-----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, EVMCsi2xk2LKtp2IyeKiLRHNr8pyZraRBObEmiIJoDzl8M8yKit06TOrbNae67R6 +s+hSq89rtzuoikhtwUNQA== 0001046386-98-000121.txt : 19980817 0001046386-98-000121.hdr.sgml : 19980817 ACCESSION NUMBER: 0001046386-98-000121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMCO FINANCIAL CORP CENTRAL INDEX KEY: 0000016614 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 510110823 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25196 FILM NUMBER: 98690924 BUSINESS ADDRESS: STREET 1: 814 WHEELING AVE CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 6144325641 10-Q 1 CAMCO FINANCIAL QUARTERLY FINANCIALS FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 -------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________ Commission File Number 0-25196 CAMCO FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 51-0110823 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 814 Wheeling Avenue Cambridge, Ohio 43725 (Address of principal (Zip Code) executive office) Registrant's telephone number, including area code: (740) 432-5641 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of August 10, 1998, the latest practicable date, 5,473,838.5 shares of the registrant's common stock, $1.00 par value, were issued and outstanding. Page 1 of 19 pages Camco Financial Corporation INDEX Page PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition 3 Consolidated Statements of Earnings 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION 18 SIGNATURES 19 2 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) June 30, December 31, ASSETS 1998 1997 (Restated) Cash and due from banks $ 12,894 $ 12,436 Interest-bearing deposits in other financial institutions 22,108 10,468 ------- ------- Cash and cash equivalents 35,002 22,904 Investment securities available for sale - at market 1,333 3,573 Investment securities - at cost, approximate market value of $17,361 and $17,536 as of June 30, 1998 and December 31, 1997 17,243 17,489 Mortgage-backed securities available for sale - at market 4,294 8,460 Mortgage-backed securities - at cost, approximate market value of $6,191 and $8,311 as of June 30, 1998 and December 31, 1997 6,080 8,207 Loans held for sale - at lower of cost or market 5,483 4,135 Loans receivable - net 489,129 477,517 Office premises and equipment - net 9,279 8,420 Real estate acquired through foreclosure 417 737 Federal Home Loan Bank stock - at cost 6,508 5,492 Accrued interest receivable on loans 3,135 2,972 Accrued interest receivable on mortgage-backed securities 77 111 Accrued interest receivable on investment securities and interest-bearing deposits 437 349 Prepaid expenses and other assets 1,282 1,637 Cash surrender value of life insurance 5,044 5,482 Goodwill and other intangible assets 3,477 3,552 Prepaid federal income taxes - 99 ------- ------- Total assets $588,220 $571,136 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $428,807 $423,464 Advances from the Federal Home Loan Bank 94,090 82,319 Advances by borrowers for taxes and insurance 3,709 4,478 Accounts payable and accrued liabilities 873 3,261 Dividends payable 530 491 Accrued federal income taxes 90 - Deferred federal income taxes 1,939 1,792 ------- ------- Total liabilities 530,038 515,805 Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized, 8,900,000 shares, 3,654,184 and 3,639,997 shares issued at June 30, 1998 and December 31, 1997 3,654 3,640 Additional paid-in capital 27,053 26,915 Retained earnings - substantially restricted 27,366 24,645 Treasury stock - at cost (42) - Unrealized gains on securities designated as available for sale, net of related tax effects 151 131 ------- ------- Total stockholders' equity 58,182 55,331 ------- ------- Total liabilities and stockholders' equity $588,220 $571,136 ======= =======
3 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Six months ended Three months ended June 30, June 30, 1998 1997 1998 1997 (Restated) (Restated) Interest income Loans $19,774 $17,690 $ 9,918 $ 9,040 Mortgage-backed securities 445 692 194 340 Investment securities 555 946 244 442 Interest-bearing deposits and other 973 511 588 276 ------ ------ ------ ------ Total interest income 21,747 19,839 10,944 10,098 Interest expense Deposits 9,463 9,200 4,817 4,678 Borrowings 2,434 1,719 1,240 858 ------ ------ ------ ------ Total interest expense 11,897 10,919 6,057 5,536 ------ ------ ------ ------ Net interest income 9,850 8,920 4,887 4,562 Provision for losses on loans 137 111 41 60 ------ ------ ------ ------ Net interest income after provision for losses on loans 9,713 8,809 4,846 4,502 Other income Late charges, rent and other 1,339 750 424 434 Loan servicing fees 289 252 217 132 Service charges and other fees on deposits 348 238 181 112 Gain on sale of loans 1,962 505 815 349 Gain on sale of real estate acquired through foreclosure 4 30 - 10 Gain on sale of investment and mortgage-backed securities designated as available for sale 9 - - - Loss on sale of premises and equipment (2) - - - ------ ------ ------ ------ Total other income 3,949 1,775 1,637 1,037 General, administrative and other expense Employee compensation and benefits 3,498 2,994 1,543 1,465 Occupancy and equipment 965 829 554 418 Federal deposit insurance premiums 146 144 73 79 Data processing 706 322 509 183 Advertising 334 279 205 175 Franchise taxes 347 273 206 159 Amortization of goodwill 75 75 38 38 Other 1,977 1,406 783 692 ------ ------ ------ ------ Total general, administrative and other expense 8,048 6,322 3,911 3,209 ------ ------ ------ ------ Earnings before federal income taxes 5,614 4,262 2,572 2,330 Federal income taxes Current 1,718 1,402 617 992 Deferred 135 18 203 (209) ------ ------ ------ ------ Total federal income taxes 1,853 1,420 820 783 ------ ------ ------ ------ NET EARNINGS $ 3,761 $ 2,842 $ 1,752 $ 1,547 ====== ====== ====== ====== EARNINGS PER SHARE Basic $.69 $.52 $.32 $.28 === === === === Diluted $.66 $.50 $.31 $.27 === === === ===
4 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the six months ended June 30, (In thousands) 1998 1997 Net earnings $3,761 $2,842 Unrealized gains on securities: Unrealized holding gains during the period, net of tax 20 - Reclassification adjustment for gains on sale included in net earnings, net of related taxes (9) - ----- ---- Comprehensive income $3,772 $2,842 ===== ===== Accumulated other comprehensive income $ 151 $ 53 ===== =====
5 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, (In thousands) 1998 1997 (Restated) Cash flows from operating activities: Net earnings for the period $ 3,761 $ 2,842 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of deferred loan origination fees (721) (220) Amortization of premiums and discounts on investment and mortgage-backed securities - net 27 (13) Amortization of goodwill 75 75 Amortization of purchase accounting adjustments - net 248 3 Depreciation and amortization 431 337 Provision for losses on loans 137 111 Gain on sale of real estate acquired through foreclosure (4) (30) Federal Home Loan Bank stock dividends (209) (160) Gain on sale of loans (748) (213) Loss on sale of premises and equipment 2 - Gain on sale of investment and mortgage-backed securities designated as available for sale (9) - Loans originated for sale in the secondary market (92,518) (24,406) Proceeds from sale of loans in the secondary market 91,918 22,555 Increase (decrease) in cash due to changes in: Accrued interest receivable (217) (235) Prepaid expenses and other assets 355 (328) Accrued interest and other liabilities (2,349) (1,784) Federal income taxes: Current 189 (58) Deferred 135 18 ------ ------ Net cash provided by (used in) operating activities 503 (1,506) Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities and interest-bearing deposits 9,750 7,499 Proceeds from sale of investment securities designated as available for sale 900 - Proceeds from sale of mortgage-backed securities designated as available for sale 4,608 - Purchases of investment securities (8,122) (7,511) Loan principal repayments 110,571 58,606 Loan disbursements (121,678) (81,535) Principal repayments on mortgage-backed securities 1,657 1,779 Proceeds from sale of office premises and equipment 20 - Additions to office premises and equipment (1,312) (355) Proceeds from sale of real estate acquired through foreclosure 412 247 Purchase of Federal Home Loan Bank stock (807) (360) Proceeds from redemption of life insurance 580 - Net increase in cash surrender value of life insurance (142) (115) ------- ------ Net cash used in investing activities (3,563) (21,745) ------- ------ Net cash used in operating and investing activities (balance carried forward) (3,060) (23,251) ------- ------
6 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the six months ended June 30, (In thousands) 1998 1997 (Restated) Net cash used in operating and investing activities (balance brought forward) $ (3,060) $ (23,251) Cash flows provided by (used in) financing activities: Net increase in deposits 5,086 12,325 Proceeds from Federal Home Loan Bank advances and other borrowings 39,500 462,100 Repayment of Federal Home Loan Bank advances and other borrowings (27,729) (454,055) Dividends paid on common stock (1,040) (845) Proceeds from exercise of stock options 110 - Decrease in advances by borrowers for taxes and insurance (769) (754) ------ ------- Net cash provided by financing activities 15,158 18,771 ------ ------- Increase (decrease) in cash and cash equivalents 12,098 (4,480) Cash and cash equivalents at beginning of period 22,904 20,977 ------ ------- Cash and cash equivalents at end of period $35,002 $ 16,497 ====== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $11,819 $10,893 ====== ====== Income taxes $ 1,476 $ 962 ======= ======== Supplemental disclosure of noncash investing activities: Unrealized gains on securities designated as available for sale, net of related tax effects $ 20 $ - ========= ======== Recognition of mortgage servicing rights in accordance with SFAS No. 125 $ 1,214 $ 292 ======= ======== Transfer from loans to real estate acquired through foreclosure $ 88 $ 260 ========= ======== Supplemental disclosure of noncash financing activities: Acquisition of treasury stock in exchange for exercise of stock options $ 42 $ - ========= ========
7 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1997, the Board of Directors of Camco Financial Corporation ("Camco" or the "Corporation") approved a business combination whereby GF Bancorp, Inc. ("GF Bancorp"), the parent company of Germantown Federal Savings Bank ("Germantown Federal"), would merge with and into the Corporation, and Germantown Federal would merge with and into First Federal Savings Bank of Washington Court House, a subsidiary of the Corporation. The merger was approved by regulatory authorities in 1997, and was completed in January 1998. The business combination was accounted for as a pooling of interests and, accordingly, the assets, liabilities and capital of the respective combining companies were added together at historic carrying value. The December 31, 1997, consolidated statement of financial condition and the consolidated statements of earnings and cash flows for the six and three months ended June 30, 1997, as applicable, have been restated to give effect to the combination as of January 1, 1997. 1. Basis of Presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Camco included in Camco's Annual Report on Form 10-K for the year ended December 31, 1997. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the six and three month periods ended June 30, 1998, are not necessarily indicative of the results which may be expected for the entire year. 2. Principles of Consolidation Camco has five wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings"), First Federal Savings Bank of Washington Court House ("First Federal"), First Federal Bank for Savings ("First Savings") (collectively hereinafter "the Banks") and East Ohio Land Title Agency, Inc., as well as two second tier subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company. All significant intercompany balances and transactions have been eliminated. 3. Earnings Per Share Basic earnings per share for the six and three month periods ended June 30, 1998 is computed based on 5,473,599 and 5,477,369 weighted-average shares outstanding during the respective periods. Basic earnings per share for each of the six and three month periods ended June 30, 1997, is computed based on 5,462,900 weighted-average shares outstanding. 8 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Earnings Per Share (continued) Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued under the Corporation's stock option plan. Weighted-average common shares deemed outstanding for purposes of computing diluted earnings per share totaled 5,660,311 and 5,672,520 for the six and three month periods ended June 30, 1998, and 5,648,892 for each of the six and three month periods ended June 30, 1997. Basic and diluted earnings per share for the six and three month periods ended June 30, 1997 have been restated to give effect to the Corporation's three-for-two stock split which was effected on July 23, 1998, and for the acquisition of GF Bancorp completed in January 1998. 4. Effects of Recent Accounting Pronouncements In June 1996, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", that provides accounting guidance on transfers of financial assets, servicing of financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an approach to accounting for transfers of financial assets that provides a means of dealing with more complex transactions in which the seller disposes of only a partial interest in the assets, retains rights or obligations, makes use of special purpose entities in the transaction, or otherwise has continuing involvement with the transferred assets. The new accounting method, the financial components approach, provides that the carrying amount of the financial assets transferred be allocated to components of the transaction based on their relative fair values. SFAS No. 125 provides criteria for determining whether control of assets has been relinquished and whether a sale has occurred. If the transfer does not qualify as a sale, it is accounted for as a secured borrowing. Transactions subject to the provisions of SFAS No. 125 include, among others, transfers involving repurchase agreements, securitizations of financial assets, loan participations, factoring arrangements, and transfers of receivables with recourse. An entity that undertakes an obligation to service financial assets recognizes either a servicing asset or liability for the servicing contract (unless related to a securitization of assets, and all the securitized assets are retained and classified as held-to-maturity). A servicing asset or liability that is purchased or assumed is initially recognized at its fair value. Servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are subject to subsequent assessments for impairment based on fair value. SFAS No. 125 provides that a liability is removed from the balance sheet only if the debtor either pays the creditor and is relieved of its obligation for the liability or is legally released from being the primary obligor. 9 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Effects of Recent Accounting Pronouncements (continued) SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1997, and is to be applied prospectively. Earlier or retroactive application is not permitted. Management adopted SFAS No. 125 effective January 1, 1998, as required, without material effect on the Corporation's consolidated financial position or results of operations. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. It does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Management adopted SFAS No. 130 effective January 1, 1998, as required, without material effect on the Corporation's financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 significantly changes the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about reportable segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 uses a "management approach" to disclose financial and descriptive information about the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. For many enterprises, the management approach will likely result in more segments being reported. In addition, SFAS No. 131 requires significantly more information to be disclosed for each reportable segment than is presently being reported in annual financial statements and also requires that selected information be reported in interim financial statements. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 is not expected to have a material impact on the Corporation's financial statements. 5. Reclassifications Certain reclassifications have been made to the June 30, 1997 consolidated financial statements to conform to the June 30, 1998 presentation. 10 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and six month periods ended June 30, 1998 and 1997 General Camco's profitability depends primarily on the level of its net interest income, which is the difference between interest income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on deposit accounts and borrowings. In recent years, Camco's net earnings have also been heavily influenced by the level of other income, including gains on sale of loans, loan servicing fees, and other fees. Finally, Camco's operations are also influenced by the level of general, administrative and other expenses, including employee compensation and benefits, office occupancy and equipment, federal deposit insurance premiums, as well as various other operating expense categories, including federal income tax expense. Since its incorporation in 1970, Camco has evolved into a full service provider of financial products to the communities served by its banking subsidiaries. Utilizing a common marketing theme committed to personalized customer service, Camco and its affiliates have grown from $22.4 million in consolidated assets in 1970 to $588.2 million of consolidated assets at June 30, 1998. Camco's level of growth is largely attributable to the acquisitions of Marietta Savings, First Federal, First Savings, and GF Bancorp and the continued expansion of product lines from the previously limited deposit and loan offerings of a heavily regulated 1970's savings and loan association, to the full array of financial service products that were the previous domain of commercial banks. Additionally, Camco's operational growth has been enhanced by vertical integration of the residential lending function through establishing mortgage banking operations in the Banks' primary market areas and, to a lesser extent, areas beyond the primary market areas, 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 bringing value-added services to their customers. Toward this end, each of the Banks' operations are decentralized, with a separate Board of Directors and management team focusing on consumer preferences for financial products in the respective communities served. Based on such consumer preferences, Camco's management designs financial service products with a view towards differentiating each of the constituent Banks from the competition. It is management's opinion that the Banks' abilities to rapidly adapt to consumer needs and preferences is essential to community-based financial institutions in order to compete against the larger regional and money-center bank holding companies. 11 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1998 and 1997 Discussion of Financial Condition Changes from December 31, 1997 to June 30, 1998 At June 30, 1998, Camco's consolidated assets totaled $588.2 million, an increase of $17.1 million, or 3.0%, over the December 31, 1997 total. The increase during the current six month period was primarily funded by deposit growth of $5.3 million, an increase of $11.8 million, or 14.3%, in advances from the Federal Home Loan Bank and undistributed net earnings of $2.7 million. Cash and interest-bearing deposits in other financial institutions totaled $35.0 million at June 30, 1998, an increase of $12.1 million, or 52.8%, over December 31, 1997 levels. Investment securities totaled $18.6 million at June 30, 1998, a decrease of $2.5 million, or 13.4%, from the total at December 31, 1997. During the 1998 period, investment securities totaling $8.1 million were purchased, while maturities amounted to $9.7 million and sales totaled $900,000. Mortgage-backed securities totaled $10.4 million at June 30, 1998, a decrease of $6.3 million from December 31, 1997, due primarily to sales totaling $4.6 million and principal repayments totaling $1.7 during the period. Loans receivable and loans held for sale increased by $13.0 million, or 2.7%, during the six months ended June 30, 1998, to a total of $494.6 million. The increase was primarily attributable to loan disbursements totaling $214.2 million, which were partially offset by principal repayments of $110.6 million and loan sales of $91.2 million. Loan origination volume during the 1998 six month period exceeded that of the 1997 period by $108.3 million, or 102.2%, while the volume of loan sales increased by $68.8 million year to year. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $3.8 million and $2.0 million at June 30, 1998 and December 31, 1997, respectively, constituting .77% and .41% of total net loans, including loans held for sale, at those dates. The consolidated allowance for loan losses totaled $1.7 million and $1.4 million at June 30, 1998 and December 31, 1997, representing 44.1% and 72.8% of nonperforming loans, respectively, at those dates. Although management believes that its allowance for loan losses at June 30, 1998, 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 $428.8 million at June 30, 1998, an increase of $5.3 million, or 1.3%, over December 31, 1997 levels. The increase resulted primarily from management's continuing efforts to achieve a moderate rate of growth through advertising and pricing strategies. Advances from the Federal Home Loan Bank increased by $11.8 million, or 14.3%, to a total of $94.1 million at June 30, 1998. The proceeds from deposit growth and advances from the Federal Home Loan Bank were partially used to fund loan originations for the six month period. The Banks are required to maintain minimum regulatory capital pursuant to federal regulations. At June 30, 1998, the Banks' regulatory capital exceeded all regulatory capital requirements. 12 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1998 and 1997 Comparison of Results of Operations for the Six Months Ended June 30, 1998 and 1997 General Camco's net earnings for the six months ended June 30, 1998 totaled $3.8 million, an increase of $1.0 million, or 32.3%, over the $2.8 million of net earnings reported in the comparable 1997 period. The increase in earnings is primarily attributable to an increase in net interest income of $930,000 and an increase in other income of $2.2 million, which were partially offset by an increase in the provision for losses on loans of $26,000, an increase in general, administrative and other expense of $1.7 million, and an increase in the provision for federal income taxes of $433,000. Net Interest Income Total interest income for the six months ended June 30, 1998, increased by $1.9 million, or 9.6%, generally reflecting the effects of growth in average interest-earning assets outstanding of approximately $48.0 million, which was partially offset by a decrease of one basis point in the average yield year to year, from 8.07% in 1997 to 8.06% in 1998. Interest income on loans and mortgage-backed securities totaled $20.2 million for the six months ended June 30, 1998, an increase of $1.8 million, or 10.0%, over the comparable 1997 period. The increase resulted primarily from a $50.0 million, or 9.3%, increase in the average balance outstanding year to year. Interest income on investments and interest-bearing deposits increased by $71,000, or 4.9%, due to an increase in average outstanding balances of $6.1 million. Interest expense on deposits increased by $263,000, or 2.9%, to a total of $9.5 million for the six months ended June 30, 1998, due primarily to an increase of $16.2 million in the average balance of deposits outstanding. Interest expense on borrowings totaled $2.4 million for the six months ended June 30, 1998, an increase of $715,000, or 41.6%, over the 1997 six month period. The increase resulted primarily from a $24.8 million increase in the average balance outstanding year to year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $930,000, or 10.4%, to a total of $9.9 million for the six months ended June 30, 1998. The interest rate spread decreased to approximately 3.36% for the six months ended June 30, 1998, from 3.38% for the 1997 period, while the net interest margin increased to approximately 3.65% in 1998, as compared to 3.63% in 1997. Provision for Losses on Loans A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Banks, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market area, 13 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1998 and 1997 Comparison of Results of Operations for the Six Months Ended June 30, 1998 and 1997 (continued) Provision for Losses on Loans (continued) and other factors related to the collectibility of the Bank's loan portfolio. The provision for losses on loans totaled $137,000 for the six months ended June 30, 1998, an increase of $26,000 over the comparable period in 1997. The current period provision generally reflects the effects of loan portfolio growth and an increase in the level of nonperforming loans. There can be no assurance that the allowance for loan losses will be adequate to cover losses on nonperforming assets in the future. Other Income Other income totaled $3.9 million for the six months ended June 30, 1998, an increase of $2.2 million, or 122.5%, over the comparable 1997 period. The increase in other income is primarily attributable to a $1.5 million increase in gains on sale of loans and an increase of $589,000 in late charges, rent and other. The increase in gains on sale of loans primarily reflects an increase in sales volume year to year. The increase in late charges, rent and other was primarily attributable to a $272,000 increase in title service fees at the Corporation's title agency subsidiary, as a result of the increase in loan origination volume, a $99,000 gain on settlement of life insurance policies and an overall increase in fees on loans and deposits due to the Corporation's growth year to year. General, Administrative and Other Expense General, administrative and other expense totaled $8.0 million for the six months ended June 30, 1998, an increase of $1.7 million, or 27.3%. This increase is due primarily to a $504,000, or 16.8%, increase in employee compensation and benefits, a $384,000, or 119.3%, increase in data processing expense, a $55,000, or 19.7%, increase in advertising, a $74,000, or 27.1%, increase in franchise taxes and a $571,000, or 40.6%, increase in other operating costs. The increase in employee compensation and benefits resulted primarily from an increase in staffing levels and normal merit increases year to year. The increase in other operating expenses was due primarily to $212,000 in merger costs related to the combination with GF Bancorp in January 1998. The increases in advertising, franchise taxes and other operating expenses were due primarily to the Corporation's overall growth year to year, while the increase in data processing expenses was primarily attributable to the Corporation's conversion to a new data processing system. Federal Income Taxes The provision for federal income taxes totaled $1.9 million for the six months ended June 30, 1998, an increase of $433,000, or 30.5%. This increase is attributable to a $1.4 million, or 31.7%, increase in pre-tax earnings. The Corporation's effective tax rate amounted to 33.0% and 33.3% for the six months ended June 30, 1998 and 1997, respectively. 14 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1998 and 1997 Comparison of Results of Operations for the Three Months Ended June 30, 1998 and 1997 General Net earnings for the three months ended June 30, 1998 totaled $1.8 million, an increase of $205,000, or 13.3%, over the $1.5 million in net earnings reported in the comparable 1997 period. The increase in net earnings is primarily attributable to a $325,000 increase in net interest income, a $600,000 increase in other income and a $19,000 decrease in the provision for loan losses, which were partially offset by a $702,000 increase in general, administrative and other expense and a $37,000 increase in the provision for federal income taxes. Net Interest Income Total interest income for the three months ended June 30, 1998, increased by $846,000, or 8.4%, compared to the 1997 quarter. Interest income on loans and mortgage-backed securities increased by $732,000, or 7.8%, due primarily to a $43.4 million increase in the average balance outstanding year to year. Interest income on investment securities and interest-bearing deposits increased by $114,000, or 15.9%, due primarily to a $9.0 million increase in the average balance outstanding. Total interest expense increased by $521,000, or 9.4%, for the three months ended June 30, 1998. Interest expense on deposits increased by $139,000, or 3.0%, due primarily to a $20.6 million increase in the average balance outstanding year to year. Interest expense on borrowings increased by $382,000, or 44.5%, due primarily to a $26.9 million increase in the average outstanding balance. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $325,000, or 7.1%, for the three months ended June 30, 1998, as compared to the comparable quarter in 1997. The interest rate spread was 3.23% for the 1998 quarter, compared to 3.36% in 1997, while the net interest margin was 3.54% in the 1998 quarter, compared to 3.65% in 1997. Provision for Losses on Loans The provision for losses on loans decreased during the three months ended June 30, 1998, by $19,000. The current period provision generally reflects the effects of loan portfolio growth year to year. Other Income Other income increased for the quarter ended June 30, 1998 by $600,000, or 57.9%, compared to the 1997 quarter. The increase is primarily attributable to a $466,000 increase in gain on sale of loans and an $85,000 increase in loan servicing fees, which were partially offset by a $10,000 decrease in late charges, rent and other. The increase in the gain on sale of loans is due primarily to the increased volume of fixed-rate loans originated for sale. 15 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1997 and 1996 Comparison of Results of Operations for the Three Months Ended June 30, 1998 and 1997 (continued) General, Administrative and Other Expense General, administrative and other expense increased by $702,000, or 21.9%, during the three months ended June 30, 1998. The increase is primarily attributable to a $78,000, or 5.3%, increase in employee compensation and benefits, a $136,000, or 32.5%, increase in occupancy and equipment, a $91,000, or 13.2%, increase in other operating expense and a $326,000, or 178.1%, increase in data processing primarily attributed to conversion related costs. The increase in employee compensation and benefits resulted primarily from normal merit increases, as well as an increase due to the hiring of additional personnel. The increase in occupancy and equipment related primarily to increased depreciation and building maintenance costs. The increase in other operating expenses generally reflects increased costs attendant to the Corporation's growth year to year. Federal Income Taxes Camco's provision for federal income taxes increased for the three months ended June 30, 1998, by $37,000, or 4.7%, generally reflecting the $242,000, or 10.4%, increase in pre-tax earnings year to year. The effective tax rates were 31.9% and 33.6% for the three month periods ended June 30, 1998 and 1997, respectively. Other Matters As with all providers of financial services, Camco's operations are heavily dependent on information technology systems. Camco is addressing the potential problems associated with the possibility that the computers that control or operate Camco's information technology system and infrastructure may not be programmed to read four-digit date codes and, upon arrival of the year 2000, may recognize the two-digit code "00" as the year 1900, causing systems to fail to function or to generate erroneous data. Camco is working with the companies that supply or service its information technology systems to identify and remedy any year 2000 related problems. As of the date of this Form 10-Q, Camco has not identified any specific expenses that are reasonably likely to be incurred by Camco in connection with this issue and does not expect to incur significant expense to implement the necessary corrective measures. No assurance can be given, however, that significant expense will not be incurred in future periods. In the event that Camco is ultimately required to purchase replacement computer systems, programs and equipment, or incur substantial expense to make Camco's current systems, programs and equipment year 2000 compliant, Camco's net earnings and financial condition could be adversely affected. 16 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and six month periods ended June 30, 1998 and 1997 Other Matters (continued) In addition to possible expense related to its own systems, Camco could incur losses if loan payments are delayed due to year 2000 problems affecting any major borrowers in Camco's primary market area. Because Camco's loan portfolio is highly diversified with regard to individual borrowers and types of businesses and Camco's primary market area is not significantly dependent upon one employer or industry, Camco does not expect any significant or prolonged difficulties that will affect net earnings or cash flow. 17 Camco Financial Corporation PART II ITEM 1. Legal Proceedings Not applicable ITEM 2. Changes in Securities and Use of Proceeds None ITEM 3. Defaults Upon Senior Securities Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders On May 26, 1998, Camco held its Annual Meeting of Stockholders. Four matters were submitted to stockholders, for which the following votes were cast: Three directors were elected to terms expiring in 2001, as follows: For Against Abstain Withheld James R. Hanawalt 1,578,967 0 0 2,575 Anthony J. Popp 1,581,196 0 0 346 Eric G. Spann 1,578,756 0 0 2,785 Increase number of authorized shares of common stock from 5,000,000 to 9,000,000. For Against Abstain Withheld 1,554,694 22,034 4,814 0 Amend the First Ashland Financial Corporation 1995 stock option and incentive plan to allow grants to directors, officers and employees of Camco. For Against Abstain Withheld 1,539,233 23,833 18,475 0 Ratification of Grant Thornton LLP as auditors of Camco for the year ended December 31, 1998. For Against Abstain Withheld 1,532,984 37,811 10,747 0 ITEM 5. Other Information Any proposals of shareholders intended to be included in Corporation's proxy statement and proxy card for the 1999 Annual Meeting of Shareholders should be sent to Camco by certified mail and must be received by Camco not later than December 31, 1998. In addition, if a shareholder intends to present a proposal at the 1999 Annual Meeting without including the proposal in the proxy materials related to that meeting, and if the proposal is not received by March 10, 1999, then the proxies designated by the Board of Directors of Camco for the 1999 Annual Meeting of Shareholders of Camco may vote in their discretion on any such proposal any shares for which they have been appointed proxies without mention of such matter in the proxy statement or on the proxy card for such meeting. ITEM 6. Exhibits and Reports on Form 8-K Reports on Form 8K: None. Exhibits: 27.1: Financial Data Schedule for the six months ended June 30, 1998. 27.2: Restated Financial Data Schedule for the six months ended June 30, 1997. 99: Accountants' Review Report 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 12, 1998 By: /s/Larry A. Caldwell -------------------------- -------------------- Larry A. Caldwell President and Chief Executive Officer Date: August 12, 1998 By: /s/Gary Crane -------------------------- -------------------- Gary Crane Chief Financial Officer 19 EX-27.1 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 12,894 22,108 0 0 5,627 23,323 23,727 494,612 1,682 588,220 428,807 0 7,141 94,090 0 0 3,654 54,528 588,220 19,774 1,000 973 21,747 9,463 11,897 9,850 137 9 8,048 5,614 3,761 0 0 3,761 .69 .66 3.65 2,354 1,460 0 0 1,598 66 13 1,682 0 0 1,682
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 11,551 4,946 0 0 15,458 33,670 33,666 446,612 1,439 538,340 411,423 0 7,083 66,399 0 0 3,066 50,369 538,340 17,690 1,638 511 19,839 9,200 10,919 8,920 111 0 6,322 4,262 2,842 0 0 2,842 .52 .50 3.57 1,767 730 0 0 1,373 48 3 1,439 0 0 1,439
EX-99 4 ACCOUNTANTS' REVIEW REPORT Board of Directors Camco Financial Corporation We have reviewed the accompanying consolidated balance sheets of Camco Financial Corporation as of June 30, 1998, and the related statements of earnings, comprehensive income and cash flows for the three and six months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Camco Financial Corporation A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. GRANT THORNTON LLP Cincinnati, Ohio August 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----