FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------
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: (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 November 10, 1997, the latest practicable date, approximately 3,214,368.5
shares of the registrant's common stock, $1.00 par value, were issued and
outstanding.
Page 1 of 19 pages
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Camco Financial Corporation
INDEX
Page
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 11
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
<S> <C> <C>
ASSETS 1997 1996
Cash and due from banks ................................................................ $ 10,289 $ 10,587
Interest-bearing deposits in other financial institutions .............................. 1,744 7,278
------- -------
Cash and cash equivalents ..................................................... 12,033 17,865
Certificates of deposit in other financial institutions ................................ - 990
Investment securities available for sale - at market ................................... 4,723 5,174
Investment securities - at cost, approximate market value of $18,282
and $21,822 as of September 30, 1997 and December 31, 1996 ........................... 18,238 21,844
Mortgage-backed securities available for sale - at market 504 742
Mortgage-backed securities - at cost, approximate market value of $8,868
and $10,735 as of September 30, 1997 and December 31, 1996 ........................... 8,772 10,700
Loans held for sale - at lower of cost or market ....................................... 3,387 931
Loans receivable - net ................................................................. 428,756 387,992
Office premises and equipment - net .................................................... 7,026 6,811
Real estate acquired through foreclosure ............................................... 787 53
Federal Home Loan Bank stock - at cost ................................................. 4,883 3,942
Accrued interest receivable on loans ................................................... 2,747 2,443
Accrued interest receivable on mortgage-backed securities .............................. 56 69
Accrued interest receivable on investment securities and
interest-bearing deposits ............................................................ 317 499
Prepaid expenses and other assets ...................................................... 946 495
Cash surrender value of life insurance ................................................. 5,422 4,880
Goodwill and other intangible assets ................................................... 3,589 3,701
Prepaid federal income taxes ........................................................... - 319
------- -------
Total assets .................................................................. $502,186 $469,450
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................................... $374,184 $358,009
Advances from the Federal Home Loan Bank ............................................... 72,134 57,354
Advances by borrowers for taxes and insurance .......................................... 2,852 2,864
Accounts payable and accrued liabilities ............................................... 2,934 4,490
Dividends payable ...................................................................... 418 368
Accrued federal income taxes ........................................................... 15 -
Deferred federal income taxes .......................................................... 1,492 1,352
--------- ---------
Total liabilities ............................................................. 454,029 424,437
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding .............................................................. - -
Common stock - $1 par value; 4,900,000 shares authorized;
outstanding, 3,214,369 shares at September 30, 1997 and 3,062,893
shares at December 31, 1996 ........................................................ 3,216 3,063
Additional paid-in capital ........................................................... 24,475 21,917
Retained earnings - substantially restricted ......................................... 20,429 20,005
Unrealized gains on securities designated as available for sale,
net of related tax effects ......................................................... 37 28
-------- --------
Total stockholders' equity .................................................... 48,157 45,013
-------- --------
Total liabilities and stockholders' equity .................................... $502,186 $469,450
======= =======
</TABLE>
3
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Nine months ended Three months ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Interest income
Loans ................................................................ $25,093 $18,700 $8,773 $6,467
Mortgage-backed securities ........................................... 562 275 187 88
Investment securities ................................................ 1,278 1,004 379 392
Interest-bearing deposits and other .................................. 705 392 252 97
------- -------- ------ -------
Total interest income ......................................... 27,638 20,371 9,591 7,044
Interest expense
Deposits ............................................................. 12,729 9,796 4,386 3,304
Borrowings ........................................................... 2,706 1,310 1,016 615
------- ------- ----- ------
Total interest expense ........................................ 15,435 11,106 5,402 3,919
------ ------ ----- -----
Net interest income ........................................... 12,203 9,265 4,189 3,125
Provision for losses on loans .......................................... 166 69 58 27
-------- --------- ------- -------
Net interest income after provision
for losses on loans ......................................... 12,037 9,196 4,131 3,098
Other income
Late charges, rent and other ......................................... 1,001 969 322 388
Loan servicing fees .................................................. 544 536 292 173
Service charges and other fees on deposits ........................... 383 319 145 123
Gain on sale of loans ................................................ 907 859 402 237
Gain on sale of office equipment ..................................... 4 - 4 -
Gain (loss) on sale of real estate acquired through foreclosure ...... 39 (6) 9 (6)
--------- ---------- -------- --------
Total other income ............................................ 2,878 2,677 1,174 915
General, administrative and other expense
Employee compensation and benefits ................................... 3,957 3,391 1,300 1,298
Office occupancy and equipment ....................................... 1,073 826 379 271
Federal deposit insurance premiums ................................... 195 2,306 64 1,979
Data processing ...................................................... 402 309 134 107
Advertising .......................................................... 355 292 92 95
Franchise taxes ...................................................... 322 308 99 97
Amortization of goodwill ............................................. 112 - 37 -
Other ................................................................ 2,011 1,744 649 631
------- ------- ------ ------
Total general, administrative and other expense ............... 8,427 9,176 2,754 4,478
------- ------- ----- -----
Earnings (loss) before federal income taxes (credits) ......... 6,488 2,697 2,551 (465)
Federal income taxes (credits)
Current .............................................................. 2,013 691 728 (263)
Deferred ............................................................. 135 226 117 105
-------- -------- ------ ------
Total federal income taxes (credits) .......................... 2,148 917 845 (158)
------- -------- ------ ------
NET EARNINGS (LOSS) ......................................... $ 4,340 $ 1,780 $1,706 $ (307)
======= ======= ===== ======
EARNINGS (LOSS) PER SHARE ..................................... $1.35 $.82 $.53 $(.14)
==== === === ====
Weighted average number of common shares outstanding ................ 3,215,571 2,173,628 3,215,579 2,177,022
========= ========= ========= =========
</TABLE>
4
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
<S> <C> <C>
1997 1996
Cash flows from operating activities:
Net earnings for the period ........................................................... $ 4,340 $ 1,780
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees ...................................... (348) (372)
Amortization of premiums and discounts on investment
and mortgage-backed securities - net .............................................. 34 7
Amortization of goodwill ............................................................ 112 -
Depreciation and amortization ....................................................... 500 374
Provision for losses on loans ....................................................... 166 69
(Gain) loss on sale of real estate acquired through foreclosure ..................... (22) 6
Federal Home Loan Bank stock dividends .............................................. (231) (157)
Gain on sale of loans ............................................................... (464) (382)
Loans originated for sale in the secondary market ................................... (50,270) (48,665)
Proceeds from sale of loans in the secondary market ................................. 48,278 46,306
Increase (decrease) in cash due to changes in:
Accrued interest receivable ....................................................... (109) (371)
Prepaid expenses and other assets ................................................. (451) (600)
Accrued interest and other liabilities ............................................ (1,506) 2,486
Federal income taxes:
Current ......................................................................... 334 (937)
Deferred ........................................................................ 135 226
-------- ------
Net cash provided by (used in) operating activities ............................ 498 (230)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities ..................................... 16,096 7,775
Purchase of investment securities designated as available
for sale ............................................................................ (530) (20)
Purchase of investment securities designated as
held to maturity .................................................................... (11,500) (9,997)
Loan disbursements .................................................................... (121,040) (88,336)
Principal repayments on loans ......................................................... 79,536 65,411
Principal repayments on mortgage-backed securities .................................... 2,137 877
Purchase of office premises and equipment ............................................. (715) (914)
Proceeds from sales of real estate acquired through foreclosure ....................... 269 9
Additions to real estate acquired through foreclosure ................................. (59) -
Purchase of Federal Home Loan Bank stock .............................................. (710) (200)
Purchase of cash surrender value of life insurance .................................... (332) (4,653)
Net increase in cash surrender value of life insurance ................................ (210) -
Decrease in certificates of deposit in other financial institutions ................... 990 661
-------- ------
Net cash used in investing activities .......................................... (36,068) (29,387)
-------- ------
Net cash used in operating and investing activities
(subtotal carried forward) ................................................... (35,570) (29,617)
------- ------
</TABLE>
5
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
<S> <C> <C>
1997 1996
Net cash used in operating and investing activities
(subtotal brought forward) ................................................... $(35,570) $(29,617)
Cash flows provided by (used in) financing activities:
Net increase in deposits .............................................................. 16,175 6,799
Proceeds from Federal Home Loan Bank advances ......................................... 38,800 67,750
Repayment of Federal Home Loan Bank advances .......................................... (24,020) (45,027)
Dividends paid on common stock ........................................................ (1,206) (796)
Proceeds from exercise of stock options ............................................... 1 30
Advances by borrowers for taxes and insurance ......................................... (12) (1,588)
------- -------
Net cash provided by financing activities ...................................... 29,738 27,168
------- -------
Net decrease in cash and cash equivalents ............................................... (5,832) (2,449)
Cash and cash equivalents at beginning of period ........................................ 17,865 13,447
------- -------
Cash and cash equivalents at end of period .............................................. $ 12,033 $ 10,998
======= =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest on deposits and borrowings ................................................. $ 15,548 $ 11,021
======= =======
Income taxes ........................................................................ $ 1,709 $ 1,532
======= ========
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure ................................................................. $ 914 $ 36
======= =======
Unrealized gains (losses) on investments and mortgage-backed
securities designated as available for sale ......................................... $ 9 $ (34)
======= =======
Recognition of gains on sale of mortgage loans in
accordance with SFAS No. 122 .......................................................... $ 443 $ 676
======= =======
</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-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-KSB for the year ended December 31,
1996. 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, 1997 and 1996 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. First Savings was acquired by Camco on October 4,
1996, pursuant to the merger of First Ashland Financial Corporation
with and into Camco (the "Merger") in a transaction accounted for using
the purchase method of accounting. Consequently, the September 30,
1996, consolidated statement of earnings and statement of cash flows
have not been restated for the merger.
The 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
7
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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 the disclosure provision of SFAS No. 123
will have no effect on Camco's consolidated financial condition or
results of operations.
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,
1997, 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.
8
<PAGE>
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which is effective for financial statements for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 simplifies
the calculation of earnings per share ("EPS") by replacing primary EPS
with basic EPS. It also requires dual presentation of basic EPS and
diluted EPS for entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to
common shareholders by the weighted-average common shares outstanding
for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings, such as stock options,
warrants or other common stock equivalents. All prior period EPS data
will be restated to conform with the new presentation. This statement
will not have a material impact on the Corporation's financial
statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information about Capital Structure." SFAS No. 129 consolidated
existing accounting guidance relating to disclosure about a company's
capital structure. SFAS No. 129 is effective for financial statements
for periods ending after December 15, 1997. SFAS No. 129 is not
expected to have a material impact on the Corporation's financial
statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the report 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. SFAS No. 130 is not expected to
have a material impact 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
9
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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.
4. Reclassifications
Certain reclassifications have been made to the September 30, 1996
consolidated financial statements to conform to the September 30, 1997
presentation.
5. Proposed Legislation
Congress is considering legislation to eliminate the federal savings
and loan charter and separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may develop a
common charter for all financial institutions, eliminate the OTS and
regulate First Federal and First Savings as banks or require them to
change their charters to that of national banks. Management does not
believe the pending legislation would have a material effect on the
consolidated financial statements of the Corporation.
10
<PAGE>
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, 1997 and 1996
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 $502.2 million of consolidated assets at September 30, 1997. Camco's
level of growth is largely attributable to the acquisitions of Marietta Savings,
First Federal and First Savings 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.
Discussion of Financial Condition Changes from December 31, 1996 to
September 30, 1997
At September 30, 1997, Camco's consolidated assets totaled $502.2 million, an
increase of $32.7 million, or 7.0%, over the December 31, 1996 total. The growth
in the current nine month period was primarily funded by deposit growth of $16.2
million, $14.8 million in advances from the Federal Home Loan Bank, and
undistributed net earnings of $3.1 million.
11
<PAGE>
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, 1997 and 1996
Discussion of Financial Condition Changes from December 31, 1996 to September
30, 1997 (continued)
Cash and interest-bearing deposits in other financial institutions totaled $12.0
million at September 30, 1997, a decline of $5.8 million, or 32.6%, from
December 31, 1996 levels. Management elected to utilize excess liquidity to fund
purchases of higher-yielding investment securities and to fund loan portfolio
growth.
Investment securities and certificates of deposit in other financial
institutions totaled $23.0 million at September 30, 1997, a decrease of $5.0
million, or 18.0%, from the total at December 31, 1996. During the 1997 period,
investment securities totaling $12.0 million were purchased, while maturities
amounted to $16.1 million.
Mortgage-backed securities totaled $9.3 million at September 30, 1997, a
decrease of $2.2 million from December 31, 1996, due primarily to principal
repayments during the period. Loans receivable and loans held for sale increased
by $43.2 million, or 11.1%, during the nine months ended September 30, 1997, to
a total of $432.1 million. The increase was primarily attributable to loan
disbursements of $171.3 million which was partially offset by principal
repayments of $79.5 million and loan sales of $47.8 million. Loan origination
volume during the 1997 nine month period exceeded that of the 1996 period by
$34.3 million, or 25.0%.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans), totaled
$1.7 million and $2.4 million at September 30, 1997 and December 31, 1996,
respectively, constituting .40% and .61% of total net loans, including loans
held for sale at those dates. The consolidated allowance for loan losses totaled
$1.3 million and $1.2 million at September 30, 1997 and December 31, 1996,
representing 73.2% and 52.5% of nonperforming loans, respectively, at those
dates. The provision for loan losses for the nine months ended September 30,
1997 is primarily attributable to the aforementioned growth in the loan
portfolio during that period. Although management believes that its allowance
for loan losses at September 30, 1997, 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 $374.2 million at September 30, 1997, an increase of $16.2
million, or 4.5%, over December 31, 1996 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 $14.8 million, or 25.8%, to a total of $72.1 million at
September 30, 1997. The proceeds from deposit growth and Federal Home Loan Bank
advances were primarily used to fund growth in the loan portfolio.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At September 30, 1997, the Banks' regulatory capital
exceeded all regulatory capital requirements.
12
<PAGE>
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, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996
Increases in the level of income and expenses during the nine month period ended
September 30, 1997, as compared to the comparable period in 1996, are primarily
due to the inclusion of the accounts of First Savings, which was acquired by
Camco on October 4, 1996, in a transaction accounted for using the purchase
method of accounting. Accordingly, the statement of earnings and the statement
of cash flows for the nine month period ended September 30, 1996, were not
restated for the acquisition.
General
Camco's net earnings for the nine months ended September 30, 1997 totaled $4.3
million, an increase of $2.6 million, or 143.8%, over the $1.8 million of net
earnings reported in the comparable 1996 period. The increase in earnings is
primarily attributable to an increase in net interest income of $2.9 million, an
increase in other income of $201,000, and a decrease in general, administrative
and other expense of $749,000, which were partially offset by an increase in the
provision for losses on loans of $97,000 and an increase in the provision for
federal income taxes of $1.2 million.
Net Interest Income
Total interest income for the nine months ended September 30, 1997, increased by
$7.3 million, or 35.7%, generally reflecting the effects of $116.2 million of
growth in average interest-earning assets outstanding, coupled with an increase
of 9 basis points in the yield year to year, from 7.98% in 1996 to 8.07% in
1997.
Interest income on loans and mortgage-backed securities totaled $25.7 million
for the nine months ended September 30, 1997, an increase of $6.7 million, or
35.2%, over the comparable 1996 period. The increase resulted primarily from a
$111.6 million, or 36.6%, increase in the average balance outstanding year to
year. Interest income on investments and interest-bearing deposits increased by
$587,000, or 42.0%, due to an increase in average outstanding balances of $10.0
million. Interest expense on deposits increased by $2.9 million, or 29.9%, to a
total of $12.7 million for the nine months ended September 30, 1997, due
primarily to an increase of $76.5 million in the average balance of deposits
outstanding. Interest expense on borrowings totaled $2.7 million for the nine
months ended September 30, 1997, an increase of $1.4 million, or 106.6%, over
the 1996 nine month period. The increase resulted primarily from a $32.8 million
increase in the average balance outstanding year to year.
13
<PAGE>
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, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2.9 million, or 31.7%, to a total of $12.2
million for the nine months ended September 30, 1997. The interest rate spread
decreased to approximately 3.28% for the nine months ended September 30, 1997,
from 3.36% for the 1996 period, while the net interest margin decreased to
approximately 3.56% in 1997, as compared to 3.63% in 1996.
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 $166,000 for the nine months ended
September 30, 1997, an increase of $97,000 over the comparable period in 1996.
The current period provision generally reflects the effects of loan portfolio
growth integrated with a decline in the 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, 1997, by
$201,000, or 7.5%, over the comparable 1996 period. The increase in other income
is primarily attributable to a $48,000, or 5.6%, increase in gains on sale of
loans and an increase of $32,000, or 3.3%, in late charges, rent and other, a
$64,000, or 20.1%, increase in service charges and other fees on deposits and a
$45,000 increase in gains on sale of real estate acquired through foreclosure.
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 an increase in fees on loans and deposit accounts as a result of
the growth in the respective portfolios.
General, Administrative and Other Expense
General, administrative and other expense totaled $8.4 million for the nine
months ended September 30, 1997, a decrease of $749,000, or 8.2%. The decrease
can be primarily attributed to a $1.8 million one-time charge recorded in the
1996 period as a result of legislation enacted to recapitalize the SAIF.
Exclusive of the SAIF charge, general, administrative and other expense
increased by approximately $1.1 million, or 14.5%. This increase in general,
administrative and other expense is due primarily to a $566,000, or 16.7%,
increase in employee compensation and benefits, a $247,000, or 29.9%, increase
in office occupancy and equipment, a $267,000 , or 15.3%, increase in other
operating costs, a $112,000 increase in goodwill and amortization
14
<PAGE>
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, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
General, Administrative and Other Expense (continued)
and a $93,000, or 30.1%, increase in data processing. As previously discussed,
the 1997 consolidated statement of earnings includes the accounts of First
Savings, while the 1996 balances have not been restated to include the effects
of the acquisition of First Savings. First Savings had approximately $1.3
million of general, administrative and other expense for the nine month period
ended September 30, 1997. The increase in occupancy and equipment is
attributable to increased depreciation expense on office equipment and general
repairs of office buildings. The increase in data processing, advertising and
other operating costs generally reflects the effects of the Corporation's growth
year to year.
Federal Income Taxes
The provision for federal income taxes totaled $2.1 million for the nine months
ended September 30, 1997, an increase of $1.2 million, or 134.2%. This increase
is attributable to a $3.8 million, or 140.6%, increase in pre-tax earnings. The
effective tax rate amounted to 33.1% and 34.0% for the nine months ended
September 30, 1997 and 1996, respectively.
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996
Increases in the level of income and expenses during the three month period
ended September 30, 1997, as compared to the comparable period in 1996, are
primarily due to the inclusion of the accounts of First Savings, which was
acquired by Camco on October 4, 1996, in a transaction accounted for using the
purchase method of accounting. Accordingly, the statement of earnings for the
three month period ended September 30, 1996, was not restated for the
acquisition.
General
Camco recorded net earnings for the three months ended September 30, 1997,
totaling $1.7 million, as compared to a net loss totaling $307,000 reported in
the comparable 1996 period. The increase in net earnings is primarily
attributable to a $1.1 million increase in net interest income, a $259,000
increase in other income and a $1.7 million decrease in general, administrative
and other expense, which were partially offset by a $1.0 million increase in the
federal income tax provision.
15
<PAGE>
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, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996 (continued)
Net Interest Income
Total interest income for the three months ended September 30, 1997, increased
by $2.5 million, or 36.2%, as compared to the 1996 quarter. Interest income on
loans and mortgage-backed securities increased by $2.4 million, or 36.7%, due
primarily to a $118.1 million increase in the average balance outstanding year
to year. Interest income on investment securities and interest-bearing deposits
increased by $142,000, or 29.0%, due primarily to a $4.3 million increase in the
average balance outstanding. Total interest expense increased by $1.5 million,
or 37.8%, for the three months ended September 30, 1997. Interest expense on
deposits increased by $1.1 million, or 32.7%, due primarily to a $80.1 million
increase in the average balance outstanding year to year. Interest expense on
borrowings increased by $401,000, or 65.2%, due primarily to a $28.8 million
increase in the average outstanding balance partially offset by a 28 basis point
decrease in the cost year-to-year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 34.0%, for the three months
ended September 30, 1997, as compared to the comparable quarter in 1996. The
interest rate spread was 3.28% for the 1997 quarter, compared to 3.41% in 1996,
while the net interest margin was 3.57% in the 1997 quarter, compared to 3.60%
in 1996.
Provision for Losses on Loans
The provision for losses on loans increased during the three months ended
September 30, 1997, by $31,000. The current period provision generally reflects
the effects of loan portfolio growth year to year as integrated with a decline
in the 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 totaled $1.2 million for the quarter ended September 30, 1997, an
increase of $259,000, or 28.3%, as compared to the 1996 quarter. The increase is
primarily attributable to a $119,000 increase in loan servicing fees and a
$165,000 increase in gain on sale of loans. The increase in the gain on sale of
loans is due primarily to the increased volume of fixed-rate loans originated
for sale.
16
<PAGE>
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, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $2.8 million for the three
months ended September 30, 1997, a decrease of $1.7 million, or 38.5%, from the
comparable 1996 quarter. The decrease is primarily attributable to a $1.8
million charge recorded in 1996 due to the SAIF recapitalization legislation, as
discussed above, and was partially offset by a $108,000, or 39.9%, increase in
office occupancy and equipment and a $37,000 increase in goodwill amortization.
The increase in office occupancy and equipment related primarily to increased
depreciation and building maintenance costs.
Federal Income Taxes
Camco's provision for federal income taxes increased for the three months ended
September 30, 1997, by $1.0 million generally reflecting the $3.0 million
increase in pre-tax earnings year to year.
17
<PAGE>
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
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Form 8-K filings: A report on Form 8-K was filed on August 5,
1997, to report the execution, on July 28,
1997, of an Agreement and Plan of
Reorganization (the "Agreement") by Camco,
First Federal, GF Bancorp, Inc. and its
wholly-owned subsidiary, Germantown Federal
Savings Bank in item 5. Pursuant to the
Agreement,Camco will acquire GF Bancorp,Inc.
and Germantown Federal Savings Bank will
merge with and into First Federal.
Exhibits: Financial data schedule for the nine months
ended September 30, 1997.
18
<PAGE>
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, 1997 By: /s/Larry A. Caldwell
Larry A. Caldwell
President and Chief Executive Officer
Date: November 10, 1997 By: /s/Anthony J. Popp
Anthony J. Popp
Chief Financial Officer
19
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<FISCAL-YEAR-END> DEC-31-1997
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