-----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, Nn8siwT0eusMmZKQbEstyrdqX61C6ydQbzTbJbUdoVruDDpwFOkmXLlipdP/+j1V cGyyUmJbnaqJgQr19CRK+Q== 0001046386-98-000148.txt : 19981118 0001046386-98-000148.hdr.sgml : 19981118 ACCESSION NUMBER: 0001046386-98-000148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98750116 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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 November 10, 1998, the latest practicable date, 5,476,580.5 shares of the registrant's common stock, $1.00 par value, were issued and outstanding. Page 1 of 20 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 12 Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION 19 SIGNATURES 20 2 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) September 30, December 31, ASSETS 1998 1997 (Restated) Cash and due from banks $ 14,745 $ 12,436 Interest-bearing deposits in other financial institutions 23,242 10,468 ------- ------- Cash and cash equivalents 37,987 22,904 Investment securities available for sale - at market 1,319 3,573 Investment securities - at cost, approximate market value of $13,432 and $17,536 as of September 30, 1998 and December 31, 1997 13,320 17,489 Mortgage-backed securities available for sale - at market 4,025 8,460 Mortgage-backed securities - at cost, approximate market value of $5,684 and $8,311 as of September 30, 1998 and December 31, 1997 5,577 8,207 Loans held for sale - at lower of cost or market 9,492 4,135 Loans receivable - net 499,761 477,517 Office premises and equipment - net 9,597 8,420 Real estate acquired through foreclosure 146 737 Federal Home Loan Bank stock - at cost 6,993 5,492 Accrued interest receivable on loans 3,456 2,972 Accrued interest receivable on mortgage-backed securities 70 111 Accrued interest receivable on investment securities and interest-bearing deposits 340 349 Prepaid expenses and other assets 1,049 1,637 Cash surrender value of life insurance 5,104 5,482 Goodwill and other intangible assets 3,440 3,552 Prepaid federal income taxes - 99 ------- ------- Total assets $601,676 $571,136 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $434,528 $423,464 Advances from the Federal Home Loan Bank 101,376 82,319 Advances by borrowers for taxes and insurance 1,565 4,478 Accounts payable and accrued liabilities 2,252 3,261 Dividends payable 562 491 Accrued federal income taxes 175 - Deferred federal income taxes 2,023 1,792 ------- ------- Total liabilities 542,481 515,805 Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized, 8,900,000 shares, 5,480,331 and 3,639,997 shares issued at September 30, 1998 and December 31, 1997 5,480 3,640 Additional paid-in capital 27,053 26,915 Retained earnings - substantially restricted 26,584 24,645 Treasury stock - at cost (41) - Unrealized gains on securities designated as available for sale, net of related tax effects 119 131 ------- ------- Total stockholders' equity 59,195 55,331 ------- ------- Total liabilities and stockholders' equity $601,676 $571,136 ======= =======
3 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Nine months ended Three months ended September 30, September 30, 1998 1997 1998 1997 (Restated) (Restated) Interest income Loans $29,988 $27,168 $10,214 $ 9,478 Mortgage-backed securities 621 1,029 176 337 Investment securities 820 1,337 265 391 Interest-bearing deposits and other 1,510 807 537 296 ------ ------ ------ ------ Total interest income 32,939 30,341 11,192 10,502 Interest expense Deposits 14,570 14,008 5,107 4,808 Borrowings 3,822 2,756 1,388 1,037 ------ ------ ------ ------ Total interest expense 18,392 16,764 6,495 5,845 ------ ------ ------ ------ Net interest income 14,547 13,577 4,697 4,657 Provision for losses on loans 186 169 49 58 ------ ------ ------ ------ Net interest income after provision for losses on loans 14,361 13,408 4,648 4,599 Other income Late charges, rent and other 1,868 1,094 529 344 Loan servicing fees 340 544 51 292 Service charges and other fees on deposits 496 383 148 145 Gain on sale of loans 2,856 907 894 402 Gain on sale of investment and mortgage-backed securities designated as available for sale 13 - 4 - Gain on sale of office equipment 1 4 3 4 Gain on sale of real estate acquired through foreclosure 64 39 60 9 ------ ------ ------ ------ Total other income 5,638 2,971 1,689 1,196 General, administrative and other expense Employee compensation and benefits 5,349 4,508 1,851 1,514 Office occupancy and equipment 1,499 1,266 534 437 Federal deposit insurance premiums 220 214 74 70 Data processing 1,075 474 369 152 Advertising 477 380 143 101 Franchise taxes 507 390 160 117 Amortization of goodwill 113 112 38 37 Other operating 2,765 2,143 788 737 ------ ------ ------ ------ Total general, administrative and other expense 12,005 9,487 3,957 3,165 ------ ------ ------ ------ Earnings before federal income taxes 7,994 6,892 2,380 2,630 Federal income taxes Current 2,386 2,155 668 753 Deferred 236 135 101 117 ------ ------ ------ ------ Total federal income taxes 2,622 2,290 769 870 ------ ------ ------ ------ NET EARNINGS $ 5,372 $ 4,602 $ 1,611 $ 1,760 ====== ====== ====== ====== EARNINGS PER SHARE Basic $0.98 $0.84 $0.29 $0.32 ==== ==== ==== ==== Diluted $0.96 $0.81 $0.28 $0.31 ==== ==== ==== ====
4 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the nine months ended September 30, (In thousands) 1998 1997 Net earnings $5,372 $4,602 Unrealized gains (losses) on securities: Unrealized holding gains/losses during the period, net of tax (3) 9 Reclassification adjustment for gains on sale included in net earnings, net of related taxes (9) - ----- ----- Comprehensive income $5,360 $4,611 ===== ===== Accumulated other comprehensive income $ 119 $ 131 ===== =====
5 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (In thousands) 1998 1997 (Restated) Cash flows from operating activities: Net earnings for the period $ 5,372 $ 4,602 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of deferred loan origination fees (518) (367) Amortization of premiums and discounts on investment and mortgage-backed securities - net 1 41 Amortization of goodwill 113 112 Amortization of purchase accounting adjustments - net 268 - Depreciation and amortization 680 536 Provision for losses on loans 186 169 Gain on sale of real estate acquired through foreclosure (64) (39) Federal Home Loan Bank stock dividends (332) (253) Gain on sale of loans (1,113) (464) Gain on sale of premises and equipment 1 - Gain on sale of investment and mortgage-backed securities designated as available for sale (13) - Loans originated for sale in the secondary market (149,721) (50,270) Proceeds from sale of loans in the secondary market 145,477 48,278 Increase (decrease) in cash due to changes in: Accrued interest receivable (434) (107) Prepaid expenses and other assets 587 (481) Accrued interest and other liabilities (937) (1,505) Federal income taxes: Current 274 482 Deferred 236 135 ------- ------- Net cash provided by operating activities 63 869 Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities 14,684 17,599 Proceeds from sale of investment securities designated as available for sale 900 - Proceeds from sale of mortgage-backed securities designated as available for sale 4,612 - Purchase of investment securities designated as available for sale (150) (530) Purchase of investment securities designated as held to maturity (8,999) (11,500) Loan disbursements (142,470) (128,618) Principal repayments on loans 120,194 83,692 Principal repayments on mortgage-backed securities 2,436 3,125 Proceeds from sale of office premises and equipment 22 - Purchase of office premises and equipment (1,878) (692) Proceeds from sales of real estate acquired through foreclosure 1,037 286 Additions to real estate acquired through foreclosure (19) (59) Purchase of Federal Home Loan Bank stock (1,169) (710) Purchase of cash surrender value of life insurance - (332) Proceeds from redemption of life insurance 580 - Net increase in cash surrender value of life insurance (202) (210) Decrease in certificates of deposit in other financial institutions - 990 ------- ------- Net cash used in investing activities (10,422) (36,959) ------- ------- Net cash used in operating and investing activities (subtotal carried forward) (10,359) (36,090) ------- -------
6 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended September 30, (In thousands) 1998 1997 (Restated) Net cash used in operating and investing activities (subtotal brought forward) $(10,359) $(36,090) Cash flows provided by (used in) financing activities: Net increase in deposits 10,795 16,181 Proceeds from Federal Home Loan Bank advances 62,410 39,800 Repayment of Federal Home Loan Bank advances (43,353) (24,020) Dividends paid on common stock (1,607) (1,305) Proceeds from sale of treasury stock - 252 Proceeds from exercise of stock options 110 1 Advances by borrowers for taxes and insurance (2,913) (107) ------- ------- Net cash provided by financing activities 25,442 30,802 ------- ------- Net increase (decrease) in cash and cash equivalents 15,083 (5,288) Cash and cash equivalents at beginning of period 22,904 20,977 ------- ------- Cash and cash equivalents at end of period $ 37,987 $ 15,689 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 18,954 $ 16,835 ======= ======= Income taxes $ 2,000 $ 1,739 ======= ======= Supplemental disclosure of noncash investing activities: Transfers of mortgage loans to real estate acquired through foreclosure $ 363 $ 914 ======= ======= Unrealized gains (losses) on investments and mortgage-backed securities designated as available for sale $ (12) $ 9 ======= ======= Recognition of mortgage servicing rights in accordance with SFAS No. 125 $ 1,743 $ 443 ======= ======= Transfer of mortgage-backed securities from held to maturity classification to available for sale $ 1,344 $ - ======= ======= Supplemental disclosure of noncash financing activities: Acquisition of treasury stock in exchange for exercise of stock options $ 41 $ - ======= ======= Shares issued in conjunction with the three-for-two stock split $ 1,826 $ - ======= =======
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 nine and three months ended September 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 nine and three month periods ended September 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 nine and three month periods ended September 30, 1998, is computed based on 5,477,041 and 5,473,599 weighted-average shares outstanding during the respective periods. Basic earnings per share for each of the nine and three month periods ended September 30, 1997, is computed based on 5,462,906 and 5,462,900 weighted-average shares outstanding during the respective periods. 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 5,615,851 and 5,658,329 for the nine and three month periods ended September 30, 1998, and 5,649,558 and 5,656,095 for each of the nine and three month periods ended September 30, 1997. Basic and diluted earnings per share for the nine and three month periods ended September 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 which 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. 10 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Effects of Recent Accounting Pronouncements (continued) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged, and specifies detailed criteria to be met to qualify for hedge accounting. The definition of a derivative financial instrument is complex, but in general, it is an instrument with one or more underlyings, such as an interest rate or foreign exchange rate, that is applied to a notional amount, such as an amount of currency, to determine the settlement amount(s). It generally requires no significant initial investment and can be settled net or by delivery of an asset that is readily convertible to cash. SFAS No. 133 applies to derivatives embedded in other contracts, unless the underlying of the embedded derivative is clearly and closely related to the host contract. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On adoption, entities are permitted to transfer held-to-maturity debt securities to the available-for-sale or trading category without calling into question their intent to hold other debt securities to maturity in the future. SFAS No. 133 is not expected to have a material impact on the Corporation's financial statements. 5. Reclassifications Certain reclassifications have been made to the September 30, 1997 consolidated financial statements to conform to the September 30, 1998 presentation. 11 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and nine month periods ended September 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. 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 $601.7 million of consolidated assets at September 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, in areas beyond the primary market areas and 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. 12 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Discussion of Financial Condition Changes from December 31, 1997 to September 30, 1998 At September 30, 1998, Camco's consolidated assets totaled $601.7 million, an increase of $30.5 million, or 5.3%, over the December 31, 1997 total. The increase during the current nine month period was primarily funded by deposit growth of $11.1 million, an increase of $19.1 million in advances from the Federal Home Loan Bank and undistributed net earnings of $3.8 million. Cash and interest-bearing deposits in other financial institutions totaled $38.0 million at September 30, 1998, an increase of $15.1 million, or 65.9%, over December 31, 1997 levels. Investment securities totaled $14.6 million at September 30, 1998, a decrease of $6.4 million, or 30.5%, from the total at December 31, 1997. During the 1998 period, investment securities totaling $9.1 million were purchased, while maturities amounted to $14.7 million and sales totaled $900,000. Mortgage-backed securities totaled $9.6 million at September 30, 1998, a decrease of $7.1 million from December 31, 1997, due primarily to sales totaling $4.6 million and principal repayments totaling $2.4 million during the period. Loans receivable and loans held for sale increased by $27.6 million, or 5.7%, during the nine months ended September 30, 1998, to a total of $509.3 million. The increase was primarily attributable to loan disbursements totaling $292.2 million, which were partially offset by principal repayments of $120.2 million and loan sales of $144.4 million. Loan origination volume during the 1998 nine month period exceeded that of the 1997 period by $113.3 million, or 63.3%, while the volume of loan sales increased by $96.6 million year to year. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $3.3 million and $2.0 million at September 30, 1998 and December 31, 1997, respectively, constituting .66% 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 September 30, 1998 and December 31, 1997, representing 51.4% and 72.8% of nonperforming loans, respectively, at those dates. Although management believes that its allowance for loan losses at September 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 $434.5 million at September 30, 1998, an increase of $11.1 million, or 2.6%, 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 $19.1 million, or 23.2%, to a total of $101.4 million at September 30, 1998. The proceeds from deposit growth and advances from the Federal Home Loan Bank were primarily used to fund loan originations for the nine month period. The Banks are required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 1998, the Banks' regulatory capital exceeded all regulatory capital requirements. 13 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Comparison of Results of Operations for the Nine Months Ended September 30, 1998 and 1997 General Camco's net earnings for the nine months ended September 30, 1998 totaled $5.4 million, an increase of $770,000, or 16.7%, over the $4.6 million of net earnings reported in the comparable 1997 period. The increase in earnings was primarily attributable to an increase in net interest income of $970,000 and an increase in other income of $2.7 million, which were partially offset by an increase in the provision for losses on loans of $17,000, an increase in general, administrative and other expense of $2.5 million, and an increase in the provision for federal income taxes of $331,000. Net Interest Income Total interest income for the nine months ended September 30, 1998, increased by $2.6 million, or 8.6%, generally reflecting the effects of growth in average interest-earning assets outstanding of approximately $55.6 million. Interest income on loans and mortgage-backed securities totaled $30.6 million for the nine months ended September 30, 1998, an increase of $2.4 million, or 8.6%, over the comparable 1997 period. The increase resulted primarily from a $40.1 million, or 8.7%, increase in the average balance outstanding year to year. Interest income on investments and interest-bearing deposits increased by $186,000, or 8.7%, due primarily to a $4.0 million increase in the average outstanding balance. Interest expense on deposits increased by $562,000, or 4.0%, to a total of $14.6 million for the nine months ended September 30, 1998, due primarily to an increase of $17.5 million in the average balance of deposits outstanding. Interest expense on borrowings totaled $3.8 million for the nine months ended September 30, 1998, an increase of $1.1 million, or 38.7%, over the 1997 nine month period. The increase resulted primarily from a $25.2 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 $970,000, or 7.1%, to a total of $14.5 million for the nine months ended September 30, 1998. The interest rate spread decreased to approximately 3.26% for the nine months ended September 30, 1998, from 3.30% for the 1997 period, while the net interest margin decreased to approximately 3.54% in 1998, compared to 3.68% 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 Banks' market areas, 14 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Comparison of Results of Operations for the Nine Months Ended September 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 $186,000 for the nine months ended September 30, 1998, an increase of $17,000 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 $5.6 million for the nine months ended September 30, 1998, an increase of $2.7 million, or 89.8%, over the comparable 1997 period. The increase in other income is primarily attributable to a $1.9 million increase in gains on sale of loans and an increase of $774,000 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 $369,000 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 $12.0 million for the nine months ended September 30, 1998, an increase of $2.5 million, or 26.5%. This increase is due primarily to an $841,000, or 18.7%, increase in employee compensation and benefits, a $233,000, or 18.4%, increase in office occupancy and equipment, a $601,000, or 126.8%, increase in data processing expense, a $97,000, or 25.5%, increase in advertising, a $117,000, or 30.0%, increase in franchise taxes and a $622,000, or 29.0%, 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 office occupancy and equipment was due primarily to increased depreciation and building maintenance costs. The increase in other operating expenses included $212,000 in merger costs recorded in 1998 related to the merger 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 $2.6 million for the nine months ended September 30, 1998, an increase of $331,000, or 14.5%. This increase is attributable to a $1.1 million, or 16.0%, increase in pre-tax earnings. The Corporation's effective tax rate was 32.8% and 33.2% for the nine months ended September 30, 1998 and 1997, respectively. 15 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Comparison of Results of Operations for the Three Months Ended September 30, 1998 and 1997 General Net earnings for the three months ended September 30, 1998 totaled $1.6 million, a decrease of $149,000, or 8.5%, from the $1.8 million in net earnings reported in the comparable 1997 period. The decrease in net earnings is primarily attributable to a $792,000 increase in general, administrative and other expense, which was partially offset by a $40,000 increase in net interest income, a $493,000 increase in other income, an $11,000 decrease in the provision for loan losses and a $101,000 decrease in the provision for federal income taxes. Net Interest Income Total interest income for the three months ended September 30, 1998, increased by $690,000, or 6.6%, compared to the 1997 quarter. Interest income on loans and mortgage-backed securities increased by $575,000, or 5.9%, due primarily to a $36.5 million increase in the average balance outstanding year to year. Interest income on investment securities and interest-bearing deposits increased by $115,000, or 16.7%, due primarily to a $9.3 million increase in the average balance outstanding. Total interest expense increased by $650,000, or 11.1%, for the three months ended September 30, 1998, compared to the 1997 quarter. Interest expense on deposits increased by $299,000, or 6.2%, due primarily to a $19.1 million increase in the average balance outstanding year to year. Interest expense on borrowings increased by $351,000, or 33.8%, due primarily to a $26.8 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 $40,000, or .9%, for the three months ended September 30, 1998, compared to the comparable quarter in 1997. The interest rate spread was 3.05% for the 1998 quarter, compared to 3.30% in 1997, while the net interest margin was 3.34% in the 1998 quarter, compared to 3.60% in 1997. Provision for Losses on Loans The provision for losses on loans amounted to $49,000 during the three months ended September 30, 1998, a decrease of $9,000, or 15.5%, compared to the same period in 1997. The current period provision generally reflects the effects of loan portfolio growth year to year. Other Income Other income increased for the quarter ended September 30, 1998 by $493,000, or 41.2%, compared to the 1997 quarter. The increase is primarily attributable to a $492,000 increase in gain on sale of loans and a $185,000, or 53.8%, increase in late charges, rent and other, which were partially offset by a $241,000, or 82.5%, decrease in loan servicing fees. The increase in the gain on sale of loans is due primarily to the increased volume of fixed-rate loans originated for sale, while the decrease in loan servicing fees generally reflects the effects of an increase in amortization expense of capitalized mortgage servicing rights, due primarily to the high volume of loan refinance activity. 16 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Comparison of Results of Operations for the Three Months Ended September 30, 1998 and 1997 (continued) General, Administrative and Other Expense General, administrative and other expense increased by $792,000, or 25.0%, during the three months ended September 30, 1998, compared to the same period in 1997. The increase is primarily attributable to a $337,000, or 22.3%, increase in employee compensation and benefits, a $97,000, or 22.2%, increase in occupancy and equipment, a $51,000, or 6.9%, increase in other operating expense and a $217,000, or 142.8%, 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 coincident with the Corporation's overall growth. 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 overall growth year to year. Federal Income Taxes Camco's provision for federal income taxes decreased for the three months ended September 30, 1998, by $101,000, or 11.6%, generally reflecting the $250,000, or 9.5%, decrease in pre-tax earnings year to year. The effective tax rates were 32.3% and 33.1% for the three month periods ended September 30, 1998 and 1997, respectively. Year 2000 Compliance Matters The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit format, as opposed to four digits to indicate the year. Such computer systems may be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. In 1996 the Corporation began evaluating the status of all of its technological systems which included its state of readiness in addressing the Y2K issue. After the analysis was completed, a technology plan was developed and implementation of the plan started in mid 1997. As the Corporation is primarily dependent on a third party data processing service bureau for maintaining customer records and financial systems, a task force was formed to identify a service bureau that would meet the current and future technology needs of the Corporation and who would be Y2K compliant. The new service bureau was identified and conversion of all data systems of the Banks will be completed in the fourth quarter of 1998. As a part of the conversion process, all of the data processing hardware and software in the Banks was replaced and has been tested as being Y2K compliant. The Corporation has identified other third party vendors and commercial borrowers and if they are deemed critical to the banking operations, a review of their Y2K readiness is conducted. Contingency plans are being developed in which the Corporation will seek alternative sources for critical services provided by third party vendors who it is deemed will not be Y2K compliant. 17 Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the three and nine month periods ended September 30, 1998 and 1997 Year 2000 Compliance Matters (continued) The final phase of the Corporation's technology plan involves the testing of the systems in place to ensure Y2K readiness. The Corporation's service bureau is ahead of schedule in the upgrading of its systems and has now reached the testing phase. The tests are being conducted in accordance with recommendations published by the Federal Financial Institutions Examination Council ("FFIEC"). The Corporation's testing of all types of transactions through the service bureau will be completed in the first quarter of 1999. The Corporation's plan also calls for the testing of non-information technology hardware and where necessary, either the repair or replacement of those systems if they are found not to be non-Y2K compliant. The Corporation estimates that the cost of converting and replacing information and non-information technology systems will fall within a range of $1.5 million and $1.75 million with at least 75% being capitalized (which relates to a discretionary management decision to upgrade existing information technology systems). Because of unknown external risks associated with this issue, the Corporation cannot quantify the consequences and uncertainty involved beyond those already identified, however, management believes such remaining external risks will not have a material adverse effect on the Corporation's financial condition or results of operations. The Corporation is presently completing its analysis of its vulnerability to third-party vendors (other than its new service bureau), most of which are insignificant to consolidated operations. Quantitative and Qualitative Disclosures about Market Risk This response is incorporated herein by reference from the discussion under the sub-caption "Asset and Liability Management" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Company's 1997 Annual Report, included as Part II, Item 6 of the Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. 18 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 None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K Reports on Form 8-K: None. Exhibits: 27.1: Financial Data Schedule for the nine months ended September 30, 1998. 27.2: Restated Financial Data Schedule for the nine months ended September 30, 1997. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 10, 1998 By: /s/Larry A. Caldwell -------------------------- -------------------------------- Larry A. Caldwell President and Chief Executive Officer Date: November 10, 1998 By: /s/Gary Crane -------------------------- --------------------------------- Gary Crane Chief Financial Officer 20 EX-27.1 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 14,745 23,242 0 0 5,344 18,897 19,116 509,253 1,717 601,676 434,528 101,376 6,577 0 0 0 5,480 53,715 601,676 29,988 1,441 1,510 32,939 14,570 18,392 14,547 186 13 12,005 7,994 5,372 0 0 5,372 .98 .96 3.44 1,412 1,818 0 0 1,598 47 20 1,717 0 0 1,717
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 10,841 4,848 0 0 14,225 27,010 32,557 467,381 1,389 551,641 414,334 74,134 8,167 0 0 0 3,219 51,787 551,641 27,168 2,366 807 30,341 14,008 16,764 13,577 169 0 9,487 6,892 4,602 0 0 4,602 .84 .81 3.49 907 1,031 0 0 1,373 162 9 1,387 5 0 1,382
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