FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------------------------
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 May 10, 1999, the latest practicable date, 5,475,183.5 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 17 pages
<PAGE>
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 10
Quantitative and Qualitative Disclosures about
Market Risk 15
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
<PAGE>
<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 11,625 $ 13,206
Interest-bearing deposits in other financial institutions 14,424 22,609
------- -------
Cash and cash equivalents 26,049 35,815
Investment securities available for sale - at market 306 1,307
Investment securities held to maturity - at cost, approximate market value of $13,938
and $10,998 as of March 31, 1999 and December 31, 1998 13,964 10,962
Mortgage-backed securities available for sale - at market 7,811 3,476
Mortgage-backed securities held to maturity - at cost, approximate market value of
$4,550 and $5,102 as of March 31, 1999 and December 31, 1998 4,521 5,019
Loans held for sale - at lower of cost or market 8,558 10,119
Loans receivable - net 572,834 538,550
Office premises and equipment - net 10,657 10,598
Real estate acquired through foreclosure 247 217
Federal Home Loan Bank stock - at cost 9,224 8,250
Accrued interest receivable on loans 3,514 3,576
Accrued interest receivable on mortgage-backed securities 81 61
Accrued interest receivable on investment securities and interest-bearing deposits 300 229
Prepaid expenses and other assets 699 393
Cash surrender value of life insurance 5,323 5,161
Goodwill and other intangible assets 3,365 3,402
------- -------
Total assets $667,453 $637,135
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $446,041 $443,227
Advances from the Federal Home Loan Bank 151,448 125,483
Advances by borrowers for taxes and insurance 2,127 2,478
Accounts payable and accrued liabilities 3,228 2,679
Dividends payable 616 589
Accrued federal income taxes 647 354
Deferred federal income taxes 2,283 2,186
------- -------
Total liabilities 606,390 576,996
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized, 8,900,000 shares, 5,480,331
shares issued at March 31, 1999 and December 31, 1998 5,480 5,480
Additional paid-in capital 27,053 27,053
Retained earnings - substantially restricted 28,582 27,628
Treasury stock - at cost (118) (118)
Unrealized gains on securities designated as available for sale,
net of related tax effects 66 96
------- -------
Total stockholders' equity 61,063 60,139
------- -------
Total liabilities and stockholders' equity $667,453 $637,135
======= =======
</TABLE>
3
<PAGE>
<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except per share data)
1999 1998
<S> <C> <C>
Interest income
Loans $10,638 $ 9,856
Mortgage-backed securities 137 251
Investment securities 196 311
Interest-bearing deposits and other 435 385
------ ------
Total interest income 11,406 10,803
Interest expense
Deposits 4,701 4,646
Borrowings 1,799 1,194
------ ------
Total interest expense 6,500 5,840
------ ------
Net interest income 4,906 4,963
Provision for losses on loans 54 96
------ ------
Net interest income after provision for losses on loans 4,852 4,867
Other income
Late charges, rent and other 615 926
Loan servicing fees 59 72
Service charges and other fees on deposits 112 167
Gain on sale of loans 782 1,147
Gain on sale of fixed assets 1 -
Loss on sale of real estate acquired through foreclosure (4) -
------ ------
Total other income 1,565 2,312
General, administrative and other expense
Employee compensation and benefits 1,824 1,955
Occupancy and equipment 586 411
Federal deposit insurance premiums 74 73
Data processing 230 197
Advertising 143 129
Franchise taxes 216 162
Amortization of goodwill 37 37
Other operating 938 1,173
------ ------
Total general, administrative and other expense 4,048 4,137
------ ------
Earnings before federal income taxes 2,369 3,042
Federal income taxes
Current 687 1,101
Deferred 112 (68)
------ ------
Total federal income taxes 799 1,033
------ ------
NET EARNINGS $ 1,570 $ 2,009
====== ======
BASIC EARNINGS PER SHARE $.29 $.37
=== ===
DILUTED EARNINGS PER SHARE $.28 $.35
=== ===
</TABLE>
4
<PAGE>
<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Net earnings $1,570 $2,009
Other comprehensive income, net of tax:
Unrealized holding gains (losses) during the period, net of tax (30) 34
Reclassification adjustment for gains on sale included in
net earnings, net of related taxes - (3)
----- -----
Comprehensive income $1,540 $2,040
===== =====
</TABLE>
5
<PAGE>
<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,570 $ 2,009
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (88) (553)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net (3) (4)
Amortization of goodwill 37 37
Depreciation and amortization 83 194
Amortization of purchase accounting adjustments, net 9 228
Provision for losses on loans 54 96
(Gain) loss on sale of real estate acquired through foreclosure 4 (4)
Federal Home Loan Bank stock dividends (147) (100)
Gain on sale of loans (113) (450)
Gain on sale of mortgage-backed securities - (5)
Loans originated for sale in the secondary market (26,664) (56,010)
Proceeds from sale of loans in the secondary market 28,337 56,510
Increase (decrease) in cash due to changes in:
Accrued interest receivable - loans 62 111
Accrued interest receivable - mortgage-backed securities (20) -
Accrued interest receivable - investments (71) -
Prepaid expenses and other assets (306) 647
Accrued interest and other liabilities 576 169
Federal income taxes:
Current 293 915
Deferred 112 (68)
------- ------
Net cash provided by operating activities 3,725 3,722
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities
and interest-bearing deposits 2,500 7,000
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 1,221 715
Purchases of investment securities (4,521) (3,092)
Purchases of mortgage-backed securities (5,080) -
Loan principal repayments 68,559 44,081
Loan disbursements (101,836) (45,178)
Purchases of loans (1,077) -
Additions to office premises and equipment (142) (389)
Additions to real estate acquired through foreclosure (13) -
Proceeds from sale of real estate acquired through foreclosure 74 42
Purchase of Federal Home Loan Bank stock (827) (413)
Proceeds from redemption of life insurance - 569
Net increase in cash surrender value of life insurance (62) (71)
Purchase of life insurance (100) -
------- ------
Net cash provided by (used in) investing activities (41,304) 8,772
------- ------
Net cash provided by (used in) operating and investing
activities (balance carried forward) (37,579) 12,494
------- ------
</TABLE>
6
<PAGE>
<TABLE>
Camco Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating and investing
activities (balance brought forward) $(37,579) $12,494
Cash flows provided by (used in) financing activities:
Net increase in deposits 2,814 5,900
Proceeds from advances from the Federal Home Loan Bank
and other borrowings 31,842 18,000
Repayment of Federal Home Loan Bank advances
and other borrowings (5,876) (20,848)
Dividends paid on common stock (616) (504)
Proceeds from exercise of stock options - 94
Decrease in advances by borrowers for taxes and insurance (351) (1,444)
------- ------
Net cash provided by financing activities 27,813 1,198
------- ------
Increase (decrease) in cash and cash equivalents (9,766) 13,692
Cash and cash equivalents at beginning of period 35,815 22,904
------- ------
Cash and cash equivalents at end of period $ 26,049 $36,596
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 5,726 $ 5,639
======= ======
Income taxes $ 250 $ -
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (30) $ 31
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 669 $ 697
======= ======
Transfer from mortgage loans to real estate acquired through foreclosure $ 95 $ 26
======= ======
Transfer of mortgage-backed securities from held to maturity
classification to available for sale classification $ - $ 1,344
======= ======
</TABLE>
7
<PAGE>
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Camco
Financial Corporation ("Camco", or the "Corporation") included in
Camco's Annual Report on Form 10-K for the year ended December 31,
1998. 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 period ended
March 31, 1999, 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 three month periods ended March 31,
1999 and 1998, is computed based on 5,468,795 and 5,465,783
weighted-average shares outstanding, respectively.
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 5,589,218 and 5,658,176 for the three month
periods ended March 31, 1999 and 1998, respectively.
There were 120,423 and 192,393 incremental shares related to the
assumed exercise of stock options included in the computation of
diluted earnings per share for the three month periods ended March 31,
1999 and 1998, respectively.
8
<PAGE>
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS
No. 133 also specifies new methods of accounting for hedging
transactions, prescribes the items and transactions that may be hedged,
and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. On adoption, entities are permitted to transfer held-to-maturity
debt securities to the available-for-sale or trading category without
calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material
impact on the Corporation's financial statements.
5. Reclassifications
Certain reclassifications have been made to the March 31, 1998
consolidated financial statements to conform to the March 31, 1999
presentation.
9
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three month periods ended March 31, 1999 and 1998
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 been heavily influenced by the level of other income,
including gains on sale of loans, loan servicing fees, and other fees. Camco is
currently reducing its loan sales in favor of loan portfolio growth in response
to the current interest rate environment. The interest rate risk of adding a
limited amount of fixed rate loans to the mortgage portfolio is being managed
with matched borrowings from the Federal Home Loan Bank of Cincinnati. 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 $667.5 million of consolidated assets at March 31, 1999. Camco's level
of growth is largely attributable to the acquisitions of Marietta Savings, First
Federal, First Savings, and Germantown Federal 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,
in areas beyond the primary market areas and 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.
10
<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, 1999 and 1998
Discussion of Financial Condition Changes from December 31, 1998 to March 31,
1999
At March 31, 1999, Camco's consolidated assets totaled $667.5 million, an
increase of $30.3 million, or 4.8%, over the December 31, 1998 total. The
increase during the current three month period was primarily funded by deposit
growth of $2.8 million, an increase of $26.0 million in advances from the
Federal Home Loan Bank (the "FHLB") and undistributed net earnings of $954,000.
Cash and interest-bearing deposits in other financial institutions totaled $26.0
million at March 31, 1999, a decrease of $9.8 million, or 27.3%, from December
31, 1998 levels. Excess liquidity was used to fund purchases of investment and
mortgage-backed securities, as well as to fund loan originations during the
quarter.
Investment securities totaled $14.3 million at March 31, 1999, an increase of
$2.0 million, or 16.3%, over the total at December 31, 1998. During the 1999
period, investment securities totaling $4.5 million were purchased, while
maturities amounted to $2.5 million.
Mortgage-backed securities totaled $12.3 million at March 31, 1999, an increase
of $3.8 million, or 45.2%, over December 31, 1998, due primarily to purchases
totaling $5.1 million, offset by principal repayments totaling $1.2 million
during the period. Loans receivable and loans held for sale increased by $32.7
million, or 6.0%, during the three months ended March 31, 1999, to a total of
$581.4 million. The increase was primarily attributable to loan disbursements
totaling $128.5 million, which were partially offset by principal repayments of
$68.6 million and loan sales of $28.2 million. Loan origination volume during
the 1999 three month period exceeded that of the 1998 period by $27.3 million,
or 27.0%, while the volume of loan sales decreased by $27.8 million year to
year.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$5.4 million and $4.3 million at March 31, 1999 and December 31, 1998,
respectively, constituting .93% and .78% of total net loans, including loans
held for sale, at those dates. The consolidated allowance for loan losses
totaled $1.8 million at both March 31, 1999 and December 31, 1998, representing
33.7% and 41.5% of nonperforming loans, respectively, at those dates. Although
management believes that its allowance for loan losses at March 31, 1999, 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 $446.0 million at March 31, 1999, an increase of $2.8 million,
or .6%, over December 31, 1998 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 $26.0
million, or 20.7%, to a total of $151.4 million at March 31, 1999. The proceeds
from deposit growth and advances from the FHLB were primarily used to fund loan
originations for the three month period.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At March 31, 1999, the Banks' regulatory capital exceeded
all regulatory capital requirements.
11
<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, 1999 and 1998
Comparison of Results of Operations for the Three Months Ended March 31, 1999
and 1998
General
Camco's net earnings for the three months ended March 31, 1999 totaled $1.6
million, a decrease of $439,000, or 21.9%, from the $2.0 million of net earnings
reported in the comparable 1998 period. The decrease in earnings was primarily
attributable to a decrease in other income of $747,000, resulting from decreased
gains on loan sales and a decline in late charges, rent and other income which
was partially offset by a decrease in general, administrative and other expenses
of $89,000.
Net Interest Income
Total interest income for the three months ended March 31, 1999, increased by
$603,000, or 5.6%, generally reflecting the effects of growth in average
interest-earning assets outstanding of approximately $91.3 million.
Interest income on loans and mortgage-backed securities totaled $10.8 million
for the three months ended March 31, 1999, an increase of $668,000, or 6.6%,
over the comparable 1998 period. The increase resulted primarily from an $86.7
million, or 17.8%, increase in the average balance outstanding year to year.
Interest income on investments and interest-bearing deposits decreased by
$65,000, or 9.3%.
Interest expense on deposits increased by $55,000, or 1.2%, to a total of $4.7
million for the three months ended March 31, 1999, due primarily to an increase
of $27.1 million in the average balance of deposits outstanding. Interest
expense on borrowings totaled $1.8 million for the three months ended March 31,
1999, an increase of $605,000, or 50.7%, over the 1998 three month period. The
increase resulted primarily from a $57.4 million increase in the average balance
outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
which included several nonrecurring adjustments to the interest income and
expense accounts, net interest income decreased by $57,000, or 1.1%, to a total
of $4.9 million for the three months ended March 31, 1999. The interest rate
spread decreased to approximately 2.89% for the three months ended March 31,
1999, from 3.47% for the 1998 period, while the net interest margin decreased to
approximately 3.52% in 1999, compared to 3.76% in 1998.
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,
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, 1999 and 1998
Comparison of Results of Operations for the Three Months Ended March 31, 1999
and 1998 (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 $54,000 for the three months ended
March 31, 1999, a decrease of $42,000, or 43.8%, from the comparable period in
1998. The current period provision generally reflects the overall effects of
loan portfolio growth and while nonperforming loans have increased, such
nonperforming loans consist primarily of one- to four-family residential
properties. It is management's belief that such nonperforming loans are
adequately collateralized. 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 $1.6 million for the three months ended March 31, 1999, a
decrease of $747,000, or 32.3%, from the comparable 1998 period. The decrease in
other income is primarily attributable to a $365,000, or 31.8%, decrease in
gains on sale of loans and a decrease of $311,000, or 33.6%, in late charges,
rent and other. The decrease in gains on sale of loans primarily reflects a
reduction in sales volume year to year. The decrease in late charges, rent and
other was primarily attributable to a gain in the prior period on settlement of
life insurance of $99,000.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.0 million for the three
months ended March 31, 1999, a decrease of $89,000, or 2.2%, from the comparable
quarter in 1998. This decrease is due primarily to a $235,000, or 20.0%,
reduction in other operating costs and a $131,000, or 6.7%, decrease in employee
compensation and benefits. Partially offsetting these reductions are increases
in office occupancy and equipment of $175,000, or 42.6%, a $33,000, or 16.8%,
increase in data processing expenses and a $54,000, or 33.3%, increase in state
franchise taxes.
The decrease in employee compensation and benefits resulted primarily from the
$89,000 reversal of an over accrual to the 401(k) profit sharing plan. The
decrease in other operating expenses included $212,000 in merger costs recorded
in 1998 related to the merger with GF Bancorp in January 1998. The increase in
office occupancy and equipment was due to increased depreciation primarily as a
result of the equipment purchases required , to convert all of the Banks to one
data processing service bureau, coupled with increased building maintenance
costs. The increase in franchise taxes was due primarily to the Corporation's
overall growth year to year and a change in Ohio franchise tax law which
increased the overall rate of taxation, while the increase in data processing
expenses was primarily attributable to the Corporation's conversion to a new
data processing system.
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, 1999 and 1998
Comparison of Results of Operations for the Three Months Ended March 31, 1999
and 1998 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $799,000 for the three months
ended March 31, 1999, a decrease of $234,000, or 22.7%. This decrease is
attributable to a $673,000, or 22.1%, decrease in pre-tax earnings. The
Corporation's effective tax rate was 33.7% and 34.0% for the three months ended
March 31, 1999 and 1998, respectively.
Year 2000 Compliance Matters
The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format, as opposed to four digits to indicate the year. Such computer systems
may be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruptions in operations.
In 1996 the Corporation began evaluating the status of all of its technological
systems which included its state of readiness in addressing the Y2K issue. After
the analysis was completed, a technology plan was developed and implementation
of the plan started in mid 1997.
As the Corporation is primarily dependent on a third party data processing
service bureau for maintaining customer records and financial systems, a task
force was formed to identify a service bureau that would meet the current and
future technology needs of the Corporation and who would be Y2K compliant. The
new service bureau was identified and conversion of all data systems of the
Banks was completed in the fourth quarter of 1998. As a part of the conversion
process, all of the data processing hardware and software in the Banks was
replaced and has been tested as being Y2K compliant.
The Corporation has identified other third party vendors and commercial
borrowers and if they were deemed critical to the banking operations, a review
of their Y2K readiness has been conducted. Contingency plans have been completed
in which the Corporation will seek alternative sources for critical services
provided by third party vendors who it is deemed will not be Y2K compliant.
The Corporation's service bureau has completed the upgrading of its core systems
and through testing, the Banks have verified that these systems are Y2K
compliant. The Banks have also successfully performed Y2K testing of the
electronic services provided by the Federal Reserve Bank of Cleveland and the
mortgage servicing systems of the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association through the Corporation's service bureau.
The Corporation's plan calls for the testing of non-information technology
hardware by the end of the third quarter, and where necessary, either the repair
or replacement of those systems if they are found not to be Y2K compliant.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three month periods ended March 31, 1999 and 1998
Year 2000 Compliance Matters (continued)
As part of its risk assessment, the Corporation has analyzed its vulnerability
to third-party vendors and service providers by conducting a review of their Y2K
readiness. The Corporation has received responses from 95% of its vendors and
service providers for the Banks and no significant concerns have been
identified. The Corporation has also assessed the risk associated with certain
of its Bank's customers and contacts are being made on the customer's Y2K
preparedness if they were deemed to be sensitive to the Y2K issue.
The Corporation estimates that the final cost of converting and replacing
information and non-information technology systems will fall within a range of
$1.5 million and $1.75 million with at least 75% being capitalized (which
relates to a discretionary management decision in 1998 to upgrade existing
technology systems). The Corporation had estimated that the total cost to
address the Y2K issue would be approximately $75,000, of which $30,000 has been
incurred as of March 31, 1999. While management believes its Y2K budget is based
on sound assumptions, because of unknown external risks associated with this
issue, the Corporation cannot quantify the consequences and uncertainty involved
beyond those already identified. However, management believes such remaining
external risks will not have a material adverse effect on the Corporation's
financial condition or results of operations.
Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in the Corporation's market risk since the
Corporation's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1998.
15
<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
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibits:
27 Financial Data Schedule for the three
months ended March 31, 1999.
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 14, 1999 By: /s/Larry A. Caldwell
------------------------- ------------------------------------
Larry A. Caldwell
President and Chief Executive Officer
Date: May 14, 1999 By: /s/Gary Crane
------------------------- ------------------------------------
Gary Crane
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 11,625
<INT-BEARING-DEPOSITS> 14,424
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,117
<INVESTMENTS-CARRYING> 18,485
<INVESTMENTS-MARKET> 18,488
<LOANS> 581,392
<ALLOWANCE> 1,826
<TOTAL-ASSETS> 667,453
<DEPOSITS> 446,041
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,901
<LONG-TERM> 151,448
0
0
<COMMON> 0
<OTHER-SE> 61,063
<TOTAL-LIABILITIES-AND-EQUITY> 667,453
<INTEREST-LOAN> 10,638
<INTEREST-INVEST> 333
<INTEREST-OTHER> 435
<INTEREST-TOTAL> 11,406
<INTEREST-DEPOSIT> 4,701
<INTEREST-EXPENSE> 6,500
<INTEREST-INCOME-NET> 4,906
<LOAN-LOSSES> 54
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,048
<INCOME-PRETAX> 2,369
<INCOME-PRE-EXTRAORDINARY> 1,570
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,570
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
<YIELD-ACTUAL> 3.52
<LOANS-NON> 1,975
<LOANS-PAST> 3,441
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,783
<CHARGE-OFFS> 12
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,826
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,826
</TABLE>
