FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 11, 1997, the latest practicable date, 3,214,193.9 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 18 pages
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Camco Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition ........... 3
Consolidated Statements of Earnings ...................... 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 ............................................ 17
SIGNATURES ............................................................. 18
2
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Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks ........................................................... $ 10,977 $ 10,587
Interest-bearing deposits in other financial institutions ......................... 2,518 7,278
--------- ---------
Cash and cash equivalents ................................................ 13,495 17,865
Certificates of deposit in other financial institutions ........................... - 990
Investment securities available for sale - at market .............................. 4,689 5,174
Investment securities - at cost, approximate market value of $23,799
and $21,822 as of June 30, 1997 and December 31, 1996 ........................... 23,800 21,844
Mortgage-backed securities available for sale - at market ......................... 504 742
Mortgage-backed securities - at cost, approximate market value of $9,867
and $10,735 as of June 30, 1997 and December 31, 1996 ........................... 9,870 10,700
Loans held for sale - at lower of cost or market .................................. 2,995 931
Loans receivable - net ............................................................ 409,958 387,992
Office premises and equipment - net ............................................... 6,863 6,811
Real estate acquired through foreclosure .......................................... 97 53
Federal Home Loan Bank stock - at cost ............................................ 4,448 3,942
Accrued interest receivable on loans .............................................. 2,615 2,443
Accrued interest receivable on mortgage-backed securities ......................... 61 69
Accrued interest receivable on investment securities and
interest-bearing deposits ....................................................... 561 499
Prepaid expenses and other assets ................................................. 842 495
Cash surrender value of life insurance ............................................ 4,995 4,880
Goodwill and other intangible assets .............................................. 3,626 3,701
Prepaid federal income taxes ...................................................... 414 319
---------- ----------
Total assets ............................................................. $489,833 $469,450
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits .......................................................................... $371,032 $358,009
Advances from the Federal Home Loan Bank .......................................... 65,399 57,354
Advances by borrowers for taxes and insurance ..................................... 2,122 2,864
Accounts payable and accrued liabilities .......................................... 2,658 4,490
Dividends payable ................................................................. 398 368
Deferred federal income taxes ..................................................... 1,366 1,352
--------- ---------
Total liabilities ........................................................ 442,975 424,437
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, 3,214,194 shares at June 30, 1997 and 3,062,893
shares at December 31, 1996 ................................................... 3,063 3,063
Additional paid-in capital ...................................................... 24,474 21,917
Retained earnings - substantially restricted .................................... 19,301 20,005
Unrealized gains on securities designated as available for sale,
net of related tax effects .................................................... 20 28
----------- -----------
Total stockholders' equity ............................................... 46,858 45,013
-------- --------
Total liabilities and stockholders' equity ............................... $489,833 $469,450
======= =======
</TABLE>
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<CAPTION>
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans ............................................................ $16,320 $12,233 $8,349 $6,154
Mortgage-backed securities ....................................... 375 187 185 89
Investment securities ............................................ 899 612 453 299
Interest-bearing deposits and other .............................. 453 295 218 142
-------- -------- ------ ------
Total interest income ..................................... 18,047 13,327 9,205 6,684
Interest expense
Deposits ......................................................... 8,343 6,492 4,243 3,255
Borrowings ....................................................... 1,690 695 843 330
------- -------- ------ ------
Total interest expense .................................... 10,033 7,187 5,086 3,585
------ ------- ----- -----
Net interest income ....................................... 8,014 6,140 4,119 3,099
Provision for losses on loans ...................................... 108 42 60 21
-------- --------- ------- -------
Net interest income after provision
for losses on loans ..................................... 7,906 6,098 4,059 3,078
Other income
Late charges, rent and other ..................................... 679 581 402 334
Loan servicing fees .............................................. 252 363 132 177
Service charges and other fees on deposits ....................... 238 196 112 101
Gain on sale of loans ............................................ 505 622 349 206
Gain on sale of real estate acquired through foreclosure ......... 30 - 10 -
--------- ------- ------- ----
Total other income ........................................ 1,704 1,762 1,005 818
General, administrative and other expense
Employee compensation and benefits ............................... 2,657 2,093 1,310 1,079
Occupancy and equipment .......................................... 694 555 350 295
Federal deposit insurance premiums ............................... 131 327 66 164
Data processing .................................................. 268 202 129 102
Advertising ...................................................... 263 197 165 111
Franchise taxes .................................................. 223 211 109 105
Amortization of goodwill ......................................... 75 - 38 -
Other ............................................................ 1,362 1,113 721 634
------- ------- ------ ------
Total general, administrative and other expense ........... 5,673 4,698 2,888 2,490
------- ------- ----- -----
Earnings before federal income taxes ...................... 3,937 3,162 2,176 1,406
Federal income taxes
Current .......................................................... 1,285 954 718 431
Deferred ......................................................... 18 121 5 47
--------- -------- -------- -------
Total federal income taxes ................................ 1,303 1,075 723 478
------- ------- ------ ------
NET EARNINGS ..................................... $ 2,634 $ 2,087 $1,453 $ 928
======= ======= ===== ======
EARNINGS PER SHARE ............................... $.82 $.96 $.45 $.43
=== === === ===
Weighted average number of common shares outstanding ............... 3,216,038 2,171,912 3,216,038 2,172,658
========= ========= ========= =========
</TABLE>
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<CAPTION>
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period ......................................................... $ 2,634 $ 2,087
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees .................................... (235) (274)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net ................................................ (9) 21
Amortization of goodwill .......................................................... 75 -
Depreciation and amortization ..................................................... 324 242
Provision for losses on loans ..................................................... 108 42
Gain on sale of real estate acquired through foreclosure .......................... (30) -
Federal Home Loan Bank stock dividends ............................................ (146) (102)
Gain on sale of loans ............................................................. (213) (309)
Loans originated for sale in the secondary market ................................. (24,406) (39,105)
Proceeds from sale of loans in the secondary market ............................... 22,555 36,533
Increase (decrease) in cash due to changes in:
Accrued interest receivable ..................................................... (226) (136)
Prepaid expenses and other assets ............................................... (346) (894)
Accrued interest and other liabilities .......................................... (1,802) (485)
Federal income taxes:
Current (95) (479)
Deferred ....................................................................... 18 121
----------- --------
Net cash used in operating activities ......................................... (1,794) (2,738)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities and interest-bearing deposits ...... 6,996 4,275
Purchases of investment securities ................................................... (7,511) (4,020)
Loan principal repayments ............................................................ 55,884 46,240
Loan disbursements ................................................................... (77,965) (50,406)
Principal repayments on mortgage-backed securities ................................... 1,079 753
Additions to office premises and equipment ........................................... (376) (643)
Proceeds from sale of real estate acquired through foreclosure ....................... 247 -
Purchase of Federal Home Loan Bank stock ............................................. (360) (200)
Net increase in cash surrender value of life insurance ............................... (115) (1,540)
---------- -------
Net cash used in investing activities ......................................... (22,121) (5,541)
Cash flows provided by (used in) financing activities:
Net increase in deposits ............................................................. 13,023 4,714
Proceeds from advances from the Federal Home Loan Bank and other borrowings .......... 462,100 29,500
Repayment of Federal Home Loan Bank advances and other borrowings .................... (454,055) (27,618)
Dividends paid on common stock ....................................................... (781) (424)
Proceeds from exercise of stock options .............................................. - 30
Decrease in advances by borrowers for taxes and insurance ............................ (742) (1,769)
---------- -------
Net cash provided by financing activities ..................................... 19,545 4,433
-------- -------
Decrease in cash and cash equivalents .................................................. (4,370) (3,846)
Cash and cash equivalents at beginning of period ....................................... 17,865 15,328
-------- ------
Cash and cash equivalents at end of period ............................................. $ 13,495 $11,482
======== ======
</TABLE>
5
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Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
1997 1996
<S> <C> <C>
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest on deposits and borrowings ................................................... $10,035 $7,169
====== =====
Income taxes .......................................................................... $ 922 $1,068
====== =====
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects .................................................. $ (8) $ (24)
====== =====
Recognition of gains on sale of loans in accordance with
SFAS No. 122 .......................................................................... $ 292 $ 313
====== =====
Transfer of loans to real estate acquired through foreclosure ........................... $ 260 $ 36
====== =====
</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 Company") 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 six month periods
ended June 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.
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 (the "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 method 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
7
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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 Camco will
continue to account for stock-based compensation pursuant to Accounting
Principles Board Opinion No. 25, and therefore, the disclosure
provisions of SFAS No. 123 will have no material effect on its
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, referred to as 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 Camco's
consolidated financial position or results of operations.
8
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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 requires companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share, respectively. Basic earnings per share is
computed without including potential common shares, i.e., no dilutive
effect. Diluted earnings per share is computed taking into
consideration common shares outstanding and potentially dilutive common
shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods
ending after December 15, 1997. Early application is not permitted.
Based upon the provisions of SFAS No. 128, the Corporation's basic and
diluted earnings per share for the six months ended June 30, 1997,
would have been $.82 and $.81, and basic and diluted earnings per share
for the three months ended June 30, 1997, would have been $.45 and
$.44, respectively.
4. Reclassifications
Certain reclassifications have been made to the June 30, 1996
consolidated financial statements to conform to the June 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. First Federal and First Savings would then be
subject to the more restrictive activity limits imposed on national
banks.
9
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 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, occupancy,
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 $489.8 million of consolidated assets at June 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 the establishment of mortgage banking operations in the
Banks' primary market areas and, to a lesser extent, the chartering of 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 are
essential in order to compete against the larger regional and money-center bank
holding companies.
Discussion of Financial Condition Changes from December 31, 1996 to June 30,
1997
At June 30, 1997, Camco's consolidated assets totaled $489.8 million, an
increase of $20.4 million, or 4.3%, over the December 31, 1996 total. The
increase in total assets is primarily attributable to an increase of $24.0
million in loans receivable and loans held for sale, which was funded through
growth in deposits totaling $13.0 million, an increase in advances from the
Federal Home Loan Bank of $8.0 million and undistributed net earnings of $1.9
million.
10
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Discussion of Financial Condition Changes from December 31, 1996 to June 30,
1997 (continued)
Cash and interest-bearing deposits in other financial institutions totaled $13.5
million at June 30, 1997, a decline of $4.4 million, or 24.5%, 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 $28.5 million at June 30, 1997, an increase of $481,000, or
1.7%, over the total at December 31, 1996. During the 1997 period, investment
securities totaling $7.5 million were purchased, while maturities amounted to
$7.0 million.
Mortgage-backed securities totaled $10.4 million at June 30, 1997, a decrease of
$1.1 million from December 31, 1996, due primarily to principal repayments
during the period. Loans receivable and loans held for sale increased by $24.0
million, or 6.2%, during the six months ended June 30, 1997, to a total of
$413.0 million. The increase was primarily attributable to loan disbursements of
$102.4 million which was partially offset by principal repayments of $55.9
million and loan sales of $22.3 million. Loan origination volume during the 1997
six month period exceeded that of the 1996 period by $12.9 million, or 14.4%.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans), totaled
$2.3 million and $2.4 million at June 30, 1997 and December 31, 1996,
respectively, constituting .56% and .61% of total net loans, including loans
held for sale at those dates. The consolidated allowance for loan losses totaled
$1.2 million both at June 30, 1997 and December 31, 1996, representing 52.0% and
52.5% of nonperforming loans, respectively, at those dates. The provision for
loan losses for the six months ended June 30, 1997 is primarily attributable to
growth in the loan portfolio during that period.
Deposits totaled $371.0 million at June 30, 1997, an increase of $13.0 million,
or 3.6%, 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 $8.0 million, or 14.0%, to a total of $65.4 million at June 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 June 30, 1997, the Banks' regulatory capital exceeded
all regulatory capital requirements.
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 six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Six Months Ended June 30, 1997
and 1996
Increases in the level of income and expenses during the six month period ended
June 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 six month period ended June 30, 1996, were not restated for the
Acquisition.
General
Camco's net earnings for the six months ended June 30, 1997 totaled $2.6
million, an increase of $547,000, or 26.2%, over the $2.1 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 $1.9 million,
which was partially offset by an increase in the provision for loan losses of
$66,000, a decrease in other income of $58,000, an increase in general,
administrative and other expense of $975,000, and an increase in the provision
for federal income taxes of $228,000.
Net Interest Income
Total interest income for the six months ended June 30, 1997, amounted to $18.0
million, an increase of $4.7 million, or 35.4%, generally reflecting the effects
of $122.0 million, or 37.2%, of growth in average interest-earning assets
outstanding, which was partially offset by a decrease of 11 basis points in the
yield year to year, from 8.11% in 1996 to 8.00% in 1997.
Interest income on loans and mortgage-backed securities totaled $16.7 million
for the six months ended June 30, 1997, an increase of $4.3 million, or 34.4%,
over the comparable 1996 period. The increase resulted primarily from a $108.8
million, or 36.3%, increase in the average balance outstanding year to year.
Interest income on investments and interest-bearing deposits increased by
$445,000, or 49.1 %, due to an increase in average outstanding balances of $13.2
million. Interest expense on deposits increased by $1.9 million, or 28.5%, to a
total of $8.3 million for the six months ended June 30, 1997, due primarily to
an increase of $75.1 million in the average balance of deposits outstanding.
Interest expense on borrowings increased by $995,000, or 143.2%, to a total of
$1.7 million for the six months ended June 30, 1997. The increase resulted
primarily from a $35.7 million, or 151.5%, 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 $1.9 million, or 30.5%, for the six months
ended June 30, 1997, compared to the comparable period in 1996. The interest
rate spread declined by 28 basis points for the six months ended June 30, 1997,
to 3.25%, from 3.53% in the 1996 period, while the net interest margin amounted
to 3.56% in 1997 compared to 3.74% in 1996.
12
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Six Months Ended June 30, 1997
and 1996 (continued)
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 amount of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Banks' market area,
and other factors related to the collectibility of the Banks' loan portfolio.
The provision for losses on loans totaled $108,000 for the six months ended June
30, 1997, an increase of $66,000 from the comparable period in 1996. The current
period provision generally reflects the effects of loan portfolio growth and a
decrease in the level of nonperforming loans.
While management believes that its allowance for loan losses at June 30, 1997,
is adequate based upon the available facts and circumstances, there can be no
assurance that the loan loss allowance will be adequate to cover losses on
nonperforming assets in the future.
The foregoing statement is a "forward-looking" statement within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the loan loss allowance include, but are not limited to, the
following: (1) changes in the national and local economy which may negatively
impact the ability of borrowers to repay their loans and which may cause the
value of real estate and other properties that secure outstanding loans to
decline; (2) unforeseen adverse changes in circumstances with respect to certain
large loan borrowers; (3) decrease in the value of collateral securing consumer
loans to amounts equal to less than the outstanding balances of the consumer
loans; and (4) determinations by various regulatory agencies that the Banks must
recognize additions to its loan loss allowance based on such regulators'
judgment of information available to them at the time of their examinations.
Other Income
Other income decreased for the six months ended June 30, 1997, by $58,000, or
3.3%, from the comparable 1996 period. The decrease in other income is primarily
attributable to a $117,000 decrease in gains on sale of loans and a $111,000
decrease in loan servicing fees, which were partially offset by an increase of
$98,000, or 16.9%, in late charges, rent and other, a $42,000 increase in
service charges and other fees on deposits and a $30,000 increase in gain on
sale of real estate acquired through foreclosure. The decrease in gains on sale
of loans reflects a $13.9 million, or 38.3%, decline in the volume of loan sales
during the 1997 period. 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.
13
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Six Months Ended June 30, 1997
and 1996 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $5.7 million for the six
months ended June 30, 1997, an increase of $975,000, or 20.8%, over the
comparable period in 1996. The increase resulted primarily from a $564,000, or
26.9%, increase in employee compensation and benefits, a $139,000, or 25.0%,
increase in occupancy and equipment, a $66,000, or 32.7%, increase in data
processing, a $66,000, or 33.5%, increase in advertising, a $75,000 increase in
amortization of goodwill and a $249,000, or 22.4%, increase in other operating
costs, which were partially offset by a $196,000, or 59.9%, decrease in federal
deposit insurance premiums. 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 $771,000 of general,
administrative and other expense for the six month period ended June 30, 1997.
Excluding the effects of First Savings, the increase in employee compensation
and benefits is attributable to an increase in staffing levels, normal merit
salary increases and increased costs related to employee benefit plans. 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 Company's growth year to year.
Federal Income Taxes
The provision for federal income taxes increased in the six months ended June
30, 1997 by $228,000, or 21.2%. This increase is primarily attributable to an
$775,000, or 24.5%, increase in pre-tax earnings. The effective tax rates were
33.1% and 34.0% for the six months ended June 30, 1997 and 1996, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996
Increases in the level of income and expenses during the three month period
ended June 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 June 30, 1996, was not restated for the Acquisition.
General
Net earnings for the three months ended June 30, 1997 totaled $1.5 million, an
increase of $525,000, or 56.6%, over the $928,000 in net earnings reported in
the comparable 1996 period. The increase in net earnings is primarily
attributable to a $1.0 million increase in net interest income and a $187,000
increase in other income, which were partially offset by a $39,000 increase in
the provision for loan losses, a $398,000 increase in general, administrative
and other expense and a $245,0000 increase in the provision for federal income
taxes.
14
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996 (continued)
Net Interest Income
Total interest income for the three months ended June 30, 1997, increased by
$2.5 million, or 37.7%, compared to the 1996 quarter. Interest income on loans
increased by $2.2 million, or 35.7%, due primarily to a $107.3 million increase
in the average balance outstanding year to year. Interest income on investment
securities and interest-bearing deposits increased by $230,000, or 52.2%, due
primarily to an $11.9 million increase in the average balance outstanding.
Total interest expense increased by $1.5 million , or 41.9%, for the three
months ended June 30, 1997. Interest expense on deposits increased by $988,000,
or 30.4%, due primarily to a $76.5 million increase in the average balance
outstanding year to year. Interest expense on borrowings increased by $513,000,
or 155.5%, due primarily to a $35.9 million increase in the average outstanding
balance.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.0 million, or 32.9%, for the three months
ended June 30, 1997, as compared to the comparable quarter in 1996. The interest
rate spread was 3.35% for the 1997 quarter, compared to 3.53% in 1996, while the
net interest margin was 3.63% in the 1997 quarter, compared to 3.74% in 1996.
Provision for Losses on Loans
The provision for losses on loans increased during the three months ended June
30, 1997, by $39,000. The current period provision generally reflects the
effects of loan portfolio growth year to year as integrated with a stable level
of nonperforming loans.
Other Income
Other income increased for the quarter ended June 30, 1997 by $187,000, or
22.9%, compared to the 1996 quarter. The increase is primarily attributable to a
$143,000 increase in gain on sale of loans and a $68,000 increase in late
charges, rent and other, which were partially offset by a $45,000 decrease in
loan servicing fees. The increase in the gain on sale of loans is due primarily
to the increased volume of fixed-rate loans originated for sale.
General, Administrative and Other Expense
General, administrative and other expense increased by $398,000, or 16.0%,
during the three months ended June 30, 1997. The increase is primarily
attributable to a $231,000, or 21.4%, increase in employee compensation and
benefits, a $55,000, or 18.6%, increase in occupancy and equipment, an $87,000,
or 13.7%, increase in other operating expense and a $98,000, or 59.8%, decrease
in federal deposit insurance premiums. First Savings had general, administrative
and
15
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996 (continued)
General, Administrative and Other Expense (continued)
other expense totaling $392,000 for the three month period ended June 30, 1997.
Excluding the effects of First Savings, the increase in employee compensation
and benefits resulted primarily from normal merit increases, as well as an
increase due to the hiring of additional personnel. The increase in occupancy
and equipment related primarily to increased depreciation and building
maintenance costs. The increase in other operating expenses generally reflects
increased costs attendant to the Company's growth year to year.
Federal Income Taxes
Camco's provision for federal income taxes increased for the three months ended
June 30, 1997, by $245,000, or 51.3%, generally reflecting the $770,000, or
54.8%, increase in pre-tax earnings year to year. The effective tax rates were
33.2% and 34.0% for the three month periods ended June 30, 1997 and 1996,
respectively.
16
<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
On May 27, 1997, Camco held its Annual Meeting of
Stockholders. Two matters were submitted to stockholders, for
which the following votes were cast:
Three directors were elected to terms expiring in 2000, as
follows:
For Against Abstain Withheld
Robert C. Dix, Jr. 2,322,855 - - 4,257
Kenneth R. Elshoff 2,326,291 - - 821
Paul D. Leake 2,326,291 - - 821
Ratification of Grant Thornton LLP as auditors of Camco for
the current fiscal year.
For Against Abstain Withheld
2,325,817 110 1,185 -
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8K: None.
Exhibits: Financial Data Schedule.
17
<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: August 12, 1997 By: /s/Larry A. Caldwell
Larry A. Caldwell
President and Chief Executive Officer
Date: August 12, 1997 By: /s/Anthony J. Popp
Anthony J. Popp
Chief Financial Officer
18
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