<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------
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 2-47541
CAMCO FINANCIAL CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0110823
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
814 Wheeling Avenue
Cambridge, Ohio 43725
- ------------------------------------ --------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (614) 432-5641
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
------- --------
As of October 31, 1996, the latest practicable date, approximately 3,057,485
shares of the registrant's common stock, $1.00 par value, were issued and
outstanding.
Page 1 of 17 pages
<PAGE> 2
Camco Financial Corporation
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 10,898 $ 11,325
Short-term interest bearing deposits in other financial institutions 100 2,122
---------- ---------
Cash and cash equivalents 10,998 13,447
Interest-bearing deposits in other financial institutions 1,220 1,881
Investment securities available for sale - at market 1,640 3,131
Investment securities - at cost, approximate market value of $22,809
and $19,123 as of September 30, 1996 and December 31, 1995 22,963 19,283
Mortgage-backed securities available for sale - at market 770 985
Mortgage-backed securities - at cost, approximate market value of
$4,316 and $5,045 as of September 30, 1996 and December 31, 1995 4,335 5,002
Loans held for sale - at lower of cost or market 4,259 1,518
Loans receivable - net 314,410 291,233
Office premises and equipment - net 4,693 4,153
Real estate acquired through foreclosure 64 28
Federal Home Loan Bank stock - at cost 3,189 2,832
Accrued interest receivable 2,500 2,129
Cash surrender value of life insurance 4,653 -
Prepaid expenses and other assets 1,299 699
Prepaid federal income taxes 1,085 148
--------- ----------
TOTAL ASSETS $378,078 $346,469
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $293,373 $286,574
Advances from the Federal Home Loan Bank 48,801 26,078
Taxes and insurance prepaid by borrowers 1,376 2,964
Accounts payable and accrued liabilities 4,143 1,797
Dividends payable 347 207
Deferred federal income taxes 1,365 1,156
--------- ---------
Total liabilities 349,405 318,776
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized, 4,900,000 shares;
outstanding 2,075,641 at September 30, 1996 and 1,971,482
shares at December 31, 1995 2,076 1,971
Additional paid-in capital 7,435 5,735
Retained earnings - substantially restricted 19,145 19,936
Unrealized gains on securities designated as available for sale 17 51
-------- --------
Total stockholders' equity 28,673 27,693
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $378,078 $346,469
======= =======
</TABLE>
3
<PAGE> 4
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income
Loans $18,700 $16,842 $6,467 $5,957
Mortgage-backed securities 275 321 88 105
Investment securities 1,004 1,189 392 275
Interest-bearing deposits and other 392 411 97 158
-------- -------- ------- ------
Total interest income 20,371 18,763 7,044 6,495
Interest expense
Deposits 9,796 9,265 3,304 3,268
Borrowings 1,310 1,326 615 440
-------- ------- ------ ------
Total interest expense 11,106 10,591 3,919 3,708
-------- ------- ------ ------
Net interest income 9,265 8,172 3,125 2,787
Provision for losses on loans 69 101 27 12
-------- ------- ------ ------
Net interest income after provision
for losses on loans 9,196 8,071 3,098 2,775
Other income
Late charges, rent and other 969 684 388 285
Loan servicing fees 536 601 173 219
Service charges and other fees on deposits 319 332 123 115
Gain on sale of loans 859 766 237 436
Gain (loss) on sale of real estate acquired through foreclosure (6) 8 (6) 8
-------- ------- ------ ------
Total other income 2,677 2,391 915 1,063
General, administrative and other expense
Employee compensation and benefits 3,391 2,902 1,298 917
Office occupancy and equipment 826 670 271 214
Federal deposit insurance premiums 2,306 463 1,979 159
Data processing 309 283 107 99
Advertising 292 304 95 78
Franchise taxes 308 257 97 75
Other 1,744 1,496 631 540
-------- ------- ------ ------
Total general, administrative and other expense 9,176 6,375 4,478 2,082
-------- ------- ------ ------
Earnings (loss) before federal income taxes (credits) 2,697 4,087 (465) 1,756
Federal income taxes (credits)
Current 691 1,350 (263) 561
Deferred 226 40 105 36
-------- --------- ------ -------
Total federal income taxes (credits) 917 1,390 (158) 597
-------- ------- ------ ------
NET EARNINGS (LOSS) $ 1,780 $ 2,697 $ (307) $1,159
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE $ .86 $ 1.30 $ (.15) $ .56
========= ========= ========= =========
Weighted average number of common shares outstanding 2,070,122 2,068,613 2,073,354 2,070,213
========= ========= ========= =========
</TABLE>
4
<PAGE> 5
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,780 $ 2,697
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 374 407
Provision for loan losses 69 101
Loss on sale of real estate acquired through
foreclosure 6 -
Federal Home Loan Bank stock dividends (157) (128)
Gain on sale of loans (382) (306)
Gain on sale of office equipment - (6)
Loans originated for sale in the secondary market (48,665) (36,127)
Proceeds from sale of mortgage loans in the
secondary market 46,306 35,177
Current federal income taxes (937) 158
Deferred federal income taxes 226 40
Other - net 1,150 (484)
-------- ------
Net cash provided by (used in) operating activities (230) 1,529
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 7,775 7,500
Purchase of investment securities designated as available
for sale (20) -
Purchases of investment securities designated as
held to maturity (9,997) (1,025)
Loan disbursements (88,336) (65,987)
Principal repayments on loans 65,411 39,082
Proceeds from sale of office equipment - 13
Principal repayments on mortgage-backed securities 877 567
Purchase of office premises and equipment (914) (285)
Proceeds from sales of real estate acquired
through foreclosure 9 -
Purchase of Federal Home Loan Bank stock (200) (363)
Purchase of cash surrender value of life insurance (4,653) -
Decrease in interest-bearing deposits in other financial institutions 661 4,577
-------- ------
Net cash used in investing activities (29,387) (15,921)
-------- ------
Net cash used in operating and investing activities
(subtotal carried forward) (29,617) (14,392)
-------- ------
</TABLE>
5
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CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net cash used in operating and investing activities
(subtotal brought forward) $(29,617) $(14,392)
Cash flows provided by (used in) financing activities:
Net increase in deposits 6,799 15,965
Advances from the Federal Home Loan Bank 67,750 54,900
Repayment of Federal Home Loan Bank advances (45,027) (51,827)
Dividends paid on common stock (796) (563)
Proceeds from exercise of stock options 30 10
Advances by borrowers for taxes and insurance (1,588) (1,597)
------- -------
Net cash provided by financing activities 27,168 16,888
------- -------
Increase (decrease) in cash and cash equivalents (2,449) 2,496
Cash and cash equivalents at beginning of period 13,447 9,279
------- --------
Cash and cash equivalents at end of period $ 10,998 $ 11,775
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 11,021 $ 10,476
======= =======
Income taxes $ 1,532 $ 1,302
======= =======
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure $ 36 $ -
======= =======
Unrealized gains (losses) on investments and mortgage-backed
securities designated as available for sale $ (34) $ 84
======= =======
Recognition of gains on sale of mortgage loans in
accordance with SFAS No. 122 $ 676 $ 460
======= =======
</TABLE>
6
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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-QSB 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-KSB for the year ended December 31,
1995. However, all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have been
included. The results of operations for the three and nine month
periods ended September 30, 1996 and 1995, are not necessarily
indicative of the results which may be expected for the entire year.
2. Principles of Consolidation
---------------------------
Camco has four wholly-owned subsidiaries: Cambridge Savings Bank
("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings"),
First Federal Savings Bank of Washington Court House ("First Federal")
(collectively hereinafter the "Banks") and East Ohio Land Title Agency,
Inc., as well as two second tier subsidiaries, Camco Mortgage
Corporation and WestMar Mortgage Company.
The Company's consolidated financial statements include the accounts of
Camco and its wholly-owned and second tier subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
3. Effects of Recent Accounting Pronouncements
-------------------------------------------
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation", establishing financial accounting and
reporting standards for stock-based employee compensation plans. SFAS
No. 123 encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans
based on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain with
the existing accounting are required to disclose in a footnote to the
financial statements pro forma net earnings and, if presented, earnings
per share, as if SFAS No. 123 had been adopted. The accounting
requirements of SFAS No. 123 are effective for transactions entered
into during fiscal years that begin after December 15, 1995; however,
companies are required to disclose information for awards granted in
their first fiscal year beginning after December 15, 1994. Management
has determined that the Corporation will continue to account for
stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, and therefore SFAS No. 123 will have no effect on
Camco's consolidated financial condition or results of operations.
7
<PAGE> 8
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of
Liabilities", that provides accounting guidance on transfers of
financial assets, servicing of financial assets, and extinguishment of
liabilities. SFAS No. 125 introduces an approach to accounting for
transfers of financial assets that provides a means of dealing with
more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes
use of special purpose entities in the transaction, or otherwise has
continuing involvement with the transferred assets. The new accounting
method, the financial components approach, provides that the carrying
amount of the financial assets transferred be allocated to components
of the transaction based on their relative fair values. SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer does not
qualify as a sale, it is accounted for as a secured borrowing.
Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of
financial assets, loan participations, factoring arrangements, and
transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing
contract (unless related to a securitization of assets, and all the
securitized assets are retained and classified as held-to-maturity). A
servicing asset or liability that is purchased or assumed is initially
recognized at its fair value. Servicing assets and liabilities are
amortized in proportion to and over the period of estimated net
servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of
its obligation for the liability or is legally released from being the
primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive
application is not permitted. Management does not believe that adoption
of SFAS No. 125 will have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
4. Reclassifications
-----------------
Certain reclassifications have been made to the September 30, 1995
consolidated financial statements to conform to the September 30, 1996
presentation.
8
<PAGE> 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, 1996 and 1995
General
- -------
Camco's profitability depends primarily on the level of its net interest income,
which is the difference between interest income on interest-earning assets,
principally loans, mortgage-backed securities and investment securities, and
interest expense on deposit accounts and borrowings. In recent years, Camco's
net earnings has also been heavily influenced by the level of other income,
including gains on sale of loans, loan servicing fees, and other fees. Finally,
Camco's operations are also influenced by the level of general, administrative
and other expenses, including employee compensation and benefits, 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 $378.1 million of consolidated assets at September 30, 1996. Camco's
level of growth is largely attributable to the acquisitions of Marietta Savings
and First Federal 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, 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.
Asset and Liability Management
- ------------------------------
Net interest income, which is the difference between asset yields and the cost
of interest-bearing liabilities, is the principal component of Camco's net
earnings. The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in the prevailing level of interest rates. The interest rate
9
<PAGE> 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, 1996 and 1995
Asset and Liability Management (continued)
- ------------------------------
spread is affected by changes in interest rates and the difference between
amounts of interest-earning assets and interest-bearing liabilities which either
reprice or mature within a given period of time. During periods of rising
interest rates, net interest income would typically increase if the amount of
interest-earning assets exceeds the amount of interest-bearing liabilities and
would decrease if the amount of interest-bearing liabilities exceeds the amount
of interest-earning assets. Conversely, during a period of falling interest
rates, net interest income would likely decrease if interest-earning assets
exceed interest-bearing liabilities and would likely increase if
interest-bearing liabilities exceed interest-earning assets.
In recognition of the foregoing factors, Camco's Board of Directors has
implemented an asset/liability management strategy directed toward improving the
Banks' interest rate sensitivity. Specifically, the elements of this strategy
include 1) meeting the consumer preference for fixed-rate loans over the past
several years by selling such loans into the secondary market, 2) emphasizing
the origination and retention of adjustable-rate mortgage loans, as well as
intermediate term fixed-rate mortgage loans, short-term consumer loans and
adjustable-rate home equity loans, and 3) utilizing Federal Home Loan Bank
advances and longer term certificates of deposit as funding sources when
available.
Financial Condition
- -------------------
At September 30, 1996, Camco's consolidated assets totaled $378.1 million, an
increase of $31.6 million, or 9.1%, over the December 31, 1995 total of $346.5
million. The growth in the current nine month period follows asset growth of
$21.8 million, or 6.7%, in calendar 1995. During the nine month period ended
September 30, 1996, management added growth of $25.9 million, or 8.9%, to the
loan portfolio, comprised primarily of adjustable-rate mortgage loans and
mortgage loans with maturities of ten to fifteen years, as well as consumer
installment loan growth totaling $4.9 million. Given the upturn in interest
rates during 1995 and early 1996, consumer preference has shifted to
adjustable-rate loans and loans with shortened terms to maturity, e.g. ten year
loan products. The growth in the loan portfolio during 1996 was primarily funded
by deposit growth of $6.8 million, $22.7 million in advances from the Federal
Home Loan Bank, and undistributed net earnings of $1.0 million.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$1.7 million and $1.1 million at September 30, 1996 and December 31, 1995,
respectively, constituting .53% and .37% of the loan portfolio at those dates.
The consolidated allowance for loan losses totaled $1.1 million and $1.0 million
at September 30, 1996 and December 31, 1995, representing 65.3% and 95.4% of
nonperforming loans at the respective dates. Although management believes that
the allowance for loan losses at September 30, 1996 is adequate based upon facts
and circumstances available to it, there can be no assurances that additions to
such allowance will not be necessary in future periods, which could adversely
affect the Corporation's results of operations.
10
<PAGE> 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, 1996 and 1995
Financial Condition (continued)
- -------------------
Deposits totaled $293.4 million at September 30, 1996, an increase of $6.8
million, or 2.4%, over December 31, 1995 levels. The increase resulted primarily
from management's continuing efforts to achieve a moderate growth rate through
advertising and pricing strategies. The proceeds from deposit growth were
primarily used to finance loan originations.
On May 28, 1996, a 5% stock dividend was declared for stockholders of record as
of the close of business on July 10, 1996, payable on July 19, 1996.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At September 30, 1996, the Banks' regulatory capital
exceeded all regulatory capital requirements.
Comparison of Results of Operations for the Nine Months Ended September 30, 1996
- --------------------------------------------------------------------------------
and 1995
- --------
General
- -------
Camco's net earnings for the nine months ended September 30, 1996 totaled $1.8
million, a decrease of $917,000, or 34.0%, from the $2.7 million of net earnings
reported in the comparable 1995 period. The decrease in earnings is primarily
attributable to a $2.8 million increase in general, administrative and other
expense, $1.8 million of which was a charge recorded as a result of legislation
enacted to recapitalize the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC). Additionally, the decrease in net
earnings resulted from an increase in other expenses of $989,000. Such increases
were partially offset by an increase in net interest income of $1.1 million, an
increase in other income of $286,000, a decrease in the provision for loan
losses of $32,000, and a decrease in the provision for federal income taxes of
$473,000.
Net Interest Income
- -------------------
Total interest income for the nine months ended September 30, 1996, increased by
$1.6 million, or 8.6%, generally reflecting the effects of $14.4 million of
growth in average interest-earning assets outstanding, coupled with an increase
of 30 basis points in the yield year to year, from 7.81% in 1995 to 8.11% in
1996.
11
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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, 1996 and 1995
Comparison of Results of Operations for the Nine Months Ended September 30, 1996
- --------------------------------------------------------------------------------
and 1995 (continued)
- --------
Net Interest Income (continued)
- -------------------
Interest income on loans and mortgage-backed securities totaled $19.0 million
for the nine months ended September 30, 1996, an increase of $1.8 million, or
10.6%, over the comparable 1995 period. The increase resulted primarily from a
$21.7 million, or 7.6%, increase in the average balance outstanding year to
year. Interest income on investments and interest-bearing deposits declined by
$204,000, or 12.8%, due to a decrease in average outstanding balances of $2.0
million. Interest expense on deposits increased by $531,000, or 5.7%, to a total
of $9.8 million for the nine months ended September 30, 1996, due primarily to
an increase of $12.9 million in the average balance of deposits outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 13.4%, to a total of $9.3
million for the nine months ended September 30, 1996. The interest rate spread
increased to approximately 3.50% for the nine months ended September 30, 1996,
from 3.18% for the 1995 period, while the net interest margin increased to
approximately 3.69% in 1996, as compared to 3.40% in 1995.
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 $69,000 for the nine months ended
September 30, 1996, a decrease of $32,000 from the comparable period in 1995.
The current period provision generally reflects the effects of loan portfolio
growth integrated with a stable level of nonperforming loans. There can be no
assurance that the loan loss allowance will be adequate to cover losses on
nonperforming assets in the future.
Other Income
- ------------
Other income increased for the nine months ended September 30, 1996, by
$286,000, or 12.0%, from the comparable 1995 period. The increase in other
income is primarily attributable to a $93,000 increase in gains on sale of loans
and an increase of $285,000, or 41.7%, in late charges, rent and other, which
was partially offset by a $65,000 decrease in loan servicing fees and a $13,000
decrease in service charges and other fees on deposits. The increase in gains on
sale of loans reflects an increase in sales volume year to year, coupled with an
increase in the recognition of mortgage servicing rights, totaling $216,000 in
accordance with SFAS No. 122. The increase in late charges, rent and other was
primarily attributable to an increase in fee volume at Camco's title agency
subsidiary and an increase in fees on loans and deposit accounts as a result of
the growth in the respective portfolios.
12
<PAGE> 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, 1996 and 1995
Comparison of Results of Operations for the Nine Months Ended September 30, 1996
- --------------------------------------------------------------------------------
and 1995 (continued)
- --------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased for the nine months ended
September 30, 1996 by $2.8 million, or 43.9%. The increase is due primarily to a
$1.8 million charge recorded as a result of legislation enacted to recapitalize
the SAIF.
Legislation to recapitalize the SAIF provides for a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. The Banks had $277.3 million in deposits
at March 31, 1995. The special assessment was finalized at $.657 per $100 in
deposits, resulting in an aggregate additional assessment of approximately $1.8
million. This assessment is tax deductible, resulting in a net charge to
operations totaling $1.2 million. It is expected that quarterly SAIF assessments
will be reduced significantly after such special assessment is paid in November
1996.
A component of the recapitalization plan provides for the merger of the SAIF and
BIF on January 1, 1999, assuming all savings associations have become banks.
Pending legislation introduced in late September 1996 proposes the elimination
of the thrift charter or of the separate federal regulation of thrifts.
Cambridge Savings and Marietta Savings are state savings banks, which are not
considered thrifts for these purposes. However, First Federal is a federal
thrift and would have to convert to a different charter and would become subject
to federal regulations as a bank. Such regulation would subject First Federal to
the more restrictive activity limits imposed on national banks. Under separate
legislation recently enacted, tax legislation would require the Banks to
recapture post-1987 additions to their bad debt reserves and the Banks would not
be able to utilize the percentage of taxable income method to compute their
reserves in the future. Under such legislation the Banks are required to
recapture, as taxable income, approximately $2.7 million of their bad debt
reserve, which represents post-1987 additions to the reserves. The Banks have
provided deferred taxes for this amount and will be permitted by such
legislation to amortize the recapture of the bad debt reserve over six years. In
addition, Camco would become a bank holding company, which would subject it to
more restrictive activity limits and to capital requirements similar to those
imposed on First Federal.
The increase in general, administrative and other expense is also due to a
$489,000, or 16.9%, increase in employee compensation and benefits, a $156,000,
or 23.3%, increase in office occupancy and equipment, a $248,000, or 16.6%,
increase in other operating costs and a $51,000, or 19.8%, increase in franchise
taxes. The increase in employee compensation and benefits is attributable to
normal merit salary increases, an increase in staffing levels and increased
costs of employee benefit plans, while the increase in office occupancy and
equipment is attributable to depreciation expense on office equipment purchased
in 1995 and general repairs of office buildings. The increase in other operating
costs generally reflects the effects of the Corporation's growth year to year.
13
<PAGE> 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, 1996 and 1995
Comparison of Results of Operations for the Nine Months Ended September 30, 1996
- --------------------------------------------------------------------------------
and 1995 (continued)
- --------
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased in the nine months ended
September 30, 1996 by $473,000, or 34.0%. This decrease is solely attributable
to an $1.4 million, or 34.0%, decrease in pre-tax earnings, as the effective tax
rate remained unchanged at 34% for both periods.
Comparison of Results of Operations for the Three Months Ended September 30,
- ----------------------------------------------------------------------------
1996 and 1995
- -------------
General
- -------
The Corporation recorded a net loss for the three months ended September 30,
1996, totaling $307,000, as compared to $1.2 million in net earnings reported in
the comparable 1995 period. The decline in net earnings is primarily
attributable to a $2.4 million increase in general, administrative and other
expense, consisting of the aforementioned $1.8 million SAIF recapitalization
charge, coupled with a $583,000 increase in other expenses, which were partially
offset by a $338,000 increase in net interest income.
Net Interest Income
- -------------------
Total interest income for the three months ended September 30, 1996, increased
by $549,000, or 8.5%, as compared to the 1995 quarter. Interest income on loans
increased by $510,000, or 8.6%, due primarily to a $22.5 million increase in the
average balance outstanding year to year. Interest income on investment
securities and interest-bearing deposits increased by $56,000, or 12.9%, due
primarily to an increase in yield. Total interest expense increased by $211,000,
or 5.7%, for the three months ended September 30, 1996. Interest expense on
deposits increased by $36,000, or 1.1%, due primarily to a $9.5 million increase
in the average balance outstanding year to year. Interest expense on borrowings
increased by $175,000, or 39.8%, due primarily to a $9.4 million increase in the
average outstanding balance.
Provision for Losses on Loans
- -----------------------------
The provision for losses on loans increased during the three months ended
September 30, 1996, by $15,000. The current period provision generally reflects
the effects of loan portfolio growth year to year as integrated with a stable
level of nonperforming loans. There can be no assurance that the loan loss
allowance will be adequate to cover losses on nonperforming assets in the
future.
14
<PAGE> 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, 1996 and 1995
Comparison of Results of Operations for the Three Months Ended September 30,
- ----------------------------------------------------------------------------
1996 and 1995 (continued)
- -------------
Other Income
- ------------
Other income decreased for the quarter ended September 30, 1996, by $148,000, or
13.9%, as compared to the 1995 quarter. The decrease is primarily attributable
to an $46,000 decrease in loan servicing fees and a $199,000 decrease in gain on
sale of loans, which were partially offset by a $103,000 increase in late
charges, rent and other. The decrease in the gain on sale of loans is due
primarily to decreased volume of fixed-rate loans originated for sale.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $2.4 million, or 115.1%,
during the three months ended September 30, 1996. The increase is primarily
attributable to a $1.8 million charge recorded due to the SAIF recapitalization
legislation, as discussed above, coupled with a $381,000, or 41.5%, increase in
employee compensation and benefits, a $57,000, or 26.6%, increase in office
occupancy and equipment and a $91,000, or 16.9%, increase in other operating
expense. The increase in employee compensation and benefits resulted primarily
from normal merit increases, an increase due to the hiring of additional
personnel and the increased costs of employee benefit plans. The increase in
office occupancy and equipment related primarily to increased depreciation and
building maintenance costs. The increase in other operating expense generally
reflects increased costs attendant to the Corporation's growth year to year.
Federal Income Taxes
- --------------------
Camco's provision for federal income taxes decreased for the three months ended
September 30, 1996, by $755,000, or 126.5%, generally reflecting the $2.2
million, or 126.5%, decrease in pre-tax earnings year to year.
15
<PAGE> 16
Camco Financial Corporation
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities
---------------------
None
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
A special meeting of the shareholders of Camco was held on
September 23, 1996. At the special meeting the following
issues were adopted by the vote indicated:
1. The amendment of Camco's Certificate of Incorporation to increase
the authorized number of shares of stock from 2,600,000 to
5,000,000, of which 4,900,000 shall be common stock and 100,000
shall be preferred.
For: 1,523,099 Against: 8,131 Abstain: 14,181
2. The adoption of the Agreement and Plan of Merger and
Reorganization dated March 25, 1996, by and between Camco and
First Ashland Financial Corporation ("First Ashland") providing
for the merger of First Ashland with and into Camco.
For: 1,526,836 Against: 2,419 Abstain: 15,467
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
A report on Form 8-K was filed on October 11, 1996, to report
the consummation of the merger of First Ashland Financial
Corporation ("First Ashland") with and into Camco effective
October 4, 1996. Financial statements of First Ashland and pro
forma financial information for the merger will be filed in an
amendment to the Form 8-K within 60 days of October 19, 1996.
Exhibits
Financial data schedule for the nine months ended September 30, 1996.
16
<PAGE> 17
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 8, 1996 By: /s/Larry A. Caldwell
------------------------ --------------------------------------
Larry A. Caldwell
President and Chief Executive Officer
Date: November 8, 1996 By: /s/Anthony J. Popp
------------------------ --------------------------------------
Anthony J. Popp
Chief Financial Officer
17
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