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 March 31, 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: (614) 432-5641
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
As of May 11, 1998, the latest practicable date 3,645,509 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 17 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 16
SIGNATURES 17
2
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 1998 1997
(Restated)
<S> <C> <C>
Cash and due from banks $ 12,618 $ 12,436
Interest-bearing deposits in other financial institutions 23,978 10,468
-------- --------
Cash and cash equivalents 36,596 22,904
Investment securities available for sale - at market 1,422 3,684
Investment securities - at cost, approximate market value of $15,042
and $17,536 as of March 31, 1998 and December 31, 1997 14,992 17,489
Mortgage-backed securities available for sale - at market 4,623 8,334
Mortgage-backed securities - at cost, approximate market value of
$6,722 and $8,311 as of March 31, 1998 and December 31, 1997 6,628 8,207
Loans held for sale - at lower of cost or market 4,085 4,135
Loans receivable - net 479,055 477,517
Office premises and equipment - net 8,615 8,420
Real estate acquired through foreclosure 717 737
Federal Home Loan Bank stock - at cost 6,005 5,492
Accrued interest receivable on loans 2,957 2,972
Accrued interest receivable on mortgage-backed securities 84 111
Accrued interest receivable on investment securities and interest-bearing deposits 280 349
Prepaid expenses and other assets 1,006 1,652
Cash surrender value of life insurance 4,984 5,482
Goodwill and other intangible assets 3,514 3,552
Prepaid federal income taxes - 99
--------- -----------
Total assets $575,563 $571,136
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $429,602 $423,464
Advances from the Federal Home Loan Bank 79,471 82,319
Advances by borrowers for taxes and insurance 3,034 4,478
Accounts payable and accrued liabilities 3,409 3,261
Dividends payable 504 491
Accrued federal income taxes 816 -
Deferred federal income taxes 1,766 1,792
--------- ---------
Total liabilities 518,602 515,805
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized, 4,900,000 shares, 3,645,509
and 3,639,997 issued at March 31, 1998 and December 31, 1997 3,645 3,640
Additional paid-in capital 27,004 26,915
Retained earnings - substantially restricted 26,150 24,645
Unrealized gains on securities designated as available for sale,
net of related tax effects 162 131
---------- ----------
Total stockholders' equity 56,961 55,331
-------- --------
Total liabilities and stockholders' equity $575,563 $571,136
======= =======
</TABLE>
3
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except per share data)
1998 1997
(Restated)
<S> <C> <C>
Interest income
Loans $ 9,856 $8,650
Mortgage-backed securities 251 352
Investment securities 311 504
Interest-bearing deposits and other 385 235
-------- ------
Total interest income 10,803 9,741
Interest expense
Deposits 4,646 4,522
Borrowings 1,194 861
------- ------
Total interest expense 5,840 5,383
------- -----
Net interest income 4,963 4,358
Provision for losses on loans 96 51
--------- -------
Net interest income after provision for losses on loans 4,867 4,307
Other income
Late charges, rent and other 926 336
Loan servicing fees 72 120
Service charges and other fees on deposits 167 126
Gain on sale of loans 1,147 156
------- ------
Total other income 2,312 738
General, administrative and other expense
Employee compensation and benefits 1,955 1,529
Occupancy and equipment 411 411
Federal deposit insurance premiums 73 65
Data processing 197 139
Advertising 129 104
Franchise taxes 141 114
Amortization of goodwill 37 37
Other operating 1,194 714
------- ------
Total general, administrative and other expense 4,137 3,113
------- -----
Earnings before federal income taxes 3,042 1,932
Federal income taxes
Current 1,101 410
Deferred (68) 227
--------- ------
Total federal income taxes 1,033 637
------- ------
NET EARNINGS $ 2,009 $1,295
======= =====
BASIC EARNINGS PER SHARE $.55 $.36
=== ===
DILUTED EARNINGS PER SHARE $.53 $.35
=== ===
Basic weighted average number of common shares outstanding 3,643,855 3,638,898
========= =========
Diluted weighted average number of common shares outstanding 3,772,117 3,691,541
========= =========
</TABLE>
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Net earnings $2,009 $1,295
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the period, net of tax 31 (129)
Reclassification adjustment for gains on sale included in
net earnings, net of related taxes (9) -
-------- ----
Comprehensive income $2,031 $1,166
===== =====
</TABLE>
5
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
1998 1997
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 2,009 $ 1,295
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (553) (119)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net (4) 3
Amortization of goodwill 37 37
Amortization of employee benefit plan expense - 13
Depreciation and amortization 194 249
Amortization of purchase accounting adjustments, net 228 7
Provision for losses on loans 96 51
Gain on sale of real estate acquired through foreclosure (4) (20)
Federal Home Loan Bank stock dividends (100) (77)
Gain on sale of loans (450) (56)
Gain on sale of mortgage-backed securities (5) -
Loans originated for sale in the secondary market (56,010) (11,805)
Proceeds from sale of loans in the secondary market 56,510 10,022
Increase (decrease) in cash due to changes in:
Accrued interest receivable 111 (42)
Prepaid expenses and other assets 647 (687)
Accrued interest and other liabilities 169 (1,529)
Federal income taxes:
Current 915 319
Deferred (68) 227
--------- --------
Net cash used in operating activities 3,722 (2,112)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities
and interest-bearing deposits 7,000 2,240
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 -
Principal repayments on mortgage-backed securities 715 1,002
Purchases of investment securities (3,092) (2,509)
Loan principal repayments 44,081 35,940
Loan disbursements (45,178) (40,442)
Additions to office premises and equipment (389) (274)
Proceeds from sale of real estate acquired through foreclosure 42 137
Purchase of Federal Home Loan Bank stock (413) (145)
Proceeds from redemption of life insurance 569 -
Net increase in cash surrender value of life insurance (71) (57)
--------- ---------
Net cash provided by (used in) investing activities 8,772 (4,108)
------- -------
Net cash provided by (used in) operating and investing
activities (balance carried forward) 12,494 (6,220)
------ -------
</TABLE>
6
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
1998 1997
(Restated)
<S> <C> <C>
Net cash provided by (used in) operating and investing
activities (balance brought forward) $12,494 $ (6,220)
Cash flows provided by (used in) financing activities:
Net increase in deposits 5,900 5,753
Proceeds from advances from the Federal Home Loan Bank
and other borrowings 18,000 103,130
Repayment of Federal Home Loan Bank advances
and other borrowings (20,848) (104,353)
Dividends paid on common stock (504) (383)
Proceeds from exercise of stock options 94 -
Decrease in advances by borrowers for taxes and insurance (1,444) (897)
------- ----------
Net cash provided by (used in) financing activities 1,198 3,250
------- ---------
Increase (decrease) in cash and cash equivalents 13,692 (2,970)
Cash and cash equivalents at beginning of period 22,904 20,977
------ --------
Cash and cash equivalents at end of period $36,596 $ 18,007
====== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 5,639 $ 5,383
======= =========
Income taxes $ - $ 100
======= =========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 31 $ (129)
======= =========
Recognition of gains on sale of loans in accordance with
SFAS No. 125 $ 697 $ 100
======= =========
Transfer of loans to real estate acquired through foreclosure $ 26 $ 180
======= =========
Transfer of mortgage-backed securities from held to maturity
classification to available for sale classification $ 1,344 $ -
======= ========
</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., 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 Savings Bank of
Washington Courthouse, 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
three months ended March 31, 1997 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 three month periods
ended March 31, 1998 and 1997 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. 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
8
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Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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 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.
9
<PAGE>
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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.
4. Reclassifications
Certain reclassifications have been made to the March 31, 1997
consolidated financial statements to conform to the March 31, 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 month periods ended March 31, 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 has also been heavily influenced by the level of other income,
including gains on sale of loans, loan servicing fees, and other fees. Finally,
Camco's operations are also influenced by the level of general, administrative
and other expenses, including employee compensation and benefits, office
occupancy and equipment, federal deposit insurance premiums, as well as various
other operating expense categories, including federal income tax expense.
Since its incorporation in 1970, Camco has evolved into a full service provider
of financial products to the communities served by its banking subsidiaries.
Utilizing a common marketing theme committed to personalized customer service,
Camco and its affiliates have grown from $22.4 million in consolidated assets in
1970 to $575.6 million of consolidated assets at March 31, 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,
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 month periods ended March 31, 1998 and 1997
Discussion of Financial Condition Changes from December 31, 1997 to March 31,
1998
At March 31, 1998, Camco's consolidated assets totaled $575.6 million, an
increase of $4.4 million, or .8%, over the December 31, 1997 total. The increase
during the current three month period was primarily funded by deposit growth of
$6.1 million and undistributed net earnings of $1.5 million, which were
partially offset by a decrease of $2.8 million, or 3.5%, in advances from the
Federal Home Loan Bank.
Cash and interest-bearing deposits in other financial institutions totaled $36.6
million at March 31, 1998, an increase of $13.7 million, or 59.8%, over December
31, 1997 levels.
Investment securities totaled $16.4 million at March 31, 1998, a decrease of
$4.8 million, or 22.5%, from the total at December 31, 1997. During the 1998
period, investment securities totaling $3.1 million were purchased, while
maturities amounted to $7.0 million and sales totaled $900,000.
Mortgage-backed securities totaled $11.3 million at March 31, 1998, a decrease
of $5.3 million from December 31, 1997, due primarily to sales totaling $4.6
million and principal repayments totaling $715,000 during the period. Loans
receivable and loans held for sale increased by $1.5 million, or .3%, during the
three months ended March 31, 1998, to a total of $483.1 million. The increase
was primarily attributable to loan disbursements totaling $101.2 million, which
were partially offset by principal repayments of $44.1 million and loan sales of
$56.1 million. Loan origination volume during the 1998 three month period
exceeded that of the 1997 period by $48.9 million, or 93.7%.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans), totaled
$3.2 million and $2.0 million at March 31, 1998 and December 31, 1997,
respectively, constituting .66% 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 March 31, 1998 and December 31, 1997,
representing 52.1% and 72.8% of nonperforming loans, respectively, at those
dates. Although management believes that its allowance for loan losses at March
31, 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 $429.6 million at March 31, 1998, an increase of $6.1 million,
or 1.4%, 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
decreased by $2.8 million, or 3.5%, to a total of $79.5 million at March 31,
1998. The proceeds from deposit growth were partially used to repay certain
advances from the Federal Home Loan Bank.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At March 31, 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 month periods ended March 31, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended March 31, 1998
and 1997
General
Camco's net earnings for the three months ended March 31, 1998 totaled $2.0
million, an increase of $714,000, or 55.1%, over the $1.3 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 $605,000 and an
increase in other income of $1.6 million, which were partially offset by an
increase in the provision for losses on loans of $45,000, an increase in
general, administrative and other expense of $1.0 million, and an increase in
the provision for federal income taxes of $396,000.
Net Interest Income
Total interest income for the three months ended March 31, 1998, increased by
$1.1 million, or 10.9%, generally reflecting the effects of growth in average
interest-earning assets outstanding of approximately $36.9 million, coupled with
an increase of 39 basis points in the yield year to year, from 7.93% in 1997 to
8.32% in 1998.
Interest income on loans and mortgage-backed securities totaled $10.1 million
for the three months ended March 31, 1998, an increase of $1.1 million, or
12.3%, over the comparable 1997 period. The increase resulted primarily from a
$41.8 million, or 9.4%, increase in the average balance outstanding year to
year. Interest income on investments and interest-bearing deposits decreased by
$43,000, or 5.8%, due to a decrease in average outstanding balances of $4.9
million. Interest expense on deposits increased by $124,000, or 2.7%, to a total
of $4.6 million for the three months ended March 31, 1998, due primarily to an
increase of $14.0 million in the average balance of deposits outstanding.
Interest expense on borrowings totaled $1.2 million for the three months ended
March 31, 1998, an increase of $333,000, or 38.7%, over the 1997 three month
period. The increase resulted primarily from a $22.0 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 $605,000, or 13.9%, to a total of $5.0 million
for the three months ended March 31, 1998. The interest rate spread increased to
approximately 3.47% for the three months ended March 31, 1998, from 3.26% for
the 1997 period, while the net interest margin increased to approximately 3.76%
in 1998, as compared to 3.55% in 1997.
13
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three month periods ended March 31, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended March 31, 1998
and 1997 (continued)
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Banks,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area,
and other factors related to the collectibility of the Bank's loan portfolio.
The provision for losses on loans totaled $96,000 for the three months ended
March 31, 1998, an increase of $45,000 over the comparable period in 1997. The
current period provision generally reflects the effects of loan portfolio growth
integrated with 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 $2.3 million for the three months ended March 31, 1998, an
increase of $1.6 million over the comparable 1997 period. The increase in other
income is primarily attributable to a $991,000 increase in gains on sale of
loans and an increase of $590,000 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 $153,000 increase in title service fees at the Corporation's title agency
subsidiary, 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 $4.1 million for the three
months ended March 31, 1998, an increase of $1.0 million, or 32.9%. This
increase is due primarily to a $426,000, or 27.9%, increase in employee
compensation and benefits, a $58,000, or 41.7%, increase in data processing
expense, a $25,000, or 24.0%, increase in advertising, a $27,000, or 23.7%,
increase in franchise taxes and a $480,000, or 67.2%, 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 data processing, advertising, franchise taxes and other operating expenses
were due primarily to the Corporation's overall growth year to year.
14
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three month periods ended March 31, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended March 31, 1998
and 1997 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $1.0 million for the three months
ended March 31, 1998, an increase of $396,000, or 62.2%. This increase is
attributable to a $1.1 million, or 57.5%, increase in pre-tax earnings. The
effective tax rate amounted to 34.0% and 33.0% for the three months ended March
31, 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.
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.
15
<PAGE>
Camco Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Form 8-K filings: None.
Exhibits:
27.1: Financial data schedule for the
three months ended March 31, 1998.
27.2 Restated financial data schedule for the three
months ended March 31, 1997.
16
<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: May 11, 1998 By: /s/Larry A. Caldwell
--------------------------- --------------------
Larry A. Caldwell
President and Chief Executive
Officer
Date: May 11, 1998 By: /s/Anthony J. Popp
--------------------------- ------------------
Anthony J. Popp
Chief Financial Officer
17
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