<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 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-K 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-K
or any amendment to this Form 10-K. [ ]
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 20, 1998, was $93.2 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, 1997,
were $41.4 million.
3,603,044.5 shares of the Registrant's common stock were outstanding on
March 20, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of Form 10-K: Portions of the Proxy Statement for the 1998
Annual Meeting of Stockholders
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Camco Financial Corporation ("Camco") is a multiple savings and loan
holding company organized under Delaware law in 1970. Through its wholly-owned
subsidiaries, Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings
Bank ("Marietta Savings"), First Federal Savings Bank of Washington Court House
("First Federal") and First Federal Bank for Savings ("First Savings"), Camco is
engaged in the financial services business in Ohio and Kentucky.
The acquisition by Camco of GF Bancorp, Inc., a Delaware corporation,
and its wholly-owned subsidiary, Germantown Federal Savings Bank, a federal
savings bank ("Germantown Federal"), was completed in January 1998 (the
"Germantown Merger"). In connection with the Germantown Merger, Germantown
Federal, which had its main office in Germantown, Ohio and a branch office in
New Lebanon, Ohio, merged into First Federal.
In October 1996, the merger of First Ashland Financial Corporation, a
Kentucky corporation, with and into Camco (the "Ashland Merger") was completed.
Pursuant to the Ashland Merger, First Savings, which has its main office and a
full-service branch office in Ashland, Kentucky, a full-service branch office in
Russell, Kentucky, and a loan origination office in Huntington, West Virginia,
became a wholly-owned subsidiary of Camco.
First Federal was acquired by Camco in 1988. First Federal has its main
office and a full-service branch office in Washington Court House, loan
origination offices in Chillicothe, Circleville and Wilmington, Ohio, and, as a
result of the Germantown Merger, full-service branch offices in Germantown and
New Lebanon, Ohio.
Cambridge Savings, which was acquired by Camco in 1971, was
incorporated under Ohio law in 1885. The main office of Cambridge Savings is in
Cambridge, Ohio. Cambridge Savings has branch offices in Cambridge, Byesville
and Uhrichsville, Ohio. In July 1994, Cambridge Savings converted its charter
from an Ohio savings and loan association to an Ohio savings bank.
Established in 1923 under Ohio law, Marietta Savings was acquired by
Camco in 1973. Marietta has its main office and a branch office in Marietta,
Ohio, and a branch in Belpre, Ohio. In July 1994, Marietta Savings converted its
charter from an Ohio savings and loan association to an Ohio savings bank.
Cambridge Savings, Marietta Savings, First Federal and First
Savings (collectively, the "Banks") are members of the Federal Home Loan Bank
(the "FHLB") of Cincinnati, and the accounts of each are insured up to
applicable limits by the Savings Association Insurance Fund (the "SAIF")
administered by the Federal Deposit Insurance Corporation (the "FDIC"). First
Federal and First Savings are subject to regulation, examination and supervision
by the United States Department of the Treasury, Office of Thrift Supervision
(the "OTS") and the FDIC. Cambridge Savings and Marietta Savings are regulated
by the Ohio Department of Financial Institutions, Division of Savings Banks (the
"Division") and the FDIC.
Cambridge Savings and Marietta Savings each own 50% of the outstanding
stock of Camco Mortgage Corporation ("CMC"), a service corporation engaged in
mortgage lending and related activities. Marietta Savings owns 100% of the
outstanding stock of WestMar Mortgage Company ("WestMar"), a service corporation
engaged in mortgage lending activities, primarily in Wood County, West Virginia.
First Savings owns 100% of the stock of First S&L Corporation, a Kentucky
corporation incorporated in 1975 for the purpose of acquiring stock in a data
processing company located in Cincinnati, Ohio. East Ohio Land Title Agency,
Inc. ("East Ohio"), a wholly-owned subsidiary of Camco, is engaged in the title
insurance agency business.
The financial statements for Camco and its subsidiaries are prepared on
a consolidated basis. The principal source of revenue for Camco on an
unconsolidated basis is dividends from the Banks. Payment of dividends to Camco
by the Banks is subject to various regulatory restrictions and tax
considerations. See "REGULATION."
References in this report to various aspects of the business,
operations and financial condition of Camco may be limited to the Banks, as the
context requires.
<PAGE> 3
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of Camco at the dates
indicated. This selected financial data should be read in conjunction with the
consolidated financial statements appearing elsewhere in this document.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF At December 31,
FINANCIAL CONDITION: -----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $520,617 $469,450 $346,469 $324,627 $277,098
Interest-bearing deposits (1) 6,304 8,268 4,003 8,486 26,111
Investment securities available for sale - at market 3,558 5,174 3,131 2,978 --
Investment securities - at cost 17,489 21,844 19,283 27,333 29,104
Mortgage-backed securities available for sale - at market 497 742 985 1,464 --
Mortgage-backed securities - at cost 8,207 10,700 5,002 5,452 9,315
Loans receivable - net (2) 446,480 388,923 292,751 261,459 198,608
Deposits 382,225 358,009 286,574 266,861 252,219
FHLB advances and other borrowings 80,319 57,354 26,078 26,511 1,500
Stockholders' equity - restricted 48,963 45,013 27,693 24,741 19,826
CONSOLIDATED STATEMENTS OF EARNINGS: Year ended December 31,
- ------------------------------------ ------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income $ 37,573 $ 29,260 $ 25,440 $ 19,759 $ 18,990
Total interest expense 21,022 16,046 14,257 10,233 9,752
-------- -------- -------- -------- --------
Net interest income 16,551 13,214 11,183 9,526 9,238
Provision for losses on loans 232 111 143 97 310
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 16,319 13,103 11,040 9,429 8,928
Other income 3,840 3,596 3,293 2,578 3,106
General, administrative and other expense 11,624 12,190 8,775 8,154 6,963
-------- -------- -------- -------- --------
Earnings before federal income taxes 8,535 4,509 5,558 3,853 5,071
Federal income taxes 2,909 1,496 1,910 1,311 1,747
-------- -------- -------- -------- --------
Net earnings $ 5,626 $ 3,013 $ 3,648 $ 2,542 $ 3,324
======== ======== ======== ======== ========
Earnings per share: (3)
Basic $ 1.75 $ 1.24 $ 1.68 $ 1.33 $ 1.74
======== ======== ======== ======== ========
Diluted $ 1.71 $ 1.21 $ 1.68 $ 1.33 $ 1.74
======== ======== ======== ======== ========
<FN>
- ------------------
(1) Includes certificates of deposit in other financial institutions.
(2) Includes loans held for sale.
(3) Earnings per share has been restated for SFAS No. 128 and adjusted to give effect to a 5%
stock dividend effected during the years ended December 31, 1997, 1996, 1995 and 1994.
</FN>
<CAPTION>
SELECTED FINANCIAL RATIOS: At or for the year ended December 31,
-------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets (1) 1.14% .74% 1.09% .84% 1.22%
Return on average equity (1) 11.97 8.29 13.91 11.41 18.07
Average equity to average assets (1) 9.49 8.91 7.81 7.41 6.72
Dividend payout ratio (2) 28.99 34.52 21.07 22.63 17.53
<FN>
- -----
(1) Ratios are based upon the mathematical average of the balances at the beginning and the end of the year.
(2) Represents dividends per share divided by basic earnings per share.
</FN>
</TABLE>
LENDING ACTIVITIES
GENERAL. Camco's primary lending activities include the
origination of conventional fixed-rate and variable-rate mortgage loans for the
construction, acquisition or refinancing of single-family homes located in the
Banks' primary market
3
<PAGE> 4
areas. Construction and permanent mortgage loans on condominiums, multifamily
(over four units) and nonresidential properties are also offered by Camco. In
addition to mortgage lending, Camco makes a variety of consumer loans.
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information in respect of the composition of Camco's loan portfolio, including
loans held for sale, at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1997 1996 1995
--------------------- ----------------------- ---------------------
Percent Percent Percent
of total of total of total
Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Construction $ 14,505 3.2% $ 19,960 5.2% $ 19,944 6.8%
Loans on existing residential properties (1) 400,750 89.8 341,537 87.8 245,285 83.8
Nonresidential real estate 11,294 2.5 12,529 3.2 11,486 3.9
Developed building lots 1,870 0.4 1,406 0.4 965 0.3
Education loans 2,224 0.5 2,037 0.5 2,728 0.9
Consumer and other loans (2) 28,034 6.3 22,244 5.7 22,589 7.7
--------- ------- --------- ------- --------- -------
Total 458,677 102.7 399,713 102.8 302,997 103.4
Less:
Undisbursed loans in process (10,059) (2.2) (8,867) (2.3) (8,717) (3.0)
Unamortized yield adjustments (813) (0.2) (676) (0.2) (497) (0.1)
Allowance for loan losses (1,325) (0.3) (1,247) (0.3) (1,032) (0.3)
--------- ------- --------- ------- --------- -------
Total loans, net $ 446,480 100.0% $ 388,923 100.0% $ 292,751 100.0%
========= ======= ========= ======= ========= =======
<CAPTION>
At December 31,
------------------------------------------------------------
1994 1993
--------------------------- --------------------------
Percent Percent
of total of total
Amount loans Amount loans
------ ----- ------ -----
<S> <C> <C> <C> <C>
Type of loan:
Construction $ 21,947 8.4% $ 16,624 8.4%
Loans on existing residential properties (1) 213,354 81.6 156,563 78.8
Nonresidential real estate 14,845 5.7 14,025 7.1
Developed building lots 1,147 0.4 825 0.4
Education loans 2,799 1.1 2,494 1.2
Consumer and other loans (2) 18,659 7.1 16,636 8.4
--------- ------- --------- -------
Total 272,751 104.3 207,167 104.3
Less:
Undisbursed loans in process (9,483) (3.6) (7,006) (3.5)
Unamortized yield adjustments (866) (0.3) (525) (0.3)
Allowance for loan losses (943) (0.4) (1,028) (0.5)
--------- ------- --------- -------
Total loans, net $ 261,459 100.0% $ 198,608 100.0%
========= ======= ========= =======
<FN>
- -----------------------------
(1) Includes loans held for sale.
(2) Includes second mortgage loans.
</FN>
</TABLE>
Camco's loan portfolio was approximately $446.5 million at December 31,
1997, and represented 85.8% of total assets.
LOAN MATURITY SCHEDULE. The following table sets forth certain
information as of December 31, 1997, regarding the dollar amount of loans
maturing in Camco's portfolio based on the contractual terms to maturity of the
loans. Demand loans, loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
Due during
the year ending Due in Due in
December 31, years years after
1998 1999-2003 2003 Total
-------- --------- ----------- -----
(In thousands)
Real estate loans (1):
<S> <C> <C> <C> <C>
One- to four-family $ 14,203 $ 43,769 $328,920 $386,892
Multifamily and nonresidential 456 4,513 18,829 23,798
Consumer and other loans 9,742 17,624 6,427 33,793
-------- -------- -------- --------
Total $ 24,401 $ 65,906 $354,176 $444,483
======== ======== ======== ========
<FN>
(1) Excludes loans held for sale of $4.1 million and does not consider unamortized yield adjustments of $813,000 and allowance
for loan losses of $1.3 million.
</FN>
</TABLE>
4
<PAGE> 5
The following table sets forth at December 31, 1997, the dollar amount
of all loans due after one year from December 31, 1997, which have predetermined
interest rates and have floating or adjustable interest rates:
<TABLE>
<CAPTION>
Due more than one year after
December 31, 1997
----------------------------
(In thousands)
<S> <C>
Fixed rate of interest $102,727
Adjustable rate of interest 317,355
--------
Total $420,082
========
</TABLE>
Generally, loans originated by the Banks are on a fully amortized
basis. The Banks have no rollover provisions in their loan documents and
anticipate that loans will be paid in full by the maturity date.
RESIDENTIAL LOANS. The primary lending activity of the Banks has been
the origination of conventional loans for the acquisition or construction of
single-family residences. At December 31, 1997, 90.1% of the total outstanding
loans consisted of loans secured by mortgages on one- to four-family residential
properties. The Banks also originate loans on multifamily housing (over four
units) and condominiums. Each of such loans is secured by a mortgage on the
underlying real estate and improvements thereon.
Federal regulations and Ohio law limit the amount which the Banks may
lend in relationship to the appraised value of the underlying real estate at the
time of loan origination (the "Loan-to-Value Ratio" or "LTV"). In accordance
with such regulations and law, the Banks make loans on single-family residences
up to 95% of the value of the real estate and improvements. The Banks generally
require the borrower on each loan which has an LTV in excess of 90% to obtain
private mortgage insurance.
The Banks have offered adjustable-rate mortgage loans ("ARMs") since
1981. The interest rate adjustment periods on the ARMs offered by the Banks are
generally one, three or five years. The interest rates initially charged on ARMs
and the new rates at each adjustment date are determined by adding a stated
margin to a designated interest rate index. For the past several years, the
Banks have used the one-year, three-year and five-year United States Treasury
bill rates, adjusted to a constant maturity, as the index for its one-year,
three-year and five-year adjustable-rate loans, respectively. The initial
interest rate for a three-year and a five-year ARM is set slightly higher than
for the one-year ARM to compensate for the reduced interest rate sensitivity.
The maximum adjustment at each adjustment date for ARMs is usually 2%, with a
maximum adjustment of 6% over the term of the loan. None of the Banks' ARMs have
negative amortization features.
From time to time, the Banks originate ARMs which have an initial
interest rate that is lower than the sum of the specified index plus the margin.
Such loans are subject to increased risk of delinquency or default due to
increasing monthly payments as the interest rates on such loans increase to the
fully indexed level. The Banks attempt to reduce the risk by underwriting such
loans at the fully indexed rate.
Residential mortgage loans offered by the Banks are usually for terms
of 10 to 30 years. Due to the general long-term nature of an investment in
mortgage loans, such loans could have an adverse effect upon earnings if such
loans do not reprice as quickly as the cost of funds. To minimize such effect,
the Banks emphasize the origination of ARMs and sell fixed-rate loans when
conditions favor such a sale. Furthermore, experience reveals that, as a result
of prepayments in connection with refinancings and sales of the underlying
properties, residential loans generally remain outstanding for periods which are
substantially shorter than the maturity of such loans.
Of the total mortgage loans originated by the Banks during the year
ended December 31, 1997, 48.5% were ARMs and 51.5% were fixed-rate loans.
Adjustable-rate loans comprised 74.8% of Camco's total outstanding loans at
December 31, 1997.
CONSTRUCTION LOANS. The Banks offer residential construction loans both
to owner-occupants and to builders for homes being built under contract with
owner-occupants. The Banks also make construction loans to persons constructing
projects for investment purposes. At December 31, 1997, a total of $14.5
million, or approximately 3.2% of Camco's total loans, consisted of construction
loans, primarily for one- to four-family properties.
-5-
5
<PAGE> 6
Construction loans to owner-occupants are typically adjustable-rate
long-term loans on which the borrower pays only interest during the construction
period. Some construction loans to builders, however, have terms of up to 18
months at fixed rates of interest.
Construction loans for investment properties involve greater
underwriting and default risks to Camco than do loans secured by mortgages on
existing properties or construction loans for single-family residences. Loan
funds are advanced upon the security of the project under construction, which is
more difficult to value in the case of investment properties before the
completion of construction. Moreover, because of the uncertainties inherent in
estimating construction costs, it is relatively difficult to evaluate precisely
the total loan funds required to complete a project and the related
Loan-to-Value Ratios. In the event a default on a construction loan occurs and
foreclosure follows, Camco could be adversely affected in that it would have to
take control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. At December 31, 1997, the
Banks had five construction loans in the amount of $2.1 million on investment
properties.
NONRESIDENTIAL REAL ESTATE LOANS. The Banks originate loans secured by
mortgages on nonresidential real estate, including retail, office and other
types of business facilities and apartment projects containing 36 or more units.
Nonresidential real estate loans are generally made on an adjustable-rate basis
for terms of up to 20 years. Nonresidential real estate loans originated by the
Banks generally have an LTV of 80% or less. The largest nonresidential real
estate loan outstanding at December 31, 1997, was a $1.75 million loan secured
by a 72-unit apartment complex. Nonresidential real estate loans comprised 2.5%
of total loans at December 31, 1997.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Banks have endeavored to reduce
this risk by carefully evaluating the credit history and past performance of the
borrower, the location of the real estate, the quality of the management
constructing or operating the property, the debt service ratio, the quality and
characteristics of the income stream generated by the property and appraisals
supporting the property's valuation.
Federal law limits an association's investment in nonresidential real
estate loans to 400% of the association's capital. Camco does not anticipate
that it will be adversely affected by such limitation because Camco's business
strategy includes limited nonresidential real estate lending. At December 31,
1997, Camco's investment in nonresidential real estate loans was approximately
23.1% of its total capital.
CONSUMER LOANS. The Banks make various types of consumer loans,
including loans made to depositors on the security of their savings deposits,
automobile loans, education loans, home improvement loans, home equity line of
credit loans and unsecured personal loans. Home equity loans and unsecured loans
are generally made at a variable rate of interest tied to the base rate on
corporate loans, posted by 75% of the nation's 30 largest banks, as reported in
THE WALL STREET JOURNAL. Home equity loans are for terms of up to ten years.
Most other consumer loans are generally made at fixed rates of interest for
terms of up to ten years. The risk of default on consumer loans during an
economic recession is greater than for residential mortgage loans. At December
31, 1997, education, consumer and other loans constituted 6.8% of Camco's total
loans.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including: solicitations by Camco's lending staff;
referrals from real estate brokers and builders; continuing business with
depositors, other borrowers and real estate developers; and walk-in customers.
Camco does not use loan brokers. Camco's management stresses the importance of
individualized attention to the financial needs of its customers.
The loan origination process is decentralized, with each of the Banks
having autonomy in loan processing and approval for its respective market area.
Mortgage loan applications from potential borrowers are taken by one of the loan
officers of the Bank originating the loan, after which they are forwarded to the
Bank's loan department for processing. On new loans, the loan department
typically obtains a credit report, verification of employment and other
documentation concerning the borrower and orders an appraisal of the fair market
value of the real estate which will secure the loan. Such real estate is
thereafter physically inspected and appraised by a staff appraiser or by a
designated fee appraiser approved by the Board of Directors of the originating
Bank. Upon the completion of the appraisal and the receipt of all necessary
information regarding the borrower, the mortgage loan application is submitted
to the Bank's loan committee for approval. If the loan is approved, an
attorney's opinion of title or title insurance is obtained on the real estate
which will secure the loan. Borrowers are required to carry satisfactory fire
and casualty insurance and flood insurance, if applicable, and to name the
originating Bank as an insured mortgagee.
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<PAGE> 7
The procedure for approval of construction loans is the same as for
residential mortgage loans, except that the appraisal evaluates the building
plans, construction specifications and construction cost estimates. The
originating Bank also evaluates the feasibility of the proposed construction
project and the experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
LOAN ORIGINATIONS, PURCHASES AND SALES. The Banks have been actively
originating new 30-year, 15-year and 10-year fixed-rate real estate loans as
well as adjustable-rate real estate loans and consumer loans. Generally all
residential fixed-rate loans made by the Banks are originated on documentation
which will permit a possible sale of such loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") or other secondary mortgage market participants.
When a mortgage loan is sold to the FHLMC, the selling Bank services the loan by
collecting monthly payments of principal and interest and forwarding such
payments to the FHLMC, net of a servicing fee. Fixed-rate loans not sold to the
FHLMC and all of the ARMs originated by the Banks are held in the Banks' loan
portfolios. During the year ended December 31, 1997, Camco sold approximately
$77.7 million in loans to the FHLMC and others. Income from loans serviced by
Camco for others was $339,000 for the year ended December 31, 1997.
From time to time, the Banks sell participation interests in mortgage
loans originated by them and purchase whole loans or participation interests in
loans originated by other lenders. The Banks held whole loans and participations
in loans originated by other lenders of approximately $24.3 million at December
31, 1997. Loans which the Banks purchase must meet or exceed the underwriting
standards for loans originated by the Banks.
In recent years, Camco has purchased mortgage-backed securities insured
or guaranteed by U.S. Government agencies in order to improve Camco's asset
portfolio yield by profitably investing excess funds. Camco intends to continue
to purchase such mortgage-backed securities when conditions favor such an
investment. See "Investment Activities."
The following table presents Camco's mortgage loan origination,
purchase, sale and principal repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans originated:
Construction $ 33,499 $ 23,653 $ 13,466 $ 15,898 $ 16,538
Permanent 163,245 115,538 97,283 119,368 149,500
Consumer and other 51,479 41,647 26,656 22,711 18,894
-------- -------- -------- -------- --------
Total loans originated 248,223 180,838 137,405 157,977 184,932
-------- -------- -------- -------- --------
Loan participations purchased (1) 12,514 -- -- 1,210 3,119
Reductions:
Principal repayments (1) 127,687 88,561 68,451 57,609 64,394
Loans sold (1) 77,665 61,687 38,891 41,276 112,441
Transfers from loans to real estate owned 932 92 70 72 764
-------- -------- -------- -------- --------
Total reductions 206,284 150,340 107,412 98,957 177,599
Increase in other items, net (2) 366 317 370 222 529
Increase due to Ashland Merger -- 70,812 -- -- --
-------- -------- -------- -------- --------
Net increase $ 54,819 $101,627 $ 30,363 $ 60,452 $ 10,981
======== ======== ======== ======== ========
<FN>
- -------------------
(1) Includes mortgage-backed securities.
(2) Other items primarily consist of amortization of deferred loan
origination fees, the provision for losses on loans and unrealized
gains on mortgage-backed securities designated as available for sale.
</FN>
</TABLE>
7
<PAGE> 8
FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000. In addition,
the OTS, under certain circumstances, may permit exceptions to the lending limit
on a case-by-case basis.
The largest amount which the Banks could have loaned to one borrower at
December 31, 1997, was approximately $2.3 million for Cambridge Savings, $1.5
million for Marietta Savings, $1.1 for First Federal and $2.0 million for First
Savings. The largest amount Cambridge Savings had outstanding to one borrower
and related persons or entities at December 31, 1997, was $846,000, which
consisted of eight loans secured by rental properties. The largest amount
Marietta Savings had outstanding to one borrower and related persons or entities
at December 31, 1997, was $1.3 million, which consisted of six loans secured by
a personal residence and commercial properties. The largest amount First Federal
had outstanding to one borrower was $1.1 million, which consisted of eight loans
secured by rental properties. The largest amount First Savings had outstanding
to one person and related persons or entities at December 31, 1997, was
$573,000, which consisted of a single loan secured by a personal residence.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on
loans, the Banks may receive loan origination fees or "points" of up to 2.0% of
the loan amount, depending on the type of loan, plus reimbursement of certain
other expenses. Loan origination fees and other fees are a volatile source of
income, varying with the volume of lending and economic conditions. All
nonrefundable loan origination fees and certain direct loan origination costs
are deferred and recognized as an adjustment to yield over the life of the
related loan in accordance with Statement of Financial Accounting Standards
("SFAS") No. 91.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The Banks
attempt to minimize loan delinquencies through the assessment of late charges
and adherence to established collection procedures. Generally, after a loan
payment is 15 days delinquent, a late charge of 5% of the amount of the payment
is assessed and a loan officer contacts the borrower by mail or phone to request
payment. In certain limited instances, the Banks may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his or
her financial affairs. The Banks generally initiate foreclosure proceedings, in
accordance with applicable laws, when it appears that a modification or
moratorium would not be productive.
Real estate which has been or will be acquired by one of the Banks as a
result of foreclosure or by deed in lieu of foreclosure is classified as "real
estate owned" until it is sold. "Real estate owned" is recorded at the lower of
the book value of the loan or the fair value of the property less estimated
selling expenses at the date of acquisition. Periodically, "real estate owned"
is reviewed to ensure that fair value is not less than carrying value, and any
write-down resulting therefrom is charged to earnings as a provision for losses
on real estate acquired through foreclosure. All costs incurred from the date of
acquisition are expensed in the period paid.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans delinquent for:
30 to 89 days $5,633 $5,438 $4,160 $3,209 $2,497
90 or more days 1,818 2,373 1,082 1,319 2,044
------ ------ ------ ------ ------
Total delinquent loans $7,451 $7,811 $5,242 $4,528 $4,541
====== ====== ====== ====== ======
Ratio of total delinquent
loans to total net loans 1.67% 2.01% 1.79% 1.73% 2.29%
====== ====== ====== ====== ======
</TABLE>
8
<PAGE> 9
Nonaccrual status denotes loans for which, in the opinion of
management, the collection of additional interest is unlikely, or loans that
meet nonaccrual criteria as established by regulatory authorities. Payments
received on a nonaccrual loan are either applied to the outstanding principal
balance or recorded as interest income, depending on management's assessment of
the collectibility of the loan. The following table sets forth information with
respect to Camco's nonaccruing and delinquent loans for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate:
Residential $ 714 $ 908 $ 456 $ 576 $ 842
Nonresidential 27 655 174 80 127
Consumer and other 74 35 -- 16 20
------ ------ ------ ------ ------
Total nonaccrual loans 815 1,598 630 672 989
------ ------ ------ ------ ------
Accruing loans delinquent 90 days or more: Real estate:
Residential 710 652 395 515 882
Nonresidential -- -- -- 38 97
Consumer and other 293 123 57 94 76
------ ------ ------ ------ ------
Total loans 90 days past due 1,003 775 452 647 1,055
------ ------ ------ ------ ------
Total nonperforming loans $1,818 $2,373 $1,082 $1,319 $2,044
====== ====== ====== ====== ======
Allowance for loan losses $1,325 $1,247 $1,032 $ 943 $1,028
====== ====== ====== ====== ======
Nonperforming loans as a percent of total net loans
.41% .61% .37% .50% 1.03%
====== ====== ====== ====== ======
Allowance for loan losses as a percent of nonperforming loans
72.9% 52.5% 95.4% 71.5% 50.3%
====== ====== ====== ====== ======
</TABLE>
The amount of interest income that would have been recorded had
nonaccrual loans performed in accordance with contractual terms totaled $88,181
for the year ended December 31, 1997. Interest collected on such loans and
included in net earnings was $43,742.
At December 31, 1997, there were no loans which were not classified as
nonaccrual, 90 days past due or restructured which management considered
classifying in the near future due to concerns as to the ability of the
borrowers to comply with repayment terms.
Federal regulations require each of the Banks to classify its assets on
a regular basis. Under such regulations, problem assets are to be classified as
either (i) "substandard," (ii) "doubtful" or (iii) "loss." Substandard assets
have one or more defined weaknesses and are characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the same weaknesses as
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full highly questionable and improbable on the
basis of existing facts, conditions and value. Assets classified as "loss" are
considered uncollectible and of such little value that their treatment as assets
without the establishment of a specific reserve is unwarranted. Federal
regulations provide for the reclassification of real estate assets by federal
examiners.
9
<PAGE> 10
Assets classified as substandard or doubtful require the institution to
establish prudent general allowances for losses. If an asset or portion thereof
is classified as loss, the institution must either establish specific allowances
for losses in the amount of 100% of the portion of the asset classified loss or
charge off such amount.
At December 31, 1997, the aggregate amounts of Camco's classified
assets were as follows:
<TABLE>
<CAPTION>
At December 31, 1997
--------------------
(In thousands)
<S> <C>
Classified assets:
Substandard $2,690
Doubtful 13
Loss 21
------
Total classified assets $2,724
======
</TABLE>
The regulations also include a "special mention" category, consisting
of assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification, but which possess credit deficiencies
or potential weaknesses deserving management's close attention. Camco had assets
in the amount of $863,000 designated as "special mention" at December 31, 1997.
ALLOWANCE FOR LOAN LOSSES. The following table sets forth an analysis
of Camco's allowance for loan losses:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,247 $ 1,032 $ 943 $ 1,028 $ 889
Charge-offs:
1-4 family residential real estate 30 3 -- -- 126
Multifamily and nonresidential real estate 124 -- 40 169 --
Consumer 10 3 16 13 53
------- ------- ------- ------- -------
Total charge-offs 164 6 56 182 179
------- ------- ------- ------- -------
Recoveries:
1-4 family residential real estate 2 -- -- -- 8
Multifamily and nonresidential real estate 4 -- -- -- --
Consumer 4 1 2 -- --
------- ------- ------- ------- -------
Total recoveries 10 1 2 -- 8
------- ------- ------- ------- -------
Net charge-offs (154) (5) (54) (182) (171)
Provision for losses on loans 232 111 143 97 310
Increase attributable to First Savings -- 109 -- -- --
------- ------- ------- ------- -------
Balance at end of year $ 1,325 $ 1,247 $ 1,032 $ 943 $ 1,028
======= ======= ======= ======= =======
Net charge-offs to average loans .04% -% .02% .08% .09%
======= ======= ======= ======= =======
</TABLE>
10
<PAGE> 11
The following table sets forth the allocation of Camco's allowance for
loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- -------------------------- ----------------------------
Percent
Percent of loans Percent
of loans in each of loans
in each category category to in each category
to total total to total
Amount loans Amount loans Amount loans
------ ---------------- ------ ------------ ------ ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at year end
applicable to:
Mortgage loans $ 835 93.8% $1,027 93.9% $ 897 91.6%
Consumer and other loans 490 6.2 220 6.1 135 8.4
------ ------- ------ ------- ------ -------
Total $1,325 100.0% $1,247 100.0% $1,032 100.0%
====== ======= ====== ======= ====== =======
<CAPTION>
At December 31,
---------------------------------------------------------
1994 1993
--------------------------- ----------------------------
Percent Percent
of loans of loans
in each category in each category
to total to total
loans loans
Amount Amount
------ ------
<S> <C> <C> <C> <C>
Balance at year end
applicable to:
Mortgage loans $ 809 92.1% $ 805 90.8%
Consumer and other loans 134 7.9 223 9.2
------ ------- ------ -------
Total $ 943 100.0% $1,028 100.0%
====== ======= ====== =======
</TABLE>
INVESTMENT ACTIVITIES
Federal regulations require that the Banks maintain a minimum amount of
liquid assets, which may be invested in United States Treasury obligations,
securities of various agencies of the federal government, certificates of
deposit at insured banks, bankers' acceptances and federal funds sold. The Banks
are also permitted to make limited investments in commercial paper, corporate
debt securities and certain mutual funds, as well as other investments permitted
by federal law and regulations. It has generally been Camco's policy to maintain
liquid assets at the Banks in excess of regulatory requirements in order to
shorten the maturities of the investment portfolios and improve the matching of
short-term investments and interest rate sensitive savings deposit liabilities.
The following table sets forth the composition of Camco's investment
securities portfolio, except its stock in the FHLB of Cincinnati, and
mortgage-backed securities at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1997 1996
---------------------------------------- -----------------------------------------
Amortized % of Fair % of Amortized % of Fair % of
cost Total value Total cost Total value Total
-------- ------ ----- ------ ---- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Government agency obligations $ 17,075 57.5% $ 17,095 57.1% $ 21,367 54.2% $ 21,312 54.0%
Deposits in insured banks -- -- -- -- 990 2.5 990 2.5
Municipal bonds 414 1.4 441 1.5 477 1.2 510 1.3
Mortgage-backed securities 8,207 27.7 8,311 27.8 10,700 27.2 10,735 27.2
--------- ------- --------- ------- --------- ------- --------- -------
25,696 86.6 25,847 86.4 33,534 85.1 33,547 85.0
Available for sale:
U.S. Government agency obligations
2,511 8.4 2,519 8.4 3,523 8.9 3,543 9.0
Corporate equity security 77 .3 144 .5 1,623 4.1 1,631 4.1
Mortgage-backed securities 495 1.7 497 1.7 733 1.9 742 1.9
Asset management funds 900 3.0 895 3.0 -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
3,983 13.4 4,055 13.6 5,879 14.9 5,916 15.0
--------- ------- --------- ------- --------- ------- --------- -------
Total investments and mortgage-backed
securities
$ 29,679 100.0% $ 29,902 100.0% $ 39,413 100.0% $ 39,463 100.0%
========= ======= ========= ======= ========= ======= ========= =======
<CAPTION>
At December 31,
------------------------------------------
1995
------------------------------------------
Amortized % of Fair % of
cost Total value Total
-------- ------ ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government agency obligations $ 19,147 63.4% $ 18,980 63.0%
Deposits in insured banks 1,881 6.2 1,881 6.2
Municipal bonds 136 .4 143 .5
Mortgage-backed securities 5,002 16.6 5,045 16.7
--------- ------- --------- -------
26,166 86.6 26,049 86.4
Available for sale:
U.S. Government agency obligations 2,999 9.9 3,045 10.1
Corporate equity security 82 .3 86 .3
Mortgage-backed securities 968 3.2 985 3.2
Asset management funds -- -- -- --
--------- ------- --------- -------
4,049 13.4 4,116 13.6
--------- ------- --------- -------
Total investments and mortgage-backed
securities
% $ 30,215 100.0% $ 30,165 100.0%
========= ======= ========= =======
</TABLE>
11
<PAGE> 12
The following table presents the contractual maturities or terms to
repricing of Camco's investment securities, except its stock in the FHLB of
Cincinnati, corporate equity securities and asset management funds, and mortgage
backed securities and the weighted average yields at December 31, 1997:
<TABLE>
<CAPTION>
At December 31, 1997
----------------------------------------------------------------------------------------------
After one After five
One year or less through five years through ten years
--------------------------- ------------------------- -------------------------
Amortized Average Amortized Average Amortized Average
cost yield cost yield cost yield
---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
agency obligations $ 6,500 5.50% $ 11,596 6.71% $ 1,490 6.72%
Municipal bonds -- -- 235 7.62 179 7.10
Mortgage-backed securities
160 6.46 1,450 6.65 764 6.03
--------- ------- ---------- ---- --------- ----
Total $ 6,660 5.52% $ 13,281 6.72% $ 2,433 6.58%
========= ======= ========== ==== ========= ====
<CAPTION>
At December 31, 1997
---------------------------------------------------------------------------
After ten years Total
-------------------------- ------------------------------------------
Weighted
Amortized Average Amortized Fair average
cost yield cost value yield
---- ----- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Government
agency obligations $ -- -% $19,586 $ 19,614 6.31%
Municipal bonds -- -- 414 441 7.39
Mortgage-backed securities
6,328 7.39 8,702 8,808 7.13
---------- ------- ------- ---------- ----
Total $ 6,328 7.39% $28,702 $ 28,863 6.57%
========== ======= ======= ========== ====
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Camco's
funds for use in lending and other investment activities. In addition to
deposits, Camco derives funds from interest payments and principal repayments on
loans, advances from the FHLB of Cincinnati and income on earning assets. Loan
payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate more in response to general interest rate and money market
conditions. Borrowings from the FHLB of Cincinnati are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. FHLB advances and other borrowings are also used on a longer term basis
for general business purposes.
DEPOSITS. Deposits are attracted principally from within Camco's
primary market area through the offering of a broad selection of deposit
instruments, including interest and non-interest bearing checking accounts,
money market deposit accounts, regular passbook savings accounts, term
certificate accounts and retirement savings plans. Interest rates paid, maturity
terms, service fees and withdrawal penalties for the various types of accounts
are established periodically by management of the Banks based on their
particular liquidity requirements, growth goals and interest rates paid by
competitors. Interest rates paid by Camco on deposits are not limited by federal
or state law or regulation. Camco generally does not obtain funds through
brokers or offer premiums to attract deposits. Camco does not have a significant
amount of savings accounts from outside its primary market area.
12
<PAGE> 13
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by the Banks at the dates indicated:
<TABLE>
<CAPTION>
At December 31
------------------------------------------------------------------------------
1997 1996 1995
Weighted ------------------- -------------------- ------------------
average Percent of Percent Percent
rate at total of total of total
12/31/97 Amount deposits Amount deposits Amount deposits
-------- ------ ---------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Withdrawable accounts:
Interest and non-interest bearing accounts 1.83% $ 53,046 13.9% $ 47,078 13.1% $ 44,591 15.6%
Money market demand accounts 3.85 19,989 5.2 17,186 4.8 15,047 5.2
Passbook and statement savings accounts 3.06 58,829 15.4 58,610 16.4 50,498 17.6
------- -------- ------- -------- ------- -------- -------
Total withdrawable accounts 2.68 131,864 34.5 122,874 34.3 110,136 38.4
Certificates accounts:
Term:
Seven days to one year 5.32 36,833 9.6 46,143 12.9 19,332 6.7
One to two years 5.92 88,167 23.1 66,674 18.6 54,336 19.0
Two to eight years 6.14 82,133 21.5 82,747 23.1 70,198 24.5
Negotiated rate certificates 5.87 23,386 6.1 21,786 6.1 21,446 7.5
Individual retirement accounts 5.87 19,842 5.2 17,785 5.0 11,126 3.9
------- -------- ------- -------- ------- -------- -------
Total certificate accounts 5.90 250,361 65.5 235,135 65.7 176,438 61.6
------- -------- ------- -------- ------- -------- -------
Total deposits 4.79% $382,225 100.0% $358,009 100.0% $286,574 100.0%
======= ======== ======= ======== ======= ======== =======
</TABLE>
The following table presents the amount and contractual maturities of
Camco's certificate accounts at December 31, 1997:
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------------------------
Up to Over
one year 1-3 years 3-5 years 5 years Total
-------- --------- --------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Amount maturing $146,178 $93,126 $7,350 $3,707 $ 250,361
======== ======= ====== ====== ===========
Average rate 5.75% 5.95% 6.24% 6.65% 5.90%
======== ======= ====== ====== ===========
</TABLE>
The following table sets forth the amount and maturities of Camco's
certificate accounts in excess of $100,000 at December 31, 1997:
<TABLE>
<CAPTION>
Maturity At December 31, 1997
-------- --------------------
(In thousands)
<S> <C>
Three months or less $ 9,418
Over three to six months 6,970
Over six to twelve months 9,177
Over twelve months 14,020
-------
Total $39,585
=======
</TABLE>
BORROWINGS. The twelve regional FHLBs function as central reserve
banks, providing credit for their member institutions. As members in good
standing of the FHLB of Cincinnati, the Banks are authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Advances are made pursuant to several
13
<PAGE> 14
different programs, each having its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are based either
on a fixed percentage of an institution's regulatory capital or on the FHLB's
assessment of the institution's creditworthiness. Under current regulations, a
member institution must meet certain qualifications to be eligible for FHLB
advances. The extent to which an association is eligible for such advances will
depend upon whether it meets the Qualified Thrift Lender ("QTL") test. See
"REGULATION - Federal Regulation -- Qualified Thrift Lender Test." If an
institution meets the QTL test, it will be eligible for 100% of the advances it
would otherwise be eligible to receive. If an institution does not meet the QTL
test, it will be eligible for such advances only to the extent it holds QTL test
assets. At December 31, 1997, each of the Banks met the QTL test.
The following table sets forth the maximum amount of Camco's
FHLB advances outstanding at any month end during the periods shown and the
average aggregate balances of FHLB advances for such periods:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount outstanding $80,319 $57,354 $32,205
Average amount outstanding 65,777 35,678 27,940
Weighted average interest cost of FHLB
advances based on month end balances
5.79% 5.93% 6.37%
</TABLE>
The following table sets forth certain information with respect to
Camco's FHLB advances at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Amount outstanding $ 80,319 $ 57,354 $ 26,078
Weighted average interest rate 6.26% 5.87% 6.31%
</TABLE>
YIELDS EARNED AND RATES PAID
The following table sets forth the weighted average yields earned on
Camco's interest-earning assets, the weighted average interest rates paid on
Camco's interest-bearing liabilities and the interest rate spread between the
weighted average yields earned and rates paid by Camco at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1997 1996 1995
------ ----- ----
<S> <C> <C> <C>
Weighted average yield on:
Loan portfolio 8.23% 8.23% 8.32%
Investment portfolio (1) 6.33 6.25 6.00
Interest-earning assets (2) 8.05 8.01 8.07
Weighted average rate paid on:
Deposits 4.79 4.81 4.68
FHLB advances 6.26 5.87 6.31
Interest-bearing liabilities 5.04 4.96 4.82
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) 3.01 3.05 3.25
<FN>
- ----------------------------
(1) Interest on mortgage-backed securities included.
(2) Earnings on FHLB stock and cash surrender value of life insurance included.
</FN>
</TABLE>
14
<PAGE> 15
AVERAGE YIELD AND RATE ANALYSIS
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resulting
yields, and the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. The table does
not reflect any effect of income taxes. Balances are based on the average of
month-end balances which, in the opinion of management, do not differ materially
from daily balances:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1997 1996
------------------------------------ --------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $414,611 $ 34,267 8.26% $319,730 $ 26,621 8.33%
Mortgage-backed
securities (2) 10,128 716 7.07 6,908 474 6.86
Investment securities (2) 25,099 1,595 6.35 23,833 1,448 6.08
Interest-bearing deposits and other
interest-earning assets 14,069 995 7.07 9,359 717 7.66
-------- -------- -------- -------- -------- -----
Total interest-earning assets $463,907 37,573 8.10 $359,830 29,260 8.13
======== ========
Interest-bearing liabilities:
Deposits $370,438 17,212 4.65 $306,437 13,933 4.55
FHLB advances and other borrowings 65,777 3,810 5.79 35,678 2,113 5.93
-------- -------- -------- -------- -------- -----
Total interest-bearing liabilities $436,215 21,022 4.82 $342,115 16,046 4.69
======== -------- -------- ======== -------- -----
Net interest income; interest rate spread $ 16,551 3.28% $ 13,214 3.44%
========== ======== ======== =====
Net interest margin (3) 3.57% 3.67%
======== =====
Average interest-earning assets to average
interest-bearing liabilities 106.35% 105.18%
======== ======
<CAPTION>
Year ended December 31
---------------------------------------------
1995
---------------------------------------------
Average Interest Average
outstanding earned/ yield/
balance paid rate
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $281,358 $ 22,939 8.15%
Mortgage-backed
securities (2) 6,533 423 6.47
Investment securities (2) 26,339 1,570 5.96
Interest-bearing deposits and other interest-earning
assets 8,176 508 6.21
-------- -------- ------
Total interest-earning assets $322,406 25,440 7.89
========
Interest-bearing liabilities:
Deposits $280,683 12,478 4.45
FHLB advances and other borrowings 27,940 1,779 6.37
-------- -------- ------
Total interest-bearing liabilities $308,623 14,257 4.62
======== -------- ------
Net interest income; interest rate spread $ 11,183 3.27%
======== ======
Net interest margin (3) 3.47%
======
Average interest-earning assets to average interest-bearing
liabilities 104.47%
======
<FN>
(1) Includes nonaccrual loans.
(2) Includes securities designated as available for sale.
(3) Net interest income as a percent of average interest-earning assets.
</FN>
</TABLE>
15
<PAGE> 16
RATE/VOLUME ANALYSIS
The following table describes the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Camco's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been designated as "Other."
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------- ---------------------------------------
Increase (decrease) due to Increase (decrease) due to
--------------------------- ----------------------------
Volume Rate Other Total Volume Rate Other Total
------ ---- ----- ----- ------ ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable (1) $ 8,125 $ (177) $ (60) $ 7,888 $ 3,142 $ 518 $ 73 $ 3,733
Investment securities (2) 438 9 (22) 425 (80) 173 (6) 87
------- ------- ------- ------- ------- ------- ------- -------
Total interest income 8,563 (168) (82) 8,313 3,062 691 67 3,820
------- ------- ------- ------- ------- ------- ------- -------
Interest expense attributable to:
Deposits 2,919 306 54 3,279 1,146 281 28 1,455
FHLB advances and other
borrowings 1,785 (50) (38) 1,697 493 (123) (36) 334
------- ------- ------- ------- ------- ------- ------- -------
Total interest expense 4,704 256 16 4,976 1,639 158 (8) 1,789
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income $ 3,859 $ (424) $ (98) $ 3,337 $ 1,423 $ 533 $ 75 $ 2,031
======= ======= ======= ======= ======= ======= ======= =======
<FN>
- -------
(1) Includes mortgage-backed securities.
(2) Includes interest-bearing deposits and other.
</FN>
</TABLE>
COMPETITION
Camco competes for deposits with other savings associations, savings
banks, commercial banks and credit unions and with the issuers of commercial
paper and other securities, such as shares in money market mutual funds. The
primary factors in competing for deposits are interest rates and convenience of
office location. In making loans, Camco competes with other savings banks,
savings associations, commercial banks, consumer finance companies, credit
unions and other lenders. Camco competes for loan originations primarily through
the interest rates and loan fees it charges and through the efficiency and
quality of the services it provides to borrowers. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels and other factors which
are not readily predictable.
Competition is affected by federal laws which enable bank holding
companies ("BHCs") to acquire control of any savings association or holding
company thereof wherever located. In addition, federal law permits the merger or
consolidation of any federal savings association into any other depository
institution, subject to restrictions on interstate acquisitions. Ohio law
permits savings and loan associations or holding companies having their
principal place of business in any state having reciprocal legislation to
charter or otherwise acquire an Ohio savings and loan association or holding
company. Such laws may increase the number and size of financial institutions
competing with Camco. Such increased competition may have an adverse effect upon
Camco.
SERVICE CORPORATION ACTIVITIES
Federal regulations permit savings associations to invest an amount up
to 2% of their assets in the stock, paid-in surplus and unsecured obligations of
subsidiary service corporations engaged in certain activity. In addition,
federal regulations generally authorize such institutions which meet the minimum
regulatory capital requirements to invest up to 50% of their regulatory capital
in conforming first mortgage loans made by service corporations.
16
<PAGE> 17
At December 31, 1997, Cambridge Savings and Marietta Savings each had a
direct investment in the capital stock of CMC in the amount of $596,124. The
principal business of CMC is originating first mortgage loans on residential
real estate located primarily in Coshocton, Muskingum, Stark and Tuscarawas
Counties, Ohio. Loans originated by CMC are generally sold to Cambridge Savings.
CMC originated $73.0 million of mortgage loans in 1997, $72.6 million of which
were sold to Cambridge Savings, compared to $45.3 million of mortgage loans in
1996, $45.0 million of which were sold to Cambridge Savings.
Marietta Savings had a direct investment in the capital stock of
WestMar in the amount of $271,440 at December 31, 1997. The principal business
of WestMar is originating first mortgage loans on residential real estate
located in Wood County, West Virginia. WestMar originated $8.6 million of
mortgage loans in 1997, $7.0 million of which were sold to Marietta Savings,
compared to $8.4 million of mortgage loans in 1996, $7.5 million of which were
sold to Marietta Savings.
At December 31, 1997, First Savings' investment in First S&L
Corporation totaled $15,000. First S&L Corporation has not conducted any
business other than the acquisition of stock in a data processing company.
EMPLOYEES
As of December 31, 1997, Camco had 179 full-time employees and 15
part-time employees. Camco believes that relations with its employees are
excellent. Camco offers health and disability benefits, a 401(k) salary savings
plan and a contributory defined benefit pension plan, which Camco is in the
process of terminating. None of the employees of Camco are represented by a
collective bargaining unit.
YEAR 2000 CONSIDERATIONS
The Banks' lending and deposit activities are almost entirely dependent
upon computer systems which process and record transactions, although the Banks
can effectively operate for brief periods when their electronic systems
malfunction or cannot be accessed. In addition to its basic operating
activities, the Banks' facilities and infrastructure, such as security systems
and communications equipment, are dependent to varying degrees upon computer
systems.
Camco is aware of the potential year-2000 related problems that may
affect the computers which control or operate the operating systems, facilities
and infrastructure of Camco and the Banks. Camco and its subsidiaries have
contacted the companies that supply or service each institution's
computer-operated or -dependent systems to obtain confirmation that each such
system that is material to the operations of the Company is either currently
year-2000 compliant or is expected to be year-2000 compliant. With respect to
systems that cannot presently be confirmed as year-2000 compliant, Camco will
continue to work with the appropriate supplier or servicer to ensure that all
such systems will be rendered compliant in a timely manner, with minimal expense
to Camco or disruption of Camco's operations. If, by the end of 1998, any of
Camco's suppliers or servicers is unable to certify year-2000 compliance with
respect to any systems the failure of which would have a material adverse effect
on the Camco's operations or financial condition. Camco would then have
sufficient time to identify and contract with suppliers and servicers who are
able to certify year-2000 compliance. The expense of such a change in suppliers
or servicers is not expected to be material to Camco.
In addition to possible expense related to its own systems, Camco and
its subsidiaries could incur losses if loan payments are delayed due to
year-2000 problems affecting any of the Banks' significant borrowers or
impairing the payroll systems of large employers in the Banks' primary market
areas. Because Camco's loan portfolio is diversified with regard to individual
borrowers and types of businesses and the Camco's primary market area is not
significantly dependent upon one employer or industry, Camco does not expect any
significant or prolonged year-2000 related difficulties that will affect net
earnings or financial condition. See "Loans to One Borrower Limits." At this
time, however, the expense that may be incurred by the Company in connection
with year-2000 issues cannot be determined. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year 2000 Issue."
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REGULATION
GENERAL
As a savings and loan holding company within the meaning of the Home
Owners' Loan Act of 1933, as amended (the "HOLA"), Camco is subject to
regulation, examination and oversight by the OTS. First Federal and First
Savings are subject to regulation by the OTS and the FDIC. Cambridge Savings and
Marietta Savings are subject to regulation by the Division and the FDIC. Camco
and the Banks must file periodic reports with these governmental agencies, as
applicable, concerning their activities and financial condition. Examinations
are conducted periodically by the applicable regulators to determine whether
Camco and the Banks are in compliance with various regulatory requirements and
are operating in a safe and sound manner. The Banks are members of the FHLB of
Cincinnati and are also subject to certain regulations promulgated by the Board
of Governors of the Federal Reserve System ("FRB").
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations, and the Department of the Treasury is preparing a report for
Congress on the development of a common charter for all federally-chartered
financial institutions. Pursuant to such legislation, Congress may eliminate the
OTS and the First Federal and First Savings may be regulated under federal law
as banks or be required to change their charters. Such change in regulation or
charter would likely change the range of activities in which the First Federal
and First Savings may engage and would probably subject the First Federal and
First Savings to more regulation by the FDIC. In addition, Camco might become
subject to different holding company regulations which may limit the activities
in which Camco may engage, and subject Camco to other additional regulatory
requirements, including separate capital requirements. At this time, Camco
cannot predict when or whether Congress may actually pass legislation regarding
the regulatory requirements or charter of Camco, First Federal and First
Savings. Although such legislation may change the activities in which Camco,
First Federal and First Savings are authorized to engage, it is not anticipated
that the current activities of Camco, First Federal and First Savings will be
materially affected by those activity limits.
OHIO REGULATION
As savings banks incorporated under Ohio law, Cambridge Savings and
Marietta Savings are subject to regulation by the Division. Such regulation
affects the internal organization of Cambridge Savings and Marietta Savings, as
well as their savings, mortgage lending and other investment activities. Ohio
law requires that Cambridge Savings and Marietta Savings each maintain at least
60% of their assets in housing-related and other specified investments. At
December 31, 1997, Cambridge Savings and Marietta Savings had at least 60% of
their respective assets in such investments. The ability of Ohio savings banks
to engage in certain state-authorized investments is subject to oversight and
approval by the FDIC. See "Federal Regulation - State Chartered Bank
Activities."
Ohio law generally limits the aggregate amount that a savings bank can
lend to one borrower to an amount equal to 15% of the institution's unimpaired
capital and surplus. Based on such limit, Cambridge Savings and Marietta Savings
were able to lend approximately $2.3 million and $1.5 million, respectively, to
one borrower at December 31, 1997. A savings bank may lend to one borrower an
additional amount not to exceed 10% of the institution's unimpaired capital and
surplus, if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral."
The Division is responsible for the regulation and supervision of Ohio
savings banks in accordance with the laws of the State of Ohio. Periodic
examinations by the Division are usually conducted on a joint basis with the
federal examiners. Ohio law requires that Cambridge Savings and Marietta Savings
maintain federal deposit insurance as a condition of doing business.
Any mergers involving, or acquisitions of control of, Ohio savings
banks must be approved by the Division. The Division may initiate certain
supervisory measures or formal enforcement actions against Ohio savings banks.
Ultimately, if the grounds provided by law exist, the Division may place an Ohio
savings bank in conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically
governing savings banks, Cambridge Savings and Marietta Savings are also
governed by Ohio corporate law, to the extent such law does not conflict with
the laws specifically governing savings banks.
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FEDERAL REGULATION
SUPERVISION AND EXAMINATION. The FDIC is responsible for the regulation
and supervision of all commercial banks and state savings banks that are not
members of the Federal Reserve System ("Non-member Banks"), including Cambridge
Savings and Marietta Savings. The OTS is responsible for the regulation and
supervision of all savings associations, including First Federal and First
Savings. Each of the Banks must undergo a full-scope, on-site examination by its
primary federal regulator at least (a) once every twelve months, if the bank has
total assets of $250 million or more, or (b) once every eighteen months, if the
institution has total assets of less than $250 million and satisfies other
specified criteria. In lieu of conducting its own examination, the federal
regulator may accept a state examination every other examination period.
The FDIC issues regulations governing the operations of Non-member
Banks, examines such institutions and may initiate enforcement actions against
such institutions and certain persons affiliated with them for violations of
laws and regulations or for engaging in unsafe or unsound practices. If the
grounds provided by law exist, the FDIC may appoint a conservator or a receiver
for a Non-member Bank.
The OTS issues regulations governing the operations of savings
associations, regularly examines such institutions and imposes assessments on
savings associations based on their asset size to cover the costs of this
supervision and examination. It also promulgates regulations that prescribe
permissible activities for federally chartered associations, including the types
of lending that such associations may engage in and the investments in real
estate, subsidiaries and securities they may make. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Non-member Banks and savings associations are subject to regulatory
oversight under various consumer protection and fair lending laws. These laws
govern, among other things, truth-in-lending disclosure, equal credit
opportunity, fair credit reporting and community reinvestment. Failure to abide
by federal laws and regulations governing community reinvestment could limit the
ability of an institution to open a new branch or engage in a merger
transaction.
STATE-CHARTERED BANK ACTIVITIES. The ability of Cambridge Savings and
Marietta Savings to engage in any state-authorized activities or make any
state-authorized investments, as principal, is limited if such activity is
conducted or investment is made in a manner different than that permitted for,
or subject to different terms and conditions than those imposed on, national
banks. Engaging as a principal in any such activity or investment not
permissible for a national bank is subject to approval by the FDIC. Such
approval will not be granted unless certain capital requirements are met and
there is not a significant risk to the FDIC insurance fund. Most equity and real
estate investments (excluding office space and other real estate owned)
authorized by state law are not permitted for national banks. Certain exceptions
are granted for activities deemed by the FRB to be closely related to banking
and for FDIC-approved subsidiary activities.
LIQUIDITY. OTS regulations require that each of First Federal and First
Savings maintain an average daily balance of liquid assets (cash, certain time
deposits, bankers' acceptances, and specified United States Government, state or
federal agency obligations) equal to a monthly average of not less than 4% of
its net withdrawable savings deposits plus borrowings payable in one year or
less. Federal regulations also require each association to maintain an average
daily balance of short-term liquid assets of not less than 1% of the total of
its net withdrawable savings deposits plus borrowings payable in one year or
less. Monetary penalties may be imposed upon associations failing to meet
liquidity requirements. The average eligible liquidity of First Federal and
First Savings, as computed under current regulations, was approximately $4.9
million, or 8.05%, and $6.0 million, or 7.63%, respectively, for the month of
December 1997, and exceeded the applicable 4.0% liquidity requirement by
approximately $2.5 million and $2.8 million, respectively.
Cambridge Savings and Marietta Savings are not required to maintain a
specific level of liquidity; however, the FDIC expects them to maintain adequate
liquidity to protect safety and soundness.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include credit
card, student and small business loans, and stock issued by any FHLB, the FHLMC
or the FNMA. Under this test 65% of an institution's "portfolio assets" (total
assets less goodwill and other intangibles, property used to conduct business
and 20% of liquid assets) must consist of QTI on a monthly average basis in 9
out of every 12 months. Congress created a second QTL test, effective September
30, 1996, pursuant to which a savings association will qualify as a
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QTL thrift if at least 60% of the institution's assets (on a tax basis) consist
of specified assets (generally loans secured by residential real estate or
deposits, educational loans, cash and certain governmental obligations). The OTS
may grant exceptions to the QTL test under certain circumstances. If a savings
association fails to meet the QTL test, the association and its holding company
become subject to certain operating and regulatory restrictions. A savings
association that fails to meet the QTL test will not be eligible for new FHLB
advances. At December 31, 1997, each of the Banks met the QTL test.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations, including First
Federal and First Savings, to make capital distributions, including dividend
payments. OTS regulations also establish a three-tier system limiting capital
distributions according to ratings of associations based on their capital level
and supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, or the amount authorized for a
Tier 2 association. A Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association. First Federal and First Savings meet the requirements for a Tier 1
association and have not been notified of any need for more than normal
supervision.
Tier 2 consists of associations that before and after the proposed
distribution meet their current minimum, but not fully phased-in, capital
requirements. Associations in this category may make capital distributions of up
to 75% of net income over the most recent four-quarter period. Tier 3
associations do not meet current minimum capital requirements and must obtain
OTS approval of any capital distribution. Tier 2 associations that propose to
make a capital distribution in excess of the noted safe harbor level must also
obtain OTS approval. Tier 2 associations proposing to make a capital
distribution within the safe harbor provisions and Tier 1 associations proposing
to make any capital distribution need only submit written notice to the OTS 30
days prior to such distribution. The OTS may object to the distribution during
that 30-day period based on safety and soundness concerns.
In January 1998, the OTS issued a proposal to amend the capital
distribution limits. Under that proposal, an association owned by a holding
company would still be required to provide either a notice or an application to
the OTS, although under certain circumstances a savings association without a
holding company having an examination rating of 1 or 2 could make a capital
distribution without notice to the OTS, if it would remain adequately
capitalized after the distribution is made.
As subsidiaries of Camco, First Federal and First Savings are required
to give the OTS 30-days' notice prior to declaring any dividend on its stock.
The OTS may object to the distribution during that 30-day period.
LENDING LIMITS. OTS regulations generally limit the aggregate amount
that First Federal and First Savings can lend to one borrower to an amount equal
to 15% of the association's Lending Limit Capital. A savings association may
lend to one borrower an additional amount not to exceed 10% of the association's
unimpaired capital and surplus, if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." Certain types of loans are not subject to these
limits. Notwithstanding the specified limits, an association may lend to one
borrower up to $500,000 for any purpose. In applying these limits, the
regulations require that loans to certain related borrowers be aggregated. At
December 31, 1997, First Federal and First Savings were in compliance with these
lending limits. See "Lending Activities - Federal Lending Limit."
REGULATORY CAPITAL REQUIREMENTS. The Banks are required by applicable
law and regulations to meet certain minimum capital requirements. The capital
standards include a leverage limit, or core capital requirement, a tangible
capital requirement applicable to First Federal and First Savings, and a
risk-based capital requirement.
For First Federal and First Savings, the leverage limit requires "core
capital" of at least 3% of total assets. "Core capital" is comprised of common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in consolidated
subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual
associations and certain purchased mortgage servicing rights.
The tangible capital requirement provides that First Federal and First
Savings must maintain "tangible capital" of not less than 1.5% of its adjusted
total assets. "Tangible capital" is defined as core capital minus any
"intangible assets".
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For Cambridge Savings and Marietta Savings, the leverage capital
requirement is a minimum level of Tier 1 capital to average total consolidated
assets of 3%, if they have the highest regulatory examination rating, well
diversified risk and minimal anticipated growth or expansion, and between 4% and
5% of average total consolidated assets if they do not meet those criteria.
"Tier 1" capital includes common stockholders equity, noncumulative perpetual
preferred stock and minority interest in the equity accounts of consolidated
subsidiaries, less all intangibles, other than includable purchased mortgage
servicing rights and credit card relationships.
Pursuant to the risk-based capital requirement, the Banks must maintain
total capital, which consists of core or Tier 1 capital and certain general
valuation reserves, of 8% of risk-weighted assets. For purposes of computing
risk-based capital, assets and certain off-balance sheet items are weighted at
percentage levels ranging from 0% to 100%, depending on their relative risk.
There are certain differences between the risk weightings applicable to First
Federal and First Savings and those applicable to Cambridge Savings and Marietta
Savings.
The following tables present certain information regarding compliance
by the Banks with applicable regulatory capital requirements at December 31,
1997:
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------------------------
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cambridge Savings
Total capital
(to risk-weighted assets) $15,032 13.4% $ 8,986 8.0% $11,233 10.0%
Tier I Capital
(to risk-weighted assets) 14,582 13.0 4,493 4.0 6,740 6.0
Tier I Leverage 14,582 6.9 8,437 4.0 10,547 5.0
Marietta Savings
Total capital
(to risk-weighted assets) 10,091 13.0 6,224 8.0 7,780 10.0
Tier I Capital
(to risk-weighted assets) 9,650 12.4 3,112 4.0 4,668 6.0
Tier I Leverage 9,650 7.9 4,897 4.0 6,122 5.0
First Federal
Tangible capital 6,876 8.2 1,261 1.5 4,204 5.0
Core capital 6,876 8.2 2,523 3.0 5,045 6.0
Risk-based capital 7,154 14.9 3,838 8.0 4,798 10.0
First Savings
Tangible capital 13,248 13.4 1,483 1.5 4,944 5.0
Core capital 13,248 13.4 2,966 3.0 5,932 6.0
Risk-based capital 13,382 24.4 4,389 8.0 5,486 10.0
</TABLE>
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement, a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio, as determined under the methodology established by
the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
that excess exposure from its total capital when determining its level of
risk-based capital. In general, an association with less than $300 million in
assets and a risk-based capital ratio of greater than 12% will not be subject to
this requirement. First Federal and First Savings currently qualify for such
exception. Pending implementation of the interest rate risk component, the OTS
has the authority to impose a higher individualized capital requirement on any
savings association
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it deems to have excess interest rate risk. The OTS also may adjust the
risk-based capital requirement on an individual basis for any association to
take into account risks due to concentrations of credit and non-traditional
activities.
The FDIC has adopted a new interest rate risk component to the capital
requirements applicable to Non-member Banks. It includes a final rule to allow
for an increase in a Non-member Bank's risk-based capital requirements on an
individualized basis to address the bank's exposure to a decline in the economic
value of its capital due to a change in interest rates. It also includes a
proposed policy to provide for measurement of such decline in economic value by
determining the amount of change in the present value of an institution's
assets, liabilities and off-balance sheet items as a result of a 200 basis point
change in interest rates, and taking into account an institution's management of
its interest rate risk and the overall risk exposure of the institution. There
is a proposed exemption from the policy for small, well-managed institutions
with moderate interest rate risk exposure based on asset maturities or repricing
schedules. Such institutions must still measure and assess interest rate risk.
The FDIC has an outstanding proposal to add a market risk component to
the capital requirements of Non-member Banks. Such component would require
additional capital for general or specific market risk of trading portfolios of
debt and equity securities and other investments or assets. The policy will
apply to an institution with less than $5 billion in assets only if its trading
portfolio constitutes at least 10% of the institution's assets. Cambridge
Savings and Marietta Savings cannot predict in what form this market risk
component will be adopted, if at all. At December 31, 1997, Cambridge Savings
and Marietta Savings did not have a trading portfolio. The FDIC may also require
additional capital to address concentrations of credit and non-traditional
activities on a case-by-case basis.
The OTS and FDIC have adopted regulations governing prompt corrective
action to resolve the problems of capital deficient and otherwise troubled
savings associations and Non-member Banks. At each successively lower defined
capital category, an institution is subject to more restrictive and numerous
mandatory or discretionary regulatory actions or limits, and the applicable
agency has less flexibility in determining how to resolve the problems of the
institution. The agencies have defined these capital levels as follows: (1)
well-capitalized institutions must have total risk-based capital of at least
10%, core or Tier 1 risk-based capital (consisting only of items that qualify
for inclusion in core or Tier 1 capital) of at least 6% and core or Tier 1
capital of at least 5%; (2) adequately capitalized institutions are those that
meet the regulatory minimum of total risk-based capital of at least 8%, core or
Tier 1 risk-based capital (consisting only of items that qualify for inclusion
in core or Tier 1 capital) of at least 4% and core or Tier 1 capital of at least
4% (except for institutions receiving the highest examination rating and with an
acceptable level of risk, in which case the core or Tier 1 capital level is at
least 3%); (3) undercapitalized institutions are those that do not meet
regulatory limits, but that are not significantly undercapitalized; (4)
significantly undercapitalized institutions have total risk-based capital of
less than 6%, core or Tier 1 risk-based capital (consisting only of items that
qualify for inclusion in core or Tier 1 capital) of less than 3% and core or
Tier 1 capital of less than 3%; and (5) critically undercapitalized institutions
are those with core or Tier 1 capital of less than 2% of total assets. In
addition, the agency generally can downgrade an institution's capital category,
notwithstanding its capital level, if, after notice and opportunity for hearing,
the institution is deemed to be engaging in an unsafe or unsound practice,
because it has not corrected deficiencies that resulted in it receiving a less
than satisfactory examination rating on matters other than capital or it is
deemed to be in an unsafe or unsound condition.
An undercapitalized institution must submit a capital restoration plan
to the applicable agency within 45 days after it becomes undercapitalized. Such
institution will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. Furthermore, critically
undercapitalized institutions must be placed in conservatorship or receivership
within 90 days of reaching that capitalization level, except under limited
circumstances. The Banks' capital levels at December 31, 1997, met the standards
for well-capitalized institutions.
Federal law prohibits a financial institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
restoration plan until the institution has been adequately capitalized on an
average during each of the four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (a) an amount equal to 5% of the
institution's total assets at the time it became undercapitalized or (b) the
amount necessary to bring the institution into compliance with all capital
standards applicable to such institution at the time the institution fails to
comply with its capital restoration plan.
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Federal Deposit Insurance Corporation
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of federally insured banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the Bank Insurance Fund ("BIF")
for commercial banks and state savings banks and the SAIF for savings
associations. The Banks are members of the SAIF and their deposit accounts are
insured by the FDIC, up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including the Banks, and has
authority to initiate enforcement actions against federally insured savings
associations, if the FDIC does not believe the OTS has taken appropriate action
to safeguard safety and soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy savings associations were reduced significantly
below the level paid by healthy savings associations effective in mid-1995.
Assessments paid by healthy savings associations exceeded those paid by healthy
commercial banks by approximately $.19 per $100 in deposits in late 1995. Such
excess equaled approximately $.23 per $100 in deposits beginning in 1996. This
premium disparity had a negative competitive impact on the Banks and other
institutions in the SAIF.
Federal legislation, which was effective September 30, 1996, provided
for the recapitalization of the SAIF by means of a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain banks holding SAIF-insured
deposits were required to pay the same special assessment on 80% of deposits at
March 31, 1995. In addition, part of the cost of prior thrift failures, which
had previously been paid only by SAIF members, will be paid by BIF members. As a
result, BIF assessments for healthy banks in 1997 will be $.013 per $100 in
deposits and SAIF assessments for healthy institutions in 1997 will be $.064 per
$100 in deposits.
The Banks had $277.3 million in deposits at March 31, 1995. The Banks
paid a special assessment of $1.8 million in November 1996, which was accounted
for and recorded as of September 30, 1996. This assessment is tax-deductible,
but reduced earnings for the year ended December 31, 1996.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
Loans to executive officers, directors and principal shareholders and
their related interests must conform to the lending limit on loans to one
borrower, and the total of such loans to executive officers, directors,
principal shareholders and their related interests cannot exceed the
association's Lending Limit Capital (or 200% of Lending Limit Capital for
qualifying institutions with less than $100 million in assets). Most loans to
directors, executive officers and principal shareholders must be approved in
advance by a majority of the "disinterested" members of the board of directors
of the association with any "interested" director not participating. All loans
to directors, executive officers and principal shareholders must be made on
terms substantially the same as offered in comparable transactions with the
general public or as offered to all employees in a company-wide benefit program,
and loans to executive officers are subject to additional limitations. The Banks
were in compliance with such restrictions at December 31, 1997.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate is any company or entity which controls, is controlled by or is under
common control with the financial institution. In a holding company context, the
parent holding company of a savings association and any companies that are
controlled by such parent holding company are affiliates of the institution.
Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a
financial institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus for any one affiliate and 20% of such capital stock and
surplus for the aggregate of such transactions with all affiliates, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or the subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.
In addition to limits in Sections 23A and 23B, First Federal and First Savings
may not make any loan or other extension of credit to an affiliate unless the
affiliate is engaged only in activities permissible for a bank holding company
and
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<PAGE> 24
may not purchase or invest in securities of any affiliate, except shares of a
subsidiary. Exemptions from Sections 23A or 23B of the FRA may be granted only
by the FRB. The Banks were in compliance with these requirements at December 31,
1997.
CHANGE IN CONTROL
FEDERAL LAW. The Federal Deposit Insurance Act (the "FDIA") provides
that no person, acting directly or indirectly or in concert with one or more
persons, shall acquire control of any insured depository institution or holding
company, unless 60-days prior written notice has been given to the primary
federal regulator for that institution and such regulator has not issued a
notice disapproving the proposed acquisition. Control, for purposes of the FDIA,
means the power, directly or indirectly, alone or acting in concert, to direct
the management or policies of an insured institution or to vote 25% or more of
any class of securities of such institution. Control exists in situations in
which the acquiring party has direct or indirect voting control of at least 25%
of the institution's voting shares, controls in any manner the election of a
majority of the directors of such institution or is determined to exercise a
controlling influence over the management or policies of such institution. In
addition, control is presumed to exist, under certain circumstances where the
acquiring party (which includes a group "acting in concert") has voting control
of at least 10% of the institution's voting stock. These restrictions do not
apply to holding company acquisitions. See "Holding Company Regulation".
OHIO LAW. A statutory limitation on the acquisition of control of an
Ohio savings bank requires the written approval of the Division prior to the
acquisition by any person or entity of a controlling interest in an Ohio
association. Control exists, for purposes of Ohio law, when any person or entity
which, either directly or indirectly, or acting in concert with one or more
other persons or entities, owns, controls, holds with power to vote, or holds
proxies representing, 15% or more of the voting shares or rights of an
association, or controls in any manner the election or appointment of a majority
of the directors. A director will not be deemed to be in control by virtue of an
annual solicitation of proxies voted as directed by a majority of the board of
directors. Ohio law also requires that certain acquisitions of voting securities
that would result in the acquiring shareholder owning 20%, 33-1/3% or 50% of the
outstanding voting securities of Camco must be approved in advance by the
holders of at least a majority of the outstanding voting shares represented at a
meeting at which a quorum is present and a majority of the portion of the
outstanding voting shares represented at such a meeting, excluding the voting
shares by the acquiring shareholder. This statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers. Under
certain circumstances, interstate mergers and acquisitions involving savings
banks incorporated under Ohio law are permitted by Ohio law. A financial
institution or financial institution holding company with its principal place of
business in another state may acquire a savings and loan association or savings
and loan holding company incorporated under Ohio law if, in the discretion of
the Division, the laws of such other state give an Ohio institution or an Ohio
holding company reciprocal rights.
HOLDING COMPANY REGULATION
Camco is a multiple savings and loan holding company subject to the
regulatory oversight, examination and enforcement authority of the OTS. Though
Cambridge Savings and Marietta Savings are not savings associations, they have
elected to be treated as such for holding company purposes, so that Camco is not
regulated as a bank holding company. Camco is required to register and file
periodic reports with the OTS. If the OTS determines that the continuation of a
particular activity by a savings and loan holding company constitutes a serious
threat to the financial condition of its subsidiary institutions, the OTS may
impose restrictions on the holding company. Such restrictions may include
limiting the payment of dividends, transactions with affiliates or any other
activities deemed to pose a serious threat to the subsidiary institutions.
Generally, no savings and loan holding company may (i) acquire or
retain control of a savings association or another savings and loan holding
company or control the assets thereof or (ii) acquire or retain more than 5% of
the voting shares of a savings association or holding company thereof, which is
not a subsidiary, without the prior written approval of the Director of the OTS.
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash, without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the Director of the OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock may also
acquire control of any savings institution, other than a subsidiary institution,
or any other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by
24
<PAGE> 25
state-chartered institutions or savings and loan holding companies located in
the state where the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions). As under prior law, the
Director of the OTS may approve an acquisition resulting in a multiple savings
and loan holding company controlling savings associations in more than one state
in the case of certain emergency thrift acquisitions.
As a multiple savings and loan holding company, the activities of Camco
and those of any of its subsidiaries (other than the Banks) are subject to
certain restrictions. Generally, no multiple savings and loan holding company or
subsidiary thereof that is not a savings association may engage in any business
activity other than (i) furnishing or performing management services for a
subsidiary savings association, (ii) conducting an insurance agency or an escrow
business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings association, (iv) holding or managing properties used
or occupied by a subsidiary savings association, (v) acting as trustee under
deeds of trust, (vi) engaging in those activities previously directly authorized
by federal regulation as of March 5, 1987, to be engaged in by multiple holding
companies, or (vii) furnishing or performing such other services or engaging in
those activities authorized by the FRB as permissible for bank holding
companies, unless the director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies. Those activities described in
(vii) above must also be approved by the Director of the OTS prior to being
engaged in by a multiple holding company.
Federal law provides that an insured institution shall be liable for
any loss incurred by the FDIC in connection with the default or potential
default of, or federal assistance provided to, an insured institution which is
controlled by the same holding company. Such loss would be apportioned among all
of the insured institutions controlled by the holding company.
FEDERAL RESERVE REQUIREMENTS
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $47.8
million (subject to an exemption of up to $4.7 million), and of 10% of net
transaction accounts in excess of $47.8 million. At December 31, 1997, each of
the Banks was in compliance with its reserve requirements.
FEDERAL HOME LOAN BANK SYSTEM
The FHLBs provide credit to their members in the form of advances. As
members of the FHLB of Cincinnati, the Banks are each required to maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of their
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of their advances from the FHLB of Cincinnati.
Camco is in compliance with this requirement with an aggregate investment by the
Banks in FHLB of Cincinnati stock of $5.1 million at December 31, 1997.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required to obtain and to maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
United States Government or an agency thereof; deposits in any FHLB; or other
real estate related collateral (up to 30% of the member's capital) acceptable to
the applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance. The FHLBs have established the
"Affordable Housing Program" to subsidize the interest rate on advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. Cambridge Savings and First Federal have participated in this program.
FEDERAL TAXATION
Camco and its subsidiaries are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, Camco and its subsidiaries may be subject to the alternative minimum
tax which is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption.
25
<PAGE> 26
Such tax preference items include interest on certain tax-exempt bonds issued
after August 7, 1986. In addition, 75% of the amount by which a corporation's
"adjusted current earnings" exceeds its alternative minimum taxable income
computed without regard to this preference item and prior to reduction by net
operating losses, is included in alternative minimum taxable income. Net
operating losses can offset no more than 90% of alternative minimum taxable
income. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Camco's average gross receipts for the three tax years ending on
December 31, 1997, is approximately $34.3 million and as a result, Camco does
not qualify as a small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as the Banks, were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of two reserve methods of
Section 593 of the Code. The reserve methods under Section 593 of the Code
permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years prior to 1995,
Camco generally used the percentage of taxable income method and was subject to
certain limitations based on aggregate loans and savings account balances at the
end of the calendar year.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like Market, the amount of
the institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the
26
<PAGE> 27
tax year, the principal amount of residential loans made by the thrift during
the year is not less than its base amount. The "base amount" generally is the
average of the principal amounts of the residential loans made by the thrift
during the six most recent tax years beginning before January 1, 1996. A
residential loan is a loan as described in Section 7701(a)(19)(C)(v) (generally
a loan secured by residential or church property and certain mobile homes), but
only to the extent that the loan is made to the owner of the property. The
Company has provided deferred taxes of approximately $589,000 and will be
permitted to amortize the recapture of the bad debt reserve totaling $1.7
million over a six year period commencing in fiscal 1997.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Banks to Camco is deemed paid out of its
pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and
the gross income of Camco for tax purposes would be increased by the amount
which, when reduced by the income tax, if any, attributable to the inclusion of
such amount in its gross income, equals the amount deemed paid out of the
pre-1988 reserves. As of December 31, 1997, the pre-1988 reserves of for the
Banks for tax purposes totaled approximately $5.9 million. Camco believes the
Banks had approximately $27.2 million of accumulated earnings and profits for
tax purposes as of December 31, 1997, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met. No representation can be made as to whether the Banks will
have current or accumulated earnings and profits in subsequent years.
The tax returns of Camco have been audited or closed without audit
through calendar year 1993. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of Camco.
OHIO TAXATION. Camco and East Ohio are subject to the Ohio corporation
franchise tax, which, as applied to them, is a tax measured by both net earnings
and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000
of computed Ohio taxable income and 8.9% of computed Ohio taxable income in
excess of $50,000 or (ii) 0.582% times taxable net worth. For tax years
beginning after December 31, 1998, the rate of tax is the greater of (i) 5.1% on
the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio
taxable income in excess of $50,000 or (ii) .400% times taxable net worth.
In computing its tax under the net worth method, Camco may exclude 100%
of its investment in the capital stock of its subsidiaries, as reflected on the
balance sheet of Camco in computing its taxable net worth as long as it owns at
least 25% of the issued and outstanding capital stock of the subsidiaries. The
calculation of the exclusion from net worth is based on the ratio of the
excludable investment (net of any appreciation or goodwill included in such
investment) to total assets multiplied by the net value of the stock. As a
holding company, Camco may be entitled to various other deductions in computing
taxable net worth that are not generally available to operating companies.
A special litter tax is also applicable to all corporations, including
Camco, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
The Banks are "financial institutions" for State of Ohio tax purposes.
As such, they are subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of their book net
worth determined in accordance with generally accepted accounting principles.
For tax year 1999, however, the franchise tax on financial institutions will be
1.4% of the book net worth and for tax year 2000 and years thereafter the tax
will be 1.3% of the book net worth. As "financial institutions," the Banks are
not subject to any tax based upon net income or net profits imposed by the State
of Ohio.
CMC and WestMar are subject to the Ohio Dealers in Intangibles property
tax but currently incur no liability because they are owned by Ohio financial
institutions.
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<PAGE> 28
DELAWARE TAXATION. As a Delaware corporation, Camco is subject to an
annual franchise tax based on the quantity and par value of its authorized
capital stock and its gross assets. As a savings and loan holding company, Camco
is exempt from Delaware corporate income tax.
KENTUCKY TAXATION. The Commonwealth of Kentucky imposes no income or
franchise taxes on savings institutions. First Savings is subject to an annual
ad valoreum tax which is .1% of First Savings' deposit accounts, common stock
and retained income, with certain deductions for amounts borrowed by depositors
and securities guaranteed by the U.S. Government or certain of its agencies.
WEST VIRGINIA TAXATION. Marietta Savings and WestMar are both subject
to a West Virginia tax on apportioned adjusted net income and a West Virginia
franchise tax on apportioned adjusted capital. The adjusted net income of each
is taxed at a rate of 9.08%. The franchise tax rate is 0.75% of adjusted
capital. The apportionment is based solely on the ratio of gross receipts
derived from West Virginia as compared to gross receipts everywhere.
ITEM 2. PROPERTIES
The following table provides the location of, and certain
other information pertaining to, Camco's office premises as of December 31,
1997:
<TABLE>
<CAPTION>
Year facility Leased Approximate
commenced or square Net book
Office Location operations owned footage value (1)
- --------------- ---------- ----- ------- ---------
<S> <C> <C> <C> <C>
FIRST FEDERAL
134 E. Court Street
Washington Ct. House, Ohio 1963 Owned 5,000 $ 347,344
45 West Second Street
Chillicothe, Ohio 1994 Leased (2) 1,200
200 N. Court Street
Circleville, Ohio 1993 Leased (3) 1,300
135 North South Street
Wilmington, Ohio 1992 Owned 900 88,483
1050 Washington Ave
Washington Court House, Ohio 1996 Owned 2800 577,037
EAST OHIO
510 Grand Central Ave
Vienna, West Virginia 1996 Leased (4) 670
MARIETTA SAVINGS
226 Third Street
Marietta, Ohio 1976 Owned 10,361 630,970
1925 Washington Boulevard
Belpre, Ohio 1979 Owned 2,357 152,775
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Year facility Leased Approximate
commenced or square Net book
Office Location operations owned footage value (1)
- --------------- ---------- ----- ------- ---------
<S> <C> <C> <C> <C>
CAMBRIDGE SAVINGS
814 Wheeling Avenue (5)
Cambridge, Ohio 1963 Owned 27,000 1,057,915
327 E. 3rd Street
Uhrichsville, Ohio 1975 Owned 1,650 94,922
175 N. 11th Street
Cambridge, Ohio 1981 Owned 1,350 193,091
209 Seneca Avenue
Byesville, Ohio 1978 Leased (6) 1,200
FIRST SAVINGS
1640 Carter Avenue
Ashland, Kentucky 1961 Owned 5,450 813,178
U.S. 60 - Summit
Ashland, Kentucky 1992 Owned 2,500 729,687
Greenup Mall
Russell, Kentucky 1980 Owned 1,100 102,964
191 Eastern Heights
Shopping Center
Huntington, West Virginia 1997 Leased 900
CMC
1320 4th Street, N.W. (7)
New Philadelphia, Ohio 1985 Owned 900 240,015
4328 Dressler Road
Canton, Ohio 1992 Leased (8) 1,500
2359 Maple Avenue
Zanesville, Ohio 1993 Leased (9) 1,380
WESTMAR
510 Grand Central Avenue
Vienna, West Virginia 1991 Leased (10) 1,200
<FN>
- ----------
(1) Net book value amounts are for land, buildings and improvements.
(2) The lease expires in 1999. First Federal has the option to renew the lease for one five-year term.
(3) The lease expires in 1999.
</FN>
(Footnotes continued on next page).
</TABLE>
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<PAGE> 30
(4) The lease expires in 1998. East Ohio has the option to renew the lease
for three one-year terms.
(5) The Wheeling Avenue facility also serves as the Camco office and the
East Ohio-Cambridge office.
(6) The lease expires in 2000. Cambridge Savings has the option to renew
the lease for three five-year terms.
(7) The 4th Street facility also serves as the East Ohio-New Philadelphia
office.
(8) The lease is currently on a month-to-month basis.
(9) The lease expires in 1999.
(10) The lease expires in 1998. West Mar has the option to renew the lease
for three one-year terms.
Camco also owns furniture, fixtures and various bookkeeping and
accounting equipment. The net book value of Camco's investment in office
premises and equipment totaled $1.9 million at December 31, 1997. See Note E of
Notes to Consolidated Financial Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS.
Neither Camco nor any of the Banks is presently engaged in any legal
proceedings of a material nature. From time to time, Camco is involved in legal
proceedings to enforce its security interest in collateral taken as security for
its loans.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
At December 31, 1997, Camco had 3,216,666 shares of common stock
outstanding and held of record by approximately 814 stockholders. The table
below sets forth a range of high and low bid information known to Camco for the
common stock of Camco, together with the respective dividends declared per share
of common stock, for each quarter of 1995, 1996 and 1997. Bid information is
based on Nasdaq National Market listings.
<TABLE>
<CAPTION>
Cash
dividends
Year ended December 31, 1995 (1) High Low declared
- -------------------------------- ---- --- --------
<S> <C> <C> <C>
First Quarter $ 13.29 $ 11.58 $ 0.0814
Second Quarter 12.86 12.44 0.0858
Third Quarter 16.70 12.86 0.0903
Fourth Quarter 16.70 15.11 0.0948
</TABLE>
<TABLE>
<CAPTION>
Cash
dividends
Year ended December 31, 1996 (1) High Low declared
- -------------------------------- ---- --- --------
<S> <C> <C> <C>
First Quarter $ 17.15 $ 15.11 $ 0.0993
Second Quarter 18.28 15.91 0.1038
Third Quarter 18.41 16.63 0.1093
Fourth Quarter 17.81 14.73 0.1140
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
Cash
dividends
Year ended December 31, 1997 (1) High Low declared
- -------------------------------- -------- --------- -----------
<S> <C> <C> <C>
First Quarter $ 17.81 $ 14.25 $ 0.1188
Second Quarter 17.81 16.56 0.1235
Third Quarter 22.75 17.75 0.1300
Fourth Quarter 27.00 22.25 0.1350
<FN>
- ---------------------
(1) Amounts have been restated to give effect to 5% stock dividends in July of 1995, 1996 and 1997.
</FN>
</TABLE>
In addition to certain federal income tax considerations, regulations
of the OTS impose limitations on the payment of dividends and other capital
distributions by savings associations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Since its incorporation in 1970, Camco has evolved into a full
service provider of financial products to the communities served by its Banks.
Utilizing a common marketing theme based on Camco's commitment to personalized
customer service, Camco and its affiliates have grown from $22.4 million of
consolidated assets in 1970 to $520.6 million of consolidated assets at December
31, 1997. Camco's rate of growth is largely attributable to its acquisitions of
Marietta Savings, First Federal and First Savings and the continued expansion of
product lines from the limited deposit and loan offerings which could be offered
in the heavily regulated environment of the 1970s to the wider array of
financial service products that were the previous domain of commercial banks.
Additionally, Camco's operational growth has been enhanced by vertical
integration of the residential lending function through establishing mortgage
banking operations in the Banks' primary market areas and, to a lesser extent,
by chartering a title insurance agency.
Camco's management believes that continued success in the financial
services industry will be achieved by those institutions with a rigorous
dedication to building value-added customer-oriented organizations. Toward this
end, each of the Banks' operations are decentralized, with a separate Board of
Directors and management team focusing on consumer preferences for financial
products in the respective communities served. Based on such consumer
preferences, Camco's management designs financial service products with a view
towards differentiating each of the constituent Banks from the competition. It
is management's opinion that the Banks' abilities to rapidly adapt to consumer
needs and preferences is essential to community-based financial institutions in
order to compete against the larger regional and money-center bank holding
companies.
Camco's profitability depends primarily on the level of net interest
income, which is the difference between interest income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on deposit accounts and borrowings. In recent years,
Camco's net earnings have also been heavily influenced by the level of other
income, including gains on sale of loans, loan servicing fees and other fees.
Camco's operations are also influenced by the level of general, administrative
and other expenses, including salaries and employee benefits, occupancy expense,
federal deposit insurance premiums and federal income tax expense.
ASSET AND LIABILITY MANAGEMENT
Net interest income, the difference between asset yields and the cost
of interest-bearing liabilities, is the principal component of Camco's net
earnings. The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in the prevailing level of interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which a financial institution's interest
rate spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities and is considered negative when the amount
of interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income. Conversely, during a period of falling
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<PAGE> 32
interest rates, a negative gap within shorter maturities would result in an
increase in net interest income, while a positive gap within shorter maturities
would have the opposite effect.
The Board of Directors of each of the Banks has implemented an asset
and liability management strategy directed toward improving each Bank's interest
rate sensitivity. The principal common elements of such strategies include (1)
meeting the consumer preference for fixed-rate loans over the past several years
by selling such loans in the secondary market, (2) maintaining higher levels of
liquid assets, such as cash, short-term interest-bearing deposits and short-term
investment securities, as a hedge against rising interest rates in the lower
interest rate environments and (3) utilizing FHLB advances and longer term
certificates of deposit as funding sources when available.
The following table sets forth certain information regarding the
amounts of various categories of assets and liabilities repricing within the
periods indicated:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------
Within 1 year 1-5 years Over 5 years Total
------------- --------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Interest-bearing deposits in other banks $ 6,304 $ -- $ -- $ 6,304
Investment securities (2) 6,500 11,831 1,669 20,000
Mortgage-backed securities 160 1,450 7,092 8,702
Loans receivable (3) 191,262 158,653 104,627 454,542
--------- --------- --------- ---------
Total 204,226 171,934 113,388 489,548
--------- --------- --------- ---------
Interest-bearing liabilities (1):
Deposits 278,042 100,476 3,707 382,225
FHLB advances 51,750 17,830 10,739 80,319
--------- --------- --------- ---------
Total 329,792 118,306 14,446 462,544
--------- --------- --------- ---------
Excess (deficiency) of interest sensitive assets over interest
sensitive liabilities $(125,566) $ 53,628 $ 98,942 $ 27,004
========= ========= ========= =========
Cumulative excess (deficiency) of interest sensitive assets
over interest sensitive liabilities $(125,566) $ (71,938) $ 27,004 $ 27,004
========= ========= ========= =========
Cumulative interest rate sensitivity gap to total assets (24.12)% (13.82)% 5.19% 5.19%
========= ========= ========= =========
<FN>
- ---------
(1) Interest-earning assets and interest-bearing liabilities are shown as repricing based on contractual terms to repricing,
without consideration of loan prepayments or deposit decay assumptions.
(2) Does not include corporate equity securities, asset management funds or FHLB stock.
(3) Represents loans receivable totals before consideration of net items.
</FN>
</TABLE>
FINANCIAL CONDITION
At December 31, 1997 Camco's consolidated assets totaled $520.6
million, an increase of $51.2 million, or 10.9%, over the December 31, 1996
total. The increase in the current year was primarily funded by deposit growth
of $24.2 million, $23.0 million in advances from the FHLB, and undistributed net
earnings of $3.9 million.
Cash and interest-bearing deposits in other financial institutions
totaled $17.9 million at December 31, 1997, an increase of $15,000 from December
31, 1996 levels. Management elected to maintain liquidity at essentially the
same level in order to fund originations of higher-yielding loans.
Investment securities and certificates of deposit in other financial
institutions totaled $21.0 million at December 31, 1997, a decrease of $7.0
million, or 24.9%, from the total at December 31, 1996. During 1997, investment
securities totaling $15.0 million were purchased, while maturities and sales
amounted to $21.0 million. Management utilized the net proceeds from investment
securities to partially fund growth in the loan portfolio.
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<PAGE> 33
Mortgage-backed securities totaled $8.7 million at December 31, 1997,
a decrease of $2.7 million from December 31, 1996, due primarily to principal
repayments during the period. Loans receivable and loans held for sale increased
by $57.6 million, or 14.8%, during the year ended December 31, 1997, to a total
of $446.5 million. The increase was primarily attributable to record loan
disbursements of $248.2 million, which were partially offset by principal
repayments of $125.0 million and loan sales of $77.7 million. Loan origination
volume during 1997 exceeded 1996 by $67.4 million, or 37.3%. The growth in loan
originations during 1997 generally reflects the decline in long-term rates
during the last half of the year.
Nonperforming loans (90 days or more delinquent plus nonaccrual
loans) totaled $1.8 million and $2.4 million at December 31, 1997 and 1996,
respectively, constituting .41% and .61% of total net loans, including loans
held for sale at those dates. The consolidated allowance for loan losses totaled
$1.3 million and $1.2 million at December 31, 1997 and 1996, respectively,
representing 72.9% and 52.5% of nonperforming loans at those dates. The
provision for loan losses for the year ended December 31, 1997, is primarily
attributable to the aforementioned growth in the loan portfolio during that
period. Although management believes that its allowance for loan losses at
December 31, 1997, is adequate based upon the available facts and circumstances,
there can be no assurance that additions to such allowance will not be necessary
in future periods, which could adversely affect Camco's results of operations.
Deposits totaled $382.2 million at December 31, 1997, an increase of
$24.2 million, or 6.8%, 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 FHLB
increased by $23.0 million, or 40.0%, to a total of $80.3 million at December
31, 1997. The proceeds from deposit growth and FHLB 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 December 31, 1997, the Banks' regulatory
capital exceeded all regulatory capital requirements. See Note J to the
Consolidated Financial Statements.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1996
GENERAL. Increases in the level of income and expenses during the
year ended December 31, 1997, compared to 1996, are significantly influenced by
the inclusion of the accounts of First Savings, which was acquired by Camco in
October 1996 in a transaction accounted for using the purchase method of
accounting. Accordingly, the statement of earnings for the year ended December
31, 1996, was not restated for the acquisition.
Camco's net earnings for the year ended December 31, 1997, totaled
$5.6 million, an increase of $2.6 million, or 86.7%, over the $3.0 million of
net earnings reported in 1996. The increase in earnings is primarily
attributable to an increase in net interest income of $3.3 million, an increase
in other income of $244,000, and a decrease in general, administrative and other
expense of $566,000, which were partially offset by an increase in the provision
for losses on loans of $121,000 and an increase in the provision for federal
income taxes of $1.4 million.
NET INTEREST INCOME. Total interest income for the year ended
December 31, 1997, increased by $8.3 million, or 28.4%, reflecting the effects
of $104.1 million of growth in average interest-earning assets outstanding,
partially offset by a decrease of three basis points in the yield year to year,
from 8.13% in 1996 to 8.10% in 1997.
Interest income on loans and mortgage-backed securities totaled $35.0
million for the year ended December 31, 1997, an increase of $7.9 million, or
29.1%, over the comparable 1996 period. The increase resulted primarily from a
$98.1 million, or 30.0%, increase in the average portfolio balances outstanding
year to year. Interest income on investments and interest-bearing deposits
increased by $425,000, or 19.6%, due to an increase in average outstanding
balances of $6.0 million. Interest expense on deposits increased by $3.3
million, or 23.5%, to a total of $17.2 million for the year ended December 31,
1997, due primarily to an increase of $64.0 million in the average balance of
deposits outstanding. Interest expense on borrowings totaled $3.8 million for
the year ended December 31, 1997, an increase of $1.7 million, or 80.3%, over
1996. The increase resulted primarily from a $30.1 million increase in the
average balance of borrowings outstanding year to year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $3.3 million, or 25.3%, to a total of
$16.6 million for the year ended December 31, 1997. The interest rate spread
decreased to approximately 3.28% for the year ended December 31, 1997, from
3.44% for 1996, while the net interest margin decreased to approximately 3.57%
in 1997, compared to 3.67% in 1996.
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<PAGE> 34
PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is
charged to earnings to bring the total allowance for loan losses to a level
considered appropriate by management based on historical experience, the volume
and type of lending conducted by the Banks, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to the Banks' market areas, and other factors related to the
collectibility of the Banks' loan portfolios. The provision for losses on loans
totaled $232,000 for the year ended December 31, 1997, an increase of $121,000
over 1996. The current period provision generally reflects the loan portfolio
growth.
OTHER INCOME. Other income increased for the year ended December 31,
1997, by $244,000, or 6.8%, over 1996. The increase in other income is primarily
attributable to a $342,000, or 27.2%, increase in gains on sale of loans, an
increase of $227,000, or 19.8%, in late charges, rent and other, a $48,000, or
10.7%, increase in service charges and other fees on deposits and a $37,000
increase in gains on sales of real estate acquired through foreclosure, which
were partially offset by a $410,000, or 54.7%, decrease in loan servicing fees.
The increase in gains on sale of loans primarily reflects an increase in sales
volume year to year. The increase in late charges, rent and other was primarily
attributable to growth in loans and deposit accounts.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative
and other expense totaled $11.6 million for the year ended December 31, 1997, a
decrease of $566,000, or 4.6%. The decrease is primarily attributable to the
absence of a $1.8 million one-time charge recorded in 1996 as a result of
legislation enacted to recapitalize the SAIF. Excluding the SAIF charge,
general, administrative and other expense increased by approximately $1.2
million, or 11.5%. This increase in general, administrative and other expense is
due primarily to a $479,000, or 9.6%, increase in employee compensation and
benefits, a $253,000, or 21.6%, increase in office occupancy and equipment, a
$466,000, or 19.4%, increase in other operating costs, a $111,000 increase in
goodwill amortization and a $107,000, or 23.6% increase in data processing
costs. As previously discussed, the 1997 consolidated statements of earnings
include the accounts of First Savings. First Savings had approximately $1.7
million of general, administrative and other expense for the year ended December
31, 1997. The increase in occupancy and equipment is attributable to increased
depreciation expense on office equipment and general repairs of office
buildings. The increase in data processing, advertising and other operating
costs generally reflects the effects of Camco's growth year to year.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$2.9 million for the year ended December 31, 1997, an increase of $1.4 million,
or 94.5%. This increase is attributable to a $4.0 million, or 89.3%, increase in
pre-tax earnings. The effective tax rate amounted to 34.1% and 33.2% for the
years ended December 31, 1997 and 1996, respectively.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995
GENERAL. Camco's net earnings for the year ended December 31, 1996,
totaled $3.0 million, a decrease of $635,000, or 17.4%, from the $3.6 million in
net earnings recorded for the year ended December 31, 1995. The decrease
resulted primarily from a $3.4 million increase in general, administrative and
other expense due primarily to the one-time SAIF assessment of $1.8 million,
which was partially offset by a $2.0 million increase in net interest income, a
$32,000 decrease in the provision for losses on loans, a $303,000 increase in
other income and a $414,000 decrease in the provision for federal income taxes.
NET INTEREST INCOME. Total interest income for the year ended
December 31, 1996, amounted to $29.3 million, an increase of $3.8 million, or
15.0%, over the $25.4 million recorded in 1995. Interest income on loans and
mortgage-backed securities increased by $3.7 million, or 16.0%. The increase
resulted primarily from a $38.7 million increase in the average portfolio
balance outstanding, coupled with an 18 basis point increase in the average
yield, from 8.11% in 1995, to 8.29% in 1996. Interest income on investment
securities and interest-bearing deposits increased by $87,000, or 4.2%, to a
total of $2.2 million in 1996. The increase was due primarily to a 50 basis
point increase in yield, to 6.52% in 1996, which was partially offset by a $1.3
million decrease in the average outstanding balance. The decline in the average
balance during 1996 reflects management's decision to redeploy excess liquidity
to fund loan originations, thereby obtaining a more favorable yield.
Interest expense increased during the year ended December 31, 1996,
by $1.8 million, or 12.5%, to a total of $16.0 million, compared to the $14.3
million total recorded in 1995. Interest expense on deposits increased by $1.5
million, or 11.7%, to a total of $13.9 million in 1996. The increase resulted
primarily from growth in the average portfolio outstanding
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<PAGE> 35
of $25.8 million, coupled with an increase in the average rate paid on deposits
of 10 basis points, from 4.45% in 1995 to 4.55% in 1996. Interest expense on
borrowings increased by $334,000, or 18.8%, to a total of $2.1 million in 1996.
The increase was due primarily to a $7.7 million increase in the average balance
of borrowings outstanding, which was partially offset by a 44 basis point
decline in the average rate paid on such advances, from 6.37% in 1995 to 5.93%
in 1996.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by approximately $2.0 million, or 18.2%,
to a total of $13.2 million for the year ended December 31, 1996. The net
interest rate spread increased by 17 basis points during the year, from 3.27% in
1995 to 3.44% in 1996, while the net interest margin increased by 20 basis
points, from 3.47% in 1995 to 3.67% in 1996.
PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is
charged to earnings to bring the total allowance for loan losses to a level
considered appropriate by management based on historical experience, the volume
and type of lending conducted by the Banks, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to the Banks' market areas, and other factors related to the
collectibility of the Banks' loan portfolio. As a result of such analysis,
management recorded a provision for losses on loans totaling $111,000 for the
year ended December 31, 1996, a decrease of $32,000, or 22.4%, from the $143,000
total recorded in 1995. The 1996 provision is primarily attributable to growth
in the loan portfolio, coupled with an increase in nonperforming loans to $2.4
million at December 31, 1996, compared to $1.1 million at December 31, 1995.
OTHER INCOME. Other income totaled $3.6 million for the year ended
December 31, 1996, an increase of $303,000, or 9.2%, over the $3.3 million total
for 1995. The increase resulted primarily from a $230,000, or 25.1%, increase in
late charges, rent and other and a $131,000, or 11.6% increase in gain on sale
of loans.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative
and other expense totaled $12.2 million for the year ended December 31, 1996, an
increase of $3.4 million, or 38.9%, over the $8.8 million total recorded in
1995. The increase resulted primarily from a $1.7 million, or 279.0%, increase
in federal deposit insurance premiums, which resulted from the legislation
enacted to recapitalize the SAIF, coupled with a $772,000, or 18.4%, increase in
employee compensation and benefits, a $268,000, or 29.7%, increase in occupancy
and equipment, a $77,000, or 23.9%, increase in franchise taxes and a $477,000,
or 24.8%, increase in other operating expense.
During 1996 legislation was enacted to recapitalize the SAIF which
mandated payment of a special one-time assessment for all savings associations,
including the Banks. The assessment was computed based upon the Banks' deposits
as of March 31, 1995. The assessment rate was finalized at $.657 per every $100
of deposits, which resulted in a pre-tax charge to 1996 operations of
approximately $1.8 million for deposits held by Cambridge Savings, First Federal
and Marietta Savings. The recapitalization legislation reduced federal deposit
insurance premiums from $.23 per $100 in deposits to approximately $.065 per
$100 in deposits, effective January 1, 1997.
Increases in general, administrative and other expenses during 1996
generally resulted from the effects of the Ashland Merger. From October 4, 1996
through the end of 1996, operating expenses reflect the increased size of Camco,
as compared to the prior year. In addition to merger-related increases, employee
compensation and benefits increased primarily from increased costs associated
with retirement and other employee benefit plans, coupled with normal merit
increases and an increase in staffing levels as a result of growth. The increase
in occupancy and equipment resulted primarily from an increase in depreciation
expense following the addition of a new branch location at First Federal and the
construction costs related to the installation of automated teller machines
("ATMs") during 1996. The increase in franchise taxes resulted from the increase
in stockholders' equity year to year. The increase in other operating expenses
resulted primarily from increased costs of operations as a result of Camco's
growth year to year.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$1.5 million for the year ended December 31, 1996, a decrease of $414,000, or
21.7%, from the $1.9 million total recorded in 1995. The decrease resulted
primarily from the decrease in net earnings before taxes of $1.0 million, or
18.9%. The effective tax rates were 33.2% and 34.4% for the years ended December
31, 1996 and 1995, respectively.
YEAR 2000 ISSUE
As with all providers of financial services, Camco's operations are
heavily dependent on information technology systems. Camco is addressing the
potential problems associated with the possibility that the computers that
control or operate Camco's information technology system and infrastructure may
not be programmed to read four-digit date codes and, upon
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<PAGE> 36
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data. Camco
is working with the companies that supply or service its information technology
systems to identify and remedy any year 2000 related problems.
As of the date of its Annual Report, Camco has not identified any
specific expenses that are reasonably likely to be incurred by Camco in
connection with this issue and does not expect to incur significant expense to
implement the necessary corrective measures. No assurance can be given, however,
that significant expense will not be incurred in future periods. In the event
that Camco is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make Camco's current
systems, programs and equipment year 2000 compliant, Camco's net earnings and
financial condition could be adversely affected.
In addition to possible expense related to its own systems, Camco
could incur losses if loan payments are delayed due to year 2000 problems
affecting any major borrowers in Camco's primary market area. Because Camco's
loan portfolio is highly diversified with regard to individual borrowers and
types of businesses and Camco's primary market area is not significantly
dependent upon one employer or industry, Camco does not expect any significant
or prolonged difficulties that will affect net earnings or cash flow.
LIQUIDITY AND CAPITAL RESOURCES
Savings associations are generally required to maintain specified
minimum levels of liquid investments, including cash and qualifying types of
U.S. Government and agency obligations and other specified instruments. The
primary sources of funds to the Banks are deposits, principal and interest
payments made on the portfolio loans, proceeds from the sale of mortgage loans,
maturing investments, FHLB advances and funds provided by operating activities.
Principal uses of funds include deposit withdrawals, loan originations,
investment purchases, repayment of FHLB advances, payment of interest on
deposits and payment of operating expenses. While certain of these sources and
uses of funds are relatively predictable, deposit flows, loan originations and
prepayments of loans are influenced by external factors such as interest rates,
economic conditions, competition and consumer confidence in financial service
industries.
Camco attempts to maintain a stable retail deposit base which does
not utilize brokered deposits. During the years ended December 31, 1997 and
1996, Camco maintained its deposit balance goals by offering competitive, but
not excessive, interest rates on deposits.
At December 31, 1997, the Banks had total outstanding loan
commitments of $28.6 million, which included outstanding loan origination
commitments, outstanding commitments to purchase loans, undisbursed loans in
process of $10.1 million, and borrower's unused lines of credit of $12.9
million. Such commitments can be funded from current excess liquidity.
Camco's principal source of income on an unconsolidated basis is
earnings and dividends from the Banks. The ability of the Banks to pay dividends
to Camco is subject to certain regulatory restrictions. Each of the Banks is
currently able to pay dividends to Camco to the fullest extent permitted by
federal regulations.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars, without considering
changes in relative purchasing power of money over time due to inflation. Unlike
most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than does the
effect of general levels of inflation. In the current interest rate environment,
the liquidity, the maturity structure and the quality of Camco's assets and
liabilities are critical to the maintenance of acceptable performance levels.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments 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
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<PAGE> 37
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 adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on Camco's consolidated financial position or
results of operations.
In June 1997, the FASB issues SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on Camco's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial and
descriptive information about the way that management organizes the segments
within the enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in more
segments being reported. In addition SFAS No. 131 requires significantly more
information to be disclosed for each reportable segment than is presently being
reported in annual financial statements and also requires that selected
information be reported in interim financial statements. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131 is
not expected to have a material impact on Camco's consolidated financial
statements.
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<PAGE> 38
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, 1997 and
1996, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years ended December 31, 1997, 1996 and 1995.
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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 21, 1998
<PAGE> 39
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 11,576 $ 10,587
Interest-bearing deposits in other financial institutions 6,304 7,278
-------- --------
Cash and cash equivalents 17,880 17,865
Certificates of deposit in other financial institutions -- 990
Investment securities available for sale - at market 3,558 5,174
Investment securities - at cost, approximate market value of $17,536
and $21,822 as of December 31, 1997 and 1996 17,489 21,844
Mortgage-backed securities available for sale - at market 497 742
Mortgage-backed securities - at cost, approximate market value of
$8,311 and $10,735 as of December 31, 1997 and 1996 8,207 10,700
Loans held for sale - at lower of cost or market 4,135 931
Loans receivable - net 442,345 387,992
Office premises and equipment - net 7,632 6,811
Real estate acquired through foreclosure 691 53
Federal Home Loan Bank stock - at cost 5,060 3,942
Accrued interest receivable on loans 2,804 2,443
Accrued interest receivable on mortgage-backed securities 52 69
Accrued interest receivable on investment securities and interest-bearing deposits 349 499
Prepaid expenses and other assets 799 495
Cash surrender value of life insurance 5,482 4,880
Goodwill - net of accumulated amortization 3,552 3,701
Prepaid federal income taxes 85 319
-------- --------
Total assets $520,617 $469,450
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $382,225 $358,009
Advances from the Federal Home Loan Bank 80,319 57,354
Advances by borrowers for taxes and insurance 4,299 2,864
Accounts payable and accrued liabilities 2,790 4,490
Dividends payable 491 368
Deferred federal income taxes 1,530 1,352
-------- --------
Total liabilities 471,654 424,437
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, 3,216,666 and
3,062,893 shares issued and outstanding at December 31, 1997 and 1996, respectively 3,216 3,063
Additional paid-in capital 24,475 21,917
Retained earnings - substantially restricted 21,224 20,005
Unrealized gains on securities designated as available for sale, net of related tax effects 48 28
-------- --------
Total stockholders' equity 48,963 45,013
-------- --------
Total liabilities and stockholders' equity $520,617 $469,450
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 40
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income
Loans $ 34,267 $ 26,621 $ 22,939
Mortgage-backed securities 716 474 423
Investment securities 1,595 1,448 1,570
Interest-bearing deposits and other 995 717 508
----------- ----------- -----------
Total interest income 37,573 29,260 25,440
Interest expense
Deposits 17,212 13,933 12,478
Borrowings 3,810 2,113 1,779
----------- ----------- -----------
Total interest expense 21,022 16,046 14,257
----------- ----------- -----------
Net interest income 16,551 13,214 11,183
Provision for losses on loans 232 111 143
----------- ----------- -----------
Net interest income after provision for losses on loans 16,319 13,103 11,040
Other income
Late charges, rent and other 1,372 1,145 915
Loan servicing fees 339 749 796
Service charges and other fees on deposits 495 447 448
Gain on sale of loans 1,599 1,257 1,126
Gain (loss) on sale of real estate acquired through foreclosure 35 (2) 8
----------- ----------- -----------
Total other income 3,840 3,596 3,293
----------- ----------- -----------
General, administrative and other expense
Employee compensation and benefits 5,449 4,970 4,198
Occupancy and equipment 1,423 1,170 902
Federal deposit insurance premiums 260 2,369 625
Data processing 561 454 397
Advertising 489 388 406
State franchise taxes 425 399 322
Amortization of goodwill 149 38 --
Other operating 2,868 2,402 1,925
----------- ----------- -----------
Total general, administrative and other expense 11,624 12,190 8,775
----------- ----------- -----------
Earnings before federal income taxes 8,535 4,509 5,558
Federal income taxes
Current 2,757 1,214 1,794
Deferred 152 282 116
----------- ----------- -----------
Total federal income taxes 2,909 1,496 1,910
----------- ----------- -----------
NET EARNINGS $ 5,626 $ 3,013 $ 3,648
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 1.75 $ 1.24 $ 1.68
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 1.71 $ 1.21 $ 1.68
=========== =========== ===========
Basic weighted average common shares outstanding 3,215,615 2,428,902 2,172,309
=========== =========== ===========
Diluted weighted average common shares outstanding 3,295,314 2,482,787 2,175,420
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-40-
<PAGE> 41
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
ADDITIONAL DESIGNATED TOTAL
COMMON PAID-IN AS AVAILABLE RETAINED STOCKHOLDERS'
STOCK CAPITAL FOR SALE EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 1,875 $ 4,416 $ (16) $ 18,466 $ 24,741
Stock options exercised 2 8 -- -- 10
Cash dividends declared - $.3523 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 - $.4264 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
Stock options exercised -- 1 -- -- 1
Cash dividends declared - $.5073 per share -- -- -- (1,690) (1,690)
Stock dividend (5%) including cash in lieu
of fractional shares 153 2,557 -- (2,717) (7)
Net earnings -- -- -- 5,626 5,626
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- 20 -- 20
-------- -------- -------- -------- --------
Balance at December 31, 1997 $ 3,216 $ 24,475 $ 48 $ 21,224 $ 48,963
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-41-
<PAGE> 42
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 5,626 $ 3,013 $ 3,648
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of goodwill 149 38 --
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 68 30 (13)
Depreciation and amortization 672 492 461
Amortization of purchase accounting adjustments (39) (10) --
Provision for losses on loans 232 111 143
Amortization of deferred loan origination fees (585) (441) (310)
(Gain) loss on sale of real estate acquired through foreclosure (35) 2 (8)
Federal Home Loan Bank stock dividends (321) (225) (177)
Gain on sale of loans (619) (391) (471)
Loans originated for sale in the secondary market (80,869) (61,100) (39,941)
Proceeds from sale of mortgage loans in the secondary market 78,284 62,078 39,362
Increase (decrease) in cash, net of acquisition of First Ashland Financial
Corporation in 1996, due to changes in:
Accrued interest receivable on loans (361) (297) (418)
Accrued interest receivable on mortgage-backed securities 17 32 28
Accrued interest receivable on investments 150 (95) 125
Prepaid expenses and other assets (303) 255 (152)
Accrued interest and other liabilities (1,577) 1,967 (411)
Federal income taxes
Current 234 (158) 294
Deferred 152 282 116
--------- --------- ---------
Net cash provided by operating activities 875 5,583 2,276
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 20,319 10,788 9,750
Proceeds from sale of investment securities 687 427 --
Purchase of investment securities designated as available
for sale (540) (33) --
Purchase of investment securities designated as held to maturity (14,490) (9,996) (1,775)
Principal repayments on mortgage-backed securities 2,711 1,244 1,061
Loan disbursements (167,354) (119,738) (97,464)
Purchases of loans (12,514) -- --
Principal repayments on loans 124,976 87,317 67,390
Purchase of office premises and equipment - net (1,493) (1,023) (533)
Proceeds from sale of real estate acquired through foreclosure 389 326 89
Purchase of Federal Home Loan Bank stock (797) (200) (393)
Additions to real estate acquired through foreclosure (61) (3) (70)
Net decrease in certificates of deposit in other financial institutions 990 891 5,546
Purchase of life insurance (370) (4,735) --
Net increase in cash surrender value of life insurance (232) (145) --
Purchase of First Ashland Financial Corporation stock - net -- 2,633 --
--------- --------- ---------
Net cash used in investing activities (47,779) (32,247) (16,399)
--------- --------- ---------
Net cash used in operating and investing activities
(balance carried forward) (46,904) (26,664) (14,123)
--------- --------- ---------
</TABLE>
-42-
<PAGE> 43
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $ (46,904) $ (26,664) $ (14,123)
Cash flows provided by (used in) financing activities:
Net increase in deposits 24,216 2,603 19,713
Proceeds from Federal Home Loan Bank advances
and other borrowings 61,330 110,115 70,400
Repayment of Federal Home Loan Bank advances
and other borrowings (38,366) (80,326) (70,833)
Dividends paid on common stock (1,697) (1,169) (773)
Proceeds from exercise of stock options 1 29 10
Increase (decrease) in advances by borrowers for
taxes and insurance 1,435 (170) (226)
--------- --------- ---------
Net cash provided by financing activities 46,919 31,082 18,291
--------- --------- ---------
Net increase in cash and cash equivalents 15 4,418 4,168
Cash and cash equivalents at beginning of year 17,865 13,447 9,279
--------- --------- ---------
Cash and cash equivalents at end of year $ 17,880 $ 17,865 $ 13,447
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 21,043 $ 15,735 $ 14,003
========= ========= =========
Income taxes $ 2,352 $ 1,489 $ 1,684
========= ========= =========
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure $ 932 $ 92 $ 70
========= ========= =========
Issuance of mortgage loans upon sale of real
estate acquired through foreclosure $ 222 $ 283 $ 42
========= ========= =========
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 20 $ (23) $ 67
========= ========= =========
Recognition of mortgage servicing rights in accordance
with SFAS No. 122 $ 980 $ 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> 44
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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 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 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 Corporation is 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
-44-
<PAGE> 45
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997, 1996
and 1995, the Corporation had net interest-earning assets of $493.1
million, $444.5 million and $328.0 million, with weighted average
effective yields of 8.05%, 8.01% and 8.07% and net interest-bearing
liabilities of approximately $462.5 million, $415.4 million and $312.7
million, with weighted average effective interest rates of 5.04%, 4.96%
and 4.82%. 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, 1997 and 1996, the Corporation's
stockholders' equity reflected net unrealized gains on securities
designated as available for sale of $48,000 and $28,000, 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.
-45-
<PAGE> 46
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loans Receivable (continued)
----------------
Loans held for sale are carried at the lower of cost (less principal
payments received) or fair value (market value), calculated on an
aggregate basis. At December 31, 1997 and 1996, such loans were carried
at cost, which approximated fair value.
The Corporation accounts for mortgage servicing rights in accordance
with 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.
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 $497,000, $99,000 and $20,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. At December
31, 1997 and 1996, the fair value of the Corporation's mortgage
servicing rights totaled approximately $1.9 million and $1.4 million,
respectively.
At December 31, 1997 and 1996, the Banks were servicing mortgage loans
of approximately $300.1 million and $265.8 million, respectively, that
have been sold to the Federal Home Loan Mortgage Corporation and other
investors.
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.
-46-
<PAGE> 47
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Loan Origination and Commitment Fees (continued)
-------------------------------------
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.
The Corporation accounts for impaired loans in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114
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.
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 any impairment thereon, such loans are collateral
dependent and as a result are carried as a practical expedient at the
lower of cost or fair value.
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, 1997 and 1996, the Corporation had no loans that would
be defined as impaired under SFAS No. 114.
-47-
<PAGE> 48
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
--------
Goodwill resulting from the acquisition of Ashland 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 intangible assets in relation to the continuing
earnings capacity of the acquired assets and assumed liabilities.
In 1995, the Financial Accounting Standards Board (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 in 1996,
as required, without material effect on consolidated financial condition
or results of operations.
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.
-48-
<PAGE> 49
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Federal Income Taxes (continued)
--------------------
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
------------------------------------------
Effective December 31, 1997, the Corporation began presenting earnings
per share pursuant to the provisions of SFAS No. 128, "Earnings Per
Share." In accordance with the Statement, the 1996 and 1995 earnings per
share presentation has been restated to conform to SFAS No. 128.
Basic earnings per share is calculated based on the weighted average
number of common shares outstanding during the respective periods,
adjusted to reflect a 5% stock dividend effected during the years ended
December 31, 1997 and 1996.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued
under the Corporation's stock option plan. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings per
share gives effect to incremental shares from assumed stock option
exercises totaling 79,699, 53,885, and 3,111 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Dividends per share for the years ended December 31, 1997, 1996 and
1995, have also been adjusted to reflect the effect of the 5% 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> 50
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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 statements 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 statements of financial condition is deemed to
approximate fair value.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The
carrying amount as reported in the consolidated statements of
financial condition is deemed a reasonable estimate of 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, 1997 and 1996. 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> 51
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997 and 1996, 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,
1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
Financial assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 17,880 $ 17,880 $ 17,865 $ 17,865
Certificates of deposit in other financial
institutions -- -- 990 990
Investment securities 21,047 21,094 27,018 26,996
Mortgage-backed securities 8,704 8,808 11,442 11,477
Loans receivable 446,480 452,416 388,923 388,329
Federal Home Loan Bank stock 5,060 5,060 3,942 3,942
Accrued interest receivable 3,205 3,205 3,011 3,011
-------- -------- -------- --------
$502,376 $508,463 $453,191 $452,610
======== ======== ======== ========
Financial liabilities
Deposits $382,225 $386,273 $358,009 $361,821
Advances from the Federal Home Loan Bank 80,319 80,644 57,354 57,313
Advances by borrowers for taxes and insurance 4,299 4,299 2,864 2,864
-------- -------- -------- --------
$466,843 $471,216 $418,227 $421,998
======== ======== ======== ========
</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> 52
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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 1997
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, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997
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 $17,075 $ 52 $ 32 $17,095
Municipal bonds 414 27 -- 441
------- ------- ------- -------
Total investment securities held to maturity 17,489 79 32 17,536
AVAILABLE FOR SALE:
U.S. Government agency obligations 2,511 8 -- 2,519
Corporate equity securities 77 67 -- 144
Asset management funds 900 -- 5 895
------- ------- ------- -------
Total investments available for sale 3,488 75 5 3,558
------- ------- ------- -------
Total investment securities $20,977 $ 154 $ 37 $21,094
======= ======= ======= =======
<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>
-52-
<PAGE> 53
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997 and
1996, are as follows:
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
FNMA $4,335 $ 76 $ 17 $4,394
FHLMC 3,645 29 17 3,657
CMOs 24 1 -- 25
GNMA 173 26 -- 199
Other 30 6 -- 36
------ ------ ------ ------
Total mortgage-backed securities
held to maturity 8,207 138 34 8,311
AVAILABLE FOR SALE:
FHLMC 495 2 -- 497
------ ------ ------ ------
Total mortgage-backed securities $8,702 $ 140 $ 34 $8,808
====== ====== ====== ======
<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>
-53-
<PAGE> 54
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997 and 1996 (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>
1997 1996
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 6,500 $ 6,488 $ 4,606 $ 4,586
Due after one year through five years 11,831 11,870 20,095 20,097
Due after five years through ten years 1,669 1,697 487 487
Due after ten years through fifteen years -- -- 179 195
------- ------- ------- -------
Total investment securities 20,000 20,055 25,367 25,365
Corporate equity securities 77 144 1,623 1,631
Mortgage-backed securities - not
due at a single maturity date 8,702 8,808 11,433 11,477
Asset management fund 900 895 -- --
------- ------- ------- -------
Total $29,679 $29,902 $38,423 $38,473
======= ======= ======= =======
</TABLE>
During 1997 and 1996, the Corporation sold investment securities
designated as available for sale with a carrying value of $687,000 and
$427,000, respectively.
There were no sales of investment securities or mortgage-backed
securities during the year ended December 31, 1995.
-54-
<PAGE> 55
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE C - LOANS RECEIVABLE
Loans receivable at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
Conventional real estate loans:
<S> <C> <C>
Existing residential properties $396,615 $340,606
Nonresidential real estate 11,294 12,529
Construction 14,505 19,960
Developed building lots 1,870 1,406
Education loans 2,224 2,037
Consumer and other loans 28,034 22,244
-------- --------
Total 454,542 398,782
Less:
Undisbursed portion of loans in process 10,059 8,867
Unamortized yield adjustments 813 676
Allowance for loan losses 1,325 1,247
-------- --------
Loans receivable - net $442,345 $387,992
======== ========
</TABLE>
As depicted above, the Corporation's lending efforts have historically focused
on loans secured by existing residential properties, which comprise
approximately $396.6 million, or 90%, of the total loan portfolio at December
31, 1997 and approximately $340.6 million, or 88%, of the total loan portfolio
at December 31, 1996. 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,
1997 and 1996.
-55-
<PAGE> 56
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,247 $ 1,032 $ 943
Provision for losses 232 111 143
Allowance resulting from acquisition -- 109 --
Charge-offs, net of immaterial recoveries (154) (5) (54)
------- ------- -------
Balance at end of year $ 1,325 $ 1,247 $ 1,032
======= ======= =======
</TABLE>
Nonaccrual and nonperforming loans totaled approximately $1.8 million,
$2.4 million and $1.1 million at December 31, 1997, 1996 and 1995,
respectively. Interest income that would have been recognized had such
nonaccrual loans performed pursuant to contractual terms totaled
approximately $44,000, $90,000 and $24,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Land $ 1,308 $ 1,308
Buildings and improvements 6,553 5,783
Furniture, fixtures and equipment 4,426 3,728
------- -------
12,287 10,819
Less accumulated depreciation and amortization 4,655 4,008
------- -------
$ 7,632 $ 6,811
======= =======
</TABLE>
-56-
<PAGE> 57
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE F - DEPOSITS
Deposit balances by type and weighted-average interest rate at December
31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
AMOUNT RATE AMOUNT RATE
(Dollars in thousands)
<S> <C> <C> <C> <C>
NOW accounts $ 53,046 1.83% $ 47,078 1.93%
Money market demand accounts 19,989 3.85 17,186 3.64
Passbook and statement savings accounts 58,829 3.06 58,610 3.01
-------- ---- -------- ----
Total withdrawable accounts 131,864 2.68 122,874 2.68
Money market certificates:
Seven days to one year 36,833 5.32 46,143 5.59
One to two years 88,167 5.92 66,674 5.77
Two to eight years 82,133 6.14 82,747 6.31
Negotiated rate certificates 23,386 5.87 21,786 5.69
Individual retirement accounts 19,842 5.87 17,785 5.90
-------- ---- -------- ----
Total certificate accounts 250,361 5.90 235,135 5.93
-------- ---- -------- ----
Total deposits $382,225 4.79% $358,009 4.81%
======== ==== ======== ====
</TABLE>
At December 31, 1997 and 1996, the Corporation had certificates of
deposit accounts with balances in excess of $100,000 totaling $39.6
million and $37.9 million, respectively.
Interest expense on deposits is summarized as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Certificate of deposit accounts $13,834 $10,974 $ 9,592
NOW accounts and money
market demand accounts 1,710 1,498 1,450
Passbook and statement savings
accounts 1,668 1,461 1,436
------- ------- -------
$17,212 $13,933 $12,478
======= ======= =======
</TABLE>
The contractual maturities of outstanding certificates of deposit are
summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
YEAR ENDING DECEMBER 31: (In thousands)
<S> <C> <C>
1997 $ - $145,780
1998 146,178 53,565
1999 72,375 23,290
2000 20,751 6,183
2001 4,398 6,317
After 2001 6,659 -
--------- -----
Total certificate of deposit accounts $250,361 $235,135
======= =======
</TABLE>
-57-
<PAGE> 58
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE F - DEPOSITS (continued)
At December 31, 1997 and 1996, public savings deposits were
collateralized by investment securities and interest-bearing deposits in
other banks totaling $16.9 million and $22.2 million, respectively.
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
1997 and 1996, by pledges of certain residential mortgage loans totaling
$120.5 million and $86.0 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 1997 1996
(In thousands)
<S> <C> <C> <C>
5.36% - 7.75% 1997 $ - $34,500
4.95% - 6.90% 1998 51,750 11,750
5.75% - 6.25% 1999 12,830 4,462
5.38% - 6.10% 2000 4,000 750
6.17% - 6.35% 2001 1,000 148
4.25% - 6.71% Thereafter 10,739 5,744
------ -------
$80,319 $57,354
======= =======
Weighted average rate 6.26% 5.87%
==== ====
</TABLE>
NOTE H - FEDERAL INCOME TAXES
A reconciliation of the effective tax rate for the years ended December
31, 1997, 1996 and 1995, 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>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Expected federal tax at statutory rate $ 2,902 $ 1,533 $ 1,890
Other 7 (37) 20
------- ------- -------
Tax provision per consolidated financial
statements $ 2,909 $ 1,496 $ 1,910
======= ======= =======
</TABLE>
-58-
<PAGE> 59
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE H - FEDERAL INCOME TAXES (continued)
The components of the Corporation's net deferred tax liability as of
December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred loan origination fees $ (31) $ (19)
FHLB stock dividends (628) (520)
Percentage of earnings bad debt deduction (589) (589)
Retirement expense (43) (17)
Mortgage servicing rights (647) (482)
Other liabilities (172) (205)
------- -------
Total deferred tax liabilities (2,110) (1,832)
Deferred tax assets:
General loan loss allowance 457 376
Other assets 123 104
------- -------
Total deferred tax assets 580 480
------- -------
Net deferred tax liability $(1,530) $(1,352)
======= =======
</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, 1997. The amount of the
unrecognized deferred tax liability relating to the cumulative bad debt
deduction was approximately $2.0 million at December 31, 1997. 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> 60
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997 and 1996, the Banks had outstanding commitments to
originate or purchase fixed rate loans of approximately $2.6 million and
$1.4 million, respectively, and adjustable rate loans of approximately
$3.1 million and $4.4 million, respectively. Additionally, the Banks had
unused lines of credit under home equity and other loans of $12.9 million
at December 31, 1997. 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
Cambridge and Marietta are subject to the regulatory capital requirements
of the Federal Deposit Insurance Corporation (the "FDIC"). First Federal
and Ashland 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 tables that follow.
-60-
<PAGE> 61
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE J - REGULATORY CAPITAL (continued)
The 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, 1997 and 1996, management believes that Cambridge and
Marietta met all capital adequacy requirements to which the Banks are
subject.
<TABLE>
<CAPTION>
CAMBRIDGE AS OF DECEMBER 31, 1997
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $15,032 13.4% *$8,986 *8.0% *$11,233 *10.0%
Tier I capital
(to risk-weighed assets) $14,582 13.0% *$4,493 *4.0% *$ 6,740 * 6.0%
Tier I leverage $14,582 6.9% *$8,437 *4.0% *$10,547 * 5.0%
<FN>
* greater than or equal to
</FN>
</TABLE>
-61-
<PAGE> 62
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
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
(Dollars 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-weighed 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%
<CAPTION>
MARIETTA AS OF DECEMBER 31, 1997
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $10,091 13.0% *$6,224 *8.0% *$7,780 *10.0%
Tier I capital
(to risk-weighed assets) $ 9,650 12.4% *$3,112 *4.0% *$4,668 * 6.0%
Tier I leverage $ 9,650 7.9% *$4,897 *4.0% *$6,122 * 5.0%
<CAPTION>
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
(Dollars 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%
<FN>
* greater than or equal to
</FN>
</TABLE>
-62-
<PAGE> 63
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE J - REGULATORY CAPITAL (continued)
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, 1997 and 1996, management believes that First Federal
and Ashland met all capital adequacy requirements to which the Banks are
subject.
<TABLE>
<CAPTION>
FIRST FEDERAL AS OF DECEMBER 31, 1997
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ----------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $6,876 8.2% *$1,261 *1.5% *$4,204 * 5.0%
Core capital $6,876 8.2% *$2,253 *3.0% *$5,045 * 6.0%
Risk-based capital $7,154 14.9% *$3,838 *8.0% *$4,798 *10.0%
<CAPTION>
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
(Dollars 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%
<FN>
* greater than or equal to
</FN>
</TABLE>
-63-
<PAGE> 64
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
<TABLE>
<CAPTION>
ASHLAND AS OF DECEMBER 31, 1997
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ----------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $13,248 13.4% *$1,483 *1.5% *$4,944 * 5.0%
Core capital $13,248 13.4% *$2,966 *3.0% *$5,932 * 6.0%
Risk-based capital $13,382 24.4% *$4,389 *8.0% *$5,486 *10.0%
<CAPTION>
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
(Dollars 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%
<FN>
* greater than or equal to
</FN>
</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 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
-64-
<PAGE> 65
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
(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 earnings for
the most recent four quarters. Pursuant to such OTS dividend
regulations, Ashland and First Federal had the ability to pay dividends
of approximately $4.3 million to Camco Financial Corporation at
December 31, 1997.
NOTE K - BENEFIT PLANS
The Corporation had a non-contributory defined benefit pension plan
(the "Plan") covering all eligible employees. The Corporation
terminated the Plan during 1997 upon receipt of appropriate regulatory
approvals. The Plan's benefit formula was the projected unit credit
formula which encompassed future salary levels and participants' years
of service.
Net pension costs includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Service cost - benefits earned during year $ 232 $ 185
Interest cost on projected benefit obligation 180 158
Gain on plan assets (69) (139)
Net amortization, deferral and other (40) 65
----- -----
Net pension cost $ 303 $ 269
===== =====
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the consolidated statement of financial condition at
December 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $1,605
Accumulated benefit obligation $1,605
Plan assets at fair value $2,279
Actuarial present value of projected benefit
obligation for services rendered to date 1,605
------
Plan assets greater than projected benefit obligation 674
Unrecognized net gain 580
Unrecognized transition liability, net of amortization 2
Other 1
------
Prepaid pension cost (included in prepaid expenses
and other assets) $ 97
======
</TABLE>
-65-
<PAGE> 66
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE K - BENEFIT PLANS (continued)
Assumptions for the plan valuations include:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
Weighted average discount rate 7.71% 6.00%
Annual rate of increase in compensation levels N/A 4.50%
Expected long-term rate of return on assets 8.00% 8.00%
</TABLE>
Coincident with the termination of the plan, the Corporation undertook
a retirement plan which provides 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 $66,000 and $37,000 during
the years ended December 31, 1997 and 1996, respectively.
The Corporation also has a 401(k) Salary Savings Plan covering
substantially all employees. Total expense under this plan was
$140,000, $93,000 and $62,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
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. At December 31,
1997, 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. Under the 1995 Plan, 102,532 shares were reserved for
issuance. During 1995, options to purchase 77,175 shares under the 1995
Plan were awarded to officers, directors, and key employees at $15.34
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, 1997, 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, 1997, 1996 and 1995.
Additionally, in connection with the acquisition of First Ashland
Financial Corporation ("First Ashland"), the stock options of First
Ashland were converted into options to purchase 166,115 shares of the
Corporation's stock at an exercise price of $11.63 per share which
expire in 2005.
-66-
<PAGE> 67
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE L - STOCK OPTION PLANS (continued)
In 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 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.
The Corporation utilizes APB Opinion No. 25 and related interpretations
in accounting for its stock option plan. Accordingly, no compensation
cost has been recognized for the plan. Had compensation cost for the
Corporation's stock option plan been determined based on the fair value
at the grant dates for awards under the plan consistent with the
accounting method utilized in SFAS No. 123, the Corporation's net
earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net earnings As reported $5,626 3,013 $3,648
===== ===== =====
Pro-forma $5,626 3,013 $3,491
===== ===== =====
Earnings per share
Basic As reported $1.75 $1.24 $1.68
==== ==== ====
Pro-forma $1.75 $1.24 $1.61
==== ==== ====
Diluted As reported $1.71 $1.21 $1.68
==== ==== ====
Pro-forma $1.71 $1.21 $1.60
==== ==== ====
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the modified Black-Scholes options-pricing model with the
following weighted-average assumptions used for grants in 1995:
dividend yield of 2.04%, expected volatility of 10.0%, a risk-free
interest rate of 5.5% and expected lives of seven years.
-67-
<PAGE> 68
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE L - STOCK OPTION PLANS (continued)
A summary of the status of the Corporation's stock option plan as of
December 31, 1997, 1996 and 1995, and changes during the periods ending
on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 234,443 $13.67 75,738 $16.00 7,905 $ 5.11
Granted - - - - 70,000 16.91
First Ashland options - - 160,772 12.24 - -
Adjustment for stock dividend 11,714 12.99 3,504 15.20 273 4.85
Exercised 2,867 12.30 5,571 5.18 2,440 5.11
Forfeited - - - - - -
------- ------ ------- ------ ------ -----
Outstanding at end of year 243,290 $12.81 234,443 $13.67 75,738 $16.00
======= ===== ======= ===== ====== =====
Options exercisable at year-end 243,290 $12.81 234,443 $13.67 75,738 $16.00
======= ===== ======= ===== ====== =====
Weighted-average fair value of
options granted during the year N/A N/A $3.08
=== === =====
</TABLE>
The following information applies to options outstanding at December 31,
1997:
<TABLE>
<S> <C>
Number outstanding 243,290
Range of exercise prices $11.63 - $15.43
Weighted-average exercise price $12.81
Weighted-average remaining contractual life 7.9 years
</TABLE>
-68-
<PAGE> 69
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial
position of the Corporation as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for each of the years ended
December 31, 1997, 1996 and 1995:
CAMCO FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Cash in subsidiary Banks $248 $373
Interest-bearing deposits in other financial institutions 83 1,230
Investment securities designated as available for sale 141 97
Investment in Bank subsidiaries utilizing
the equity method 48,016 43,959
Investment in title agency subsidiary 352 339
Cash surrender value of life insurance 749 631
Prepaid expenses and other assets 215 6
Prepaid federal income taxes - 76
------- -------
Total assets $49,804 $46,711
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $287 $1,319
Dividends payable 491 368
Accrued federal income taxes 43 -
Deferred federal income taxes 20 11
------- -------
Total liabilities 841 1,698
Stockholders' equity
Common stock 3,216 3,063
Additional paid-in capital 24,475 21,917
Retained earnings - substantially restricted 21,224 20,005
Unrealized gains on securities designated as
available for sale, net of related tax effects 48 28
------- -------
Total stockholders' equity 48,963 45,013
------- -------
Total liabilities and stockholders' equity $49,804 $46,711
======= =======
</TABLE>
-69-
<PAGE> 70
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued)
CAMCO FINANCIAL CORPORATION
STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income:
Dividends from Bank subsidiaries $2,118 $2,264 $1,123
Dividends from title agency subsidiary 100 - -
Interest and other income 112 60 142
Equity in undistributed net earnings
of the Bank subsidiaries 4,033 1,140 2,781
Equity in undistributed net earnings
of title agency subsidiary 13 107 72
------- ------- -------
Total income 6,376 3,571 4,118
General, administrative and other
expense 1,015 912 607
------- ------- -------
Earnings before federal income tax
credits 5,361 2,659 3,511
Federal income tax credits (265) (354) (137)
------- ------- -------
Net earnings $5,626 $3,013 $3,648
======= ======= =======
</TABLE>
-70-
<PAGE> 71
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued)
CAMCO FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $5,626 $3,013 $3,648
Adjustments to reconcile net earnings to net cash
flows provided by (used in) operating activities:
Undistributed net earnings of Bank subsidiaries (4,033) (1,140) (2,781)
Undistributed net earnings of title
agency subsidiary (13) (107) (72)
Decrease (increase) in other assets (209) 40 (61)
Increase (decrease) in accounts payable
and other liabilities (909) 1,370 (88)
Increase (decrease) in current federal income taxes 119 (194) (136)
Other - net (39) (273) -
------- ------- -------
Net cash provided by operating activities 542 2,709 510
Cash flows used in investing activities:
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 (85) (614) -
Net increase in cash surrender value of life insurance (33) (17) -
(Increase) decrease in interest-bearing deposits in other
financial institutions 1,147 (1,230) -
------- ------- -------
Net cash provided by (used in) investing activities 1,029 (1,881) 471
Cash flows provided by (used in) financing activities:
Proceeds from other borrowing - 5,465 -
Repayment of other borrowing - (5,465) -
Common stock options exercised 1 29 10
Dividends paid (1,697) (1,169) (773)
------- ------- -------
Net cash used in financing activities (1,696) (1,140) (763)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (125) (312) 218
Cash and cash equivalents at beginning of year 373 685 467
------- ------- -------
Cash and cash equivalents at end of year $248 $373 $685
======= ======= =======
</TABLE>
-71-
<PAGE> 72
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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, 1997, 1996 and 1995. For purposes of the table,
"revenue" represents the sum of total interest income and total other
income:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Revenue:
Banking $ 39,288 $ 31,035 $ 26,827
Mortgage banking 3,839 2,976 2,808
--------- --------- ---------
Total business segments 43,127 34,011 29,635
Intersegment eliminations (1,714) (1,155) (902)
--------- --------- ---------
Total $ 41,413 $ 32,856 $ 28,733
========= ========= =========
Earnings before income taxes:
Banking $ 6,955 $ 3,314 $ 4,092
Mortgage banking 1,921 1,369 1,698
--------- --------- ---------
Total business segments 8,876 4,683 5,790
Intersegment eliminations (341) (174) (232)
--------- --------- ---------
Total $ 8,535 $ 4,509 $ 5,558
========= ========= =========
Assets-year-end:
Banking $ 515,128 $ 467,478 $ 344,177
Mortgage banking 6,000 2,655 3,096
--------- --------- ---------
Total business segments 521,128 470,133 347,273
Intersegment eliminations (511) (683) (804)
--------- --------- ---------
Total $ 520,617 $ 469,450 $ 346,469
========= ========= =========
</TABLE>
-72-
<PAGE> 73
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE O - BUSINESS COMBINATIONS
On October 4, 1996, the Corporation acquired First Ashland utilizing the
purchase method of accounting. First Ashland was dissolved upon
consummation, with First Ashland's banking subsidiary, Ashland,
continuing operations as a wholly owned subsidiary of the Corporation.
The results of Ashland's operations subsequent to October 4, 1996 are
included in the consolidated financial statements. The Corporation 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>
During 1997, the Corporation's Board of Directors approved a business
combination whereby GF Bancorp, Inc., the parent company of Germantown
Federal Savings Bank, would merge with and into the Corporation, and
Germantown Federal Savings Bank would merge with and into First Federal.
The merger was approved by regulatory authorities in 1997, and was
completed in January 1998. The business combination will be accounted for
as a pooling of interests and, accordingly, the assets, liabilities and
capital of the respective combining companies will be added together at
historic carrying value. Unaudited pro-forma condensed, combined
financial information of the Corporation and GF Bancorp, Inc. as of and
for the year ended December 31, 1997 is as follows:
-73-
<PAGE> 74
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE O - BUSINESS COMBINATIONS (continued)
<TABLE>
<CAPTION>
PRO-FORMA
CAMCO GF BANCORP COMBINED
(unaudited)
(In thousands, except share data)
<S> <C> <C> <C>
Total assets $520,617 $ 49,538 $570,155
======== ======== ========
Total liabilities $471,654 $ 44,120 $515,774
======== ======== ========
Stockholders' equity $ 48,963 $ 5,418 $ 54,381
======== ======== ========
Total revenue $ 41,413 $ 3,749 $ 45,162
Total expense 35,787 3,723 39,510
-------- -------- --------
Net earnings $ 5,626 $ 26 $ 5,652
======== ======== ========
Basic earnings per share $ 1.75 $ 1.57
======== ========
</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.
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 provided for the merger of the
SAIF and BIF on January 1, 2000. 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 these
subsidiaries 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.
-74-
<PAGE> 75
CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE Q - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for
the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 8,842 $ 9,205 $ 9,591 $ 9,935
Total interest expense 4,947 5,086 5,402 5,587
------- ------- ------- -------
Net interest income 3,895 4,119 4,189 4,348
Provision for losses on loans 48 60 58 66
Other income 699 1,005 1,174 962
General, administrative and other expense 2,785 2,888 2,754 3,197
------- ------- ------- -------
Earnings before income taxes 1,761 2,176 2,551 2,047
Federal income taxes 580 723 845 761
------- ------- ------- -------
Net earnings $ 1,181 $ 1,453 $ 1,706 $ 1,286
======= ======= ======= =======
Earnings per share:
Basic $ .37 $ .45 $ .53 $ .40
======= ======= ======= =======
Diluted $ .36 $ .44 $ .52 $ .39
======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 6,643 $ 6,684 $ 7,044 $ 8,889
Total interest expense 3,602 3,585 3,919 4,940
------- ------- ------- -------
Net interest income 3,041 3,099 3,125 3,949
Provision for losses on loans 21 21 27 42
Other income 944 818 915 919
General, administrative and other expense 2,208 2,490 4,478 3,014
------- ------- ------- -------
Earnings (loss) before income taxes (credits) 1,756 1,406 (465) 1,812
Federal income taxes (credits) 597 478 (158) 579
------- ------- ------- -------
Net earnings (loss) $ 1,159 $ 928 $ (307) $ 1,233
======= ======= ======= =======
Earnings (loss) per share:
Basic $ .57 $ .43 $ (.14) $ .38
======= ======= ======= =======
Diluted $ .56 $ .42 $ (.14) $ .37
======= ======= ======= =======
</TABLE>
-75-
<PAGE> 76
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained under the captions "Board of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement for the 1998 Annual Meeting of Stockholders to be filed by
Camco no later than 120 days after the end of the fiscal year (the
"Proxy Statement") is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers and Directors" is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the Proxy Statement under the caption
"Voting Securities and Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the Proxy Statement under the caption
"Certain Relationships and Related Transactions" is incorporated herein
by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C> <C>
(3)(i) Certificate of Incorporation
(3)(ii) Bylaws
(10)(ii)-1 Employment Agreement between Camco and Larry A. Caldwell
(10)(ii)-2 Employment Agreement between Camco and Anthony J. Popp
(10)(ii)-3 Employment Agreement between Marietta Savings and Anthony J. Popp
(21) Subsidiaries of Camco
(23)(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial
Statements and Form S-8
(23)(ii) Consent of Grant Thornton LLP regarding Camco's 401(k) Salary Savings Plan
Financial Statements and Form S-8
(27) Financial Data Schedule
(99) 1997 Financial Statements of Camco Financial Corporation 401(k) Salary
Savings Plan
</TABLE>
-76-
<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Camco Financial Corporation
By /s/ Larry A. Caldwell
---------------------
Larry A. Caldwell,
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By /s/ Anthony J. Popp By /s/ James R. Hanawalt
------------------------------------------------- ------------------------------------------------
Anthony J. Popp, James R. Hanawalt,
Senior Vice President, Secretary and Director Director
Date: March 23, 1998 Date: March 23, 1998
By /s/ Samuel W. Speck By /s/ Robert C. Dix, Jr.
------------------------------------------------- ------------------------------------------------
Samuel W. Speck, Robert C. Dix. Jr.,
Director Director
Date: March 23, 1998 Date: March 23, 1998
By /s/ Jeffrey T. Tucker By /s/ Paul D. Leake
------------------------------------------------- ------------------------------------------------
Jeffrey T. Tucker, Paul D. Leake,
Director Director
Date: March 23, 1998 Date: March 23, 1998
By /s/ Eric G. Spann By /s/ Gary E. Crane
------------------------------------------------- ------------------------------------------------
Eric Spann, Gary E. Crane,
Director Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: March 23, 1998 Date: March 23, 1998
By /s/ Kenneth R. Elshoff
-------------------------------------------------
Kenneth R. Elshoff,
Director
Date: March 23, 1998
</TABLE>
-77-
<PAGE> 78
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
ITEM DESCRIPTION
---- -----------
<S> <C> <C> <C>
Exhibit (3)(i) Third Restated Certificate of Incorporated by reference to Camco's Annual Report
Incorporation of Camco Financial on Form 10-KSB for the fiscal year ended December
Corporation 31, 1996, filed with the Securities and Exchange
Commission on March 31, 1997 (the "1996 Form
10-KSB"), Exhibit 3(i).
Exhibit (3)(ii) 1987 Amended and Restated By-Laws of Incorporated by reference to Camco's Annual Report
Camco Financial Corporation on Form 10-KSB for the fiscal year ended December
31, 1995, filed with the Securities and Exchange
Commission on April 1, 1996 (the "1995 Form
10-KSB"), Exhibit 3(iii).
Exhibit (10)(ii) -1 Employment Agreement dated January 22, Incorporated by reference to the 1995 Form 10-KSB,
1996, by and between Camco and Larry Exhibit 10(ii)-1
A.Caldwell
Exhibit (10)(ii) -2 Employment Agreement dated January 28, Incorporated by reference to Camco's Annual Report
1994, by and between Camco and Anthony on Form 10-KSB for the fiscal year ended December
J. Popp 31, 1993, filed with the SEC on March 31, 1994 (the
"1994 Form 10-KSB"), Exhibit 10(ii)-1.
Exhibit (10)(ii) -3 Employment Agreement dated January 28, Incorporated by reference to the 1994 Form 10-KSB,
1994, by and between Marietta Savings Exhibit 10(ii)-2.
Bank and Anthony J. Popp
Exhibit 21 Subsidiaries of Camco
Exhibit 23(i) Consent of Grant Thornton LLP regarding
Camco's Consolidated Financial
Statements and Form S-8
Exhibit 23(ii) Consent of Grant Thornton LLP regarding
Camco's 401(k) Salary Savings Plan
Financial Statements and Form S-8
Exhibit 27 Financial Data Schedule
Exhibit 99 1997 Financial Statements of Camco
Financial Corporation 401(k) Salary
Savings Plan
</TABLE>
-78-
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF CAMCO
<TABLE>
<CAPTION>
State of
Name Incorporation Ownership
---- ------------- ---------
<S> <C> <C> <C>
Cambridge Savings Bank Ohio 100%
Marietta Savings Bank Ohio 100%
First Federal Savings Bank of
Washington Court House United States 100%
First Federal Bank for United States 100%
Savings
East Ohio Land Title Agency Ohio 100%
<CAPTION>
SUBSIDIARIES OF CAMBRIDGE SAVINGS
<S> <C> <C> <C>
Camco Mortgage Corporation Ohio 50%
SUBSIDIARIES OF MARIETTA SAVINGS
<S> <C> <C> <C>
Camco Mortgage Corporation Ohio 50%
WestMar Mortgage Company Ohio 100%
SUBSIDIARIES OF FIRST SAVINGS
<S> <C> <C> <C>
First S&L Corporation Kentucky 100%
</TABLE>
-79-
<PAGE> 1
Exhibit 23(i)
ACCOUNTANTS' CONSENT
We have issued our report dated February 16, 1998, accompanying the
financial statements of Camco Financial Corporation 401(k) Salary Savings Plan
which are incorporated within the Annual Report on Form 10-K for the year ended
December 31, 1997. We hereby consent to the incorporation by reference of said
report in Camco's Form S-8 (33-88072).
Grant Thornton LLP
Cincinnati, Ohio
March 27, 1998
-80-
<PAGE> 1
Exhibit 23(ii)
ACCOUNTANTS' CONSENT
We have issued our report dated February 21, 1998, accompanying the
consolidated financial statements of Camco Financial Corporation which are
incorporated within the Annual Report on Form 10-K for the year ended December
31, 1997. We hereby consent to the incorporation by reference of said report in
Camco's Form S-8 (33-88072).
Grant Thornton LLP
Cincinnati, Ohio
March 27, 1998
-81-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,576
<INT-BEARING-DEPOSITS> 6,304
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,055
<INVESTMENTS-CARRYING> 25,696
<INVESTMENTS-MARKET> 25,847
<LOANS> 446,480
<ALLOWANCE> 1,325
<TOTAL-ASSETS> 520,617
<DEPOSITS> 382,225
<SHORT-TERM> 51,570
<LIABILITIES-OTHER> 9,110
<LONG-TERM> 28,749
0
0
<COMMON> 3,216
<OTHER-SE> 45,747
<TOTAL-LIABILITIES-AND-EQUITY> 520,617
<INTEREST-LOAN> 34,267
<INTEREST-INVEST> 2,311
<INTEREST-OTHER> 995
<INTEREST-TOTAL> 37,573
<INTEREST-DEPOSIT> 17,212
<INTEREST-EXPENSE> 21,022
<INTEREST-INCOME-NET> 16,551
<LOAN-LOSSES> 232
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,624
<INCOME-PRETAX> 8,535
<INCOME-PRE-EXTRAORDINARY> 5,626
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,626
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 3.28
<LOANS-NON> 815
<LOANS-PAST> 1,003
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,247
<CHARGE-OFFS> 164
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,325
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,325
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,587
<INT-BEARING-DEPOSITS> 8,268
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,916
<INVESTMENTS-CARRYING> 32,544
<INVESTMENTS-MARKET> 32,557
<LOANS> 388,923
<ALLOWANCE> 1,247
<TOTAL-ASSETS> 469,450
<DEPOSITS> 358,009
<SHORT-TERM> 34,500
<LIABILITIES-OTHER> 9,074
<LONG-TERM> 22,854
0
0
<COMMON> 3,063
<OTHER-SE> 41,950
<TOTAL-LIABILITIES-AND-EQUITY> 469,450
<INTEREST-LOAN> 26,621
<INTEREST-INVEST> 1,922
<INTEREST-OTHER> 717
<INTEREST-TOTAL> 29,260
<INTEREST-DEPOSIT> 13,933
<INTEREST-EXPENSE> 16,046
<INTEREST-INCOME-NET> 13,214
<LOAN-LOSSES> 111
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,190
<INCOME-PRETAX> 4,509
<INCOME-PRE-EXTRAORDINARY> 3,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,013
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 3.67
<LOANS-NON> 1,598
<LOANS-PAST> 775
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,032
<CHARGE-OFFS> 6
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,247
<ALLOWANCE-DOMESTIC> 142
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,105
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,325
<INT-BEARING-DEPOSITS> 4,003
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,116
<INVESTMENTS-CARRYING> 24,285
<INVESTMENTS-MARKET> 24,168
<LOANS> 292,751
<ALLOWANCE> 1,032
<TOTAL-ASSETS> 346,469
<DEPOSITS> 286,574
<SHORT-TERM> 15,500
<LIABILITIES-OTHER> 6,124
<LONG-TERM> 10,578
0
0
<COMMON> 1,971
<OTHER-SE> 25,722
<TOTAL-LIABILITIES-AND-EQUITY> 346,469
<INTEREST-LOAN> 22,939
<INTEREST-INVEST> 1,993
<INTEREST-OTHER> 508
<INTEREST-TOTAL> 25,440
<INTEREST-DEPOSIT> 12,478
<INTEREST-EXPENSE> 14,257
<INTEREST-INCOME-NET> 11,183
<LOAN-LOSSES> 143
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,775
<INCOME-PRETAX> 5,558
<INCOME-PRE-EXTRAORDINARY> 3,648
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,648
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 3.47
<LOANS-NON> 630
<LOANS-PAST> 452
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 943
<CHARGE-OFFS> 56
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,032
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,032
</TABLE>
<PAGE> 1
Exhibit 99
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
CAMCO FINANCIAL CORPORATION 401(K)
SALARY SAVINGS PLAN
December 31, 1997, 1996 and 1995
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS 4
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR
PLAN BENEFITS 6
NOTES TO FINANCIAL STATEMENTS 9
SUPPLEMENTAL INFORMATION
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES 14
SCHEDULE OF REPORTABLE TRANSACTIONS 15
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Trustees
Camco Financial Corporation 401(k) Salary Savings Plan
We have audited the accompanying statements of net assets available for plan
benefits of Camco Financial Corporation 401(k) Salary Savings Plan as of
December 31, 1997 and 1996, and the related statements of changes in net assets
available for plan benefits for the years ended December 31, 1997, 1996 and
1995. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these 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 net assets available for plan benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for plan
benefits for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Grant Thornton LLP
Cincinnati, Ohio
February 16, 1998
<PAGE> 4
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1997
<TABLE>
<CAPTION>
FIDELITY VANGUARD VANGUARD CAMBRIDGE
BLUE CHIP TEMPLETON INDEX WELLINGTON SAVINGS
GROWTH ACORN FOREIGN TRUST BALANCED CERTIFICATES
ASSETS FUND FUND FUND FUND FUND OF DEPOSIT
<S> <C> <C> <C> <C> <C> <C>
Investments at current value:
Common stock $ - $ - $ - $ - $ - $ -
Mutual funds 379,213 1,019,827 340,484 754,594 482,109 -
Certificates of deposit - - - - - 921,297
U.S. Treasury obligations 6,900 90,900 2,500 8,800 - 9,200
Notes receivable - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total investments 386,113 1,110,727 342,984 763,394 482,109 930,497
Accrued interest receivable 34 168 15 52 33 14,280
Contribution receivable - employer 1,456 2,952 966 1,754 1,374 1,070
Contribution receivable - participants' 2,467 5,897 1,831 3,498 2,994 1,841
---------- ---------- ---------- ---------- ---------- ----------
Total receivable 3,957 9,017 2,812 5,304 4,401 17,191
Cash and cash equivalents 18 88 5,815 81 - 7
---------- ---------- ---------- ---------- ---------- ----------
Net assets available for Plan benefits $ 390,088 $1,119,832 $ 351,611 $ 768,779 $ 486,510 $ 947,695
========== ========== ========== ========== ========== ==========
CAMCO
FINANCIAL
LOAN CORPORATION
ASSETS FUND STOCK TOTAL
<S> <C> <C> <C>
Investments at current value:
Common stock $ - $ 908,642 $ 908,642
Mutual funds - - 2,976,227
Certificates of deposit - - 921,297
U.S. Treasury obligations - - 118,300
Notes receivable 51,106 - 51,106
---------- ---------- ----------
Total investments 51,106 908,642 4,975,572
Accrued interest receivable - 46 14,628
Contribution receivable - employer - 2,173 11,745
Contribution receivable - participants' - 3,931 22,459
---------- ---------- ----------
Total receivable - 6,150 48,832
Cash and cash equivalents - 38 6,047
---------- ---------- ----------
Net assets available for Plan benefits $ 51,106 $ 914,830 $5,030,451
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1996
<TABLE>
<CAPTION>
FIDELITY VANGUARD VANGUARD
BLUE CHIP TEMPLETON INDEX WELLINGTON
GROWTH ACORN FOREIGN TRUST BALANCED
ASSETS FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Investments at current value:
Common stock $ - $ - $ - $ - $ -
Mutual funds 113,948 554,504 162,193 279,569 232,480
Certificates of deposit - - - - -
U.S. Treasury obligations 1,500 53,600 1,100 5,300 2,000
Notes receivable - - - - -
---------- ---------- ---------- ---------- ----------
Total investments 115,448 608,104 163,293 284,869 234,480
Accrued interest receivable 11 126 5,717 23 30
Contribution receivable - employer 1,442 2,325 747 1,233 1,075
Contribution receivable - participants' 2,479 4,661 1,483 2,511 2,529
---------- ---------- ---------- ---------- ----------
Total receivable 3,932 7,112 7,947 3,767 3,634
Cash and cash equivalents 76 90 1,258 31 49
---------- ---------- ---------- ---------- ----------
Net assets available for Plan benefits $ 119,456 $ 615,306 $ 172,498 $ 288,667 $ 238,163
========== ========== ========== ========== ==========
CAMBRIDGE CAMCO
SAVINGS FINANCIAL
CERTIFICATES LOAN CORPORATION
ASSETS OF DEPOSIT FUND STOCK TOTAL
<S> <C> <C> <C> <C>
Investments at current value:
Common stock $ - $ - $ 244,363 $ 244,363
Mutual funds - - - 1,342,694
Certificates of deposit 361,722 - - 361,722
U.S. Treasury obligations 7,500 2,400 3,000 76,400
Notes receivable - 56,510 - 56,510
---------- ---------- ---------- ----------
Total investments 369,222 58,910 247,363 2,081,689
Accrued interest receivable 5,826 - 26 11,759
Contribution receivable - employer 1,065 - 1,885 9,772
Contribution receivable - participants' 1,939 - 3,522 19,124
---------- ---------- ---------- ----------
Total receivable 8,830 - 5,433 40,655
Cash and cash equivalents 28 - 41 1,573
---------- ---------- ---------- ----------
Net assets available for Plan benefits $ 378,080 $ 58,910 $ 252,837 $2,123,917
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
FIDELITY VANGUARD VANGUARD
BLUE CHIP TEMPLETON INDEX WELLINGTON
GROWTH ACORN FOREIGN TRUST BALANCED
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividends $ 18,259 $ 105,412 $ 38,637 $ 14,879 $ 39,372
Net appreciation (depreciation) 56,199 115,963 (20,679) 156,286 44,272
Contributions - employer 13,967 35,181 12,908 20,512 16,788
Contributions - participants' 24,143 70,151 23,900 38,992 30,116
Rollovers 186,552 190,024 120,898 215,180 137,732
---------- ---------- ---------- ---------- ----------
Total contributions 224,662 295,356 157,706 274,684 184,636
---------- ---------- ---------- ---------- ----------
Total additions 299,120 516,731 175,664 445,849 268,280
Deductions from net assets attributed to:
Benefit payments 5,829 18,608 13,586 21,755 5,439
---------- ---------- ---------- ---------- ----------
Net increase before transfers 293,291 498,123 162,078 424,094 262,841
Interfund transfers (22,659) 6,403 17,035 56,018 (14,494)
---------- ---------- ---------- ---------- ----------
Net increase 270,632 504,526 179,113 480,112 248,347
Net assets available for plan benefits:
Beginning of year 119,456 615,306 172,498 288,667 238,163
---------- ---------- ---------- ---------- ----------
End of year $ 390,088 $1,119,832 $ 351,611 $ 768,779 $ 486,510
========== ========== ========== ========== ==========
CAMBRIDGE CAMCO
SAVINGS FINANCIAL
CERTIFICATES LOAN CORPORATION
OF DEPOSIT FUND STOCK TOTAL
<S> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividends $ 49,367 $ 5,768 $ 14,699 $ 286,393
Net appreciation (depreciation) - - 351,004 703,045
Contributions - employer 14,753 - 26,536 140,645
Contributions - participants' 20,795 - 46,779 254,876
Rollovers 531,912 - 231,235 1,613,533
---------- ---------- ---------- ----------
Total contributions 567,460 - 304,550 2,009,054
---------- ---------- ---------- ----------
Total additions 616,827 5,768 670,253 2,998,492
Deductions from net assets attributed to:
Benefit payments 21,676 1,211 3,854 91,958
---------- ---------- ---------- ----------
Net increase before transfers 595,151 4,557 666,399 2,906,534
Interfund transfers (25,536) (12,361) (4,406) -
---------- ---------- ---------- ----------
Net increase 569,615 (7,804) 661,993 2,906,534
Net assets available for plan benefits:
Beginning of year 378,080 58,910 252,837 2,123,917
---------- ---------- ---------- ----------
End of year $ 947,695 $ 51,106 $ 914,830 $5,030,451
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
FIDELITY VANGUARD
PEOPLES BLUE CHIP TEMPLETON INDEX
BALANCED GROWTH ACORN FOREIGN TRUST
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividends $ - $ 7,901 $ 58,185 $ 7,462 $ 6,997
Net appreciation (depreciation) - 3,229 43,997 15,438 42,486
Contributions - employer - 6,295 21,198 9,201 12,368
Contributions - participants' - 10,735 58,191 22,516 30,561
Rollovers - 18,058 14,665 6,339 9,852
---------- ---------- ---------- ---------- ----------
Total contributions - 35,088 94,054 38,056 52,781
---------- ---------- ---------- ---------- ----------
Total additions - 46,218 196,236 60,956 102,264
Deductions from net assets attributed to:
Benefit payments - - 19,789 5,636 6,224
---------- ---------- ---------- ---------- ----------
Net increase (decrease) before transfers - 46,218 176,447 55,320 96,040
Interfund transfers (238,221) 73,238 (318) 13,112 (7,781)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) (238,221) 119,456 176,129 68,432 88,259
Net assets available for plan benefits:
Beginning of year 238,221 - 439,177 104,066 200,408
---------- ---------- ---------- ---------- ----------
End of year $ - $ 119,456 $ 615,306 $ 172,498 $ 288,667
========== ========== ========== ========== ==========
VANGUARD CAMBRIDGE CAMCO
WELLINGTON SAVINGS FINANCIAL
BALANCED CERTIFICATES LOAN CORPORATION
FUND OF DEPOSIT FUND STOCK TOTAL
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividends $ 22,908 $ 24,196 $ - $ 5,517 $ 133,166
Net appreciation (depreciation) 21,522 - - (19,443) 107,229
Contributions - employer 11,511 13,739 - 17,297 91,609
Contributions - participants' 29,242 31,332 - 43,679 226,256
Rollovers 14,650 703 - 17,476 81,743
---------- ---------- ---------- ---------- ----------
Total contributions 55,403 45,774 - 78,452 399,608
---------- ---------- ---------- ---------- ----------
Total additions 99,833 69,970 - 64,526 640,003
Deductions from net assets attributed to:
Benefit payments 38,115 21,406 4,461 6,235 101,866
---------- ---------- ---------- ---------- ----------
Net increase (decrease) before transfers 61,718 48,564 (4,461) 58,291 538,137
Interfund transfers 176,445 (79,459) 6,700 56,284 -
---------- ---------- ---------- ---------- ----------
Net increase (decrease) 238,163 (30,895) 2,239 114,575 538,137
Net assets available for plan benefits:
Beginning of year - 408,975 56,671 138,262 1,585,780
---------- ---------- ---------- ---------- ----------
End of year $ 238,163 $ 378,080 $ 58,910 $ 252,837 $2,123,917
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
VANGUARD
PEOPLES TEMPLETON INDEX
BALANCED ACORN FOREIGN TRUST
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividends $ 12,625 $ 35,054 $ 7,199 $ 4,777
Net appreciation 26,931 30,886 3,319 42,576
Contributions - employer 8,146 14,111 4,091 5,717
Contributions - participants' 33,127 59,479 14,668 25,379
---------- ---------- ---------- ----------
Total contributions 41,273 73,590 18,759 31,096
---------- ---------- ---------- ----------
Total additions 80,829 139,530 29,277 78,449
Deductions from net assets attributed to:
Benefit payments 15,586 13,433 4,142 12,966
---------- ---------- ---------- ----------
Net increase (decrease) before transfers 65,243 126,097 25,135 65,483
Interfund transfers (65,008) (21,187) (39,708) (13,401)
---------- ---------- ---------- ----------
Net increase (decrease) 235 104,910 (14,573) 52,082
Net assets available for plan benefits:
Beginning of year 237,986 334,267 118,639 148,326
---------- ---------- ---------- ----------
End of year $ 238,221 $ 439,177 $ 104,066 $ 200,408
========== ========== ========== ==========
CAMBRIDGE CAMCO
SAVINGS FINANCIAL
CERTIFICATES LOAN CORPORATION
OF DEPOSIT FUND STOCK TOTAL
Additions to net assets attributed to:
Interest and dividends $ 26,984 $ - $ 2,260 $ 88,899
Net appreciation - - 15,377 119,089
Contributions - employer 15,845 - 11,009 58,919
Contributions - participants' 50,787 - 38,741 222,181
---------- ---------- ---------- ----------
Total contributions 66,632 - 49,750 281,100
---------- ---------- ---------- ----------
Total additions 93,616 - 67,387 489,088
Deductions from net assets attributed to:
Benefit payments 16,838 2,801 5,586 71,352
---------- ---------- ---------- ----------
Net increase (decrease) before transfers 76,778 (2,801) 61,801 417,736
Interfund transfers 19,323 43,520 76,461 -
---------- ---------- ---------- ----------
Net increase (decrease) 96,101 40,719 138,262 417,736
Net assets available for plan benefits:
Beginning of year 312,874 15,952 - 1,168,044
---------- ---------- ---------- ----------
End of year $ 408,975 $ 56,671 $ 138,262 $1,585,780
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - DESCRIPTION OF PLAN
The following description of the Camco Financial Corporation 401(k) Salary
Savings Plan ("Plan") provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions.
1. General
-------
The Plan is a defined contribution plan covering all full-time employees of
the Company who have one year of service (1,000 hours or more) and are age
twenty-one or older. Effective July 31, 1997, the Plan was amended to remove
any service or age requirement for deferral elections. The Plan was further
amended to require one year of service (1,000 hours or more) to share in the
matching Company contribution. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
2. Contributions
-------------
Each year, participants may contribute up to 15 percent of pretax annual
compensation, as defined in the Plan. Participants may also contribute
amounts representing distributions from other qualified defined benefit or
contribution plans. In 1995, the Company contributed 50 percent of the first
four percent of base compensation that a participant contributed to the
Plan. On July 1, 1996, the Plan sponsor amended the Plan so that the Company
contributes 100 percent of the first three percent of base compensation and
contributes 50 percent of the next two percent of base compensation.
Contributions are subject to certain limitations.
3. Participant Accounts
--------------------
Each participant's account is credited with the participant's contribution
and allocations of (a) the Company's contribution and, (b) Plan earnings.
Allocations are based on each account balance, as defined. Forfeited
balances of terminated participants' nonvested accounts are used to reduce
future Company contributions. The benefit to which a participant is entitled
is the benefit that can be provided from the participant's vested account.
4. Vesting
-------
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's matching and discretionary
contribution portion of their accounts plus actual earnings thereon is based
on years of continuous service. A participant is 100 percent vested after
five years of participation as follows:
<TABLE>
<CAPTION>
VESTING
YEAR OF PARTICIPATION PERCENT
<S> <C>
One year 20%
Two years 40%
Three years 60%
Four years 80%
Five years 100%
</TABLE>
9
<PAGE> 10
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - DESCRIPTION OF PLAN (continued)
4. Vesting (continued)
--------
During 1997, various participants received distributions from the Company's
pension plan, which was terminated. Participants had the option of rolling
these funds into the 401(k) Plan and direct them in various investment
options. Total rollovers in 1997 totaled $1,613,533.
5. Investment Options
------------------
Upon enrollment in the Plan, a participant may direct contributions in
various investment options.
* FIDELITY BLUE CHIP GROWTH FUND -- The fund invests approximately 60
percent of its assets in common stock of Blue Chip companies.
* ACORN FUND -- An aggressive growth mutual fund that invests in
primarily stocks of smaller companies.
* TEMPLETON FOREIGN FUND -- An aggressive growth mutual fund that
invests primarily in stocks of foreign companies.
* VANGUARD INDEX TRUST FUND -- A mutual fund that invests primarily in
Blue Chip companies.
* VANGUARD WELLINGTON BALANCED FUND -- A mutual fund that seeks
conservation of capital and reasonable income and invests in common
stocks and preferred stock debt securities.
* CAMBRIDGE SAVINGS CERTIFICATE OF DEPOSIT FUND -- Funds are invested in
certificates of deposit with a subsidiary of Camco Financial
Corporation.
* CAMCO FINANCIAL CORPORATION STOCK -- Funds are invested in stock of
the Plan sponsor's Camco Financial Corporation common stock.
Participants may change their investment options quarterly.
6. Participant Notes Receivable
----------------------------
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50 percent of their account
balance. Loan transactions are treated as a transfer to (from) the
investment fund from (to) the Loan Fund. Loan terms range from 1-5 years.
The loans are secured by the balance in the participant's account and bear
interest at a rate of 2% over the prime rate.
10
<PAGE> 11
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE A - DESCRIPTION OF PLAN (continued)
7. Payment of Benefits
-------------------
On termination of service due to death, disability or retirement, a participant
will receive a lump-sum amount equal to the value of the participants' vested
interest in his or her account. For termination of service due to other reasons,
a participant may receive the value of the vested interest in his or her account
as a lump-sum distribution.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
1. Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the accrual method of
accounting.
2. Investment Valuation and Income Recognition
-------------------------------------------
The Plan's investments are stated at fair value. Participant notes receivable
are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
Investments that represent five percent or more of the Plan's net assets are
separately identified.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Camco Financial Corporation stock $ 908,642 $ 244,363
Fidelity Blue Chip Growth Fund 379,213 113,948
Acorn Fund 1,019,827 554,504
Templeton Foreign Fund 340,484 162,193
Vanguard Index Trust Fund 754,594 279,569
Vanguard Wellington Fund 482,109 232,480
Cambridge Savings Certificates
of Deposit 921,297 361,722
</TABLE>
During 1997, 1996 and 1995, the Plan's investments (including investments
bought, sold, and held during the year) appreciated in value by $703,045,
$107,229 and $119,089, respectively.
11
<PAGE> 12
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
NOTE B - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Payment of Benefits
-------------------
Benefits are recorded when paid.
4. Use of Estimates
----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent asset and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
NOTE C - PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
NOTE D - TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated August 9, 1995, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The
Plan has been amended since receiving the determination letter. However, the
Plan administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the applicable
requirements of the IRC. Therefore, they believe that the Plan was qualified
and the related trust was tax-exempt as of the financial statement date.
NOTE E- ADMINISTRATIVE EXPENSES
Administrative expenses of the Plan are paid by the Plan sponsor.
NOTE F - RELATED PARTY TRANSACTIONS
The Plan offers participants the option of investing in shares of stock of
the Plan sponsor, Camco Financial Corporation. The Plan also offers
participants the option of investing in certificates of deposit with
subsidiaries of Camco Financial Corporation and, therefore, these
transactions qualify as party-in-interest.
12
<PAGE> 13
SUPPLEMENTAL INFORMATION
<PAGE> 14
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
FORM 5500 E.I.N. 51-0110823
PLAN NO. - 002
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1997
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
IDENTITY OF ISSUE, DESCRIPTION OF INVESTMENT INCLUDING
BORROWER, LESSOR, OR MATURITY DATE, RATE OF INTEREST; CURRENT
SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
COMMON STOCK SHARES
------------ ------
<S> <C> <C> <C>
* Camco Financial Corporation stock 35,633 $ 560,570 $ 908,642
MUTUAL FUNDS
------------
Fidelity Blue Chip Growth Fund 9,610 319,872 379,213
Acorn Fund 60,025 833,908 1,019,827
Templeton Foreign Fund 34,220 346,438 340,484
Vanguard Index Trust Fund 8,378 512,124 754,594
Vanguard Wellington Fund 16,370 425,026 482,109
---------- ----------
2,437,368 2,976,227
---------- ----------
CERTIFICATES OF DEPOSIT
-----------------------
* Cambridge Savings Certificates of Deposit 902,720 902,720
* First Federal Washington Courthouse 18,577 18,577
---------- ----------
921,297 921,297
---------- ----------
U.S. TREASURY OBLIGATIONS
-------------------------
Fidelity U.S. Treasury Income Portfolio 118,300 118,300 118,300
---------- ----------
NOTE RECEIVABLE
---------------
* Participants' notes(2) 10%-10.5% - 51,106
---------- ----------
$4,037,535 $4,975,572
========== ==========
</TABLE>
* Party-in-interest
14
<PAGE> 15
CAMCO FINANCIAL CORPORATION 401(k) SALARY SAVINGS PLAN
FORM 5500 E.I.N. 51-0110823
PLAN NO. - 002
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
IDENTITY OF EXPENSE
PARTY PURCHASE SELLING LEASE INCURRED WITH
INVOLVED DESCRIPTION OF ASSET PRICE PRICE RENTAL TRANSACTION
<S> <C> <C> <C> <C>
* Camco Financial Corporation Stock
Purchases $ 332,342 $ - $ - $ -
Sales - 19,070 - -
Fidelity Blue Chip Growth Fund
Purchases 258,480 - - -
Sales - 49,353 - -
Acorn Fund
Purchases 367,538 - - -
Sales - 18,174 - -
Templeton Foreign Fund
Purchases 221,828 - - -
Sales - 22,847 - -
Vanguard Index Trust Fund
Purchases 333,556 - - -
Sales - 14,821 - -
Vanguard Wellington Fund
Purchases 230,655 - - -
Sales - 25,298 - -
* Certificates of deposit
Purchases 559,575 - - -
Fidelity U.S. Treasury Income Portfolio
Purchases 2,835,200 - - -
Sales - 2,793,300 - -
(a) (b) (g) (h) (i)
CURRENT VALUE
IDENTITY OF OF ASSET ON
PARTY COST OF TRANSACTION NET GAIN
INVOLVED DESCRIPTION OF ASSET ASSET DATE OR (LOSS)
<S> <C> <C> <C>
* Camco Financial Corporation Stock
Purchases $ 332,342 $ 332,342 $ -
Sales 20,202 19,070 (1,132)
Fidelity Blue Chip Growth Fund
Purchases 258,480 258,480 -
Sales 49,326 49,353 27
Acorn Fund
Purchases 367,538 367,538 -
Sales 18,589 18,174 (415)
Templeton Foreign Fund
Purchases 221,828 221,828 -
Sales 25,729 22,847 (2,882)
Vanguard Index Trust Fund
Purchases 333,556 333,556 -
Sales 15,082 14,821 (261)
Vanguard Wellington Fund
Purchases 230,655 230,655 -
Sales 25,667 25,298 (369)
* Certificates of deposit
Purchases 559,575 559,575 -
Fidelity U.S. Treasury Income Portfolio
Purchases 2,835,200 2,835,200 -
Sales 2,793,300 2,793,300 -
</TABLE>
* Party-in-interest
15
