate or deposits, educational loans and certain governmental obligations. The OTS may grant exceptions to the QTL tests under certain circumstances. At December 31, 2001, Advantage met the QTL test. -19- Federal Reserve Requirements FRB regulations currently require savings associations to maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up to $41.3 million (subject to an exemption of up to $5.7 million), and of 10% of net transaction accounts in excess of $41.3 million. At December 31, 2001, Advantage 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 a member of the FHLB of Cincinnati, Advantage 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 its residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of its advances from the FHLB of Cincinnati. Advantage is in compliance with this requirement with an investment in FHLB of Cincinnati stock of $22.5 million at December 31, 2001. Generally, the FHLB is not permitted to make new advances to a member without positive tangible capital. Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is required to obtain and to maintain a security interest in collateral in one or more of the following categories: fully disbursed, whole first mortgage loans on improved residential property or securities representing a whole interest in such loans; securities issued, insured or guaranteed by the United States Government or an agency thereof; deposits in any FHLB; or other real estate related collateral (up to 30% of the member's capital) acceptable to the applicable FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLBs. The standards take into account a member's performance under the Community Reinvestment Act and its record of lending to first-time home buyers. All long-term advances by each FHLB must be made only to provide funds for residential housing finance. The FHLBs have established the "Affordable Housing Program" to subsidize the interest rate on advances to member associations engaged in lending for long-term, low- and moderate-income, owner-occupied and affordable rental housing at subsidized rates. The FHLB of Cincinnati reviews and accepts proposals for subsidies under that program twice a year. Advantage has participated in this program. Federal Taxation Camco and its subsidiaries are each subject to the federal tax laws and regulations which apply to corporations generally. In addition to the regular income tax, Camco and its subsidiaries may be subject to the alternative minimum tax which 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 exemptions. Such tax preference items include interest on certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the amount by which a corporation's "adjusted current earnings" exceeds its alternative minimum taxable income computed 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. Certain thrift institutions, such as Advantage, are allowed deductions for bad debts under methods more favorable than those granted to other taxpayers. Qualified thrift institutions may compute deductions for bad debts using either the specific charge-off method of Section 166 of the Code or the -20- experience method of Section 593 of the Code. The "experience" method is also available to small banks. Under the "experience" method, a thrift institution is 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. Thrift institutions that are 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 debts 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 is treated as 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 is treated as 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 than its base amount. The "base amount" generally is the average of the principal amounts of the residential loans made by the thrift during the six most recent tax years beginning before January 1, 1996. A residential loan is a loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by residential or church property and certain mobile homes), but only to the extent that the loan is made to the owner of the property. Advantage is required to recapture $1.9 million of its bad debt reserve for which deferred taxes have been provided. The recapture is being effected over a six year period commencing in 1998. The balance of the pre-1988 reserves is subject to the provisions of Section 593(e) 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 (except 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 Advantage to Camco is deemed paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and the gross income of Camco for tax purposes would be increased by the amount which, when reduced by the income tax, if any, attributable to the inclusion of such amount in its gross income, equals the amount deemed paid out of the pre-1988 reserves. As of December 31, 2001, the pre-1988 reserves for Advantage for tax purposes totaled approximately $12.8 million. Camco believes Advantage had approximately $24.3 million of accumulated earnings and profits for tax purposes as of December 31, 2001, which -21- would be available for dividend distributions, provided regulatory restrictions applicable to the payment of dividends are met. No representation can be made as to whether Advantage will have current or accumulated earnings and profits in subsequent years. The tax returns of Camco have been audited or closed without audit through calendar year 1997. In the opinion of management, any examination of open returns would not result in a deficiency which could have a material adverse effect on the financial condition of Camco. Ohio Taxation. Camco and Camco Title are subject to the Ohio corporation franchise tax, which, as applied to them, 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 8.5% of computed Ohio taxable income in excess of $50,000 or (ii) .400% times taxable net worth. A special litter tax is also applicable to all corporations, including Camco, 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. Advantage 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 1.3% of its book net worth determined in accordance with generally accepted accounting principles. As a "financial institution," Advantage is not subject to any tax based upon net income or net profits imposed by the State of Ohio. CMC and WestMar are subject to the Ohio Dealers in Intangibles property tax but currently incur no liability because they are owned by an Ohio financial institution. Delaware Taxation. As a Delaware corporation, Camco is subject to an annual franchise tax based on the quantity and par value of its authorized capital stock and its gross assets. As a savings and loan holding company, Camco is exempt from Delaware corporate income tax. Kentucky Taxation. The Commonwealth of Kentucky imposes no income or franchise taxes on savings institutions. Advantage is subject to an annual ad valoreum tax which is .1% of Advantage's Kentucky deposit accounts, and apportioned common stock and retained income, with certain deductions for amounts borrowed by depositors and securities guaranteed by the U.S. Government or certain of its agencies. West Virginia Taxation. Advantage, Camco Title and WestMar are subject to a West Virginia tax on apportioned adjusted net income and a West Virginia franchise tax on apportioned adjusted capital. The adjusted net income of each is taxed at a rate of 9.0%. The franchise tax rate is 0.75% of adjusted capital. The apportionment is based solely on the ratio of gross receipts derived from West Virginia as compared to gross receipts everywhere. -22- Item 2. Properties. The following table provides the location of, and certain other information pertaining to, Camco's office premises as of December 31, 2001:
Year facility Leased commenced or Net book Office Location operations owned value (1) - --------------- ---------- ------ ------ 134 E. Court Street Washington Court House, Ohio 1963 Owned (2) $ 621,564 45 West Second Street Chillicothe, Ohio 1994 Leased (3) 1050 Washington Ave. Washington Court House, Ohio 1996 Owned 543,658 1 N. Plum Street Germantown, Ohio 1998 Owned 563,951 687 West Main Street New Lebanon, Ohio 1998 Owned 81,327 1392 Cherry Bottom Road Gahanna, Ohio 1999 Leased (4) 3002 Harrison Avenue Cincinnati, Ohio 2000 Owned 1,644,735 1101 St. Gregory Street Cincinnati, Ohio 2000 Leased (5) 5071 Glencrossing Way Cincinnati, Ohio 2000 Leased (6) 290 1/2Front St. Marietta, Ohio 1996 Leased (7) 126 S. 9th Street Cambridge, Ohio 1998 Owned 109,641 226 Third Street Marietta, Ohio 1976 Owned 541,143 1925 Washington Boulevard Belpre, Ohio 1979 Owned 133,226
-23-
478 Pike Street Marietta, Ohio 1998 Leased (8) $ 628,936 814 Wheeling Avenue (9) Cambridge, Ohio 1963 Owned 1,128,755 327 E. 3rd Street Uhrichsville, Ohio 1975 Owned 44,219 175 N. 11th Street Cambridge, Ohio 1981 Owned 359,845 209 Seneca Avenue Byesville, Ohio 1978 Leased (10) 2497 Dixie Highway Ft. Mitchell, Kentucky 2001 Owned 389,360 401-7 Pike Street Covington, Kentucky 2001 Owned 115,996 3522 Dixie Highway Erlanger, Kentucky 2001 Owned 23,592 612 Buttermilk Pike Crescent Springs, Kentucky 2001 Owned 35,675 7550 Dixie Highway Florence, Kentucky 2001 Owned 683,473 1640 Carter Avenue Ashland, Kentucky 1996 Owned 831,914 U.S. 60A West Summit, Kentucky 1996 Owned 664,688 280 Russell Road Ashland, Kentucky 1996 Owned 95,675 191 Eastern Heights Shopping Center Huntington, West Virginia 1997 Leased (11) 2,287
- -------------------------- (Footnotes on following page) -24-
6901 Glenn Highway 1999 Owned $1,372,583 Cambridge, Ohio 1320A and 1320 D 4th Street, N.W. New Philadelphia, Ohio 1985 Owned (12) 207,131 6269 Frank Ave. N. Canton, Ohio 1992 Leased (13) 343 W. Milltown Road Wooster, Ohio 2000 Leased (14) 510 Grand Central Avenue Vienna, West Virginia 1991 Leased (15)
(1) Net book value amounts are for land, buildings and improvements. (2) The 134 E. Court Street facility also serves as the Camco Title - WCH office. (3) The lease expires in September 2004. (4) The lease expires in 2004 and Advantage has the option to renew for a five year term. (5) The lease is currently on a month to month basis. (6) The lease expires in April 2006. Advantage has the option to renew for a five-year term. (7) The lease expires in May 2002. (8) The lease expires in 2017. Advantage has the option to renew for 2 five-year terms. The lease is for land. (9) The Wheeling Avenue facility also serves as the Camco Title - Cambridge office. (10) The lease expires in 2005. Advantage has the option to renew the lease for two five-year terms. (11) The lease expires in March 2003. (12) The 4th Street facility also serves as the Camco Title - New Philadelphia office. (13) The lease expires in June 2003, with an option to renew for a two-year term. (14) The lease expires in March 2003, with an option to renew for two three-year terms. (15) The lease expires in August 2002. -25- Camco also owns furniture, fixtures and equipment. The net book value of Camco's investment in office premises and equipment totaled $14.8 million at December 31, 2001. See Note E of Notes to Consolidated Financial Statements for additional information. Item 3. Legal Proceedings. Neither Camco nor Advantage is presently engaged in any legal proceedings of a material nature. From time to time, Advantage is involved in legal proceedings to enforce its security interest in collateral taken as security for its loans. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Stock and Related Security Holder Matters. At December 31, 2001, Camco had 8,011,020 shares of common stock outstanding and held of record by approximately 1,300 stockholders. Price information for Camco's common stock is quoted on The Nasdaq National Market ("Nasdaq") under the symbol "CAFI." The table below sets forth the high and low trade information for the common stock of Camco, together with the dividends declared per share of common stock, for each quarter of 1999, 2000 and 2001.
Cash dividends Year ended December 31, 2001 High Low declared - ---------------------------- -------- ------- ----------- Quarter ending: December 31, 2001 $13.00 $10.95 $0.1200 September 30, 2001 13.75 12.01 0.1200 June 30, 2001 12.58 10.60 0.1200 March 31, 2001 11.38 9.44 0.1200 Year ended December 31, 2000 Quarter ending: December 31, 2000 $10.62 $ 8.52 $0.1200 September 30, 2000 10.38 8.18 0.1200 June 30, 2000 9.64 8.31 0.1200 March 31, 2000 9.51 7.67 0.1200 Year ended December 31, 1999(1) Quarter ending: December 31, 1999 $12.38 $ 9.56 $0.1200 September 30, 1999 13.50 10.31 0.1200 June 30, 1999 13.33 12.43 0.1143 March 31, 1999 14.88 13.10 0.1071
- ---------------------------- (1) Amounts have been restated to give effect to the 5% stock dividend which was effected in July 1999. In addition to certain federal income tax considerations, regulations of OTS imposes limitations on the payment of dividends and other capital distributions by savings associations. -26- Item 6. Selected Consolidated Financial Data. The following tables set forth certain information concerning the consolidated financial position and results of operations of Camco for the periods indicated. This selected consolidated financial data should be read in conjunction with the consolidated financial statements appearing elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL DATA:(1) At December 31, 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- (In thousands) Total amount of: Assets $1,102,652 $1,037,856 $813,482 $637,135 $570,170 Interest-bearing deposits in other financial institutions 89,299 4,916 247 22,609 10,473 Investment securities available for sale - at market 305 309 273 1,292 3,572 Investment securities held to maturity 18,872 16,672 16,864 10,962 17,489 Mortgage-backed securities available for sale - at market 6,975 9,850 6,475 3,476 8,447 Mortgage-backed securities held to maturity 30,765 5,273 5,944 5,019 8,207 Loans receivable - net (2) 871,446 930,672 726,225 548,669 481,501 Deposits 730,075 632,288 461,787 443,227 422,368 FHLB advances and other borrowings 258,850 313,471 279,125 125,483 82,319 Stockholders' equity - substantially restricted 95,171 78,750 62,609 60,139 55,331
SELECTED CONSOLIDATED OPERATING DATA: (1) Year ended December 31, 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Total interest income $74,372 $75,671 $51,093 $44,283 $41,217 Total interest expense 48,433 49,609 29,907 24,852 22,778 ------ ------ ------ ------ ------ Net interest income 25,939 26,062 21,186 19,431 18,439 Provision for losses on loans 759 568 247 250 385 ------ ------ ------ ------ ------ Net interest income after provision for losses on loans 25,180 25,494 20,939 19,181 18,054 Other income 7,153 5,536 5,190 7,552 3,945 General, administrative and other expense 18,948 19,530 17,113 16,319 13,733 Restructuring charges related to charter consolidation 950 - - - - ------ ------ ------ ------ ------ Earnings before federal income taxes 12,435 11,500 9,016 10,414 8,266 Federal income taxes 3,891 3,848 3,076 3,410 2,922 ------ ------ ------ ------ ------ Net earnings $ 8,544 $ 7,652 $ 5,940 $ 7,004 $ 5,344 ====== ====== ====== ====== ====== Earnings per share: (3) Basic $1.20 $1.11 $1.04 $1.22 $0.93 ==== ==== ==== ==== ==== Diluted $1.19 $1.10 $1.02 $1.19 $0.91 ==== ==== ==== ==== ====
For the year ended December 31, 2001 2000 1999 1998 1997 ---------------------------------------------------- Return on average assets (4) 0.80% 0.83% 0.82% 1.16% 0.98% Return on average assets excluding restructuring charges (4) 0.86 0.83 0.82 1.16 0.98 Return on average equity (4) 9.83 10.83 9.68 12.13 10.01 Return on average equity excluding restructuring charges (4) 10.54 10.83 9.68 12.13 10.01 Average equity to average assets (4) 8.13 7.64 8.46 9.56 9.81 Dividend payout ratio (5) 40.00 43.24 44.37 31.23 51.34
- ----------------------------- (1) The information for the year ended December 31, 2001 reflects the acquisition of Columbia Financial. The information as of December 31, 2000 reflects the acquisition of Westwood Homestead Financial Corporation. These combinations were accounted for using the purchase method of accounting. (Footnotes continued on following page) -27- (2) Includes loans held for sale. (3) Earnings per share has been adjusted to give effect to the Germantown Merger, and a three-for-two stock split, which were effected during 1998, and a 5% stock dividend which was effected during the year ended December 31, 1999. (4) Ratios are based upon the mathematical average of the balances at the beginning and the end of the year. (5) Represents dividends per share divided by basic earnings per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General Since its incorporation in 1970, Camco has evolved into a full-service provider of financial products to the communities served by Advantage Bank. 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 $1.1 billion of consolidated assets at December 31, 2001. Camco's rate of growth is largely attributable to its acquisitions of Marietta Savings, First Savings, First Bank for Savings, Germantown Federal, Westwood Homestead and Columbia Savings and its continued expansion of product lines from the limited deposit and loan offerings which the Bank could offer in the heavily regulated environment of the 1970s to the wider array of financial service products that commercial banks traditionally offered. Additionally, Camco has enhanced its operational growth by integrating its residential lending function through establishing mortgage-banking operations in the Bank's primary market areas and, to a lesser extent, by chartering 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 building value-added customer-oriented organizations. Toward this end, each of the Bank's divisions operate autonomously in making local decisions for customer contacts and services, however back-office operations are being consolidated and centralized. Based on consumer preferences, the Bank's management designs financial service products with a view towards differentiating each of the constituent divisions from its competition. Management believes that the Bank divisions' ability to rapidly adapt to consumer needs and preferences is essential to them as community-based financial institutions competing against the larger regional and money-center bank holding companies. Camco's profitability depends primarily on its 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 have also been heavily influenced by its level of other income, including mortgage banking income and other fees. Camco's operations are also influenced by general, administrative and other expenses, including employee compensation and benefits, occupancy expense, data processing, franchise taxes, advertising, other operating expenses and federal income tax expense. Discussion of Financial Condition Changes from December 31, 2000 to December 31, 2001 At December 31, 2001, Camco's consolidated assets totaled $1.1 billion, an increase of $64.8 million, or 6.2%, over the December 31, 2000 total. The increase was primarily due to the acquisition of Columbia Financial in November 2001, which resulted in net asset growth of approximately $110.4 million. Before consideration of the effects of the acquisition, total assets declined year to year by $45.6 million, primarily due to loan sales and through principal repayments on loans. This extra liquidity, coupled with an increase in deposits of $16.7 million and an increase in stockholders' equity of $6.4 million, was applied to decrease advances from the Federal Home Loan Bank by $54.6 million. -28- Cash and interest-bearing deposits in other financial institutions totaled $105.0 million at December 31, 2001, an increase of $80.9 million, or 336.1%, over December 31, 2000 levels. This increase reflects the continued payoff of loans in a low interest rate environment, which has caused borrowers to refinance to fixed-rate loans which were sold in the secondary market. Investment securities totaled $19.2 million at December 31, 2001, an increase of $2.2 million, or 12.9%, over the total at December 31, 2000. During 2001, investment securities totaling $10.5 million were purchased and $11.2 million were acquired through the Columbia Financial acquisition, while maturities amounted to $19.5 million. Mortgage-backed securities totaled $37.7 million at December 31, 2001, an increase of $22.6 million, or 149.6%, over December 31, 2000, due primarily to the $12.2 million of mortgage-backed securities acquired in the Columbia Financial acquisition and purchases of $15.2 million, which were partially offset by principal repayments totaling $4.9 million. Loans receivable and loans held for sale totaled $871.4 million at December 31, 2001, a decrease of $59.2 million, or 6.4%, from the total at December 31, 2000. The decrease resulted primarily from loan sales of $295.6 million and principal repayments of $271.2 million, which were partially offset by loans acquired through the Columbia Financial acquisition totaling $69.2 million and loan disbursements, including loan purchases and loans originated for sale, totaling $442.0 million. Loan origination volume, including the purchases of loans, during 2001 exceeded 2000 volume by $79.9 million, or 22.1%, while the volume of loan sales increased by $176.2 million year to year. The increase in loan origination and sales volume was primarily attributable to an increase in refinancing activity following the decrease in the overall level of long-term interest rates during the year. The allowance for loan losses totaled $4.3 million and $2.9 million at December 31, 2001 and 2000, respectively, representing 54.0% and 61.5% of nonperforming loans at those dates. The allowance for loan losses was increased by $1.3 million as a result of the allowance maintained by Columbia Savings prior to the acquisition. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $7.9 million and $4.7 million at December 31, 2001 and 2000, respectively, constituting .90% and .51% of total net loans, including loans held for sale, at those dates. At December 31, 2001, nonperforming loans were comprised of $6.5 million of loans secured by one- to four-family residential real estate, $1.1 million of commercial loans and $278,000 of loans secured by multi-family and nonresidential real estate. Although management believes that its allowance for loan losses at December 31, 2001, is 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. Deposits totaled $730.1 million at December 31, 2001, an increase of $97.8 million, or 15.5%, over December 31, 2000 levels. The increase resulted primarily from deposits of $81.1 million acquired in the Columbia Financial acquisition, coupled with deposit portfolio growth of $16.7 million, or 2.6%, which resulted primarily from management's continuing efforts to increase deposits through marketing and pricing strategies. Advances from the FHLB totaled $258.9 million at December 31, 2001, a decrease of $54.6 million, or 17.4%, compared to December 31, 2000. Advances were repaid primarily with funds generated through loan sales and through principal repayments on loans. Stockholders' equity totaled $95.2 million at December 31, 2001, an increase of $16.4 million, or 20.9%, over December 31, 2000. The increase was due primarily to common shares issued in the purchase of Columbia Financial, which resulted in a $10.0 million increase, coupled with net earnings of $8.5 million and proceeds from stock option exercises totaling $1.3 million, which were partially offset by dividends of $3.5 million. The Bank is required to maintain minimum regulatory capital pursuant to federal regulations. During 2001, management was notified by its supervisory regulators that Advantage was categorized as well-capitalized under the regulatory framework for prompt corrective action. At December 31, 2001, the Bank's regulatory capital exceeded all regulatory capital requirements. -29- Comparison of Results of Operations for the Years Ended December 31, 2001 and December 31, 2000 General. Increases in the level of income and expenses during the year ended December 31, 2001, compared to 2000, reflect the effects of the acquisition of Columbia Financial, which was acquired by Camco in November 2001 in a transaction accounted for using the purchase method of accounting. Camco's net earnings for the year ended December 31, 2001, totaled $8.5 million, an increase of $892,000, or 11.7%, over the $7.7 million of net earnings reported in 2000. The increase in earnings was primarily attributable to a $1.6 million increase in other income, which was partially offset by a $123,000 decrease in net interest income, a $191,000 increase in the provision for losses on loans, an increase in general, administrative and other expense of $368,000 and a $43,000 increase in the provision for federal income taxes. Net Interest Income. Total interest income for the year ended December 31, 2001, amounted to $74.4 million, a decrease of $1.3 million, or 1.7%, compared to 2000, generally reflecting the effects of a decrease of 37 basis points in the average yield, from 7.86% in 2000 to 7.49% in 2001, which was partially offset by a $30.7 million, or 3.2%, increase in the average balance of interest-earning assets outstanding year to year. The acquisition of Columbia Financial accounted for approximately $1.2 million of interest income recorded during 2001. Interest income on loans and mortgage-backed securities totaled $70.5 million for the year ended December 31, 2001, a decrease of $2.1 million, or 2.9%, compared to the 2000 total. The decrease resulted primarily from a $9.4 million, or 1.0%, decrease in the weighted-average balance outstanding and a 15 basis point decrease in the average yield, to 7.75% in 2001. Interest income on investments and interest-bearing deposits increased by $825,000, or 27.3%, due primarily to a $40.0 million, or 91.7%, increase in the weighted-average outstanding balance, which was partially offset by a 234 basis point decrease in the average yield, to 4.60% in 2001. Interest expense on deposits totaled $31.3 million for the year ended December 31, 2001, an increase of $2.5 million, or 8.5%, over the 2000 total. The increase was due to an increase in the weighted-average balance of deposits outstanding of $69.7 million, or 11.8% year to year, partially offset by a 14 basis point decrease in the average cost of deposits, from 4.89% in 2000 to 4.75 % in 2001. The acquisition of Columbia Financial accounted for approximately $559,000 of the overall increase in interest expense in the 2001 period. Interest expense on borrowings totaled $17.1 million for the year ended December 31, 2001, a decrease of $3.6 million, or 17.5%, compared to 2000. The decrease resulted primarily from a $45.1 million, or 13.8%, decrease in the weighted-average balance of borrowings outstanding year to year and a decrease of 28 basis points in the weighted-average cost of borrowings, to 6.09% in 2001. As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $123,000, or 0.5%, to a total of $25.9 million for the year ended December 31, 2001, compared to $26.1 million in 2000. The interest rate spread decreased to approximately 2.34% for the year ended December 31, 2001, from 2.45% for 2000, while the net interest margin decreased to approximately 2.61% in 2001, compared to 2.71% in 2000. Provision for Losses on Loans. A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market areas, and other factors related to the collectibility of the Bank's loan portfolio. Based upon an analysis of these factors, management recorded a provision for losses on loans totaling $759,000 for the year ended December 31, 2001, an increase of $191,000, or 33.6%, over the provision recorded in 2000. The 2001 provision generally reflects the $3.2 million increase in the level of nonperforming loans, as well as a $3.7 million, or 34.9%, increase in loans greater than 30 days but less than 90 days delinquent year to year. The provision also reflects the $15.5 million, or -30- 28.4%, increase in loans secured by nonresidential real estate during 2001. Management believes all nonperforming loans are adequately collateralized, however there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future. Other Income. Other income totaled $7.2 million for the year ended December 31, 2001, an increase of $1.6 million, or 29.2%, compared to 2000. The increase in other income was primarily attributable to a $2.5 million, or 120.2%, increase in gains on sale of loans and an increase of $1.1 million, or 52.1%, in late charges, rent and other, which were partially offset by a $2.1 million decrease in loan servicing fees. The increase in gains on sale of loans primarily reflects the increase in sales volume year to year. The increase in late charges, rent and other operating income was due primarily to an increase in revenues at Camco Title Insurance Agency and increased fees on loan and deposit accounts and transactions year to year. The decrease in loan servicing fees was due primarily to an increase in amortization and impairment charges related to the Bank's mortgage servicing rights asset ("MSRs"). During 2001, amortization of MSRs increased over 2000 by $931,000, or 154.6%, due primarily to prepayments of loans associated with refinancing activity during the lower interest rate environment. Additionally, Advantage recorded an impairment charge in 2001 totaling $1.3 million, based upon an independent appraisal of the MSRs. General, Administrative and Other Expense. General, administrative and other expense totaled $19.9 million for the year ended December 31, 2001, an increase of $368,000, or 1.9%, compared to 2000. Camco recorded a one-time restructuring charge of $950,000 in the second quarter of 2001, which was primarily related to compensation charges and professional fees related to Camco's restructuring to a single bank charter, which occurred in the second quarter of 2001. Camco anticipated that the approximate savings from the restructuring, coupled with other 2001 personnel reductions, would add earnings of $.14 per basic share in the four quarters immediately following the charge, while enhancing the basic per share earnings level by $.17 in 2002. The consolidation of operations such as data processing began in July 2001, and total data processing conversion will be completed in May 2002. Excluding of the effects of the restructuring charges, general, administrative and other expense decreased year to year by $582,000, or 3.0%, due primarily to a decrease in employee compensation and benefits of $1.1 million, or 11.9%, resulting primarily from a reduction in staffing levels, and an increase in deferred loan origination costs attendant to the increase in loan volume year to year. The decrease in employee compensation and benefits was partially offset by a $108,000, or 3.5%, increase in office occupancy and equipment expense, which was due to increased depreciation and increased building maintenance costs, and an increase in other operating expenses of $313,000, or 7.6%, primarily as a result of Camco's overall growth year to year. Federal Income Taxes. The provision for federal income taxes totaled $3.9 million for the year ended December 31, 2001, an increase of $43,000, or 1.1%, compared to the provision recorded in 2000. This increase was primarily attributable to a $935,000, or 8.1%, increase in pre-tax earnings year to year, partially offset by the receipt of refunds claimed for prior years' tax liabilities. The effective tax rate amounted to 31.3% and 33.5% for the years ended December 31, 2001 and 2000, respectively. Comparison of Results of Operations for the Years Ended December 31, 2000 and December 31, 1999 General. Increases in the level of income and expenses during the year ended December 31, 2000, compared to 1999, were significantly influenced by the inclusion of the accounts of Westwood Homestead, which was acquired by Camco in January 2000 in a transaction accounted for using the purchase method of accounting. Accordingly, the statement of earnings for the year ended December 31, 1999, was not restated for the acquisition. Camco's net earnings for the year ended December 31, 2000, totaled $7.7 million, an increase of $1.7 million, or 28.8%, over the $5.9 million of net earnings reported in 1999. The increase in earnings was primarily attributable to a $4.9 million increase in net interest income and an increase in other income of $346,000, which were partially offset by a $321,000 increase in the provision for losses on loans, an increase in general, administrative and other expense of $2.4 million and a $772,000 increase in the provision for federal income taxes. -31- Net Interest Income. Total interest income for the year ended December 31, 2000, amounted to $75.7 million, an increase of $24.6 million, or 48.1%, over 1999, generally reflecting the effects of the $272.0 million, or 39.4%, of growth in weighted-average interest-earning assets outstanding year to year, and the increase of 46 basis points in the average yield, from 7.40% in 1999 to 7.86% in 2000. The acquisition of Westwood Homestead accounted for approximately $12.3 million of interest income during the year ended December 31, 2000. Interest income on loans and mortgage-backed securities totaled $72.6 million for the year ended December 31, 2000, an increase of $24.0 million, or 49.3%, over the comparable 1999 period. The increase resulted primarily from a $270.2 million, or 41.6%, increase in the weighted-average balance outstanding year to year. Interest income on investments and interest-bearing deposits increased by $597,000, or 24.6%, due primarily to an increase in the weighted-average outstanding balances of $1.8 million, or 4.3%, and an increase in the average yield. Interest expense on deposits amounted to $28.9 million for the year ended December 31, 2000, an increase of $9.8 million, or 51.0%, over the 1999 total. The increase was due to an increase in the weighted-average balance of deposits outstanding of $137.5 million, or 30.4% year to year, and a 67 basis point increase in the average rate paid from 4.22% in 1999 to 4.89% in 2000. The acquisition of Westwood Homestead accounted for approximately $5.3 million of the overall increase in the 2000 period. Interest expense on borrowings totaled $20.7 million for the year ended December 31, 2000, an increase of $10.0 million, or 92.3%, over 1999. The increase resulted primarily from a $125.5 million increase in the weighted-average balance of borrowings outstanding year to year and an increase of 98 basis points in the weighted-average cost of borrowings. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $4.9 million, or 23.0%, to a total of $26.1 million for the year ended December 31, 2000, compared to $21.2 million in 1999. The interest rate spread decreased to approximately 2.45% for the year ended December 31, 2000, from 2.82% for 1999, while the net interest margin decreased to approximately 2.71% in 2000, compared to 3.07% in 1999. Provision for Losses on Loans. The provision for losses on loans totaled $568,000 for the year ended December 31, 2000, an increase of $321,000, or 130.0%, over the provision recorded in 1999. The 2000 provision generally reflects the effects of loan portfolio growth, coupled with an increase of $751,000 in the level of nonperforming loans year to year. Other Income. Other income totaled $5.5 million for the year ended December 31, 2000, an increase of $346,000, or 6.7%, compared to 1999. The increase in other income was primarily attributable to a $297,000, or 16.9%, increase in gains on sale of loans and an increase of $159,000, or 27.7%, in service charges and other fees on deposits, which were partially offset by a $41,000, or 5.8%, decrease in loan servicing fees and an $87,000, or 4.1%, decrease in late charges, rent and other. The increase in gains on sale of loans primarily reflects an increase in sales volume year to year. General, Administrative and Other Expense. General, administrative and other expense totaled $19.5 million for the year ended December 31, 2000, an increase of $2.4 million, or 14.1%, compared to 1999. The acquisition of Westwood Homestead accounted for $2.7 million of the increase in general, administrative and other expenses. Excluding the effects of the Westwood Homestead acquisition, office occupancy and equipment expense increased by $172,000, or 7.0%, which was due to increased depreciation and increased building maintenance costs, and data processing expense increased by $354,000, or 42.4%, due to costs related to a conversion to an internal wide area network. These increases were partially offset by a decrease in employee compensation and benefits of $323,000, or 4.1%, resulting primarily from a decline in staffing levels, and a decrease of $166,000, or 63.1%, in federal deposit insurance premiums, due to a decrease in FDIC premium rates. Other operating expenses increased primarily as a result of the Corporation's overall growth year to year. Federal Income Taxes. The provision for federal income taxes totaled $3.8 million for the year ended December 31, 2000, an increase of $772,000 or 25.1%, compared to the provision recorded in 1999. This increase was primarily -32- attributable to a $2.5 million, or 27.6%, increase in pre-tax earnings year to year. The effective tax rate amounted to 33.5% and 34.1% for the years ended December 31, 2000 and 1999, respectively. Yields Earned and Rates Paid The following table sets forth the weighted-average yields earned on Camco's interest-earning assets, the weighted-average interest rates paid on Camco's interest-bearing liabilities and the interest rate spread between the weighted-average yields earned and rates paid by Camco at the dates indicated. At December 31, 2001 2000 1999 Weighted-average yield on: Loan portfolio (1) 7.28% 8.01% 7.47% Investment portfolio (2) 3.61 6.82 6.17 Total interest-earning assets 6.63 7.92 7.39 Weighted-average rate paid on: Deposits 4.08 5.28 4.39 FHLB advances 6.02 6.20 5.71 Total interest-bearing liabilities 4.59 5.53 4.81 ---- ---- ---- Interest rate spread 2.04% 2.39% 2.58% ==== ==== ==== (1) Includes loans held for sale and excludes the allowance for loan losses. (2) Includes interest on mortgage-backed securities and earnings on FHLB stock and cash surrender value of life insurance. -33- Average Yield and Rate Analysis The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, and the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. Balances are based on the average of month-end balances which, in the opinion of management, do not differ materially from daily balances.
Year ended December 31, 2001 2000 1999 ----------------------------- ----------------------------- ----------------------------- Average Interest Average Average Interest Average Average Interest Average outstanding earned/ yield/ outstanding earned/ yield/ outstanding earned/ yield/ balance paid rate balance paid rate balance paid Rate (Dollars in thousands) Interest-earning assets: Loans receivable(1) $891,220 $69,461 7.79% $903,226 $71,524 7.92% $637,755 $47,904 7.51% Mortgage-backed securities(2) 18,561 1,059 5.71 15,920 1,120 7.04 11,173 759 6.79 Investment securities 11,621 696 5.99 17,529 1,141 6.51 14,963 896 5.99 Interest-bearing deposits and other interest-earning assets 72,052 3,156 4.38 26,115 1,886 7.22 26,896 1,534 5.70 ------- ------ ---- ------- ------ ---- ------- ------ ---- Total $993,454 74,372 7.49 $962,790 75,671 7.86 $690,787 51,093 7.40 ======= ======= ======= interest-earning assets Interest-bearing liabilities: Deposits $660,106 31,324 4.75 $590,418 28,869 4.89 $452,939 19,119 4.22 FHLB advances 280,747 17,109 6.09 325,805 20,740 6.37 200,285 10,788 5.39 ------- ------ ---- ------- ------ ---- ------- ------ ---- Total interest-bearing liabilities $940,853 48,433 5.15 $916,223 49,609 5.41 $653,224 29,907 4.58 ======= ------ ---- ======= ------ ---- ======= ------ ---- Net interest income/ Interest rate spread $25,939 2.34% $26,062 2.45% $21,186 2.82% ====== ==== ====== ==== ====== ==== Net interest margin(3) 2.61% 2.71% 3.07% ==== ==== ==== Average interest-earning assets to average interest-bearing liabilities 105.59% 105.85% 105.75% ====== ====== ======
- ------------------------ (1) Includes nonaccrual loans and loans held for sale. (2) Includes securities designated as available for sale. (3) Net interest income as a percent of average interest-earning assets. -34- Rate/Volume Analysis The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Camco's interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume.
Year ended September 30, 2001 vs. 2000 2000 vs. 1999 Increase Increase (decrease) (decrease) due to due to Volume Rate Total Volume Rate Total (In thousands) Interest income attributable to: Loans receivable (1) $ (944) $(1,119) $(2,063) $20,897 $ 2,723 $23,620 Mortgage-backed securities 170 (231) (61) 332 29 361 Investment securities (360) (85) (445) 163 82 245 Interest-bearing deposits and other (2) 2,251 (981) 1,270 (46) 398 352 ----- ------ ------ ------ ------ ------ Total interest income 1,117 (2,416) (1,299) 21,346 3,232 24,578 Interest expense attributable to: Deposits 3,327 (872) 2,455 6,407 3,343 9,750 Borrowings (2,775) (856) (3,631) 7,714 2,238 9,952 ----- ------ ------ ------ ------ ------ Total interest expense 552 (1,728) (1,176) 14,121 5,581 19,702 ----- ------ ------ ------ ------ ------ Increase (decrease) in net interest income $ 565 $ (688) $ (123) $ 7,225 $(2,349) $ 4,876 ===== ======= ====== ====== ====== ======
- ------------------------------ (1) Includes loans held for sale. (2) Includes interest-bearing deposits. Effect of Recent Accounting Pronouncements. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations," which requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. The pooling-of-interests method of accounting is prohibited except for combinations initiated before June 30, 2001. The remaining provisions of SFAS No. 141 relating to business combinations accounted for by the purchase method, including identification of intangible assets, accounting for negative goodwill, financial statement presentation and disclosure, are effective for combinations completed after June 30, 2001. Management adopted SFAS No. 141 effective July 1, 2001, as required, without material effect on Camco's financial position or results of operations. In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible Assets," which prescribes accounting for all purchased goodwill and intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is tested for impairment at the reporting unit level annually and whenever an impairment indicator arises. All goodwill should be assigned to reporting units that are expected to benefit from the goodwill. When an entity reorganizes its reporting structure, goodwill should be reallocated to reporting units based on the relative fair values of the units. Goodwill impairment should be tested with a two-step approach. First, the fair value of the reporting unit should be compared to its carrying value, including goodwill. If the reporting unit's carrying value exceeds its fair value, then any goodwill impairment should be measured as the excess of the goodwill's carrying value over its implied fair value. The implied fair value of goodwill should be calculated in the same manner as goodwill is calculated for a business combination, using the reporting units' fair value as the "purchase price." Therefore, the goodwill's implied fair value will be the excess of the "purchase price" over the amounts allocated to assets, including unrecognized intangible assets, and liabilities of the -35- reporting unit. Goodwill impairment losses should be reported in the income statement as a separate line item within operations, except for such losses included in the calculation of a gain or loss from discontinued operations. An acquired intangible asset, other than goodwill, should be amortized over its useful economic life. The useful life of an intangible asset is indefinite if it extends beyond the foreseeable horizon. If an asset's life is indefinite, the asset should not be amortized until the life is determined to be finite. Intangible assets being amortized should be tested for impairment. Intangible assets not being amortized should be tested for impairment, annually and whenever there are indicators of impairment, by comparing the asset's fair value to its carrying amount. SFAS No. 142 is effective for Camco beginning January 1, 2002. As of the date SFAS No. 142 is adopted and based on the Corporation's current reporting structure, reporting units will be established; net assets should be assigned to reporting units, unless they do not relate to a reporting unit; and goodwill should be assigned to one or more reporting units. Within nine months of adopting SFAS No. 142, Camco must have completed the first step of the goodwill transitional impairment test: a comparison, as of the beginning of the fiscal year, of each reporting unit's fair value with its carrying value. If the carrying value exceeds fair value, the second step - calculating the amount of goodwill impairment as of the beginning of the year - would be required as soon as possible, but no later than the end of the year. Any transitional impairment loss would be reported as a change in accounting principle in the first interim period financial statements of the implementation year, regardless of when the loss measurement is completed. After completion of the first step of the transitional test, Camco will disclose which segments might have to recognize any impairment loss and when any potential loss would be measured. If an impairment indicator arises before the completion of the transition testing, a full impairment test would be required as soon as possible. Any goodwill impairment resulting from this test should be reported as an impairment loss, not as a change in accounting principle. The adoption of SFAS No. 142 will result in the elimination of Camco's annual goodwill amortization charges totaling approximately $150,000 beginning in 2002. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 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 prevailing interest rate levels. 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 repricing during a specified interval. 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 Advantage 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, (2) originating adjustable-rate mortgage loans ("ARMs") as demand increases coincident with the overall rise in interest rates in the economy, (3) maintaining higher levels of liquid assets, such as cash, -36- short-term interest bearing deposits and short-term investment securities as a hedge against rising interest rates in a lower interest rate environment, and (4) utilizing FHLB advances and longer term certificates of deposit as funding sources when available. The following table contains information regarding the amounts of various categories of assets and liabilities repricing within the periods indicated:
December 31, 2001 -------------------------------------------------------- Within 1 year 1-5 years Over 5 years Total ------------- ---------- ------------- ------- (In thousands) Interest-earning assets: (1) Interest-bearing deposits in other banks $ 89,299 $ - $ - $ 89,299 Investment securities (2) 14,919 4,000 - 18,919 Mortgage-backed securities 15,965 17,841 3,886 37,692 Loans receivable (3) 401,329 312,509 135,736 849,574 ------- ------- ------- ------- Total 521,512 334,350 139,622 995,484 ------- ------- ------- ------- Interest-bearing liabilities: (1) Deposits 479,047 229,956 21,072 730,075 FHLB advances 35,732 37,669 185,449 258,850 ------ ------- ------- ------- Total 514,779 267,625 206,521 988,925 ------- ------- ------- ------- Excess (deficiency) of interest sensitive assets over interest sensitive liabilities $ 6,733 $ 66,725 $(66,899) $ 6,559 ======= ======= ======= ======= Cumulative excess (deficiency) of interest sensitive assets over interest sensitive liabilities $ 6,733 $115,577 $ 6,559 ======= ======= ======= Cumulative interest rate sensitivity gap to total assets 6.66% .59%
- --------------------------- (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. In addition to the gap method of monitoring interest rate sensitivity, Camco also employs computer model simulations. Interest rate risk ("IRR") management has various sources and it is not simply the risk from rates rising and falling. In fact, there are four sources of IRR: repricing risk, basis risk, yield curve risk, and option risk. Gap modeling only focuses on repricing risk. Income simulations that incorporate cash flow analysis: (1) measure the size and direction of interest rate exposure under a variety of interest rate and yield curve shape scenarios; (2) provides the opportunity to capture all critical elements such as volume, maturity dates, repricing dates, prepayment volumes, and hidden options such as caps, floors, puts, and calls; (3) utilizes the data to clearly focus attention on critical variables; (4) are dynamic; and (5) reflect changes in prevailing interest rates which affect different assets and liabilities in different ways. These simulations are run on a quarterly basis using an interest rate shocking technique to determine the effects on Camco's net interest income, assuming an immediate change in interest rates of +/- 200 basis points. Camco has an interest rate risk management policy that limits the amount of deterioration in net interest income associated with an assumed interest rate shock of +/-200 points change in interest rates, to no more than a (25)% change in net interest income. The model results as of December 31, 2001 are as follows: Changes in Interest Rate Assumption (Dollars in thousands) +200bp -200bp Net interest income - increase (decrease) $1,949 $(2,341) Net interest income - % change 6.6 (8.0) -37- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information contained under the captions "Board of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed by Camco no later than 120 days after the end of the fiscal year (the "Proxy Statement") is incorporated herein by reference. Item 11. Executive Compensation. The information contained in the Proxy Statement under the caption "Compensation of Executive Officers and Directors" is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained in the Proxy Statement under the caption "Voting Securities and Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference. -38- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Exhibits. 3(i) Certificate of Incorporation 3(ii) Bylaws 10(i) Employment Agreement between Camco and Richard C. Baylor 10(ii) Employment Agreement between Camco and Larry A. Caldwell 21 Subsidiaries of Camco 23(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial Statements and Form S-8 23(ii) Consent of Crowe, Chizek and Company LLP regarding Camco Financial and Subsidiaries Salary Savings Plan Financial Statements and Form S-8 99 2001 Financial Statements of the Camco Financial and Subsidiaries Salary Savings Plan (b) Reports on Form 8-K. Camco filed a Form 8-K on November 30, 2001, disclosing the acquisition of Columbia Financial. -39- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Camco Financial Corporation By /s/ Richard C. Baylor ------------------------------------------------ Richard C. Baylor, President, Chief Executive Officer and a Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Anthony J. Popp By /s/ Larry A. Caldwell ------------------------------- --------------------- Anthony J. Popp, Larry A. Caldwell Director Chairman and Director Date: March 19, 2002 Date: March 19, 2002 By /s/ Samuel W. Speck By /s/ Robert C. Dix, Jr. ------------------------------- ----------------------- Samuel W. Speck, Robert C. Dix, Jr., Director Director Date: March 19, 2002 Date: March 19, 2002 By /s/ Jeffrey T. Tucker By /s/ Paul D. Leake ------------------------------- ------------------ Jeffrey T. Tucker, Paul D. Leake, Director Director Date: March 19, 2002 Date: March 19, 2002 By /s/ Eric Spann By /s/ Terry A. Feick ------------------------------- ------------------- Eric Spann, Terry A. Feick, Director Director Date: March 19, 2002 Date: March 19, 2002 By /s/ Kenneth R. Elshoff By /s/ Susan J. Insley ------------------------------- -------------------- Kenneth R. Elshoff, Susan J. Insley, Director Director Date: March 19, 2002 Date: March 19, 2002 By /s/ Mark A. Severson By /s/ Carson K. Miller ------------------------------- --------------------- Mark A. Severson, Carson K. Miller, Chief Financial Officer Director Date: March 19, 2002 Date: March 19, 2002 -40-
INDEX TO EXHIBITS ITEM DESCRIPTION Exhibit 3(i) Third Restated Certificate of Incorporated by reference to Camco's Incorporation of Camco Financial Annual Report on Form 10-K for the fiscal Corporation, as amended year ended December 31, 1999 ("1999 Form 10-K"), Exhibit 3(i) Exhibit 3(ii) 1987 Amended and Restated By-Laws of Camco Financial Corporation Exhibit 10(i) Employment Agreement dated January 1, 2001, by and between Camco Financial Corporation and Richard C. Baylor Exhibit 10(ii) Employment Agreement dated November 9, 2001, by and between Camco Financial Corporation and Larry A. Caldwell Exhibit 21 Subsidiaries of Camco Incorporated by reference to the 1999 Form 10-K, Exhibit 21 Exhibit 23(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial Statements and Form S-8 Exhibit 23(ii) Consent of Crowe, Chizek and Company LLP regarding Camco Financial & Subsidiaries Salary Savings Plan Financial Statements and Form S-8 Exhibit 99 2001 Financial Statements of the Camco Financial & Subsidiaries Salary Savings Plan
-41- EX-3.2 3 camco10k_ex32123101.txt CAMCO FINANCIAL CORPORATION, EX-3.2 Exhibit 3 (ii) 1987 AMENDED AND RESTATED BY-LAWS OF CAMCO FINANCIAL CORPORATION ARTICLE ONE OFFICES Section 1.01. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware or such other place in the State of Delaware as the Directors may designate from time to time by resolution. Section 1.02. Business Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE TWO MEETINGS OF STOCKHOLDERS Section 2.01. Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the City of Cambridge, State of Ohio at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.02. Annual Meeting. Annual meetings of stockholders, commencing with the year 1988 shall be held on the fourth Tuesday in May in each year, if not a legal holiday, and if a legal holiday, then on the next business day following, at three o'clock p.m. (local time at the place of meeting), or at such other date or time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, for the election of directors and to transact such other business as may properly be brought before the meeting. Section 2.03. Notice of Annual Meeting. Written notice of the annual meeting of stockholders stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty (60) days before the date of the meeting. Section 2.04. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.05. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called only as provided in the certificate of incorporation. Section 2.06. Notice of Special Meetings. Written notice of a special meeting stating the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. -2- Section 2.07. Business Transacted at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 2.08. Quorum. The holders of not less than a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time to another time or place, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present or represented; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present in person or represented by proxy, the corporation may transact any business which might have been transacted at the original meeting. Section 2.09. Vote Required. At all meetings for the election of directors at which a quorum is present, the candidates receiving the greatest number of votes shall be elected. Any other matter submitted to the stockholders at a meeting at which a quorum is present shall be decided by the vote of the holders of a majority of the stock having voting power, represented in person or by proxy, unless the matter is one upon which a different vote is required by express provision of the statutes, the certificate of incorporation or the by-laws, in which case such express provision shall govern and control the decision of such matter. -3- Section 2.10. Voting Rights. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder. Section 2.11. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent and dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Section 2.12. Action Without Meeting. Any action required or permitted to be taken by the stockholders of the corporation must be taken pursuant to a vote of such stockholders at an annual or special meeting of such stockholders that is duly held pursuant to notice. No action required or permitted to be taken by the stockholders of the corporation at any annual or special meeting of such stockholders may be taken pursuant to one or more consents in writing signed by the holders of all or any other portion of the outstanding stock entitled to vote on such action. ARTICLE THREE DIRECTORS Section 3.01. Number of Directors. The authorized number of directors may be fixed or changed from time to time and at any time by a resolution adopted by a majority of the whole authorized number of directors, but no reduction in the number of directors shall of itself have the effect of shortening the term of any incumbent director. Until changed in accordance with law, the total authorized number of directors shall be nine (9). The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.03 of the by-laws. Section 3.02. Classification and Term of Directors. The directors shall be divided into three classes. If the authorized number of directors is increased or decreased at any time, the directors may, by a resolution adopted by the whole authorized number of directors, determine the number of directors to be added or subtracted, as the case may be, from any class or classes of directors, and the effect of such increase or decrease on each class need not be uniform; provided, however, that the authorized number of directors of any class -4- shall not exceed by more than four (4) the authorized number of directors of any other class. The election of each class of directors shall be a separate election. The term of office of the three directors who shall be elected at the annual meeting of stockholders for 1977 shall expire at the annual meeting of stockholders for 1980; the term of office of Larry A. Caldwell, David A. Kesterson and John H. Heiby, who were elected as directors at the annual meeting of stockholders for 1976, shall expire at the annual meeting of stockholders for 1979; and the term of office of Carl L. Ariker, J.D. Knapp, M.D. and Robert S. Moorehead, who were elected as directors at the annual meeting of stockholders for 1975, shall expire at the annual meeting of stockholders for 1978; and at each annual meeting of stockholders commencing with the year 1978, directors shall be elected to succeed the directors of the class whose terms shall expire in that year, each to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year; provided, however, that each director elected at any time shall hold office until his successor is duly elected and shall qualify, or until his earlier death, resignation or removal. Section 3.03. Vacancies. Vacancies, and newly-created directorships resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and any director so chosen shall hold office until the next annual election and until his successor is duly elected and shall qualify, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly-created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the -5- Court of Chancery of the State of Delaware may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3.04. Authority of Board of Directors. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by the by-laws directed or required to be exercised or done by the stockholders. Section 3.05. Place of Meetings. All meetings of the board of directors, both regular and special, may be held at the principal office of the corporation in Cambridge, Ohio or at any other place within or without the State of Delaware. Section 3.06. Regular Meetings. A regular meeting of the board of directors shall be held immediately following the adjournment of each annual meeting of stockholders at which directors are elected, and notice of such meeting need not be given. Additional regular meetings of the board of directors may be held at such other times and places as may from time to time be determined by resolution by the board of directors, and notice of any such additional regular meeting need not be given. Section 3.07. Special Meetings. Special meetings of the board of directors may be called only by the president upon his causing one (1) days' notice thereof to be given to each director, either personally or by mail or by telegram. Special meetings of the board of directors shall be called by the president or secretary in like manner and upon the giving of like notice on the written request of two directors. -6- Section 3.08. Quorum. At all meetings of the board a majority of the number of directors in office, but in no case less than one-third (1/3) of the total number of directors authorized by, or in the manner provided in, the certificate of incorporation or the by-laws, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation or by the by-laws. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time to another time or place, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. Section 3.09. Action Without Meeting. Unless otherwise restricted by the certificate of incorporation or the by-laws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 3.10. Committees of Directors. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may -7- unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee shall, unless otherwise specifically provided in the resolution of the board of directors, have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation [except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation], adopting an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation: and, unless otherwise specifically provided in the resolution of the board of directors, the by-laws, or the certificate of incorporation, such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. -8- Section 3.11. Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 3.12. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 3.13. Qualifications of Directors. 1. No person shall serve or be appointed, nominated or elected as a Director of the corporation after having attained the age of seventy (70) years. 2. No person shall serve or be appointed, nominated or elected as a Director of the corporation who is not the holder of record of at least one hundred (100) shares of its issued and outstanding common stock. 3. Any nominee for election as a Director of the corporation may be proposed only by the Board of Directors or by any stockholder entitled to vote for the election of such person as a Director. No person, other than a nominee proposed by the Board of Directors, may be nominated for election, or elected, as a Director of the corporation unless such person shall have been proposed as a Director in a written notice from a stockholder entitled to vote for the election of such person as a Director, delivered or mailed by first-class United States mail, postage prepaid, to the Secretary of the corporation at its principal office. In the case of a nominee proposed for election as a Director -9- at an annual meeting of stockholders, such written notice of a proposed nominee must be received by the Secretary of the corporation on or before the later of (A) March 31 immediately preceding such annual meeting or (B) the sixtieth (60th) day prior to the first anniversary of the most recent annual meeting of stockholders of the corporation held for the election of Directors; provided, however, that if the annual anniversary, then the written notice required by this paragraph (3) must be received by the Secretary within a reasonable time prior to the date of such annual meeting. In the case of a nominee proposed for election as a Director at a special meeting of stockholders at which Directors are to be elected, such written notice of a proposed nominee must be received by the Secretary of the corporation no later than the close of business on the seventh day following the day on which notice of the special meeting was mailed to stockholders. Each such written notice of a proposed nominee shall set forth (i) the name, age, business and residence addresses of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number of each class of shares of the stock of the corporation owned beneficially and/or of record by each such nominee and the length of time such shares have been so owned. 4. If a stockholder shall attempt to nominate one or more persons for election as a Director at any meeting of stockholders at which one or more Directors are to be elected without having identified each such person in a written notice given as contemplated by, and/or without having provided therein the information specified in, paragraph (3) of this Section 3.13, each such attempted nomination shall be invalid and shall be disregarded unless the person acting as chairman of the meeting determines, in his sole discretion, that acceptance of such nomination is unlikely to affect the results of such election and should accordingly be accepted as a courtesy. 5. Nothing contained in this Section 3.13 shall be construed to prohibit the Board of Directors to fix powers or voting or other rights of the preferred stock, or of any series of the preferred stock, of the corporation that are inconsistent with the provisions of this Section 3.13, and if the terms and provisions fixing the powers or voting or other rights of any such stock shall be inconsistent with the provisions of this Section 3.13, the terms and provisions of such powers or voting or other rights shall govern and control. -10- ARTICLE FOUR NOTICES Section 4.01. Form of Notice. Whenever, under the provisions of the statutes or of the certificate of incorporation or of the by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 4.02. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes, of the certificate of incorporation or of the by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE FIVE OFFICERS Section 5.01. Officers. The officers of the corporation shall be chosen by the board of directors and shall be a president, who must be a director; a vice-president; a secretary; a treasurer and such additional officers and assistant officers as the directors may from time to time elect. The board of directors may elect a chairman of the board, who must be a director. Any number of offices may be held by the same person, unless the certificate of incorporation or the by-laws otherwise provide. -11- Section 5.02. Term. Any officer of the corporation shall hold office at the pleasure of the board of directors and until his successor is elected and qualified, or until his earlier death, resignation or removal. Section 5.03. Additional Officers and Agents. The board of directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 5.04. Compensation. The compensation of all officers and agents of the corporation shall be fixed by the board of directors . Section 5.05. Removal of Officers. Any officer elected or appointed by the board of directors may be removed at any time by the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. Section 5.06. Duties of the Chairman of the Board. The chairman of the board, if any, shall preside at all meetings of the directors at which he is present. Section 5.07. Duties of the President. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, or if there is no chairman of the board, at all meetings of the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. -12- Section 5.08. Duties of the Vice-President. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the board of directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 5.09. Duties of the Secretary. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record all the proceedings of the meetings of the stockholders and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or the president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation, if any, and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 5.10. Duties of the Assistant Secretary. The assistant secretary, if any, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. -13- Section 5.11. Duties of the Treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 5.12. Duties of the Assistant Treasurer. The assistant treasurer, if any, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. -14- ARTICLE SIX STOCK AND STOCKHOLDERS Section 6.01. Certificates. Every holder of stock in the corporation shall be entitled to have a certificate, signed by or in the name of the corporation by the chairman of the board or the president or a vice-president, and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, representing the number of shares owned by him in the corporation, which certificate may, at the option of the corporation, bear such recitals as are required or permitted by law. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 6.02. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not (i) be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action, or (ii) precede the date upon which the resolution fixing such record date is adopted by the board of directors. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. -15- Section 6.03. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for such calls and assessments as are permitted by statute a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by statute. Section 6.04. Transfers. Where a certificate evidencing stock of the corporation is presented to the corporation or its proper agents with a request to register transfer, the transfer shall be registered as requested if: 1. an appropriate person signs on each certificate so presented or signs on a separate document an assignment or transfer of shares evidenced by each such certificate, or signs a power to assign or transfer such shares, or when the signature of an appropriate person is written without more on the back of each such certificate; and 2. reasonable assurance is given that the indorsement of each appropriate person is genuine and effective; the corporation or its agents may refuse to register a transfer of shares unless the signature of each appropriate person is guaranteed by a commercial bank or trust company having an office or a correspondent in the City of New York or by a firm having membership in the New York Stock Exchange; and -16- 3. all applicable laws relating to the collection of transfer or other taxes have been complied with; and 4. the corporation or its agents are not otherwise required or permitted to refuse to register such transfer. Section 6.05. Lost, Wrongfully Taken or Destroyed Certificates. Except as otherwise provided by law, where the owner of a certificate evidencing stock of the corporation claims that such certificate has been lost, destroyed or wrongfully taken, the board of directors must cause the corporation to issue a new certificate in place of the original certificate if the owner: 1. so requests before the corporation has notice that such original certificate has been acquired by a bona fide purchaser; and 2. files with the corporation, unless waived by the board of directors, an indemnity bond, with surety or sureties satisfactory to the corporation, in such sum as the directors may, in their discretion, deem reasonably sufficient as indemnity against any loss or liabilit ythat the corporation may incur by reason of the issuance of each such new certificate: and 3. satisfies any other reasonable requirements which may be imposed by the board of directors, in their discretion. -17- ARTICLE SEVEN INDEMNIFICATION AND INSURANCE 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 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 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 of 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. -18- 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, trustee, 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 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. -19- 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: -20- (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 deemed exclusive of any other rights to which any person seeking indemnification may be entitled under the certificate of 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. -21- 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; 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. -22- ARTICLE EIGHT MISCELLANEOUS Section 8.01. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, deem proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 8.02. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 8.03. Fiscal Year. The fiscal year of the corporation may be fixed by resolution of the board of directors. Section 8.04. Seal. The corporate seal, if any, may have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE NINE AMENDMENTS Section 9.01. Amendments. The by-laws of the corporation may be adopted, altered, amended or repealed only as provided in the certificate of incorporation. -23- EX-10.1 4 camco10k_ex101123101.txt CAMCO FINANCIAL CORPORATION (10-K, EX-10.1) Exhibit 10(i) Employment Agreement (Amended and Restated November 20, 2001) THIS Employment Agreement (this "Agreement") is entered into effective the 1st day of January, 2001, by and between Camco Financial Corporation, a savings and loan holding company incorporated under the laws of the State of Delaware ("Camco"), the principal office of which is located at 6901 Glenn Highway, Cambridge, Ohio, and Richard C. Baylor (the "Employee"), an individual whose residential address is 156 Hawthorne Drive, New Concord, Ohio 43762, and is amended and restated effective November 20, 2001. WITNESSETH: WHEREAS, the Employee has assumed the responsibilities of President and Chief Executive Officer of Camco effective January 1, 2001; and WHEREAS, as a result of the skill, knowledge, experience and performance of the Employee, Camco desires to continue to retain the services of the Employee as President and Chief Executive Officer in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable considerations, the receipt and sufficiency of which is hereby acknowledged, Camco and the Employee agree as follows: 1. Employment and Term. The Employee is employed as the President and Chief Executive Officer of Camco, and the Employee hereby accepts employment as the President and Chief Executive Officer of Camco, upon the terms and conditions of this Agreement. The term of employment shall be for the period commencing on January 1, 2001, and shall end on December 31, 2003 (the "Term"). At the end of each year of the Term, the Agreement may be extended for periods of one year each by Camco's Board of Directors ("Board") at its sole and exclusive discretion, subject to the Employee's acceptance thereof. Prior to consenting to any such extension, the Board will conduct a performance evaluation of the Employee, and the results of such review shall be noted in the minutes of the meeting of the Board. The Term of this Agreement, together with each extension period, is hereinafter referred to as the "Employment Term". 2. Duties of Employee. (a) General Duties and Responsibilities. The Employee shall serve as the President and Chief Executive Officer of Camco; shall perform the duties and responsibilities customary for such offices to the best of his ability and in accordance with (i) the policies established by the Board and (ii) all applicable laws and regulations; and shall perform such other duties not inconsistent with his position as may be assigned to him from time to time by the Board. (b) Devotion of Time to Camco's Business. The Employee shall devote his entire productive time, ability and attention during normal business hours throughout the Employment Term to the faithful performance of his duties under this Agreement subject to the direction of the Board. The Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any person or organization without the prior written consent of the Board; provided, however, that the Employee shall not be precluded from: (i) vacations and other leave time in accordance with Section 3(d) hereof; (ii) reasonable participation in community, civic, charitable or similar organizations; (iii) reasonable participation in industry-related activities including, but not limited to, directorship of a Federal Home Loan Bank, attending industry trade association (national and state) conventions, conferences and committee meetings, and holding positions of responsibility therein; (iv) serving as an officer and/or director of Camco's subsidiaries; or (v) the pursuit of personal investments that do not interfere or conflict with the performance of the Employee's duties for Camco. 3. Compensation, Benefits and Reimbursements. (a) Salary. The Employee shall receive an annual salary payable in equal installments not less often than monthly. The amount of the annual salary shall be $160,000 until changed by the Board. Each year throughout the Employment Term, the amount of the Employee's annual salary shall be reviewed by the Board, and shall be set at an amount not less than $160,000, based upon the Employee's responsibilities and individual performance and the overall profitability and financial condition of Camco (the "Annual Review"). The result of the Annual Review shall be reflected in the minutes of the Board. Any directors' fees received by Employee, whether paid by Camco or any other entity, shall be in addition to the salary provided for in this Agreement and may be retained by Employee in their entirety. (b) Expenses. In addition to any compensation received under Section 3(a), Camco shall pay or reimburse the Employee for all reasonable travel, entertainment and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement including participation in industry-related activities. Such reimbursement shall be made in accordance with the existing policies and procedures of Camco pertaining to reimbursement of expenses to senior management officials. (c) Employee Benefit Program. During the Employment Term, the Employee shall be entitled to participate in all formally established employee benefit, bonus, pension and profit-sharing plans and similar programs that are maintained by Camco from time to time, including programs regarding group health, disability or life insurance, salary continuation insurance, reimbursement of membership fees in civic, social and professional organizations and all employee benefit plans or programs hereafter adopted in writing by the Board, for which senior management personnel are eligible, including any employee stock ownership plan or stock option plan (collectively, the "Benefit Plans"). Notwithstanding the foregoing sentence, Camco may discontinue at any time any such Benefit Plans now existing or hereafter adopted, to the extent permitted by the terms of such plans, and shall not be required to compensate the Employee for the elimination of any such Benefit Plans. -2- (d) Vacation and Sick Leave. The Employee shall be entitled, without loss of pay, to be absent voluntarily from the performance of his duties under this Agreement, subject to the following conditions: (i) The Employee shall be entitled to an annual vacation, the duration of which shall not be less than four weeks each calendar year; (ii) Vacation time shall be scheduled by the Employee in a reasonable manner and shall be subject to approval by the Board. The Employee shall not be entitled to receive any additional compensation from Camco in the event of his failure to take the full allotment of vacation time in any calendar year nor shall unused vacation time be carried over into any succeeding calendar year; and (iii) The Employee shall be entitled to annual sick leave as established by the Board for senior management officials of Camco. In the event that any sick leave time shall not have been used during any calendar year, such leave shall accrue to subsequent calendar years only to the extent authorized by the Board. Upon termination of his employment, the Employee shall not be entitled to receive any additional compensation from Camco for unused sick leave. (e) Employee shall be entitled to the full-time use of a company-owned automobile. Camco shall be responsible for the cost of obtaining collision and liability insurance for the automobile and shall pay for all other costs of operating the automobile including fuel, maintenance and repair. (f) During the Employment Term, Camco shall pay Employee's membership dues at the Cambridge Country Club and non-resident membership dues at the Columbus Club. 4. Termination of Employment. In addition to Camco's right to terminate the employment of the Employee at the end of the Employment Term, Camco may terminate the employment of the Employee at any other time during the Employment Term. In the event that Camco terminates the employment of the Employee during the Employment Term because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure or refusal to perform the duties and responsibilities assigned in this Agreement, willful violation of any law, rule, regulation or final cease-and-desist order (other than traffic violations or similar offenses), conviction of a felony or for fraud or embezzlement, or material breach of any provision of this Agreement (collectively, "Just Cause"), the Employee shall have no right to receive any compensation or other benefits for any period after such termination. If Camco terminates the employment of the Employee during the Employment Term for any reason other than Just Cause, or if the Employee terminates his employment for Good Reason (hereinafter defined), the Employee shall be entitled to the following: (a) Termination After Change of Control. If, in connection with or within one year of a Change of Control (hereinafter defined) of Camco, -3- Camco terminates the employment of the Employee for any reason other than Just Cause, or if the Employee elects to terminate his employment for Good Reason, then the following shall occur: (i) Camco shall promptly pay to the Employee or to his beneficiaries, dependents or estate an amount equal to three times the Employee's "average annual compensation" as such term is defined in Section 280G of the Internal Revenue Code of 1986, as amended. (ii) Camco shall provide to the Employee and his eligible dependents health, life and disability insurance benefits substantially equal to those being provided to the Employee and his eligible dependents immediately prior to the occurrence of the Change of Control, at Camco's expense and as if the Employee were still employed under this Agreement for a period of 36 months. (iii) Camco shall promptly pay to the Employee an amount equal to all directors' fees to which the Employee would otherwise have been entitled if he had remained a director of Camco or any of its subsidiaries for a period of 36 months. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement, whether in this paragraph or elsewhere in this Agreement, by seeking other employment or otherwise, nor shall any amounts received from other employment or otherwise by the Employee offset in any manner the obligations of Camco hereunder, except as specifically stated in subsection (ii) of this subsection (a). A "Change of Control" shall mean any one of the following events: (i) the acquisition of ownership or power to vote more than 25% of the voting stock of Camco; (ii) the acquisition of the ability to control the election of a majority of the directors of Camco; (iii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Camco cease for any reason to constitute at least a majority thereof; provided, however, that any individual whose election or nomination for election as a member of the Board of Directors of Camco was approved by a vote of at least two-thirds of the directors then in office shall be considered to have continued to be a member of the Board of Directors of Camco; or (iv) the acquisition by any person or entity of "conclusive control" of Camco within the meaning of 12 C.F.R. ss.574.4(a), or the acquisition by any person or entity of "rebuttable control" within the meaning of 12 C.F.R. ss.574.4(b) that has not been rebutted in accordance with 12 C.F.R. ss.574.4(c). For purposes of this paragraph, the term "person" refers to an individual or corporation, partnership, trust, association, or other organization, but does not include the Employee and any person or persons with whom the Employee is "acting in concert" within the meaning of 12 C.F.R. Part 574. "Good Reason" shall be deemed to exist if, within one year following a Change of Control, any of the following occurs, without the prior written consent of the Employee: (I) the present capacity or circumstances in which the Employee is employed are materially and adversely changed, in the reasonable opinion of the Employee (including, without limitation, a reduction -4- in responsibilities or authority, the assignment of duties or responsibilities substantially inconsistent with those normally associated with the position of President and Chief Executive Officer or a reduction in salary); (II) the Employee is no longer the President and Chief Executive Officer of Camco or any successor by merger to Camco; (III) the Employee is required to move his personal residence, or perform his principal executive functions, more than thirty-five (35) miles from his primary office as of the date of the commencement of the Term of this Agreement; or (IV) Camco otherwise breaches this Agreement in any material respect. (b) Termination without Change of Control. In the event Camco terminates the employment of the Employee for any reason other than Just Cause and the termination is not covered by the provisions of subsection (a) of this Section 4, Camco shall be obligated to continue to (i) pay on a monthly basis to the Employee, his designated beneficiaries or his estate, his annual salary provided pursuant to Section 2 of this Agreement for the number of months remaining in the Employment Term as of the date of the termination; and (ii) provide to the Employee and his eligible dependents, at Camco's expense, health, life and disability insurance benefits substantially equal to those being provided to the Employee and his eligible dependents at the date of termination of his employment until the earliest of (A) the end of the Employment Term under this Agreement pursuant to Section 1 of this Agreement or (B) that date on which the Employee is included in another employer's benefit plans as a full-time employee. The Employee may choose, in lieu of monthly payments of the amounts set forth above, to receive a lump sum payment equal to the present value of such payments. For purposes of computing such lump-sum payment, the parties shall use a discount rate of five percent (5%) per annum. (c) Death of the Employee. The Employment Term automatically terminates upon the death of the Employee. In the event of such death, the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which the death occurred. 5. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude Camco from voluntarily or involuntarily consolidating with, merging into, or transferring all, or substantially all, of its assets to another corporation that assumes all of Camco's obligations and undertakings hereunder. Upon such a consolidation, merger or transfer of assets, the term "Camco" as used in this Agreement, shall mean such other corporation or entity and this Agreement shall continue in full force and effect. 6. Confidential Information. The Employee acknowledges that during his employment he has learned, will learn and will have access to confidential information regarding Camco and its customers and business. The Employee agrees and covenants not to disclose or use for his own benefit or the benefit of any other person or entity any confidential information, unless or until Camco consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any confidential information relating to Camco, its subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information -5- constitutes the exclusive property of Camco. The Employee shall not otherwise knowingly act or conduct himself (i) to the material detriment of Camco, its subsidiaries or affiliates or (ii) in a manner which is inimical or contrary to the interests of Camco. 7. Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries or legal representatives without Camco's prior written consent; provided, however, that nothing in this Section 7 shall preclude (i) the Employee from designating a beneficiary to receive any benefits payable hereunder upon his death or (ii) the executors, administrators or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereto. 8. No Attachment. Except as required by law, no right to receive payment under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Employee and Camco and their respective permitted successors and assigns. 10. Amendment of Agreement. This Agreement may not be modified or amended, except by an instrument in writing signed by the parties hereto. 11. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver, unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than the act specifically waived. 12. Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect the other provisions of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then any prior agreement between Camco (or any predecessor thereof) and the Employee shall be deemed reinstated to the full extent permitted by law, as if this Agreement had not been executed. 13. Headings. The headings of the paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement has been executed and delivered in the State of Ohio, and its validity, interpretation, performance and enforcement shall be governed by the laws of the State of Ohio, except to the extent that federal or Delaware law is governing. -6- 15. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and supersedes any prior Employment Agreement between Camco, or any predecessor of Camco, and the Employee. IN WITNESS WHEREOF, Camco has caused this Agreement to be executed by its duly authorized officers, and the Employee has signed this Agreement, all as of the day and year first above written. Attest: CAMCO FINANCIAL CORPORATION /s/ Anita L. Frencik By: /s/ Larry A. Caldwell Its Assistant Secretary Larry A. Caldwell, Chairman of the Board Witness: /s/ Sharon K. Chorey /s/ Richard C. Baylor Richard C. Baylor President & CEO -8- EX-10.2 5 camco10k_ex102123101.txt CAMCO FINANCIAL CORPORATION (10-K, EX-10.2) Exhibit 10(ii) Employment Agreement THIS Employment Agreement (this "Agreement") is entered into effective the 9th day of November, 2001, by and between Camco Financial Corporation, a savings and loan holding company incorporated under the laws of the State of Delaware ("Camco"), the principal office of which is located at 6901 Glenn Highway, Cambridge, Ohio, and Larry A. Caldwell (the "Employee"), an individual whose residential address is 10491 Rock Hill Road, Cambridge, Ohio 43725; WITNESSETH: WHEREAS, the Employee has been employed by Camco and/or its subsidiaries for 44 years, most recently as the Chairman of the Board of Camco and Chairman of the Board of Advantage Bank, a wholly-owned subsidiary of Camco; WHEREAS, the Employee and Camco have agreed that the Employee will retain the position of Chairman of the Board of the Company and Advantage Bank but will reduce his responsibilities and involvement in other aspects of the business of Camco; and WHEREAS, as a result of the skill, knowledge, experience and performance of the Employee, Camco desires to continue to retain the services of the Employee as Chairman of the Board of Camco and Advantage Bank in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable considerations, the receipt and sufficiency of which is hereby acknowledged, Camco and the Employee agree as follows: 1. Employment and Term. The Employee shall continue to serve as the Chairman of the Board of Camco and Advantage Bank for the period commencing on the date of this Agreement and ending on November 8, 2002 (the "Initial Term"). At the end of the Initial Term and each year thereafter, this Agreement may be extended for periods of one year each by Camco's Board of Directors ("Board") at its sole and exclusive discretion, subject to the Employee's acceptance thereof. The Initial Term of this Agreement, together with each extension period, is hereinafter referred to as the "Term". 2. Duties of Employee. (a) General Duties and Responsibilities. The Employee shall serve as the Chairman of the Board of Camco and Advantage Bank; shall perform the duties and responsibilities hereinafter set forth to the best of his ability and in accordance with (i) the policies established by the Board and (ii) all applicable laws and regulations. The Employee's duties shall include (i) presiding at meetings of the Board and the shareholders of Camco and the board of directors of Advantage Bank; (ii) identifying merger and acquisition prospects and evaluating, analyzing and negotiating merger and acquisition opportunities; (iii) assisting Camco in presentations to and communications with stock analysts, investment bankers and stockholders; (iv) advising senior management of Camco and Advantage Bank; (v) participating in regulatory and trade association programs and activities; (vi) advising and assisting with legislative issues affecting Camco or Advantage Bank; and (vii) such other matters as the Board and the Employee shall mutually agree upon. (b) Devotion of Time to Camco's Business. The Employee shall devote 1,000 hours per year to the faithful performance of his duties under this Agreement. The Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any person or organization without the prior written consent of the Board; provided, however, that the Employee shall not be precluded from: (i) reasonable participation in community, civic, charitable or similar organizations; (ii) reasonable participation in industry-related activities including, but not limited to, attending industry-related and trade association (national and state) conventions, conferences and committee meetings, and holding positions of responsibility therein; (iii) serving as an officer and/or director of Camco's subsidiaries and receiving and retaining compensation, directors' fees and other benefits therefrom; or (iv) the pursuit of personal investments that do not interfere or conflict with the performance of the Employee's duties for Camco. 3. Compensation, Benefits and Reimbursements. (a) Salary. The Employee shall receive an annual salary payable in equal installments not less often than monthly. The amount of the annual salary shall be $118,000. Any directors' fees received by Employee, whether paid by Camco or any other entity, shall be in addition to the salary provided for in this Agreement and may be retained by Employee in their entirety. (b) Expenses. In addition to any compensation received under Section 3(a), Camco shall pay or reimburse the Employee for all reasonable travel, entertainment and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement including participation in industry-related activities. Such reimbursement shall be made in accordance with the existing policies and procedures of Camco pertaining to reimbursement of expenses to senior management officials. (c) Employee Benefits. During the Term, the Employee shall be entitled to participate in all tax-qualified employee benefit plans that are maintained by Camco from time to time during the Term (collectively, the "Benefit Plans"), unless the Employee's participation is prohibited by law or the express terms of such Benefit Plans. The Employee shall be entitled to a distribution under Camco's incentive bonus plan when bonuses are awarded in 2002. The Employee's bonus shall be pro-rated based on the Employee's service to Camco for the period -2- beginning January 1, 2001 to the date of this Agreement. Except for the foregoing distribution, the Employee shall not be a participant in any non-tax-qualified benefit plan of Camco or Advantage Bank with respect to any period after the date of this Agreement. (d) Vacation and Sick Leave. The Employee shall not be entitled to paid vacation or sick leave without the prior written consent of the Board. (e) Other Benefits. Employee shall be entitled to the full-time use of a company-owned automobile. Camco shall be responsible for the cost of obtaining collision and liability insurance for the automobile and shall pay for all other costs of operating the automobile including fuel, maintenance and repair. During the Term, Camco shall pay Employee's membership dues at the Cambridge Country Club. 4. Termination of Employment. Camco may terminate the employment of the Employee at any time. In the event that Camco terminates the employment of the Employee during the Term because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure or refusal to perform the duties and responsibilities assigned in this Agreement, willful violation of any law, rule, regulation or final cease-and-desist order (other than traffic violations or similar offenses), conviction of a felony or for fraud or embezzlement, or material breach of any provision of this Agreement (collectively, "Just Cause"), the Employee shall have no right to receive any compensation or other benefits for any period after such termination. If the employment of the Employee is terminated during the Term for any reason other than Just Cause, the Employee, depending on the circumstances, shall be entitled to the following: (a) Termination After Change of Control. If, in connection with or within one year of a Change of Control (hereinafter defined) of Camco, Camco terminates the employment of the Employee for any reason other than Just Cause, or if the Employee elects to terminate his employment, then the following shall occur: (i) If the Change of Control occurs prior to November 9, 2004 (provided this Agreement is still in effect at such time) Camco shall promptly pay to the Employee or to his beneficiaries, dependents or estate an amount equal to $353,999. (ii) If the Change of Control occurs after November 9, 2004 but before November 9, 2005 (provided this Agreement is still in effect at such time), Camco shall promptly pay to the Employee or to his beneficiaries, dependents or estate an amount equal to $236,000. (iii) If the Change of Control occurs after November 9, 2005 but before November 9, 2006 (provided this Agreement is still in effect at such time), Camco shall promptly pay to the Employee or to his beneficiaries, dependents or estate an amount equal to $118,000. (iv) The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement, whether in this paragraph or elsewhere in this Agreement, by seeking other employment or otherwise, nor shall any amounts received from other employment or otherwise by the Employee offset in any manner the obligations of Camco hereunder. -3- A "Change of Control" shall mean any one of the following events: (i) the acquisition of ownership or power to vote more than 25% of the voting stock of Camco; (ii) the acquisition of the ability to control the election of a majority of the directors of Camco; (iii) during any period of two consecutive years individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; provided, however, that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the directors then in office shall be considered to have continued to be a member of the Board; or (iv) the acquisition by any person or entity of "conclusive control" of Camco within the meaning of 12 C.F.R. ss.574.4(a), or the acquisition by any person or entity of "rebuttable control" within the meaning of 12 C.F.R. ss.574.4(b) that has not been rebutted in accordance with 12 C.F.R. ss.574.4(c). For purposes of this paragraph, the term "person" refers to an individual or corporation, partnership, trust, association, or other organization, but does not include the Employee and any person or persons with whom the Employee is "acting in concert" within the meaning of 12 C.F.R. Part 574. (b) Termination without Change of Control. In the event Camco terminates the employment of the Employee for any reason other than Just Cause and the termination is not covered by the provisions of subsection (a) of this Section 4, Camco shall be obligated to continue to pay on a monthly basis to the Employee, his designated beneficiaries or his estate, his annual salary provided pursuant to Section 3 of this Agreement for the unexpired Term. The Employee may choose, in lieu of monthly payments of the amounts set forth above, to receive a lump sum payment equal to the present value of such payments. For purposes of computing such lump-sum payment, the parties shall use a discount rate of five percent (5%). (c) Death of the Employee. The Employment Term automatically terminates upon the death of the Employee. In the event of such death, the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which the death occurred. 5. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude Camco from consolidating with, merging into, or transferring all, or substantially all, of its assets to another corporation that assumes all of Camco's obligations and undertakings hereunder. Upon such a consolidation, merger or transfer of assets, the term "Camco" as used herein, shall mean such other corporation or entity and this Agreement shall continue in full force and effect. 6. Confidential Information. The Employee acknowledges that during his employment he has learned, will learn and will have access to confidential information regarding Camco and its customers and business. The Employee agrees and covenants not to disclose or use for his own benefit or the benefit of any other person or entity any confidential information, unless or until Camco consents to such disclosure or use or such information becomes common knowledge -4- in the industry or is otherwise legally in the public domain. The Employee shall not knowingly disclose or reveal to any unauthorized person any confidential information relating to Camco, its subsidiaries or affiliates, or to any of the businesses operated by them, and the Employee confirms that such information constitutes the exclusive property of Camco. The Employee shall not otherwise knowingly act or conduct himself (i) to the material detriment of Camco, its subsidiaries or affiliates or (ii) in a manner which is inimical or contrary to the interests of Camco. 7. Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries or legal representatives without Camco's prior written consent; provided, however, that nothing in this Section 7 shall preclude (i) the Employee from designating a beneficiary to receive any benefits payable hereunder upon his death or (ii) the executors, administrators or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereto. 8. No Attachment. Except as required by law, no right to receive payment under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Employee and Camco and their respective permitted successors and assigns. 10. Amendment of Agreement. This Agreement may not be modified or amended, except by an instrument in writing signed by the parties hereto. 11. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver, unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than the act specifically waived. 12. Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect the other provisions of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then any prior agreement between Camco (or any predecessor thereof) and the Employee shall be deemed reinstated to the full extent permitted by law, as if this Agreement had not been executed. 13. Headings. The headings of the paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. -5- 14. Governing Law. This Agreement has been executed and delivered in the State of Ohio, and its validity, interpretation, performance and enforcement shall be governed by the laws of the State of Ohio, except to the extent that federal or Delaware law is governing. 15. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between Camco, or any predecessor of Camco, and the Employee. IN WITNESS WHEREOF, Camco has caused this Agreement to be executed by its duly authorized officers, and the Employee has signed this Agreement, all as of the day and year first above written. Attest: CAMCO FINANCIAL CORPORATION /s/ Anita L. Frencik By: /s/ Richard C. Baylor Richard C. Baylor Its Assistant Secretary Its President Witness: /s/ Sharon K. Chorey /s/ Larry A. Caldwell Larry A. Caldwell -6- EX-23.1 6 camco10k_ex231123101.txt CAMCO FINANCIAL CORPORATION (10-K, EX-23.1) EXHIBIT 23(i) ACCOUNTANT'S CONSENT We have issued our report dated February 22, 2002, accompanying the consolidated financial statements of Camco Financial Corporation, which are incorporated within the Annual Report on Form 10-K for the year ended December 31, 2001. We hereby consent to the incorporation by reference of said report in Camco's Form S-8. /s/GRANT THORNTON LLP Cincinnati, Ohio March 27, 2002 EX-23.2 7 camco10k_ex232123101.txt CAMCO FINANCIAL CORPORATION (EX-23.2) Doc Number382044.4 EXHIBIT 23(ii) Consent of Independent Accountants We have issued our report dated February 13, 2002 on the financial statements of the Camco Financial & Subsidiaries Salary Savings Plan as of December 31, 2001 and 2000 and for the year ended December 31, 2001, which are incorporated within the Annual Report on Form 10-K for the year ended December 31, 2001 filed by Camco Financial Corporation (Camco). We hereby consent to the incorporation by reference of our report in Camco's Post-Effective Amendment No. 1 to Form S-8 (33-88072). /s/ Crowe, Chizek and Company LLP Columbus, Ohio March 22, 2002 EX-99 8 camco10k_ex99123101.txt CAMCO FINANCIAL CORPORATION (EX-99) CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN Cambridge, Ohio FINANCIAL STATEMENTS December 31, 2001 and 2000 Cambridge, Ohio FINANCIAL STATEMENTS December 31, 2001 and 2000 CONTENTS REPORT OF INDEPENDENT AUDITORS ......................................... 1 FINANCIAL STATEMENTS STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS ................... 2 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS ......... 3 NOTES TO FINANCIAL STATEMENTS ..................................... 4 SUPPLEMENTAL INFORMATION SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)..... 9 REPORT OF INDEPENDENT AUDITORS Trustees Camco Financial & Subsidiaries Salary Savings Plan Cambridge, Ohio We have audited the accompanying statements of net assets available for benefits of the Camco Financial & Subsidiaries Salary Savings Plan as of December 31, 2001 and 2000 and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2001 and 2000, and the changes in net assets available for benefits for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/Crowe, Chizek and Company LLP Columbus, Ohio February 13, 2002 1. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, 2001 and 2000 - ------------------------------------------------------------------------------ 2001 2000 ---- ---- ASSETS Investments (Note 2) $8,601,589 $7,732,598 Receivables Employee contribution 23,067 -- Employer matching contribution 12,034 -- Employer profit sharing contribution 72,209 -- --------- --------- 107,310 -- --------- --------- NET ASSETS AVAILABLE FOR BENEFITS $8,708,899 $7,732,598 ========= =========
See accompanying notes to financial statements. 2. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Year ended December 31, 2001 - ------------------------------------------------------------------------------ Additions to net assets attributed to Net appreciation in fair value of investments (Notes 2 and 4) $ 149,844 Other income 1,131 Interest and dividends 256,130 --------- 407,105 Contributions Employer 406,267 Participant 507,846 Rollovers 37,968 --------- 952,081 Total additions 1,359,186 Deductions from net assets attributed to Administrative expenses 36,483 Benefits paid to participants 346,402 --------- Total deductions 382,885 Net increase 976,301 Net assets available for benefits Beginning of year 7,732,598 --------- End of year $8,708,899 =========
See accompanying notes to financial statements. 3. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 - ------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF PLAN The following description of the Camco Financial & Subsidiaries Salary Savings Plan (the "Plan") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. General: The Plan is a defined-contribution plan covering all full-time employees of Camco Financial & Subsidiaries and related subsidiaries, collectively referred to as the "Company." The Plan requires employees to complete one year of service (1,000 hours or more) to participate in the Plan. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions: Each year, participants may contribute up to 15% of their pretax annual compensation to the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. The Company makes a matching contribution equal to 100% of 401(k) deferrals made up to the first 3% of base compensation and 50% of 401(k) deferrals from 3.01% to 5% of base compensation. The Company may make an additional employer discretionary contribution. Contributions are subject to certain Internal Revenue Code ("IRC") limitations. Investment Options: The Plan allows participants to direct the investment of their plan assets, including half of their employer discretionary and all of their employer matching contributions, among several different investment options offered by the Plan. The other half of the employer discretionary contribution is trustee directed and invested solely in Camco Financial Corporation common stock. Participant Accounts: Each participant's account is credited with the participant's own contribution, and an allocation of (a) the Company's contributions and (b) investment income. Allocation of the Company's contributions and investment income is based upon participants' compensation and account balances, respectively. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. Retirement, Death, and Disability: A participant is entitled to 100% of his or her account balance upon retirement (at normal retirement age), death, or disability. Forfeited Accounts: Forfeitures of terminated participants' nonvested employer profit sharing accounts are reallocated to all eligible participants. - ------------------------------------------------------------------------------ (Continued) 4. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 - ------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF PLAN (Continued) Vesting: Participants are immediately vested in their own 401(k) contributions, employer matching contributions made after December 31, 1997 and any Pension Plan rollovers, plus actual earnings thereon. Vesting in the remainder of their account is based on years of credited service. A participant is 100% vested after six years of credited service in accordance with the table below: Years of Service % Vested 1 0 2 20 3 40 4 60 5 80 6 100 Payment of Benefits: Upon termination of service, a participant may elect to receive payment of their vested benefits, either as a lump-sum payment or as a series of installment payments. Loan Provisions: The Plan provides that participants can borrow funds against their vested account balance. These loans are limited to the lesser of $50,000 or 50% of the participant's vested account balance. The loan must be repaid within five years, and the loan must bear interest at a reasonable rate. NOTE 2 - SUMMARY OF ACCOUNTING POLICIES The principles and policies that significantly affect the determination of net assets available for benefits and results of operations are summarized below. Accounting Method: The accounting principles followed by the Plan conform to accounting principles generally accepted in the United States of America. The financial statements were prepared using the accrual method of accounting. Income and Expense Recognition: Investment income includes dividends, interest, gains or losses realized on the sale of plan assets and unrealized gains and losses of assets held the entire plan year. Employer and employee contributions and expenses payable are recognized on the accrual method. Benefits to participants are recorded when paid. - ------------------------------------------------------------------------------ (Continued) 5. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 - ------------------------------------------------------------------------------- NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued) Valuation of Investments: Quoted market prices are used to value the Plan's investments in mutual funds and common stock. Participant loans are carried at their outstanding principal balance, which approximates fair value. The Plan's investment in the common/collective investment fund is valued based upon the Plan's proportional share of the common/collective fund's underlying asset which is another common/collective fund. The underlying common/collective fund is valued based upon the fair market value of the fund's underlying assets. Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures and actual results could differ from those estimates. It is at least reasonably possible that a significant change may occur in the near term for the estimates of investment valuation NOTE 3 - PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and its related regulations. In the event of a plan termination, participants will become 100% vested in their accounts. NOTE 4 - INVESTMENTS The following table presents investments that represent 5% or more of the Plan's net assets.
December 31, 2001 2000 ---- ---- Investments at fair value as determined by quoted market prices Mutual funds Dreyfus Founders Discovery Fund $ 557,857 $ 651,430 Gabelli Growth Fund 765,497 958,892 Janus Twenty Fund 363,812 464,886 Scudder Growth & Income Fund 1,003,790 1,030,931 Scudder International Fund 336,861 489,078 Common/collective funds MCM Stable Value Portfolio 547,934 437,792 Common stock Camco Financial & Subsidiaries 3,454,084 2,422,533 Camco Financial & Subsidiaries * 352,640 240,359
* Nonparticipant directed investment - ------------------------------------------------------------------------------ (Continued) 6. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 - ------------------------------------------------------------------------------- NOTE 4 - INVESTMENTS (Continued) During 2001, the Plan's investments earned interest and dividend income of $256,130. Also during 2001, the Plan's investments (including investments bought and sold, as well as held during the year) appreciated in value by $149,844 for the year ended December 31, 2001 as follows: Mutual funds $(758,491) Common/collective fund 27,964 Common stock 880,371 -------- $ 149,844 ======== NOTE 5 - NONPARTICIPANT - DIRECTED INVESTMENTS Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows. December 31, 2001 2000 ---- ---- Net assets: Common stock $352,640 $240,359 ======= ======= Year ended December 31 Changes in net assets Contributions 33,119 Dividends 12,525 Net appreciation 80,731 Benefits paid to participants (14,038) Administrative expenses (56) ------- $112,281 ======= - ------------------------------------------------------------------------------ (Continued) 7. CAMCO FINANCIAL & SUBSIDIARIES SALARY SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 - ------------------------------------------------------------------------------- NOTE 6 - RELATED PARTY TRANSACTIONS Parties-in-interest are defined under DOL regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer, and certain others. The Company pays certain administrative fees on behalf of the Plan. The Plan held the following party-in-interest investments (at fair value) at December 31, 2001 and 2000:
2001 2000 ---- ---- Camco Financial & Subsidiaries common stock $3,806,724 $2,662,892
NOTE 7 - TAX STATUS The Internal Revenue Service has determined and informed the Plan by a letter dated August 9, 1995 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been restated in its entirety using a non-standardized prototype plan document sponsored by Travelers Insurance Company since receiving the favorable determination letter. However, the plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. There were some deficiencies noted in the Plan's operations during 2001. The plan sponsor is currently in the process of correcting these items. NOTE 8 - TERMINATED PARTICIPANTS At December 31, 2001, there was $7,326 of plan assets allocated to individuals who had withdrawn from the plan, but who had not been paid as of December 31, 2001. - ------------------------------------------------------------------------------ (Continued) 8. SUPPLEMENTAL INFORMATION SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR) December 31, 2001 - ------------------------------------------------------------------------------ Name of plan sponsor: Camco Financial & Subsidiaries ------------------------------------------------ Employer identification number: 51-0110823 -------------------------------------- Three-digit plan number: 002 ---------------------------------------------
(c) Description of Investment Including (b) Maturity Date, Rate of (e) Identity of Issuer, Borrower, Interest, Collateral, Par (d) Current (a) Lessor, or Similar Party or Maturity Value Cost Value - --- ------------------------ ----------------- ---- ----- * Camco Financial & Subsidiaries Common stock, 299,699 shares @ $3,806,724 Dreyfus Founders Balanced Fund Mutual Fund @ 304,598 Dreyfus Founders Discovery Fund Mutual Fund @ 557,857 Gabilli Growth Fund Mutual Fund @ 765,497 Janus Twenty Fund Mutual Fund @ 363,812 JP Morgan Emerging Markets Equity Fund Mutual Fund @ 23 Loomis Sayles Bond Fund Mutual Fund @ 43,016 MCM Stable Value Portfolio Common/Collective Fund @ 547,934 Neuberger Berman Genesis Trust Mutual Fund @ 387,757 Pilgrim GNMA Income Fund Mutual Fund @ 70,497 Scudder Growth & Income Fund Mutual Fund @ 1,003,790 Scudder International Fund Mutual Fund @ 366,861 Stein Roe Intermediate Bond Fund Mutual Fund @ 91,162 Warburg Pincus Global Fixed-Income Fund Mutual Fund @ 98,834 Dreyfus Premier Core Value Fund Mutual Fund @ 29,687 JP Morgan Fleming Emerging Markets Mutual Fund @ 64,160 * Participant notes Bearing interest at 6.75% to 11.5% - 99,380 --------- $8,601,589 =========
* Denotes party-in-interest @ Participant-directed investment. Cost basis disclosure is not required. - ------------------------------------------------------------------------------ 9. -----END PRIVACY-ENHANCED MESSAGE-----