FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 0-25196
CAMCO FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0110823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
814 Wheeling Avenue
Cambridge, Ohio 43725
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (740) 432-5641
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
As of August 10, 1998, the latest practicable date, 5,473,838.5 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 19 pages
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Camco Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 1998 1997
(Restated)
<S> <C> <C>
Cash and due from banks $ 12,894 $ 12,436
Interest-bearing deposits in other financial institutions 22,108 10,468
------- -------
Cash and cash equivalents 35,002 22,904
Investment securities available for sale - at market 1,333 3,573
Investment securities - at cost, approximate market value of $17,361
and $17,536 as of June 30, 1998 and December 31, 1997 17,243 17,489
Mortgage-backed securities available for sale - at market 4,294 8,460
Mortgage-backed securities - at cost, approximate market value of
$6,191 and $8,311 as of June 30, 1998 and December 31, 1997 6,080 8,207
Loans held for sale - at lower of cost or market 5,483 4,135
Loans receivable - net 489,129 477,517
Office premises and equipment - net 9,279 8,420
Real estate acquired through foreclosure 417 737
Federal Home Loan Bank stock - at cost 6,508 5,492
Accrued interest receivable on loans 3,135 2,972
Accrued interest receivable on mortgage-backed securities 77 111
Accrued interest receivable on investment securities and interest-bearing deposits 437 349
Prepaid expenses and other assets 1,282 1,637
Cash surrender value of life insurance 5,044 5,482
Goodwill and other intangible assets 3,477 3,552
Prepaid federal income taxes - 99
------- -------
Total assets $588,220 $571,136
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $428,807 $423,464
Advances from the Federal Home Loan Bank 94,090 82,319
Advances by borrowers for taxes and insurance 3,709 4,478
Accounts payable and accrued liabilities 873 3,261
Dividends payable 530 491
Accrued federal income taxes 90 -
Deferred federal income taxes 1,939 1,792
------- -------
Total liabilities 530,038 515,805
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized, 8,900,000 shares, 3,654,184
and 3,639,997 shares issued at June 30, 1998 and December 31, 1997 3,654 3,640
Additional paid-in capital 27,053 26,915
Retained earnings - substantially restricted 27,366 24,645
Treasury stock - at cost (42) -
Unrealized gains on securities designated as available for sale,
net of related tax effects 151 131
------- -------
Total stockholders' equity 58,182 55,331
------- -------
Total liabilities and stockholders' equity $588,220 $571,136
======= =======
</TABLE>
3
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $19,774 $17,690 $ 9,918 $ 9,040
Mortgage-backed securities 445 692 194 340
Investment securities 555 946 244 442
Interest-bearing deposits and other 973 511 588 276
------ ------ ------ ------
Total interest income 21,747 19,839 10,944 10,098
Interest expense
Deposits 9,463 9,200 4,817 4,678
Borrowings 2,434 1,719 1,240 858
------ ------ ------ ------
Total interest expense 11,897 10,919 6,057 5,536
------ ------ ------ ------
Net interest income 9,850 8,920 4,887 4,562
Provision for losses on loans 137 111 41 60
------ ------ ------ ------
Net interest income after provision
for losses on loans 9,713 8,809 4,846 4,502
Other income
Late charges, rent and other 1,339 750 424 434
Loan servicing fees 289 252 217 132
Service charges and other fees on deposits 348 238 181 112
Gain on sale of loans 1,962 505 815 349
Gain on sale of real estate acquired through foreclosure 4 30 - 10
Gain on sale of investment and mortgage-backed securities
designated as available for sale 9 - - -
Loss on sale of premises and equipment (2) - - -
------ ------ ------ ------
Total other income 3,949 1,775 1,637 1,037
General, administrative and other expense
Employee compensation and benefits 3,498 2,994 1,543 1,465
Occupancy and equipment 965 829 554 418
Federal deposit insurance premiums 146 144 73 79
Data processing 706 322 509 183
Advertising 334 279 205 175
Franchise taxes 347 273 206 159
Amortization of goodwill 75 75 38 38
Other 1,977 1,406 783 692
------ ------ ------ ------
Total general, administrative and other expense 8,048 6,322 3,911 3,209
------ ------ ------ ------
Earnings before federal income taxes 5,614 4,262 2,572 2,330
Federal income taxes
Current 1,718 1,402 617 992
Deferred 135 18 203 (209)
------ ------ ------ ------
Total federal income taxes 1,853 1,420 820 783
------ ------ ------ ------
NET EARNINGS $ 3,761 $ 2,842 $ 1,752 $ 1,547
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.69 $.52 $.32 $.28
=== === === ===
Diluted $.66 $.50 $.31 $.27
=== === === ===
</TABLE>
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the six months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Net earnings $3,761 $2,842
Unrealized gains on securities:
Unrealized holding gains during the
period, net of tax 20 -
Reclassification adjustment for gains on sale
included in net earnings, net of related taxes (9) -
----- ----
Comprehensive income $3,772 $2,842
===== =====
Accumulated other comprehensive income $ 151 $ 53
===== =====
</TABLE>
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
1998 1997
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 3,761 $ 2,842
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (721) (220)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 27 (13)
Amortization of goodwill 75 75
Amortization of purchase accounting adjustments - net 248 3
Depreciation and amortization 431 337
Provision for losses on loans 137 111
Gain on sale of real estate acquired through foreclosure (4) (30)
Federal Home Loan Bank stock dividends (209) (160)
Gain on sale of loans (748) (213)
Loss on sale of premises and equipment 2 -
Gain on sale of investment and mortgage-backed securities designated
as available for sale (9) -
Loans originated for sale in the secondary market (92,518) (24,406)
Proceeds from sale of loans in the secondary market 91,918 22,555
Increase (decrease) in cash due to changes in:
Accrued interest receivable (217) (235)
Prepaid expenses and other assets 355 (328)
Accrued interest and other liabilities (2,349) (1,784)
Federal income taxes:
Current 189 (58)
Deferred 135 18
------ ------
Net cash provided by (used in) operating activities 503 (1,506)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities and interest-bearing deposits 9,750 7,499
Proceeds from sale of investment securities designated as available for sale 900 -
Proceeds from sale of mortgage-backed securities designated as available
for sale 4,608 -
Purchases of investment securities (8,122) (7,511)
Loan principal repayments 110,571 58,606
Loan disbursements (121,678) (81,535)
Principal repayments on mortgage-backed securities 1,657 1,779
Proceeds from sale of office premises and equipment 20 -
Additions to office premises and equipment (1,312) (355)
Proceeds from sale of real estate acquired through foreclosure 412 247
Purchase of Federal Home Loan Bank stock (807) (360)
Proceeds from redemption of life insurance 580 -
Net increase in cash surrender value of life insurance (142) (115)
------- ------
Net cash used in investing activities (3,563) (21,745)
------- ------
Net cash used in operating and investing activities
(balance carried forward) (3,060) (23,251)
------- ------
</TABLE>
6
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<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
1998 1997
(Restated)
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $ (3,060) $ (23,251)
Cash flows provided by (used in) financing activities:
Net increase in deposits 5,086 12,325
Proceeds from Federal Home Loan Bank advances and other borrowings 39,500 462,100
Repayment of Federal Home Loan Bank advances and other borrowings (27,729) (454,055)
Dividends paid on common stock (1,040) (845)
Proceeds from exercise of stock options 110 -
Decrease in advances by borrowers for taxes and insurance (769) (754)
------ -------
Net cash provided by financing activities 15,158 18,771
------ -------
Increase (decrease) in cash and cash equivalents 12,098 (4,480)
Cash and cash equivalents at beginning of period 22,904 20,977
------ -------
Cash and cash equivalents at end of period $35,002 $ 16,497
====== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $11,819 $10,893
====== ======
Income taxes $ 1,476 $ 962
======= ========
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 20 $ -
========= ========
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 1,214 $ 292
======= ========
Transfer from loans to real estate acquired through foreclosure $ 88 $ 260
========= ========
Supplemental disclosure of noncash financing activities:
Acquisition of treasury stock in exchange for exercise of
stock options $ 42 $ -
========= ========
</TABLE>
7
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1997, the Board of Directors of Camco Financial Corporation
("Camco" or the "Corporation") approved a business combination whereby
GF Bancorp, Inc. ("GF Bancorp"), the parent company of Germantown
Federal Savings Bank ("Germantown Federal"), would merge with and into
the Corporation, and Germantown Federal would merge with and into First
Federal Savings Bank of Washington Court House, a subsidiary of the
Corporation. The merger was approved by regulatory authorities in 1997,
and was completed in January 1998. The business combination was
accounted for as a pooling of interests and, accordingly, the assets,
liabilities and capital of the respective combining companies were
added together at historic carrying value.
The December 31, 1997, consolidated statement of financial condition
and the consolidated statements of earnings and cash flows for the six
and three months ended June 30, 1997, as applicable, have been restated
to give effect to the combination as of January 1, 1997.
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Camco
included in Camco's Annual Report on Form 10-K for the year ended
December 31, 1997. However, all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have
been included. The results of operations for the six and three month
periods ended June 30, 1998, are not necessarily indicative of the
results which may be expected for the entire year.
2. Principles of Consolidation
Camco has five wholly-owned subsidiaries: Cambridge Savings Bank
("Cambridge Savings"), Marietta Savings Bank ("Marietta Savings"),
First Federal Savings Bank of Washington Court House ("First Federal"),
First Federal Bank for Savings ("First Savings") (collectively
hereinafter "the Banks") and East Ohio Land Title Agency, Inc., as well
as two second tier subsidiaries, Camco Mortgage Corporation and WestMar
Mortgage Company. All significant intercompany balances and
transactions have been eliminated.
3. Earnings Per Share
Basic earnings per share for the six and three month periods ended June
30, 1998 is computed based on 5,473,599 and 5,477,369 weighted-average
shares outstanding during the respective periods.
Basic earnings per share for each of the six and three month periods
ended June 30, 1997, is computed based on 5,462,900 weighted-average
shares outstanding.
8
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Earnings Per Share (continued)
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 totaled 5,660,311 and 5,672,520 for the six and three month
periods ended June 30, 1998, and 5,648,892 for each of the six and
three month periods ended June 30, 1997.
Basic and diluted earnings per share for the six and three month
periods ended June 30, 1997 have been restated to give effect to the
Corporation's three-for-two stock split which was effected on July 23,
1998, and for the acquisition of GF Bancorp completed in January 1998.
4. Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("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 entities in the transaction, or otherwise
has continuing involvement with the transferred assets. The new
accounting method, the financial components approach, provides that the
carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS
No. 125 provides criteria for determining whether control of assets has
been relinquished and whether a sale has occurred. If the transfer does
not qualify as a sale, it is accounted for as a secured borrowing.
Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of
financial assets, loan participations, factoring arrangements, and
transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing
contract (unless related to a securitization of assets, and all the
securitized assets are retained and classified as held-to-maturity). A
servicing asset or liability that is purchased or assumed is initially
recognized at its fair value. Servicing assets and liabilities are
amortized in proportion to and over the period of estimated net
servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of
its obligation for the liability or is legally released from being the
primary obligor.
9
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
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 the
Corporation's consolidated financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income
for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management adopted SFAS No. 130
effective January 1, 1998, as required, without material effect on the
Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about reportable
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements
and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material impact on the Corporation's financial statements.
5. Reclassifications
Certain reclassifications have been made to the June 30, 1997
consolidated financial statements to conform to the June 30, 1998
presentation.
10
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1998 and 1997
General
Camco's profitability depends primarily on the level of its net interest income,
which is the difference between interest income on interest-earning assets,
principally loans, mortgage-backed securities and investment securities, and
interest expense on deposit accounts and borrowings. In recent years, Camco's
net earnings have also been heavily influenced by the level of other income,
including gains on sale of loans, loan servicing fees, and other fees. Finally,
Camco's operations are also influenced by the level of general, administrative
and other expenses, including employee compensation and benefits, office
occupancy and equipment, federal deposit insurance premiums, as well as various
other operating expense categories, including federal income tax expense.
Since its incorporation in 1970, Camco has evolved into a full service provider
of financial products to the communities served by its banking subsidiaries.
Utilizing a common marketing theme committed to personalized customer service,
Camco and its affiliates have grown from $22.4 million in consolidated assets in
1970 to $588.2 million of consolidated assets at June 30, 1998. Camco's level of
growth is largely attributable to the acquisitions of Marietta Savings, First
Federal, First Savings, and GF Bancorp and the continued expansion of product
lines from the previously limited deposit and loan offerings of a heavily
regulated 1970's savings and loan association, to the full array of financial
service products that were the previous domain of commercial banks.
Additionally, Camco's operational growth has been enhanced by vertical
integration of the residential lending function through establishing mortgage
banking operations in the Banks' primary market areas and, to a lesser extent,
areas beyond the primary market areas, by chartering a title insurance agency.
Management believes that continued success in the financial services industry
will be achieved by those institutions with a rigorous dedication to bringing
value-added services to their customers. Toward this end, each of the Banks'
operations are decentralized, with a separate Board of Directors and management
team focusing on consumer preferences for financial products in the respective
communities served. Based on such consumer preferences, Camco's management
designs financial service products with a view towards differentiating each of
the constituent Banks from the competition. It is management's opinion that the
Banks' abilities to rapidly adapt to consumer needs and preferences is essential
to community-based financial institutions in order to compete against the larger
regional and money-center bank holding companies.
11
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1998 and 1997
Discussion of Financial Condition Changes from December 31, 1997 to June 30,
1998
At June 30, 1998, Camco's consolidated assets totaled $588.2 million, an
increase of $17.1 million, or 3.0%, over the December 31, 1997 total. The
increase during the current six month period was primarily funded by deposit
growth of $5.3 million, an increase of $11.8 million, or 14.3%, in advances from
the Federal Home Loan Bank and undistributed net earnings of $2.7 million.
Cash and interest-bearing deposits in other financial institutions totaled $35.0
million at June 30, 1998, an increase of $12.1 million, or 52.8%, over December
31, 1997 levels.
Investment securities totaled $18.6 million at June 30, 1998, a decrease of $2.5
million, or 13.4%, from the total at December 31, 1997. During the 1998 period,
investment securities totaling $8.1 million were purchased, while maturities
amounted to $9.7 million and sales totaled $900,000.
Mortgage-backed securities totaled $10.4 million at June 30, 1998, a decrease of
$6.3 million from December 31, 1997, due primarily to sales totaling $4.6
million and principal repayments totaling $1.7 during the period. Loans
receivable and loans held for sale increased by $13.0 million, or 2.7%, during
the six months ended June 30, 1998, to a total of $494.6 million. The increase
was primarily attributable to loan disbursements totaling $214.2 million, which
were partially offset by principal repayments of $110.6 million and loan sales
of $91.2 million. Loan origination volume during the 1998 six month period
exceeded that of the 1997 period by $108.3 million, or 102.2%, while the volume
of loan sales increased by $68.8 million year to year.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$3.8 million and $2.0 million at June 30, 1998 and December 31, 1997,
respectively, constituting .77% and .41% of total net loans, including loans
held for sale, at those dates. The consolidated allowance for loan losses
totaled $1.7 million and $1.4 million at June 30, 1998 and December 31, 1997,
representing 44.1% and 72.8% of nonperforming loans, respectively, at those
dates. Although management believes that its allowance for loan losses at June
30, 1998, 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 $428.8 million at June 30, 1998, an increase of $5.3 million,
or 1.3%, over December 31, 1997 levels. The increase resulted primarily from
management's continuing efforts to achieve a moderate rate of growth through
advertising and pricing strategies. Advances from the Federal Home Loan Bank
increased by $11.8 million, or 14.3%, to a total of $94.1 million at June 30,
1998. The proceeds from deposit growth and advances from the Federal Home Loan
Bank were partially used to fund loan originations for the six month period.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At June 30, 1998, the Banks' regulatory capital exceeded
all regulatory capital requirements.
12
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997
General
Camco's net earnings for the six months ended June 30, 1998 totaled $3.8
million, an increase of $1.0 million, or 32.3%, over the $2.8 million of net
earnings reported in the comparable 1997 period. The increase in earnings is
primarily attributable to an increase in net interest income of $930,000 and an
increase in other income of $2.2 million, which were partially offset by an
increase in the provision for losses on loans of $26,000, an increase in
general, administrative and other expense of $1.7 million, and an increase in
the provision for federal income taxes of $433,000.
Net Interest Income
Total interest income for the six months ended June 30, 1998, increased by $1.9
million, or 9.6%, generally reflecting the effects of growth in average
interest-earning assets outstanding of approximately $48.0 million, which was
partially offset by a decrease of one basis point in the average yield year to
year, from 8.07% in 1997 to 8.06% in 1998.
Interest income on loans and mortgage-backed securities totaled $20.2 million
for the six months ended June 30, 1998, an increase of $1.8 million, or 10.0%,
over the comparable 1997 period. The increase resulted primarily from a $50.0
million, or 9.3%, increase in the average balance outstanding year to year.
Interest income on investments and interest-bearing deposits increased by
$71,000, or 4.9%, due to an increase in average outstanding balances of $6.1
million. Interest expense on deposits increased by $263,000, or 2.9%, to a total
of $9.5 million for the six months ended June 30, 1998, due primarily to an
increase of $16.2 million in the average balance of deposits outstanding.
Interest expense on borrowings totaled $2.4 million for the six months ended
June 30, 1998, an increase of $715,000, or 41.6%, over the 1997 six month
period. The increase resulted primarily from a $24.8 million increase in the
average balance outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $930,000, or 10.4%, to a total of $9.9 million
for the six months ended June 30, 1998. The interest rate spread decreased to
approximately 3.36% for the six months ended June 30, 1998, from 3.38% for the
1997 period, while the net interest margin increased to approximately 3.65% in
1998, as compared to 3.63% in 1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Banks,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area,
13
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997 (continued)
Provision for Losses on Loans (continued)
and other factors related to the collectibility of the Bank's loan portfolio.
The provision for losses on loans totaled $137,000 for the six months ended June
30, 1998, an increase of $26,000 over the comparable period in 1997. The current
period provision generally reflects the effects of loan portfolio growth and an
increase in the level of nonperforming loans. There can be no assurance that the
allowance for loan losses will be adequate to cover losses on nonperforming
assets in the future.
Other Income
Other income totaled $3.9 million for the six months ended June 30, 1998, an
increase of $2.2 million, or 122.5%, over the comparable 1997 period. The
increase in other income is primarily attributable to a $1.5 million increase in
gains on sale of loans and an increase of $589,000 in late charges, rent and
other. 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 a $272,000 increase in title service fees at the
Corporation's title agency subsidiary, as a result of the increase in loan
origination volume, a $99,000 gain on settlement of life insurance policies and
an overall increase in fees on loans and deposits due to the Corporation's
growth year to year.
General, Administrative and Other Expense
General, administrative and other expense totaled $8.0 million for the six
months ended June 30, 1998, an increase of $1.7 million, or 27.3%. This increase
is due primarily to a $504,000, or 16.8%, increase in employee compensation and
benefits, a $384,000, or 119.3%, increase in data processing expense, a $55,000,
or 19.7%, increase in advertising, a $74,000, or 27.1%, increase in franchise
taxes and a $571,000, or 40.6%, increase in other operating costs.
The increase in employee compensation and benefits resulted primarily from an
increase in staffing levels and normal merit increases year to year. The
increase in other operating expenses was due primarily to $212,000 in merger
costs related to the combination with GF Bancorp in January 1998. The increases
in advertising, franchise taxes and other operating expenses were due primarily
to the Corporation's overall growth year to year, while the increase in data
processing expenses was primarily attributable to the Corporation's conversion
to a new data processing system.
Federal Income Taxes
The provision for federal income taxes totaled $1.9 million for the six months
ended June 30, 1998, an increase of $433,000, or 30.5%. This increase is
attributable to a $1.4 million, or 31.7%, increase in pre-tax earnings. The
Corporation's effective tax rate amounted to 33.0% and 33.3% for the six months
ended June 30, 1998 and 1997, respectively.
14
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended June 30, 1998 and
1997
General
Net earnings for the three months ended June 30, 1998 totaled $1.8 million, an
increase of $205,000, or 13.3%, over the $1.5 million in net earnings reported
in the comparable 1997 period. The increase in net earnings is primarily
attributable to a $325,000 increase in net interest income, a $600,000 increase
in other income and a $19,000 decrease in the provision for loan losses, which
were partially offset by a $702,000 increase in general, administrative and
other expense and a $37,000 increase in the provision for federal income taxes.
Net Interest Income
Total interest income for the three months ended June 30, 1998, increased by
$846,000, or 8.4%, compared to the 1997 quarter. Interest income on loans and
mortgage-backed securities increased by $732,000, or 7.8%, due primarily to a
$43.4 million increase in the average balance outstanding year to year. Interest
income on investment securities and interest-bearing deposits increased by
$114,000, or 15.9%, due primarily to a $9.0 million increase in the average
balance outstanding.
Total interest expense increased by $521,000, or 9.4%, for the three months
ended June 30, 1998. Interest expense on deposits increased by $139,000, or
3.0%, due primarily to a $20.6 million increase in the average balance
outstanding year to year. Interest expense on borrowings increased by $382,000,
or 44.5%, due primarily to a $26.9 million increase in the average outstanding
balance.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $325,000, or 7.1%, for the three months ended
June 30, 1998, as compared to the comparable quarter in 1997. The interest rate
spread was 3.23% for the 1998 quarter, compared to 3.36% in 1997, while the net
interest margin was 3.54% in the 1998 quarter, compared to 3.65% in 1997.
Provision for Losses on Loans
The provision for losses on loans decreased during the three months ended June
30, 1998, by $19,000. The current period provision generally reflects the
effects of loan portfolio growth year to year.
Other Income
Other income increased for the quarter ended June 30, 1998 by $600,000, or
57.9%, compared to the 1997 quarter. The increase is primarily attributable to a
$466,000 increase in gain on sale of loans and an $85,000 increase in loan
servicing fees, which were partially offset by a $10,000 decrease in late
charges, rent and other. The increase in the gain on sale of loans is due
primarily to the increased volume of fixed-rate loans originated for sale.
15
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended June 30, 1998 and
1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $702,000, or 21.9%,
during the three months ended June 30, 1998. The increase is primarily
attributable to a $78,000, or 5.3%, increase in employee compensation and
benefits, a $136,000, or 32.5%, increase in occupancy and equipment, a $91,000,
or 13.2%, increase in other operating expense and a $326,000, or 178.1%,
increase in data processing primarily attributed to conversion related costs.
The increase in employee compensation and benefits resulted primarily from
normal merit increases, as well as an increase due to the hiring of additional
personnel. The increase in occupancy and equipment related primarily to
increased depreciation and building maintenance costs. The increase in other
operating expenses generally reflects increased costs attendant to the
Corporation's growth year to year.
Federal Income Taxes
Camco's provision for federal income taxes increased for the three months ended
June 30, 1998, by $37,000, or 4.7%, generally reflecting the $242,000, or 10.4%,
increase in pre-tax earnings year to year. The effective tax rates were 31.9%
and 33.6% for the three month periods ended June 30, 1998 and 1997,
respectively.
Other Matters
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 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 this Form 10-Q, 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.
16
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1998 and 1997
Other Matters (continued)
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.
17
<PAGE>
Camco Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 26, 1998, Camco held its Annual Meeting of Stockholders. Four
matters were submitted to stockholders, for which the following votes
were cast:
Three directors were elected to terms expiring in 2001, as follows:
For Against Abstain Withheld
James R. Hanawalt 1,578,967 0 0 2,575
Anthony J. Popp 1,581,196 0 0 346
Eric G. Spann 1,578,756 0 0 2,785
Increase number of authorized shares of common stock from 5,000,000 to
9,000,000.
For Against Abstain Withheld
1,554,694 22,034 4,814 0
Amend the First Ashland Financial Corporation 1995 stock option and
incentive plan to allow grants to directors, officers and employees of
Camco.
For Against Abstain Withheld
1,539,233 23,833 18,475 0
Ratification of Grant Thornton LLP as auditors of Camco for the year
ended December 31, 1998.
For Against Abstain Withheld
1,532,984 37,811 10,747 0
ITEM 5. Other Information
Any proposals of shareholders intended to be included in Corporation's
proxy statement and proxy card for the 1999 Annual Meeting of
Shareholders should be sent to Camco by certified mail and must be
received by Camco not later than December 31, 1998. In addition, if a
shareholder intends to present a proposal at the 1999 Annual Meeting
without including the proposal in the proxy materials related to that
meeting, and if the proposal is not received by March 10, 1999, then
the proxies designated by the Board of Directors of Camco for the 1999
Annual Meeting of Shareholders of Camco may vote in their discretion
on any such proposal any shares for which they have been appointed
proxies without mention of such matter in the proxy statement or on
the proxy card for such meeting.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8K: None.
Exhibits:
27.1: Financial Data Schedule for the six months
ended June 30, 1998.
27.2: Restated Financial Data Schedule for the
six months ended June 30, 1997.
99: Accountants' Review Report
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998 By: /s/Larry A. Caldwell
-------------------------- --------------------
Larry A. Caldwell
President and Chief Executive
Officer
Date: August 12, 1998 By: /s/Gary Crane
-------------------------- --------------------
Gary Crane
Chief Financial Officer
19
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,894
<INT-BEARING-DEPOSITS> 22,108
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,627
<INVESTMENTS-CARRYING> 23,323
<INVESTMENTS-MARKET> 23,727
<LOANS> 494,612
<ALLOWANCE> 1,682
<TOTAL-ASSETS> 588,220
<DEPOSITS> 428,807
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,141
<LONG-TERM> 94,090
0
0
<COMMON> 3,654
<OTHER-SE> 54,528
<TOTAL-LIABILITIES-AND-EQUITY> 588,220
<INTEREST-LOAN> 19,774
<INTEREST-INVEST> 1,000
<INTEREST-OTHER> 973
<INTEREST-TOTAL> 21,747
<INTEREST-DEPOSIT> 9,463
<INTEREST-EXPENSE> 11,897
<INTEREST-INCOME-NET> 9,850
<LOAN-LOSSES> 137
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 8,048
<INCOME-PRETAX> 5,614
<INCOME-PRE-EXTRAORDINARY> 3,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,761
<EPS-PRIMARY> .69
<EPS-DILUTED> .66
<YIELD-ACTUAL> 3.65
<LOANS-NON> 2,354
<LOANS-PAST> 1,460
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<ALLOWANCE-OPEN> 1,598
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<RECOVERIES> 13
<ALLOWANCE-CLOSE> 1,682
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,551
<INT-BEARING-DEPOSITS> 4,946
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<LONG-TERM> 66,399
0
0
<COMMON> 3,066
<OTHER-SE> 50,369
<TOTAL-LIABILITIES-AND-EQUITY> 538,340
<INTEREST-LOAN> 17,690
<INTEREST-INVEST> 1,638
<INTEREST-OTHER> 511
<INTEREST-TOTAL> 19,839
<INTEREST-DEPOSIT> 9,200
<INTEREST-EXPENSE> 10,919
<INTEREST-INCOME-NET> 8,920
<LOAN-LOSSES> 111
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,322
<INCOME-PRETAX> 4,262
<INCOME-PRE-EXTRAORDINARY> 2,842
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,842
<EPS-PRIMARY> .52
<EPS-DILUTED> .50
<YIELD-ACTUAL> 3.57
<LOANS-NON> 1,767
<LOANS-PAST> 730
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<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,373
<CHARGE-OFFS> 48
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<ALLOWANCE-CLOSE> 1,439
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</TABLE>
Board of Directors
Camco Financial Corporation
We have reviewed the accompanying consolidated balance sheets of Camco Financial
Corporation as of June 30, 1998, and the related statements of earnings,
comprehensive income and cash flows for the three and six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Camco Financial Corporation
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Cincinnati, Ohio
August 14, 1998
