-----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, UMGiWJzY1KGjzWx2tuvxc7SMqA78BBFf90RgGvchzcdnon3FdLM7gw++jhaXGOal luXXf4pSOe6UQx2Cb9gvgQ== 0001046386-99-000171.txt : 19991117 0001046386-99-000171.hdr.sgml : 19991117 ACCESSION NUMBER: 0001046386-99-000171 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753667 BUSINESS ADDRESS: STREET 1: 814 WHEELING AVE CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 7404325641 10-Q 1 QUARTERLY FINANCIAL STATEMENTS 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, 1999 --------------------------------------------- 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 11, 1999, the latest practicable date, 5,720,388 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 10 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 1999 1998 Cash and due from banks $ 12,377 $ 13,206 Interest-bearing deposits in other financial institutions 4,990 22,609 ------- ------- Cash and cash equivalents 17,367 35,815 Investment securities available for sale - at market 267 1,307 Investment securities held to maturity - at cost, approximate market value of $17,078 and $10,998 as of September 30, 1999 and December 31, 1998 17,364 10,962 Mortgage-backed securities available for sale - at market 6,852 3,476 Mortgage-backed securities held to maturity - at cost, approximate market value of $6,151 and $5,102 as of September 30, 1999 and December 31, 1998 6,229 5,019 Loans held for sale - at lower of cost or market 2,669 10,119 Loans receivable - net 687,823 538,550 Office premises and equipment - net 11,186 10,598 Real estate acquired through foreclosure 863 217 Federal Home Loan Bank stock - at cost 12,849 8,250 Accrued interest receivable on loans 4,158 3,576 Accrued interest receivable on mortgage-backed securities 83 61 Accrued interest receivable on investment securities and interest-bearing deposits 270 229 Prepaid expenses and other assets 1,544 393 Cash surrender value of life insurance 5,595 5,161 Goodwill and other intangible assets 3,290 3,402 ------- ------- Total assets $778,409 $637,135 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $454,679 $443,227 Advances from the Federal Home Loan Bank 252,671 125,483 Advances by borrowers for taxes and insurance 2,524 2,478 Accounts payable and accrued liabilities 3,287 2,679 Dividends payable 687 589 Accrued federal income taxes 60 354 Deferred federal income taxes 2,378 2,186 ------- ------- Total liabilities 716,286 576,996 Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized, 8,900,000 shares, 5,752,276 and 5,480,331 shares issued at September 30, 1999 and December 31, 1998, respectively 5,752 5,480 Additional paid-in capital 30,350 27,053 Retained earnings - substantially restricted 26,553 27,628 Less 31,888 and 6,388 shares of treasury stock - at cost (459) (118) Unrealized gains (losses) on securities designated as available for sale, net of related tax effects (73) 96 ------- ------- Total stockholders' equity 62,123 60,139 ------- ------- Total liabilities and stockholders' equity $778,409 $637,135 ======= =======
3 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Nine months ended Three months ended September 30, September 30, 1999 1998 1999 1998 Interest income Loans $34,526 $29,988 $12,496 $10,214 Mortgage-backed securities 540 621 199 176 Investment securities 635 820 242 265 Interest-bearing deposits and other 1,157 1,510 370 537 ------ ------ ------ ------ Total interest income 36,858 32,939 13,307 11,192 Interest expense Deposits 14,211 14,570 4,794 5,107 Borrowings 7,064 3,822 3,042 1,388 ------ ------ ------ ------ Total interest expense 21,275 18,392 7,836 6,495 ------ ------ ------ ------ Net interest income 15,583 14,547 5,471 4,697 Provision for losses on loans 168 186 45 49 ------ ------ ------ ------ Net interest income after provision for losses on loans 15,415 14,361 5,426 4,648 Other income Late charges, rent and other 1,698 1,868 495 529 Loan servicing fees 416 340 218 51 Service charges and other fees on deposits 419 496 158 148 Gain on sale of loans 1,557 2,856 225 894 Gain on sale of investment and mortgage-backed securities designated as available for sale - 13 - 4 Gain (loss) on disposition of fixed assets (3) 1 (4) 3 Gain on sale of real estate acquired through foreclosure 12 64 26 60 ------ ------ ------ ------ Total other income 4,099 5,638 1,118 1,689 General, administrative and other expense Employee compensation and benefits 5,834 5,349 2,038 1,851 Office occupancy and equipment 1,835 1,499 628 534 Federal deposit insurance premiums 220 220 74 74 Data processing 636 1,075 187 369 Advertising 484 477 153 143 Franchise taxes 667 507 229 160 Amortization of goodwill 112 112 37 37 Other operating 2,989 2,766 976 789 ------ ------ ------ ------ Total general, administrative and other expense 12,777 12,005 4,322 3,957 ------ ------ ------ ------ Earnings before federal income taxes 6,737 7,994 2,222 2,380 Federal income taxes Current 2,002 2,386 752 668 Deferred 279 236 - 101 -------- ------ ------ ------ Total federal income taxes 2,281 2,622 752 769 ------- ------ ------ ------ NET EARNINGS $ 4,456 $ 5,372 $ 1,470 $ 1,611 ======= ====== ====== ====== EARNINGS PER SHARE Basic $0.78 $0.93 $0.26 $0.28 ==== ==== ==== ==== Diluted $0.76 $0.91 $0.25 $0.27 ==== ==== ==== ====
4 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Nine months ended Three months ended September 30, September 30, 1999 1998 1999 1998 Net earnings $4,456 $5,372 $1,470 $1,611 Unrealized gains (losses) on securities: Unrealized holding gains (losses) during the period, net of tax of $87,000, $5,000, $25,000 and $15,000, respectively (169) (3) (49) (29) Reclassification adjustment for gains on sale included in net earnings, net of related taxes - (9) - (3) ----- ----- ----- ----- Comprehensive income $4,287 $5,360 $1,421 $1,579 ===== ===== ===== ===== Accumulated comprehensive income (loss) $ (73) $ 119 $ (73) $ 119 ===== ===== ===== =====
5 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (In thousands) 1999 1998 Cash flows from operating activities: Net earnings for the period $ 4,456 $ 5,372 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of deferred loan origination fees (269) (518) Amortization of premiums and discounts on investment and mortgage-backed securities - net (4) 1 Amortization of goodwill 112 113 Amortization of purchase accounting adjustments - net 78 268 Depreciation and amortization 725 682 Provision for losses on loans 168 186 Gain on sale of real estate acquired through foreclosure (12) (64) Federal Home Loan Bank stock dividends (518) (332) Gain on sale of loans (385) (1,113) (Gain) loss on sale of premises and equipment 3 (1) Gain on sale of investment and mortgage-backed securities designated as available for sale - (13) Loans originated for sale in the secondary market (70,622) (149,721) Proceeds from sale of loans in the secondary market 78,457 145,477 Increase (decrease) in cash due to changes in: Accrued interest receivable (645) (434) Prepaid expenses and other assets (1,151) 587 Accrued interest and other liabilities 705 (937) Federal income taxes: Current (294) 274 Deferred 279 236 ------- ------- Net cash provided by operating activities 11,083 63 Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities 5,508 14,684 Proceeds from sale of investment securities designated as available for sale 15 900 Proceeds from sale of mortgage-backed securities designated as available for sale - 4,612 Purchase of investment securities designated as available for sale (22) (150) Purchase of investment securities designated as held to maturity (10,896) (8,999) Purchase of mortgage-backed securities designated as available for sale (5,080) - Purchase of mortgage-backed securities designated as held to maturity (1,992) - Purchase of loans (21,871) - Loan disbursements (260,381) (142,470) Principal repayments on loans 131,940 120,194 Principal repayments on mortgage-backed securities 2,265 2,436 Proceeds from sale of office premises and equipment - 22 Purchase of office premises and equipment (1,316) (1,878) Proceeds from sales of real estate acquired through foreclosure 583 1,037 Additions to real estate acquired through foreclosure (153) (19) Purchase of Federal Home Loan Bank stock (4,081) (1,169) Purchase of cash surrender value of life insurance (250) - Proceeds from redemption of life insurance - 580 Net increase in cash surrender value of life insurance (184) (202) ------- ------- Net cash used in investing activities (165,915) (10,422) ------- ------- Net cash used in operating and investing activities (subtotal carried forward) (154,832) (10,359) ------- -------
6 Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended September 30, (In thousands) 1999 1998 Net cash used in operating and investing activities (subtotal brought forward) $(154,832) $(10,359) Cash flows provided by (used in) financing activities: Net increase in deposits 11,452 10,795 Proceeds from Federal Home Loan Bank advances 163,055 62,410 Repayment of Federal Home Loan Bank advances (35,867) (43,353) Dividends paid on common stock (1,961) (1,607) Proceeds from exercise of stock options - 110 Advances by borrowers for taxes and insurance 46 (2,913) Purchase of treasury shares (341) - -------- ------- Net cash provided by financing activities 136,384 25,442 -------- ------- Net increase (decrease) in cash and cash equivalents (18,448) 15,083 Cash and cash equivalents at beginning of period 35,815 22,904 -------- ------- Cash and cash equivalents at end of period $ 17,367 $ 37,987 ======== ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 20,843 $ 18,954 ======== ======= Income taxes $ 1,594 $ 2,000 ======== ======= Supplemental disclosure of noncash investing activities: Transfers of mortgage loans to real estate acquired through foreclosure $ 1,064 $ 363 ======== ======= Unrealized losses on investments and mortgage-backed securities designated as available for sale $ (169) $ (12) ======== ======= Recognition of mortgage servicing rights in accordance with SFAS No. 125 $ 1,172 $ 1,743 ======== ======= 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 ======== ======= Shares issued in conjunction with 5% stock dividend $ 272 $ - ========= =======
7 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Camco Financial Corporation ("Camco", or the "Corporation") included in Camco's Annual Report on Form 10-K for the year ended December 31, 1998. 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, 1999, are not necessarily indicative of the results which may be expected for the entire year. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Camco and its 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, 1999, is computed based on 5,730,981 and 5,715,774 weighted-average shares outstanding during the respective periods. Basic earnings per share for the nine and three month periods ended September 30, 1998, is computed based on 5,750,893 and 5,747,279 weighted-average shares outstanding during the respective periods. 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 plans. Weighted-average common shares deemed outstanding for purposes of computing diluted earnings per share totaled 5,842,657 and 5,810,791 for the nine and three month periods ended September 30, 1999, respectively, and 5,896,644 and 5,941,245 for the nine and three month periods ended September 30, 1998, respectively. Incremental shares related to the assumed exercise of stock options included in the computation of diluted earnings per share for the nine and three month periods ended September 30, 1999, totaled 111,676 and 95,017, and for the nine and three month periods ended September 30, 1998, totaled 145,751 and 193,966, respectively. 8 Camco Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Effects of Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("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, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. 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. 9 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, 1999 and 1998 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 been heavily influenced by the level of other income, primarily gains on sale of loans and other fees on loans and deposit accounts. During 1999, Camco's management has focused the Corporation's strategic emphasis on building net interest income through growth in the loan portfolio. Implementation of this strategy has resulted in $1.04 million, or 7.1%, increase in net interest income during 1999. In the short run this increase in stabilized core earnings has been more than offset by a $1.3 million decline in the more unpredictable source of revenue resulting from gains on sale of loans in the secondary market. 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 $778.4 million of consolidated assets at September 30, 1999. Camco's level of growth is largely attributable to the acquisitions of Marietta Savings, First Federal, First Savings, and Germantown Federal Savings Bank (merged into First Federal effective January 1998, in a transaction accounted for as a pooling of interest) 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. Continuing its expansion into contiguous markets, Camco has agreed to acquire Westwood Homestead Financial Corporation ("Westwood Homestead"), which is the holding company for Westwood Homestead Savings Bank ("Westwood Bank"). Westwood Bank is a savings bank with two offices in Cincinnati, Ohio. At September 30, 1999, Westwood Homestead had total assets of $149.7 million. The shareholders of Westwood Homestead will receive $5.20 in cash and .611 shares of Camco stock for each Westwood Homestead share held at the effective time of the merger. The merger is expected to be completed in the first quarter of 2000. 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. 10 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, 1999 and 1998 Discussion of Financial Condition Changes from December 31, 1998 to September 30, 1999 At September 30, 1999, Camco's consolidated assets totaled $778.4 million, an increase of $141.3 million, or 22.2%, over the December 31, 1998 total. The increase during the current nine month period was primarily funded by deposit growth of $11.5 million and an increase of $127.2 million in advances from the Federal Home Loan Bank ("FHLB"). Cash and interest-bearing deposits in other financial institutions totaled $17.4 million at September 30, 1999, a decrease of $18.4 million, or 51.5%, from December 31, 1998 levels. Excess liquidity was used to fund purchases of higher yielding assets. Investment securities totaled $17.6 million at September 30, 1999, an increase of $5.4 million, or 43.7%, over the total at December 31, 1998. During the 1999 period, investment securities totaling $10.9 million were purchased, while maturities amounted to $5.5 million. Mortgage-backed securities totaled $13.1 million at September 30, 1999, an increase of $4.6 million, or 54.0%, over December 31, 1998, due primarily to purchases totaling $7.1 million, partially offset by principal repayments totaling $2.3 million and a market valuation adjustment of $200,000 during the period. Loans receivable increased by $149.3 million, or 27.0%, during the nine months ended September 30, 1999, to a total of $687.8 million. The increase was primarily attributable to loan disbursements and purchases totaling $352.9 million, which were partially offset by principal repayments of $131.9 million and loan sales of $78.1 million. The volume of loans originated and purchased during the 1999 nine month period exceeded that of the 1998 period by $60.7 million, or 20.8%, while the volume of loan sales decreased by $66.3 million year to year. Loans held for sale totaled $2.7 million at September 30, 1999, compared to $10.6 million at December 31, 1998. Throughout the low interest rate environment that has prevailed throughout much of the past few years, Camco has pursued a strategy of originating fixed-rate loans for sale in the secondary market and maintaining adjustable rate loans in its portfolio. As a result of the high consumer demand for fixed-rate loans during low interest rate cycles, a majority of the loans originated by Camco in recent years have been fixed-rate loans. Throughout 1999, as interest rates have edged up, consumer demand for adjustable-rate loans has increased to the point where a majority of the loans originated by Camco in 1999 are ARMs. Consistent with its past practice, Camco has retained ARMs in its portfolio. Loans purchased during 1999, totaling $21.9 million, were made to replace lower-yielding liquid assets. This strategy resulted in a targeted loan volume that exceeded the production capability in Camco's primary market areas. The loans purchased consist primarily of (adjustable-rate/fixed rate) loans secured by single-family residences, condominiums and residential building lots outside of Camco's primary market areas. 11 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, 1999 and 1998 Discussion of Financial Condition Changes from December 31, 1998 to September 30, 1999 (continued) Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $5.2 million and $4.3 million at September 30, 1999 and December 31, 1998, respectively, constituting .75% and .78% of total net loans, including loans held for sale, at those dates. The consolidated allowance for loan losses totaled $1.8 million at both September 30, 1999 and December 31, 1998, representing 34.6% and 41.5% of nonperforming loans, respectively, at those dates. Although management believes that its allowance for loan losses at September 30, 1999, 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 $454.7 million at September 30, 1999, an increase of $11.5 million, or 2.6%, over December 31, 1998 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 FHLB increased by $127.2 million, or 101.4%, to a total of $252.7 million at September 30, 1999. The proceeds from deposit growth and advances from the FHLB were primarily used to fund loan originations during the nine month period. The Banks are required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 1999, the Banks' regulatory capital exceeded all regulatory capital requirements. Comparison of Results of Operations for the Nine Months Ended September 30, 1999 and 1998 General Camco's net earnings for the nine months ended September 30, 1999 totaled $4.5 million, a decrease of $916,000, or 17.1%, from the $5.4 million of net earnings reported in the comparable 1998 period. The decrease in earnings was primarily attributable to a decrease in other income of $1.5 million, resulting from decreased gains on loan sales and a decline in late charges, rent and other income, coupled with a $772,000 increase in general, administrative and other expense, which were partially offset by a $1.0 million increase in net interest income and a $341,000 decrease in the provision for federal income taxes. Net Interest Income Total interest income for the nine months ended September 30, 1999, increased by $3.9 million, or 11.9%, over the nine month period ended September 30, 1998, generally reflecting the effects of growth in average interest-earning assets outstanding of approximately $120.8 million. 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, 1999 and 1998 Comparison of Results of Operations for the Nine Months Ended September 30, 1999 and 1998 (continued) Net Interest Income (continued) Interest income on loans and mortgage-backed securities totaled $35.1 million for the nine months ended September 30, 1999, an increase of $4.5 million, or 14.6%, over the comparable 1998 period. The increase resulted primarily from a $126.2 million, or 25.3%, increase in the average balance outstanding year to year, which was partially offset by a decline in yield. Interest income on investments and interest-bearing deposits decreased by $538,000, or 23.1%, in connection with the increased origination of ARMs with below-market rates, due primarily to a $5.4 million, or 11.2%, decrease in the average balance outstanding year to year. Interest expense on deposits decreased by $359,000, or 2.5%, to a total of $14.2 million for the nine months ended September 30, 1999, due primarily to a decrease in the interest rates paid. Interest expense on borrowings totaled $7.1 million for the nine months ended September 30, 1999, an increase of $3.2 million, or 84.8%, over the 1998 nine month period. The increase resulted primarily from a $90.1 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 $1.0 million, or 7.1%, to a total of $15.6 million for the nine months ended September 30, 1999. The interest rate spread decreased to approximately 2.85% for the nine months ended September 30, 1999, from 3.26% for the 1998 period, while the net interest margin decreased to approximately 3.11% in 1999, as compared to 3.54% in 1998. 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, and other factors related to the collectibility of the Bank's loan portfolio. The provision for losses on loans totaled $168,000 for the nine months ended September 30, 1999, a decrease of $18,000, or 9.7%, from the comparable period in 1998. The current period provision generally reflects the effects of loan portfolio growth and, while nonperforming loans have increased. Nonperforming loans consist primarily of one- to four-family residential properties which management believes are adequately collateralized. There can be no assurance that the allowance for loan losses will be adequate to cover losses on nonperforming loans in the future. 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, 1999 and 1998 Comparison of Results of Operations for the Nine Months Ended September 30, 1999 and 1998 (continued) Other Income Other income totaled $4.1 million for the nine months ended September 30, 1999, a decrease of $1.5 million, or 27.3%, from the comparable 1998 period. The decrease in other income was primarily attributable to a $1.3 million, or 45.5%, decrease in gains on sale of loans and a decrease of $170,000, or 9.1%, in late charges, rent and other. The decrease in gains on sale of loans primarily reflects a reduction in sales volume year to year. The decrease in late charges, rent and other was primarily attributable to a gain recorded in the 1998 period on settlement of life insurance of $99,000. General, Administrative and Other Expense General, administrative and other expense totaled $12.8 million for the nine months ended September 30, 1999, an increase of $772,000, or 6.4%, over the comparable period in 1998. This increase was due primarily to a $485,000, or 9.1%, increase in employee compensation and benefits, a $336,000, or 22.4%, increase in occupancy and equipment and a $160,000, or 31.6%, increase in franchise taxes, which were partially offset by a decrease in data processing expense of $439,000, or 40.8%. The increase in employee compensation and benefits resulted primarily from normal merit increases coupled with increased staffing levels due to Camco's overall growth year to year. The increase in office occupancy and equipment was due to increased depreciation, primarily as a result of the equipment purchases required to convert all of the Banks to one data processing service bureau, coupled with increased building maintenance costs. The increase in franchise taxes was due primarily to the Corporation's equity growth year to year and a change in Ohio franchise tax law which increased the overall rate of taxation. Data processing costs declined through the first nine months of 1999 as the expense for the same period in the prior year included one time non-capitalized costs to convert the Banks to one data processing service bureau. Federal Income Taxes The provision for federal income taxes totaled $2.3 million for the nine months ended September 30, 1999, a decrease of $341,000, or 13.0%, from the nine months ended September 30, 1998. This decrease is attributable to a $1.3 million, or 15.7%, decrease in pre-tax earnings. The Corporation's effective tax rate amounted to 33.9% and 32.8% for the nine months ended September 30, 1999 and 1998, respectively. 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, 1999 and 1998 Comparison of Results of Operations for the Three Months Ended September 30, 1999 and 1998 General Camco's net earnings for the three months ended September 30, 1999, totaled $1.5 million, a decrease of $141,000, or 8.8%, from the $1.6 million of net earnings reported in the comparable 1998 period. The decrease in earnings is primarily attributable to a $571,000 decrease in other income and a $365,000 increase in general, administrative and other expense, which were partially offset by an increase in net interest income of $774,000 and a $17,000 decrease in the provision for federal income taxes. Net Interest Income Total interest income for the three months ended September 30, 1999, increased by $2.1 million, or 18.9%, generally reflecting the effects of growth in average interest-earning assets outstanding of approximately $156.7 million, which was partially offset by a decrease in the yield on interest-earning assets. Interest income on loans and mortgage-backed securities totaled $12.7 million for the three months ended September 30, 1999, an increase of $2.3 million, or 22.2%, over the comparable 1998 period. The increase resulted primarily from a $165.2 million, or 32.9%, increase in the average balance outstanding year to year. Interest income on investments and interest-bearing deposits decreased by $190,000, or 23.7%, due to a decrease in average outstanding balances of $10.6 million. Interest expense on deposits decreased by $313,000, or 6.1%, to a total of $4.8 million for the three months ended September 30, 1999, due primarily to a decrease in interest rates paid. Interest expense on borrowings totaled $3.0 million for the three months ended September 30, 1999, an increase of $1.7 million, or 119.2%, over the 1998 three month period. The increase resulted primarily from a $127.2 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 $774,000, or 16.5%, to a total of $5.5 million for the three months ended September 30, 1999. The interest rate spread decreased to approximately 2.80% for the three months ended September 30, 1999, from 3.05% for the 1998 period, while the net interest margin decreased to approximately 3.04% in 1999, compared to 3.34% in 1998. Provision for Losses on Loans The provision for losses on loans totaled $45,000 for the three months ended September 30, 1999, a decrease of $4,000 from the comparable period in 1998. 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. 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, 1999 and 1998 Comparison of Results of Operations for the Three Months Ended September 30, 1999 and 1998 (continued) Other Income Other income totaled $1.1 million for the three months ended September 30, 1999, a decrease of $571,000, or 33.8%, from the comparable 1998 period. The decrease in other income was primarily attributable to a $669,000 decrease in gains on sale of loans, which was partially offset by a $167,000 increase in loan servicing fees. The decrease in gains on sale of loans primarily reflects a decrease in sales volume year to year. The increase in loan servicing fees is mainly attributable to the decreased levels of amortization of mortgage servicing rights. General, Administrative and Other Expense General, administrative and other expense totaled $4.3 million for the three months ended September 30, 1999, an increase of $365,000, or 9.2%, over the comparable quarter in 1998. This increase was due primarily to a $187,000, or 10.1%, increase in employee compensation and benefits, a $94,000, or 17.6%, increase in occupancy and equipment and a $187,000, or 23.7%, increase in other operating expenses, which were partially offset by a decrease in data processing expense of $182,000, or 49.3%. The increase in employee compensation and benefits resulted primarily from an increase in staffing levels and normal merit increases year to year. The increases in occupancy and equipment and other operating expenses were due primarily to increased depreciation expense primarily as a result of the equipment purchased in fiscal 1998 required to convert all of the Banks to one data processing service bureau, increased building maintenance costs which reflect the eight additional offices added since the first quarter of 1998 and the Corporation's overall growth year to year. These increases were offset by a decrease in data processing expense as the expense for the same period in the prior year included the one-time non-capitalized costs incurred to convert the Banks to one data processing service bureau. Federal Income Taxes The provision for federal income taxes totaled $752,000 for the three months ended September 30, 1999, a decrease of $17,000, or 2.2%, from the same quarter in 1998. This decrease was attributable to a $158,000, or 6.6%, decrease in pre-tax earnings. The Corporation's effective tax rate amounted to 33.8% and 32.3% for the three months ended September 30, 1999 and 1998, respectively. 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, 1999 and 1998 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 was 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 satisfactorily tested as being Y2K compliant. The Corporation has identified other third party vendors and commercial borrowers and if they were deemed critical to the banking operations, a review of their Y2K readiness has been conducted. Contingency plans have been completed in which the Corporation will seek alternative sources for critical services provided by third party vendors who may be found not to be Y2K compliant upon arrival of the year 2000. Implementation of the contingency plans occurred during September 1999. The Corporation's service bureau has completed the upgrading of its core systems and through testing, the Banks have verified that these systems are Y2K compliant. The Banks have also successfully performed Y2K testing of the electronic services provided by the Federal Reserve Bank of Cleveland and the mortgage servicing systems of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association through the Corporation's service bureau. The Corporation completed the testing of non-information technology hardware and, where necessary, has either repaired or replaced those systems if they were found not to be Y2K compliant. As part of its risk assessment, the Corporation has analyzed its vulnerability to third-party vendors and service providers by conducting a review of their Y2K readiness. The Corporation has received responses from its vendors and service providers for the Banks and no significant concerns have been identified. The Corporation has also assessed the risk associated with certain of its Bank's customers and contacts have been made to determine the customer's Y2K preparedness if they were deemed to be sensitive to the Y2K issue. 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, 1999 and 1998 Year 2000 Compliance Matters (continued) The Corporation has conducted research concerning the normal cash on hand at the Banks to determine if the cash needs for potential cash withdrawals in the fourth quarter of 1999 will be adequate. Because the Corporation maintains adequate liquidity reserves, it does not anticipate that it will have to borrow funds to meet any potential disintermediation that might occur due to Y2K readiness. However, in response to the Y2K issue, both the Federal Reserve Bank and FHLB have developed temporary borrowing programs to ensure that its members have access to liquidity to meet any additional cash requirements directly related to Y2K concerns. Management is currently evaluating both programs and preliminarily has determined that either one would offer adequate funding to meet its short term Y2K cash requirements. The Corporation estimates that the final cost of converting and replacing information and non-information technology systems would not exceed $1.75 million with at least 75% being capitalized (which relates to a discretionary management decision in 1998 to upgrade existing technology systems). Beyond the cost incurred to convert its systems, the Corporation had estimated that the additional cost to address the Y2K issue would be approximately $75,000, of which $35,000 has been incurred as of September 30, 1999. While management believes its Y2K budget is based on sound assumptions, 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. Quantitative and Qualitative Disclosures about Market Risk There has been no material change in the Corporation's market risk since the Corporation's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. 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 On August 6, 1999, Camco entered into an Agreement of Merger and Plan of Reorganization (the "Agreement") with Westwood Homestead Financial Corporation ("WHFC") and its wholly-owned subsidiary The Westwood Homestead Savings Bank. Pursuant to the Agreement, WHFC will merge with and into Camco and the holders of outstanding common shares of WHFC will receive .611 of a Camco share and $5.20 for each of their WHFC shares. The parties anticipate that the merger will be completed during the first quarter of 2000. ITEM 6. Exhibits and Reports on Form 8-K Reports on Form 8-K: On August 13, 1999, Camco filed a Form 8-K reporting the execution of the Agreement in Item 5. Exhibits: 15 Independent Accountants' Report 27.1 Financial data schedule for the nine months ended September 30, 1999. 27.2 Restated financial data schedule for the nine months ended September 30, 1998. 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 12, 1999 By: /s/Larry A. Caldwell --------------------------- ----------------------------------- Larry A. Caldwell President and Chief Executive Officer Date: November 12, 1999 By: /s/Gary Crane --------------------------- ----------------------------------- Gary Crane Chief Financial Officer 20 EX-15 2 INDEPENDENT ACCOUNTANTS' REPORT Independent Accountants' Report Board of Directors Camco Financial Corporation We have reviewed the accompanying consolidated statement of financial condition of Camco Financial Corporation as of September 30, 1999, and the related consolidated statements of earnings, comprehensive income, and cash flows for the three-month and nine-month periods then ended. The financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted 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 for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of financial condition as of December 31, 1998, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated February 25, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 1998, is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived. /s/GRANT THORNTON LLP Cincinnati, Ohio November 1, 1999 EX-27.1 3 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 12,377 4,990 0 0 7,119 23,593 23,229 690,492 1,832 778,409 454,679 252,671 8,936 0 0 0 0 62,123 778,409 34,526 1,175 1,157 36,858 14,211 21,275 15,583 168 0 12,777 6,737 4,456 0 0 4,456 .78 .76 2.79 1,861 3,720 0 0 1,783 125 6 1,832 0 0 1,832
EX-27.2 4 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-01-1998 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 .93 .91 3.44 1,412 1,818 0 0 1,598 47 20 1,717 0 0 1,717
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