<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 432-5641
Securities registered pursuant to Section 12(b) of the Act:
None None
- ------------------------------ ----------------------------------------
(Title of Each Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value per share
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 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 .
----- -----
Indicate by check mark if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average of the
bid and asked price of such stock as of March 14, 1997, was $47.5 million. (The
exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the registrant that such person is
an affiliate of the registrant.)
The registrant's revenues for the fiscal year ended December
31, 1996, were $32,856,000.
3,053,977.9 shares of the Registrant's common stock were
issued and outstanding on March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of Form 10-KSB: Portions of the Proxy Statement for the
1997 Annual Meeting of Stockholders
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Camco Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Camco Financial Corporation and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years ended December 31, 1996, 1995 and 1994.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camco Financial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
As more fully explained in Note A-4, the Corporation changed its method of
accounting for gains on sale of loans during the year ended December 31, 1995.
Grant Thornton LLP
Cincinnati, Ohio
February 19, 1997
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<PAGE> 3
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 10,587 $ 11,325
Interest-bearing deposits in other financial institutions 7,278 2,122
--------- ---------
Cash and cash equivalents 17,865 13,447
Certificates of deposit in other financial institutions 990 1,881
Investment securities available for sale - at market 5,174 3,131
Investment securities - at cost, approximate market value of $21,822
and $19,123 as of December 31, 1996 and 1995 21,844 19,283
Mortgage-backed securities available for sale - at market 742 985
Mortgage-backed securities - at cost, approximate market value of
$10,735 and $5,045 as of December 31, 1996 and 1995 10,700 5,002
Loans held for sale - at lower of cost or market 931 1,518
Loans receivable - net 387,992 291,233
Office premises and equipment - net 6,811 4,153
Real estate acquired through foreclosure 53 28
Federal Home Loan Bank stock - at cost 3,942 2,832
Accrued interest receivable on loans 2,443 1,736
Accrued interest receivable on mortgage-backed securities 69 58
Accrued interest receivable on investment securities and
interest-bearing deposits 499 335
Prepaid expenses and other assets 495 699
Cash surrender value of life insurance 4,880 -
Goodwill and other intangible assets - net of accumulated amortization 3,701 -
Prepaid federal income taxes 319 148
-------- --------
Total assets $469,450 $346,469
======== ========
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
<S> <C> <C>
Deposits $358,009 $286,574
Advances from the Federal Home Loan Bank 57,354 26,078
Advances by borrowers for taxes and insurance 2,864 2,964
Accounts payable and accrued liabilities 4,490 1,797
Dividends payable 368 207
Deferred federal income taxes 1,352 1,156
-------- --------
Total liabilities 424,437 318,776
Commitments - -
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized, 4,900,000 shares,
issued 3,062,893 at December 31, 1996 and 1,971,482 shares
at December 31, 1995 3,063 1,971
Additional paid-in capital 21,917 5,735
Retained earnings - substantially restricted 20,005 19,936
Unrealized gains on securities designated as available for sale,
net of related tax effects 28 51
-------- --------
Total stockholders' equity 45,013 27,693
-------- --------
Total liabilities and stockholders' equity $469,450 $346,469
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans $26,621 $22,939 $16,622
Mortgage-backed securities 474 423 497
Investment securities 1,448 1,570 1,826
Interest-bearing deposits and other 717 508 814
--------- --------- ---------
Total interest income 29,260 25,440 19,759
Interest expense
Deposits 13,933 12,478 9,497
Borrowings 2,113 1,779 736
--------- --------- ---------
Total interest expense 16,046 14,257 10,233
--------- --------- ---------
Net interest income 13,214 11,183 9,526
Provision for losses on loans 111 143 97
--------- --------- ---------
Net interest income after provision for losses on loans 13,103 11,040 9,429
Other income
Late charges, rent and other 1,145 915 752
Loan servicing fees 749 796 769
Service charges and other fees on deposits 447 448 408
Gain on sale of loans 1,257 1,126 501
Gain (loss) on sale of real estate acquired through foreclosure (2) 8 148
--------- --------- ---------
Total other income 3,596 3,293 2,578
--------- --------- ---------
General, administrative and other expense
Employee compensation and benefits 4,970 4,198 3,606
Occupancy and equipment 1,170 902 930
Federal deposit insurance premiums 2,369 625 574
Data processing 454 397 405
Advertising 388 406 409
State franchise taxes 399 322 291
Amortization of goodwill 38 - -
Other operating 2,402 1,925 1,939
--------- --------- ---------
Total general, administrative and other expense 12,190 8,775 8,154
--------- --------- ---------
Earnings before federal income taxes 4,509 5,558 3,853
Federal income taxes
Current 1,214 1,794 1,356
Deferred 282 116 (45)
--------- --------- ---------
Total federal income taxes 1,496 1,910 1,311
--------- --------- ---------
NET EARNINGS $ 3,013 $ 3,648 $ 2,542
========= ========= =========
EARNINGS PER SHARE $1.30 $1.76 $1.40
===== ===== =====
Weighted average number of common shares outstanding 2,313,240 2,068,866 1,814,227
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996,
1995 and 1994 (In thousands, except
share data)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
ADDITIONAL DESIGNATED TOTAL
COMMON STOCK PAID-IN AS AVAILABLE RETAINED STOCKHOLDERS'
($1 PAR VALUE) CAPITAL FOR SALE EARNINGS EQUITY
-------------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $1,565 $ 741 $- $17,520 $19,826
Stock options exercised 1 7 - - 8
Cash dividends declared - $.3168 per share - - - (578) (578)
Stock dividend (5%) including cash in lieu of
fractional shares 78 938 - (1,018) (2)
Proceeds from offering of common stock 231 2,730 - - 2,961
Designation of securities as available for sale
upon adoption of SFAS No. 115 - - 298 - 298
Net earnings - - - 2,542 2,542
Unrealized losses on securities designated as
available for sale, net of related tax effects - - (314) - (314)
----- ----- --- ------- --------
Balance at December 31, 1994 1,875 4,416 (16) 18,466 24,741
Stock options exercised 2 8 - - 10
Cash dividends declared - $.3708 per share - - - (770) (770)
Stock dividend (5%) including cash in lieu
of fractional shares 94 1,311 - (1,408) (3)
Net earnings - - - 3,648 3,648
Unrealized gains on securities designated as
available for sale, net of related tax effects - - 67 - 67
----- ----- ---- ------- ---------
Balance at December 31, 1995 1,971 5,735 51 19,936 27,693
Stock options exercised 6 23 - - 29
Cash dividends declared - $.4488 per share - - - (1,165) (1,165)
Stock dividend (5%) including cash in lieu
of fractional shares 99 1,676 - (1,779) (4)
Issuance of shares in connection with
acquisition 987 14,483 - - 15,470
Net earnings - - - 3,013 3,013
Unrealized losses on securities designated as
available for sale, net of related tax effects - - (23) - (23)
----- ------- ---- ------- ---------
Balance at December 31, 1996 $3,063 $21,917 $ 28 $20,005 $45,013
====== ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 7
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 3,013 $ 3,648 $ 2,542
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of goodwill 38 - -
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 30 (13) 139
Depreciation and amortization 492 461 502
Amortization of purchase accounting adjustments (10) - -
Provision for loan losses 111 143 97
Amortization of deferred loan origination fees (441) (310) (226)
Loss (gain) on sale of real estate acquired through
foreclosure 2 (8)
(148)
Federal Home Loan Bank stock dividends (225) (177) (109)
Gain on sale of loans (391) (471) (501)
Gain on sale of equipment - (5) -
Loans originated for sale in the secondary market (61,100) (39,941) (35,015)
Proceeds from sale of mortgage loans in the
secondary market 62,078 39,362 41,777
Increase (decrease) in cash, net of acquisition of First
Ashland Financial Corporation, due to changes in:
Accrued interest receivable on loans (297) (418) (338)
Accrued interest receivable on mortgage-backed securities 32 28 23
Accrued interest receivable on investments (95) 125 9
Prepaid expenses and other assets 255 (152) (142)
Accrued interest and other liabilities 1,967 (411) 1,237
Federal income taxes
Current (158) 294 (142)
Deferred 282 116 (45)
------- ------- -------
Net cash provided by operating activities 5,583 2,271 9,660
------- ------- -------
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 10,788 9,750 5,194
Proceeds from sale of investment securities 427 - -
Purchase of investment securities designated as available
for sale (33) - -
Purchase of investment securities designated as held to maturity (9,996) (1,775) (6,473)
Purchase of mortgage-backed securities - - (500)
Principal repayments on mortgage-backed securities 1,244 1,061 2,807
Loans purchased - - (710)
Loan disbursements (119,738) (97,464) (122,962)
Principal repayments on loans 87,317 67,390 54,802
Purchase of office premises and equipment (1,023) (565) (535)
Proceeds from sale of office premises and equipment - 37 -
Proceeds from sale of real estate acquired through foreclosure 326 89 333
Proceeds from redemption of FHLB stock - - 67
Purchase of FHLB stock (200) (393) (551)
Additions to real estate acquired through foreclosure (3) (70) (92)
Net decrease in certificates of deposit in other
financial institutions 891 5,546 8,309
Purchase of cash surrender value of life insurance (4,735) - -
Net increase in cash surrender value of life insurance (145) - -
Purchase of First Ashland Financial Corporation stock - net 2,633 - -
------- ------- ------
Net cash used in investing activities (32,247) (16,394) (60,311)
</TABLE>
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<PAGE> 8
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase in deposits 2,603 19,713 14,642
Proceeds from Federal Home Loan Bank advances
and other borrowings 110,115 70,400 63,241
Repayment of Federal Home Loan Bank advances
and other borrowings (80,326) (70,833) (38,230)
Dividends paid on common stock (1,169) (773) (580)
Proceeds from exercise of stock options 29 10 8
Proceeds from offering of common stock - - 2,961
Increase (decrease) in advances by borrowers for
taxes and insurance (170) (226) 1,778
-------- ------- --------
Net cash provided by financing activities 31,082 18,291 43,820
-------- ------- -------
Increase (decrease) in cash and cash equivalents 4,418 4,168 (6,831)
Cash and cash equivalents at beginning of year 13,447 9,279 16,110
-------- -------- -------
Cash and cash equivalents at end of year $ 17,865 $ 13,447 $ 9,279
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 15,735 $ 14,003 $ 10,143
-------- -------- -------
Income taxes $ 1,489 $ 1,684 $ 1,329
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure $ 92 $ 70 $ 72
======== ======== ========
Issuance of mortgage loans upon sale of real
estate acquired through foreclosure $ 283 $ 42 $ 277
======== ======== ========
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (23) $ 67 $ (16)
======== ======== ========
Recognition of gains on sale of loans in accordance
with SFAS No. 122 $ 866 $ 655 $ -
======== ======== ========
Liabilities assumed and cash paid in acquisition of
First Ashland Financial Corporation $ 84,467 $ - $ -
Less: fair value of assets received 80,728 - -
-------- ------- -------
Amount assigned to goodwill $ 3,739 $ - $ -
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
-43-
<PAGE> 9
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The business activities of Camco Financial Corporation (the "Corporation")
have been limited primarily to holding the common shares of its
wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge"), Marietta
Savings Bank ("Marietta"), First Federal Savings Bank of Washington Court
House ("First Federal"), First Federal Bank for Savings ("Ashland")
(collectively hereinafter the "Banks") and East Ohio Land Title Agency,
Inc., and two second tier subsidiaries, Camco Mortgage Corporation and
WestMar Mortgage Company. Accordingly, the Corporation's results of
operations are economically dependent upon the results of the Banks'
operations. The Banks conduct a general commercial banking business in
eastern and central Ohio, northern West Virginia and northeastern Kentucky
which consists of attracting deposits from the general public and applying
those funds to the origination of loans for residential, consumer and
nonresidential purposes. The Banks' profitability is significantly
dependent on net interest income, which is the difference between interest
income generated from interest-earning assets (i.e. loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e.
customer deposits and borrowed funds). Net interest income is affected by
the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level
of interest rates paid or received by the Banks can be significantly
influenced by a number of competitive factors, such as governmental
monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared
in accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of the Corporation's significant accounting
policies which, with the exception of the policy described in Note A-4,
have been consistently applied in the preparation of the accompanying
consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned and second tier subsidiaries. All
significant intercompany balances and transactions have been eliminated.
2. Interest Rate Risk
The earnings of the Banks are primarily dependent upon net interest income,
which is determined by 1) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
(interest rate spread) and 2) the relative amounts of interest-earning
assets and interest-bearing liabilities outstanding. The Corporation's
interest rate spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit flows. The
Corporation is vulnerable to an increase in interest
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<PAGE> 10
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Interest Rate Risk (continued)
rates to the extent that interest-bearing liabilities mature or reprice
more rapidly than interest-earning assets. At December 31, 1996, 1995 and
1994, the Corporation had net interest-earning assets of $444.5 million,
$328.0 million and $309.4 million with weighted average effective yields of
8.01%, 8.07% and 7.33% and net interest-bearing liabilities of
approximately $415.4 million, $312.7 million and $293.4 million, with
weighted average effective interest rates of 4.96%, 4.82% and 4.29%. To
minimize the effect of adverse changes in interest rates on its results of
operations, the Corporation has implemented an asset and liability
management plan that emphasizes increasing the interest rate sensitivity
and shortening the maturities of its interest-earning assets and extending
the maturities of its interest-bearing liabilities. Although the
Corporation has undertaken a variety of strategies to minimize its exposure
to interest rate risk, its primary emphasis has been on the origination and
purchase of adjustable rate loans.
3. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires that investments be categorized as held-to-maturity,
trading, or available for sale. Securities classified as held-to-maturity
are carried at cost only if the Corporation has the positive intent and
ability to hold these securities to maturity. Trading securities and
securities available for sale are carried at fair value with resulting
unrealized gains or losses recorded to operations or stockholders' equity,
respectively. Investment and mortgage-backed securities are classified as
held to maturity or available for sale upon acquisition. At December 31,
1996 and 1995, the Corporation's stockholders' equity reflected net
unrealized gains on securities designated as available for sale of $28,000
and $51,000, respectively. Realized gains and losses on sales of securities
are recognized using the specific identification method.
4. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for unamortized yield adjustments, including deferred loan
origination fees and costs and capitalized mortgage servicing rights, and
the allowance for loan losses. The yield adjustments are amortized and
accreted to operations using the interest method over the average life of
the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
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<PAGE> 11
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loans Receivable (continued)
Loans held for sale are carried at the lower of acquisition cost (less
principal payments received) or fair value (market value), calculated on an
aggregate basis. At December 31, 1996 and 1995, such loans were carried at
cost, which approximated fair value.
In May 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 122 "Accounting for Mortgage Servicing Rights," which requires
that the Corporation recognize as separate assets, rights to service
mortgage loans for others, regardless of how those servicing rights are
acquired. An institution that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells those loans
with servicing rights retained is required to allocate some of the cost of
the loans to the mortgage servicing rights.
SFAS No. 122 requires that securitization of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed
securities. Additionally, SFAS No. 122 requires that capitalized mortgage
servicing rights and capitalized excess servicing receivables be assessed
for impairment. Impairment is measured based on fair value.
SFAS No. 122 was effective for years beginning after December 15, 1995,
(January 1, 1996, as to the Corporation) to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application was prohibited, and
earlier adoption was encouraged. Management elected early adoption of SFAS
No. 122, which resulted in the recognition of $655,000 in pre-tax gains on
sales of loans during the year ended December 31, 1995. During 1996, the
Corporation recorded $866,000 in pre-tax gains on sales of loans pursuant
to SFAS No. 122.
The mortgage servicing rights recorded by the Banks', calculated in
accordance with the provisions of SFAS No. 122, were segregated into pools
for valuation purposes, using as pooling criteria the loan term and coupon
rate. Once pooled, each grouping of loans was evaluated on a discounted
earnings basis to determine the present value of future earnings that a
purchaser could expect to realize from each portfolio. Earnings were
projected from a variety of sources including loan servicing fees, interest
earned on float, net interest earned on escrows, miscellaneous income, and
costs to service the loans. The present value of future earnings is the
"economic" value for the pool, i.e., the net realizable present value to an
acquirer of the acquired servicing.
The Corporation recorded amortization related to mortgage servicing rights
totaling approximately $99,000 and $20,000 for the years ended December 31,
1996 and 1995. At December 31, 1996 and 1995, the fair value of the
Corporation's mortgage servicing rights totaled approximately $1.4 million
and $655,000, respectively.
At December 31, 1996 and 1995, the Banks were servicing approximately
$265.8 million and $242.9 million, respectively, of mortgage loans that
have been sold to the Federal Home Loan Mortgage Corporation and other
investors.
-46-
<PAGE> 12
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Loan Origination and Commitment Fees
The Corporation accounts for loan origination fees and costs in accordance
with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases".
Pursuant to the provisions of SFAS No. 91, all loan origination fees
received, net of certain direct origination costs, are deferred on a
loan-by-loan basis and amortized to interest income using the interest
method, giving effect to actual loan prepayments. Additionally, SFAS No. 91
generally limits the definition of loan origination costs to the direct
costs attributable to originating a loan, i.e., principally actual
personnel costs.
Fees received for loan commitments are deferred and amortized over the life
of the related loan using the interest method.
6. Allowance for Loan Losses
It is the Corporation's policy to provide valuation allowances for
estimated losses on loans based upon past loss experience, trends in the
level of delinquent and specific problem loans, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral and current and anticipated economic conditions in
the primary market area. When the collection of a loan becomes doubtful, or
otherwise troubled, the Corporation records a loan loss provision equal to
the difference between the fair value of the property securing the loan and
the loan's carrying value. Such provision is based on management's estimate
of the fair value of the underlying collateral, taking into consideration
the current and currently anticipated future operating or sales conditions.
As a result, such estimates are particularly susceptible to changes that
could result in a material adjustment to results of operations in the near
term. Recovery of the carrying value of such loans is dependent to a great
extent on economic, operating, and other conditions that may be beyond the
Corporation's control.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114, which was amended by SFAS No. 118 as
to certain income recognition and financial statement disclosure
provisions, requires that impaired loans be measured based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as an alternative, at the loans observable market price
or fair value of the collateral. The Corporation adopted SFAS No. 114
effective January 1, 1995, as required, without material effect on
consolidated financial condition or results of operations.
Under SFAS No. 114, a loan is defined as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Corporation
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Corporation's investment in multi-family and nonresidential loans, and its
evaluation of impairment thereof, such loans are collateral dependent and
as a result are carried as a practical expedient at the lower of cost or
fair value.
-47-
<PAGE> 13
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Allowance for Loan Losses (continued)
It is the Corporation's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans
which are more than ninety days delinquent are considered to constitute
more than a minimum delay in repayment and are evaluated for impairment
under SFAS No. 114 at that time.
At December 31, 1996 and 1995, the Corporation had no loans that would be
defined as impaired under SFAS No. 114.
7. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the
amount determined at the recording date. In determining the lower of cost
or fair value at acquisition, costs relating to development and improvement
of property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
8. Office Premises and Equipment
Depreciation of office premises and equipment is computed using the
straight-line method over estimated useful lives of the assets, estimated
to be ten to fifty years for buildings and improvements and three to
twenty-five years for furniture, fixtures and equipment.
9. Goodwill and Other Intangible Assets
Goodwill resulting from the acquisition of Ashland, net of amortization
recorded in 1996, totaled approximately $3.7 million, and is being
amortized over a twenty-five year period using the straight-line method.
Management periodically evaluates the carrying value of these intangible
assets in relation to the continuing earnings capacity of the acquired
assets and assumed liabilities.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.
121 provides guidance on when to recognize and how to measure impairment
losses of long-lived assets and certain identifiable intangibles and how to
value long-lived assets to be disposed of. The Corporation adopted SFAS No.
121 effective January 1, 1996, as required, without material effect on
consolidated financial condition or results of operations.
-48-
<PAGE> 14
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Federal Income Taxes
The Corporation accounts for federal income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Pursuant to the provisions of SFAS
No. 109, a deferred tax liability or deferred tax asset is computed by
applying the current statutory tax rates to net taxable or deductible
temporary differences between the tax basis of an asset or liability and
its reported amount in the financial statements that will result in taxable
or deductible amounts in future periods. Deferred tax assets are recorded
only to the extent that the amount of net deductible temporary differences
or carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable
temporary differences reversing in future periods, or utilized to the
extent of management's estimate of future taxable income. A valuation
allowance is provided for deferred tax assets to the extent that the value
of net deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, the general loan loss allowance, percentage of earnings bad debt
deductions and certain components of retirement expense. A temporary
difference is also recognized for depreciation expense computed using
accelerated methods for federal income tax purposes.
11. Earnings Per Share and Dividends Per Share
Earnings per share is calculated based on the weighted average number of
common and common equivalent shares (which includes those stock options
that are dilutive) outstanding during the respective periods, adjusted to
reflect a 5% stock dividend effected during the years ended December 31,
1996 and 1995. Dividends per share for the years ended December 31, 1996,
1995 and 1994, have also been adjusted to reflect the effect of such stock
dividends.
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated statement of financial
condition, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Corporation.
-49-
<PAGE> 15
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and Cash Equivalents: The carrying amount reported in
the consolidated statement of financial condition for cash
and cash equivalents is deemed to approximate fair value.
Certificates of Deposit in Other Financial Institutions: For
certificates of deposit in other financial institutions, fair
values are estimated using discounted cash flow analyses,
using interest rates currently being offered for such
deposits with similar remaining maturities.
Investment Securities and Mortgage-backed Securities: Fair
values for investment securities and mortgage-backed
securities are based on quoted market prices and dealer
quotes.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential real estate, multi-family residential
real estate, installment and other. These loan categories
were further delineated into fixed-rate and adjustable-rate
loans. The fair values for the resultant loan categories
were computed via discounted cash flow analysis, using
current interest rates offered for loans with similar terms
to borrowers of similar credit quality.
Federal Home Loan Bank stock: The carrying amount presented
in the consolidated statement of financial condition is
deemed to approximate fair value.
Accrued Interest Receivable and Accrued Interest Payable: The
carrying amount as reported in the consolidated statement of
financial condition is deemed a reasonable estimate of fair
value.
Cash Surrender Value of Life Insurance: The carrying amount
as reported in the consolidated statement of financial
condition is deemed to approximate fair value.
Deposits: The fair values of deposits with no stated
maturity, such as money market demand deposits, savings and
NOW accounts, are deemed equal to the amount payable on
demand as of December 31, 1996 and 1995. The fair value of
fixed-rate certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of
similar remaining maturities.
-50-
<PAGE> 16
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
Advances from the Federal Home Loan Bank: The fair value of
these advances is estimated using the rates currently offered
for similar advances of similar remaining maturities or, when
available, quoted market prices.
Advances by Borrowers for Taxes and Insurance: The carrying
amount of advances by borrowers for taxes and insurance is
deemed to approximate fair value.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. At December 31, 1996 and 1995, the
difference between the fair value and notional amount of loan
commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 17,865 $ 17,865 $ 13,447 $ 13,447
Certificates of deposit in other financial
institutions 990 990 1,881 1,881
Investment securities 27,018 26,996 22,414 22,254
Mortgage-backed securities 11,442 11,477 5,987 6,030
Loans receivable 388,923 292,751 291,671
Federal Home Loan Bank stock 3,942 3,942 2,832 2,832
Accrued interest receivable 3,011 3,011 2,129 2,129
Cash surrender value of life insurance 4,880 4,880 - -
-------- -------- -------- --------
$458,071 $457,490 $341,441 $340,244
======== ======== ======== ========
Financial liabilities
Deposits $358,009 $361,821 $286,574 $290,243
Advances from the Federal Home Loan Bank 57,354 57,313 26,078 26,139
Advances by borrowers for taxes and insurance 2,864 2,864 2,964 2,964
-------- -------- -------- --------
$418,227 $421,998 $315,616 $319,346
======== ======== ======== ========
</TABLE>
13. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks and
interest-bearing deposits in other financial institutions with original
maturities of three months or less.
-51-
<PAGE> 17
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Advertising
Advertising costs are expensed when incurred.
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government agency obligations $21,367 $ 42 $ (97) $21,312
Municipal bonds 477 33 - 510
------- ---- ----- -------
Total investment securities
held to maturity 21,844 75 (97) 21,822
AVAILABLE FOR SALE:
U.S. Government agency obligations 3,523 23 (3) 3,543
Corporate equity securities 1,623 24 (16) 1,631
------- ---- ----- -------
Total investments available
for sale 5,146 47 (19) 5,174
------- ---- ----- -------
Total investment securities $26,990 $122 $(116) $26,996
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1995
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government agency obligations $19,147 $17 $(184) $18,980
Municipal bonds 136 7 - 143
------- --- ----- -------
Total investment securities
held to maturity 19,283 24 (184) 19,123
AVAILABLE FOR SALE:
U.S. Government agency obligations 2,999 46 - 3,045
Corporate equity securities 82 4 - 86
------- --- ----- -------
Total investments available
for sale 3,081 50 - 3,131
------- --- ----- -------
Total investment securities $22,364 $74 $(184) $22,254
======= === ===== =======
</TABLE>
-52-
<PAGE> 18
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at December 31, 1996
and 1995, are as follows:
<TABLE>
<CAPTION>
1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
FNMA $ 4,352 $ 19 $ (48) $ 4,323
FHLMC 2,906 69 (18) 2,957
CMOs 3,142 49 (30) 3,161
GNMA 195 15 - 210
Other 105 - (21) 84
------- -- ----- -------
Total mortgage-backed securities
held to maturity 10,700 152 (117) 10,735
AVAILABLE FOR SALE:
FHLMC 733 9 - 742
------- ---- ----- -------
Total mortgage-backed securities $11,433 $161 $(117) $11,477
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1995
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
FNMA $3,218 $33 $ (3) $3,248
FHLMC 1,784 21 (8) 1,797
----- --- ----- -----
Total mortgage-backed securities
held to maturity 5,002 54 (11) 5,045
AVAILABLE FOR SALE:
FHLMC 968 17 - 985
------ --- ----- ------
Total mortgage-backed securities $5,970 $71 $ (11) $6,030
====== === ===== ======
</TABLE>
-53-
<PAGE> 19
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of investment and
mortgage-backed securities at December 31, 1996 and 1995 (including
securities designated as available for sale) by contractual term to
maturity are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996 1995
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 4,606 $ 4,586 $ 6,019 $ 6,030
Due after one year through five years 20,095 20,097 15,217 15,084
Due after five years through ten years 487 487 1,046 1,054
Due after ten years through fifteen years 179 195 - -
------- ------- ------- ------
Total investment securities 25,367 25,365 22,282 22,168
Corporate equity securities 1,623 1,631 82 86
Mortgage-backed securities - not
due at a single maturity date 11,433 11,477 5,970 6,030
------- ------- ------- -------
Total $38,423 $38,473 $28,334 $28,284
======= ======= ======= =======
</TABLE>
During 1996, the Corporation sold investment securities designated as
available for sale with a carrying value of $427,000 at no gain or loss.
There were no sales of investment securities or mortgage-backed securities
during the years ended December 31, 1995 and 1994.
-54-
<PAGE> 20
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE
Loans receivable at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Conventional real estate loans:
Existing residential properties $339,970 $243,767
Nonresidential real estate 12,529 11,486
Construction 19,960 19,944
Developed building lots 1,406 965
Education loans 2,037 2,728
Consumer and other loans 22,244 22,589
-------- --------
Total 398,146 301,479
Less:
Undisbursed portion of loans in process 8,867 8,717
Unamortized yield adjustments 40 497
Allowance for loan losses 1,247 1,032
-------- --------
Total loans receivable - net $387,992 $291,233
======== ========
</TABLE>
As depicted above, the Corporation's lending efforts have historically
focused on loans secured by existing residential properties, which comprise
approximately $340.0 million, or 88%, of the total loan portfolio at
December 31, 1996 and approximately $243.8 million, or 84%, of the total
loan portfolio at December 31, 1995. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Corporation with adequate collateral coverage
in the event of default. Nevertheless, the Corporation, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending areas of central and eastern Ohio,
northern West Virginia, and northeastern Kentucky, thereby impairing
collateral values. However, management is of the belief that residential
real estate values in the Corporation's primary lending areas are presently
stable.
The Banks, in the ordinary course of business, have granted loans to
certain of their directors, executive officers, and their associates. Such
loans are made on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than normal risk of collectibility. The
aggregate dollar amount of these loans (excluding loans to any such
individual which in the aggregate did not exceed $60,000) was less than 5%
of stockholders' equity at December 31, 1996 and 1995.
-55-
<PAGE> 21
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE D - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,032 $ 943 $1,028
Provision for losses 111 143 97
Allowance resulting from acquisition 109 - -
Charge-offs, net of immaterial recoveries (5) (54) (182)
------ ------ ------
Balance at end of year $1,247 $1,032 $ 943
====== ====== ======
</TABLE>
Nonaccrual and nonperforming loans totaled approximately $2.4 million, $1.1
million and $1.3 million at December 31, 1996, 1995 and 1994, respectively.
Interest income that would have been recognized had such nonaccrual loans
performed pursuant to contractual terms totaled approximately $90,000,
$24,000 and $57,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Land $1,308 $ 919
Buildings and improvements 5,783 4,095
Furniture, fixtures and equipment 3,728 2,662
------ -----
10,819 7,676
Less accumulated depreciation and amortization (4,008) (3,523)
------ ------
$6,811 $4,153
====== ======
</TABLE>
-56-
<PAGE> 22
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE F - DEPOSITS
Deposit balances by type and weighted-average interest rate at December 31,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
AMOUNT RATE AMOUNT RATE
(In thousands)
<S> <C> <C> <C> <C>
NOW accounts $ 47,078 1.93% $ 44,591 2.30%
Money market demand accounts 17,186 3.64 15,047 3.29
Passbook and statement savings accounts 58,610 3.01 50,498 3.01
-------- ---- -------- ----
Total withdrawable accounts 122,874 2.68 110,136 2.76
Money market certificates:
Seven days to one year 46,143 5.59 19,332 4.73
One to two years 66,674 5.77 54,336 5.99
Two to eight years 82,747 6.31 70,198 6.13
Negotiated rate certificates 21,786 5.69 21,446 5.63
Individual retirement accounts 17,785 5.90 11,126 6.23
-------- ---- -------- ----
Total certificate accounts 235,135 5.93 176,438 5.88
-------- ---- -------- ----
Total deposits $358,009 4.81% $286,574 4.68%
======== ==== ======== ====
</TABLE>
At December 31, 1996 and 1995, the Corporation had certificates of deposit
accounts with balances in excess of $100,000 totaling $37.9 million and
$44.7 million, respectively.
Interest expense on deposits is summarized as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Certificate of deposit accounts $10,974 $ 9,592 $6,173
NOW accounts and money
market demand accounts 1,498 1,450 1,447
Passbook and statement savings
accounts 1,461 1,436 1,877
------- ------- -----
$13,933 $12,478 $9,497
======= ======= ======
</TABLE>
The contractual maturities of outstanding certificates of deposit are
summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
YEAR ENDING DECEMBER 31: (In thousands)
<S> <C> <C>
1996 $ - $105,593
1997 145,780 48,826
1998 53,565 14,479
1999 23,290 3,713
2000 6,183 3,827
After 2000 6,317 -
-------- --------
Total certificate of deposit accounts $235,135 $176,438
======== ========
</TABLE>
-57-
<PAGE> 23
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE F - DEPOSITS (continued)
At December 31, 1996 and 1995, public savings deposits were collateralized
by investment securities and interest-bearing deposits in other banks
totaling $22.2 million and $20.0 million, respectively.
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
1996 and 1995, by pledges of certain residential mortgage loans totaling
$86.0 million and $39.1 million, respectively, as well as the Federal Home
Loan Bank stock of the respective Bank subsidiaries, are summarized as
follows:
<TABLE>
<CAPTION>
MATURING FISCAL
INTEREST RATE YEAR ENDING IN 1996 1995
(In thousands)
<S> <C> <C> <C>
5.80% - 7.45% 1996 $ - $15,500
5.36% - 7.75% 1997 34,500 8,000
4.95% - 5.90% 1998 11,750 2,000
6.10% - 6.25% 1999 4,462 -
5.38%2000 750 -
4.25% - 6.71% Thereafter 5,892 578
------- -------
$57,354 $26,078
======= =======
Weighted average rate 5.87% 6.31%
==== ====
</TABLE>
NOTE H - FEDERAL INCOME TAXES
A reconciliation of the effective tax rate for the years ended December 31,
1996, 1995 and 1994, respectively, and the federal statutory rate in each
of these years of 34%, computed by applying the statutory federal corporate
tax rate to income before taxes, are summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Expected federal tax at statutory rate $1,533 $1,890 $1,310
Other (37) 20 1
------ ------ -------
Tax provision per consolidated financial
statements $1,496 $1,910 $1,311
====== ====== ======
</TABLE>
-58-
<PAGE> 24
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES (continued)
The components of the Corporation's net deferred tax liability as of
December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE AT 34% DIFFERENCE AT 34%
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred loan origination fees $ (57) $ (19) $ (639) $ (217)
FHLB stock dividends (1,528) (520) (952) (324)
Percentage of earnings bad debt deduction (1,732) (589) (1,750) (595)
Retirement expense (49) (17) (156) (53)
Mortgage servicing rights (1,419) (482) (655) (223)
Other liabilities (602) (205) (285) (97)
------- ------ ------ -------
Total deferred tax liabilities (5,387) (1,832) (4,437) (1,509)
Deferred tax assets:
General loan loss allowance 1,105 376 949 323
Other assets 306 104 88 30
------- ------- ------- -------
Total deferred tax assets 1,411 480 1,037 353
------- ------- ------- -------
Net deferred tax liability $(3,900) $(1,352) $(3,400) $(1,156)
======= ======= ======= =======
</TABLE>
The Banks were allowed a special bad debt deduction generally limited to 8%
of otherwise taxable income, subject to certain limitations based on
aggregate loans and savings account balances at the end of the year. If the
amounts that qualify as deductions for federal income taxes are later used
for purposes other than for bad debt losses, including distributions in
liquidations, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. The percentage of earnings bad
debt deduction had accumulated to approximately $7.6 million as of December
31, 1996. The amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction was approximately $2.0 million at
December 31, 1996. See Note P for additional information regarding future
percentage of earnings bad debt deductions.
NOTE I - COMMITMENTS
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Banks' involvement in such financial instruments.
-59-
<PAGE> 25
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE I - COMMITMENTS (continued)
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Banks use the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 1996 and 1995, the Banks had outstanding commitments to
originate or purchase fixed rate loans of approximately $1.4 million and
$2.7 million, respectively, and adjustable rate loans of approximately $4.4
million and $4.0 million, respectively. Additionally, the Banks had unused
lines of credit under home equity loans of $7.5 million at December 31,
1996. Management believes that all loan commitments are able to be funded
through cash flow from operations and existing excess liquidity. Fees
received in connection with these commitments have not been recognized in
earnings.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral on loans may vary but the preponderance of loans granted
generally include a mortgage interest in real estate as security.
NOTE J - REGULATORY CAPITAL REQUIREMENTS
Cambridge and Marietta are subject to the regulatory capital requirements
of the Federal Deposit Insurance Corporation (the "FDIC"). First Federal
Savings Bank and First Federal Bank for Savings are subject to minimum
regulatory capital standards promulgated by the Office of Thrift
Supervision (the "OTS"). Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary
-actions by regulators that, if undertaken, could have a direct material
effect on each of the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Banks must meet specific capital guidelines that involve quantitative
measures of the Banks' assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Banks'
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
During the calendar year, each of the Banks were notified from their
respective regulators that the Banks were categorized as "well-capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well-capitalized" the Banks' must maintain minimum capital
ratios as set forth in the following tables.
-60-
<PAGE> 26
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based
capital ratio guidelines to which Cambridge and Marietta are subject. The
guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet commitments
to four risk-weighting categories, with higher levels of capital being
required for the categories perceived as representing greater risk.
These guidelines divide the capital into two tiers. The first tier ("Tier
1") includes common equity, certain non-cumulative perpetual preferred
stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit
card relationships, subject to certain limitations). Supplementary ("Tier
II") capital includes, among other items, cumulative perpetual and
long-term limited-life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the
allowance for loan losses, subject to certain limitations, less required
deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier 1 capital. The FDIC may,
however, set higher capital requirements when particular circumstances
warrant. Savings banks experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions,
well above the minimum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier 1
leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio
of 3% for savings banks that meet certain specified criteria, including
that they have the highest regulatory rating and are not experiencing or
anticipating significant growth. All other savings banks are required to
maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points.
As of December 31, 1996, management believes that Cambridge and Marietta
meet all capital adequacy requirements to which the Banks are subject.
<TABLE>
<CAPTION>
CAMBRIDGE AS OF DECEMBER 31, 1996
TO BE "WELL-
CAPITALIZED' UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $13,176 13.4% =>$7,840 =>8.0% =>$9,800 =>10.0%
Tier I Capital
(to risk-weighted assets) $12,786 13.0% =>$3,920 =>4.0% =>$5,880 => 6.0%
Tier I Leverage $12,786 7.2% =>$7,087 =>4.0% =>$8,859 => 5.0%
</TABLE>
-61-
<PAGE> 27
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
<TABLE>
<CAPTION>
MARIETTA AS OF DECEMBER 31, 1996
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $8,726 12.3% =>$5,654 =>8.0% =>$7,067 =>10.0%
Tier I Capital
(to risk-weighed assets) $8,354 11.8% =>$2,827 =>4.0% =>$4,240 => 6.0%
Tier I Leverage $8,354 7.3% =>$4,547 =>4.0% =>$5,684 => 5.0%
</TABLE>
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as stockholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital
plus certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted
in present form, would increase the core capital requirement to a range of
4.0% - 5.0% of adjusted total assets for substantially all savings
associations. Management anticipates no material change to the Banks'
excess regulatory capital position as a result of this proposed change in
the regulatory capital requirement. The risk-based capital requirement
currently provides for the maintenance of core capital plus general loss
allowances equal to 8.0% of risk-weighted assets. In computing
risk-weighted assets, the Banks' multiply the value of each asset on their
respective statement of financial condition by a defined risk-weighting
factor, e.g., one- to four-family residential loans carry a risk-weighted
factor of 50%.
As of December 31, 1996, management believes that First Federal and Ashland
meet all capital adequacy requirements to which the Banks are subject.
<TABLE>
<CAPTION>
FIRST FEDERAL AS OF DECEMBER 31, 1996
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $6,232 7.2% =>$1,300 =>1.5% =>$4,334 => 5.0%
Core Capital $6,232 7.2% =>$2,601 =>3.0% =>$5,201 => 6.0%
Risk-based capital $6,482 13.7% =>$3,788 =>8.0% =>$4,735 =>10.0%
</TABLE>
-62-
<PAGE> 28
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
<TABLE>
<CAPTION>
ASHLAND AS OF DECEMBER 31, 1996
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $12,709 14.7% =>$1,299 =>1.5% =>$4,330 => 5.0%
Core Capital $12,709 14.7% =>$2,598 =>3.0% =>$5,196 => 6.0%
Risk-based capital $12,802 27.8% =>$3,680 =>8.0% =>$4,601 =>10.0%
</TABLE>
The Corporation's management believes that, under the current regulatory
capital regulations, the Banks will continue to meet their minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Corporation, such as increased interest rates or a downturn in the
economy in the subsidiaries' market areas, could adversely affect future
earnings and, consequently, the ability to meet future minimum regulatory
capital requirements.
Regulations of the Office of Thrift Supervision (OTS) impose limitations on
the payment of dividends and other capital distributions by savings
associations. Under such regulations, a savings association that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully
phased-in capital requirement is generally permitted without OTS approval
(but subsequent to 30 days prior notice to the OTS of the planned dividend)
to make capital distributions during a calendar year in the amount of (i)
up to 100% of its net earnings to date during the year plus an amount equal
to one-half of the amount by which its total capital to assets ratio
exceeded its fully phased-in capital to assets ratio at the beginning of
the year (ii) or 75% of its net income for the most recent four quarters.
Pursuant to such OTS dividend regulations, the Banks had the ability to pay
dividends of approximately $7.3 million to Camco Financial Corporation at
December 31, 1996.
NOTE K - BENEFIT PLANS
The Corporation has a non-contributory insured defined benefit pension plan
(the Plan) covering all eligible employees. The Plan's benefit formula is
the projected unit credit formula which encompasses future salary levels
and participants' years of service.
-63-
<PAGE> 29
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE K - BENEFIT PLANS (continued)
Net pension costs includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned during year $232 $185 $180
Interest cost on projected benefit obligation 180 158 155
Gain on plan assets (69) (139) (53)
Net amortization, deferral and other (40) 65 27
---- ---- ----
Net pension cost $303 $269 $309
==== ==== ====
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the consolidated statement of financial condition at December
31:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $1,605 $1,819
====== ======
Accumulated benefit obligation $1,605 $1,955
====== ======
Plan assets at fair value $2,279 $1,918
Actuarial present value of projected benefit
obligation for services rendered to date 1,605 3,033
------ ------
Plan assets greater (less) than projected benefit obligation 674 (1,115)
Unrecognized net gain 580 1,168
Unrecognized transition liability, net of amortization 2 2
Other 1 116
------ ------
Prepaid pension cost (included in prepaid expenses
and other assets) $ 97 $ 171
====== ======
</TABLE>
Assumptions for the plan valuations include:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate 7.71% 6.00% 6.50%
Annual rate of increase in compensation levels N/A 4.50% 4.50%
Expected long-term rate of return on assets 8.00% 8.00% 7.00%
</TABLE>
The Corporation is in the process of terminating the Plan. It is
anticipated that appropriate regulatory approval of the Plan termination
will be received in the first quarter of calendar 1997.
Coincident with the termination of the pension plan, the Corporation
undertook a retirement plan in 1996 which provides retirement benefits to
certain key officers. The Corporation's obligations under the plan have been
provided for via the purchase of single premium key man life insurance of
which the Corporation is the beneficiary. The Corporation recorded expense
related to the plan totaling approximately $37,000 during the year ended
December 31, 1996.
The Corporation also has a 401(k) Salary Savings Plan covering
substantially all employees. Total expense under this plan was $93,000,
$62,000 and $63,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
-64-
<PAGE> 30
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE L - STOCK OPTION PLANS
Stockholders of the Corporation have approved three stock option plans.
Under the 1972 Plan, 161,416 common shares were reserved for issuance to
officers, directors, and key employees of the Corporation and its
subsidiaries. The 1982 Plan reserved 73,539 common shares for issuance to
employees of the Corporation and its subsidiaries. Under the 1995 Plan,
97,650 shares were reserved for issuance. As of December 31, 1996, options
to purchase 73,500 shares were awarded to officers, directors, and key
employees at $16.15 per share, the common stock's adjusted fair value on
the grant date, and were subject to exercise at the discretion of the
grantees through 2005. At December 31, 1996, no options under the 1995 Plan
have been exercised. The foregoing number of shares under option have been
adjusted to reflect the 5% stock dividends effected during the years ended
December 31, 1996, 1995 and 1994, and the stock split effected in the form
of a 100% stock dividend in 1993. At December 31, 1996, all of the stock
options under the 1972 and 1982 Plans had been granted and were subject to
exercise at the discretion of the grantees through 2002.
The following summarizes stock option transactions for the 1972 and 1982
Plans:
<TABLE>
<CAPTION>
1972 PLAN
OPTION
NUMBER PRICE
OF SHARES PER SHARE TOTAL
<S> <C> <C> <C>
Outstanding at January 1, 1994 2,668 $ 1.58-$5.72 $12,629
Effect of 5% stock dividend in 1994 133 - -
------ ------------- -------
Outstanding at December 31, 1994 2,801 $1.50-$5.44 12,629
Exercised (1,382) $3.55 (avg.) (4,911)
Effect of 5% stock dividend in 1995 71 - -
------ ------------ -------
Outstanding at December 31, 1995 1,490 $5.18 7,718
Exercised (1,490) 5.18 (7,718)
----- ----- -------
Outstanding at December 31, 1996 - $ - $ -
====== ===== =======
</TABLE>
-65-
<PAGE> 31
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE L - STOCK OPTION PLANS (continued)
<TABLE>
<CAPTION>
1982 PLAN
OPTION
NUMBER PRICE
OF SHARES PER SHARE TOTAL
<S> <C> <C> <C>
Outstanding at January 1, 1994 6,206 $5.72 $35,445
Exercised (1,361) $5.44 (7,685)
Effect of 5% stock dividend in 1994 259 - -
------ ------ ------
Outstanding at December 31, 1994 5,104 $5.44 27,760
Exercised (1,058) $5.44 (5,755)
Effect of 5% stock dividend in 1995 202 - -
------ ------ ------
Outstanding at December 31, 1995 4,248 $5.18 $22,005
Exercised (4,081) $5.18 (21,140)
Effect of 5% stock dividend in 1996 4 - -
------ ---- ------
Outstanding at December 31, 1996 171 $4.93 $ 843
====== ===== =======
</TABLE>
Additionally, in connection with the acquisition of First Ashland Financial
Corporation, the stock options of First Ashland were converted into 160,772
options of Camco Financial Corporation stock at an exercise price of $12.24
per share which expire on October 25, 2005. As of December 31, 1996, none
of these options had been exercised.
On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which contains a fair value-based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for employee stock options and similar equity
instruments under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required to make pro
forma disclosures of net earnings and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
Such disclosures are not required for the Corporation since no stock
options were granted in 1996. The Corporation's employee stock option plans
are accounted for under APB Opinion No. 25.
-66-
<PAGE> 32
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial
position of Camco Financial Corporation as of December 31, 1996 and 1995
and the results of its operations and its cash flows for each of the years
ended December 31, 1996, 1995 and 1994:
CAMCO FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Cash in subsidiary Banks $ 373 $ 685
Interest-bearing deposits in other financial institutions 1,230 -
Investment securities available for sale 97 86
Investment in Bank subsidiaries utilizing
the equity method 43,959 27,079
Investment in title agency subsidiary 339 232
Cash surrender value of life insurance 631 -
Prepaid expenses and other assets 6 46
Prepaid federal income taxes 76 -
------- -------
Total assets $46,711 $28,128
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $ 1,319 $ 110
Dividends payable 368 207
Accrued federal income taxes - 118
Deferred federal income taxes 11 -
------- -------
Total liabilities 1,698 435
Stockholders' equity
Common stock 3,063 1,971
Additional paid-in capital 21,917 5,735
Retained earnings - substantially restricted 20,005 19,936
Unrealized gains on securities designated as
available for sale, net of related tax effects 28 51
------- -------
Total stockholders' equity 45,013 27,693
------- -------
Total liabilities and stockholders' equity $46,711 $28,128
======= =======
</TABLE>
-67-
<PAGE> 33
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
(continued)
CAMCO FINANCIAL CORPORATION
STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income:
Dividends from Bank subsidiaries $2,264 $1,123 $ 870
Interest and other income 60 140 203
Equity in undistributed net earnings
of the Bank subsidiaries 1,140 2,781 1,845
Equity in undistributed net earnings
of title agency subsidiary 107 72 8
------ ------ ------
Total income 3,571 4,116 2,926
General, administrative and other
expense 912 607 496
------ ------ ------
Earnings before federal income tax
credits 2,659 3,511 2,430
Federal income tax credits (354) (137) (112)
------ ------ ------
Net earnings $3,013 $3,648 $2,542
====== ====== ======
</TABLE>
-68-
<PAGE> 34
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
(continued)
CAMCO FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $3,013 $3,648 $2,542
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Undistributed net earnings of the Bank
subsidiaries (1,140) (2,781) (1,845)
Undistributed net earnings of title
agency subsidiary (107) (72) (8)
Decrease (increase) in other assets 40 (61) (16)
Increase (decrease) in accounts payable
and other liabilities 1,370 (88) (72)
Increase (decrease) in current federal income taxes (194) (136) 35
Other - net (273) - -
------ ------ ------
Net cash provided by operating activities 2,709 510 636
Cash flows used in investing activities:
Issuance of note receivable to Bank subsidiary - - (3,000)
Repayment of note receivable from Bank subsidiary - 3,000 -
Contribution of capital to Bank subsidiaries - (2,500) -
Purchase of investment securities (20) (29) -
Purchase of cash surrender value of life insurance (614) - -
Net increase in cash surrender value of life insurance (17) - -
Increase in interest-bearing deposits in other
financial institutions (1,230) - -
------ ------ ------
Net cash provided by (used in) investing activities (1,881) 471 (3,000)
Cash flows provided by (used in) financing activities:
Proceeds from other borrowing 5,465 - -
Repayment of other borrowing (5,465) - -
Common stock options exercised 29 10 8
Dividends paid (1,169) (773) (580)
Proceeds from offering of common stock - - 2,961
------ ------ ------
Net cash provided by (used in) financing activities (1,140) (763) 2,389
------ ------ ------
Net increase (decrease) in cash and cash equivalents (312) 218 25
Cash and cash equivalents at beginning of year 685 467 442
------ ------ ------
Cash and cash equivalents at end of year $ 373 $ 685 $ 467
====== ====== ======
</TABLE>
-69-
<PAGE> 35
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
(continued)
During 1994, the Corporation undertook an offering of common stock which
was completed on December 28, 1994. The Corporation issued 231,000 shares
of common stock in the offering at $14.50 per share. After giving effect to
offering expenses of $379,000, the Corporation recognized a $3.0 million
increase in stockholders' equity.
NOTE N - SEGMENT INFORMATION
The following table sets forth the Corporation's revenues, income before
income taxes, and assets for each of its business segments for the years
ended December 31, 1996, 1995 and 1994. For purposes of the table,
"revenue" represents the sum of total interest income and total other
income:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Revenue:
Banking $ 31,035 $ 26,827 $ 20,429
Mortgage banking 2,976 2,808 2,703
-------- -------- --------
Total business segments 34,011 29,635 23,132
Intersegment eliminations (1,155) (902) (795)
-------- -------- --------
Total $ 32,856 $ 28,733 $ 22,337
======== ======== ========
Earnings before income taxes:
Banking $ 3,314 $ 4,092 $ 2,934
Mortgage banking 1,369 1,698 1,099
-------- -------- -------
Total business segments 4,683 5,790 4,033
Intersegment eliminations (174) (232) (180)
-------- -------- --------
Total $ 4,509 $ 5,558 $ 3,853
======== ======== ========
Assets-year-end:
Banking $467,478 $344,177 $323,355
Mortgage banking 2,655 3,096 1,817
-------- -------- --------
Total business segments 470,133 347,273 325,172
Intersegment eliminations (683) (804) (545)
-------- -------- --------
Total $469,450 $346,469 $324,627
======== ======== ========
</TABLE>
-70-
<PAGE> 36
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE O - BUSINESS COMBINATION
On October 4, 1996, the Corporation acquired First Ashland Financial
Corporation utilizing the purchase method of accounting. First Ashland was
dissolved upon consummation, with First Ashland's banking subsidiary, First
Federal Bank for Savings, continuing operations as a wholly owned
subsidiary of the Corporation. The results of First Federal Bank for
Savings' operations subsequent to October 4, 1996 are included in the
consolidated financial statements. Camco paid $13.2 million in cash and
issued 987,247 of its common shares in connection with the acquisition,
with the $3.7 million excess of the fair value of liabilities assumed over
assets received, assigned to goodwill.
Presented below are pro-forma condensed consolidated statements of earnings
and earnings per share which have been prepared as if the acquisition had
been consummated as of the beginning of each of the years ended December
31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
(In thousands, except share data)
(Unaudited)
<S> <C> <C>
Total interest income $33,956 $31,442
Total interest expense 18,504 17,675
------- -------
Net interest income 15,452 13,767
Provision for losses on loans 161 141
Other income 3,749 3,375
General, administrative and other expense 14,435 10,777
------- -------
Earnings before income taxes 4,605 6,224
Federal income taxes 1,617 2,167
------- -------
Net earnings $ 2,988 $ 4,057
======= =======
Earnings per share $.96 $1.28
==== =====
</TABLE>
NOTE P - LEGISLATIVE DEVELOPMENTS
The deposit accounts of the Banks and of other savings associations are
insured by the FDIC through the Savings Association Insurance Fund
("SAIF"). The reserves of the SAIF were below the level required by law,
because a significant portion of the assessments paid into the fund were
used to pay the cost of prior thrift failures. The deposit accounts of
commercial banks are insured by the FDIC through the Bank Insurance Fund
("BIF"), except to the extent such banks have acquired SAIF deposits. The
reserves of the BIF met the level required by law in May 1995. As a result
of the respective reserve levels of the funds, deposit insurance
assessments paid by healthy savings associations exceeded those paid by
healthy commercial banks by approximately $.19 per $100 in deposits in
1995. In 1996, no BIF assessments were required for healthy commercial
banks except for a $2,000 minimum fee.
-71-
<PAGE> 37
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
NOTE P - LEGISLATIVE DEVELOPMENTS (continued)
Legislation was enacted to recapitalize the SAIF that provided for a
special assessment totaling $.657 per $100 of SAIF deposits held at March
31, 1995, in order to increase SAIF reserves to the level required by law.
The Banks held $277.3 million in deposits at March 31, 1995, resulting in
an assessment of approximately $1.8 million, or $1.2 million after tax,
which was charged to operations in 1996.
A component of the recapitalization plan provides for the merger of the
SAIF and BIF on January 1, 1999. However, the SAIF recapitalization
legislation currently provides for an elimination of the thrift charter or
of the separate federal regulation of thrifts prior to the merger of the
deposit insurance funds. As a result, First Federal and Ashland would be
regulated as banks under federal laws which would subject it to the more
restrictive activity limits imposed on national banks. Under separate
legislation related to the recapitalization plan, the Banks are required to
recapture as taxable income approximately $1.7 million of their bad debt
reserve, which represents the post-1987 additions to the reserve, and will
be unable to utilize the percentage of earnings method to compute the
reserve in the future. The Banks have provided deferred taxes for this
amount and will be permitted to amortize the recapture of the bad debt
reserve in taxable income over six years.
-72-
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Camco Financial Corporation
By /s/ Anthony J. Popp
----------------------------
Anthony J. Popp,
Principal Financial Officer,
Senior Vice President
and Director
Date: April 2, 1997
-75-
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
<S> <C>
Exhibit 23(i) Consent of Grant Thornton LLP regarding
Camco's Consolidated Financial
Statements and Form S-8
</TABLE>
-76-
<PAGE> 1
ACCOUNTANTS' CONSENT
We have issued our report dated February 19, 1997, accompanying the
consolidated financial statements of Camco Financial Corporation which are
incorporated within the Amendment No. 1 to the Annual Report on Form 10-KSB for
the year ended December 31, 1996. We hereby consent to the incorporation by
reference of said report in Camco's Form S-8 (33-88072).
Grant Thornton LLP
Cincinnati, Ohio
April 2, 1997
