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 September 30, 2000
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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
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(Exact name of registrant as specified in its charter)
Delaware 51-0110823
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6901 Glenn Highway, Cambridge, Ohio 43725
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(Address of principal executive office)
Registrant's telephone number, including area code: (740) 435-2020
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 November 10, 2000, the latest practicable date, 6,931,897.2 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
Quantitative and Qualitative Disclosures about
Market Risk 17
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 14,901 $ 16,707
Interest-bearing deposits in other financial institutions 7,688 247
--------- -------
Cash and cash equivalents 22,589 16,954
Investment securities available for sale - at market 272 273
Investment securities held to maturity - at cost, approximate market value of $17,157
and $16,452 as of September 30, 2000 and December 31, 1999 17,436 16,864
Mortgage-backed securities available for sale - at market 10,287 6,475
Mortgage-backed securities held to maturity - at cost, approximate market value of
$5,349 and $5,818 as of September 30, 2000 and December 31, 1999 5,416 5,944
Loans held for sale - at lower of cost or market 5,924 3,183
Loans receivable - net 917,154 723,042
Office premises and equipment - net 14,002 11,706
Real estate acquired through foreclosure 440 419
Federal Home Loan Bank stock - at cost 18,981 14,605
Accrued interest receivable on loans 5,740 3,890
Accrued interest receivable on mortgage-backed securities 114 78
Accrued interest receivable on investment securities and interest-bearing deposits 260 252
Prepaid expenses and other assets 1,273 888
Cash surrender value of life insurance 5,932 5,657
Goodwill and other intangible assets 3,140 3,252
--------- -------
Total assets $1,028,960 $813,482
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 620,208 $461,787
Advances from the Federal Home Loan Bank 321,483 279,125
Advances by borrowers for taxes and insurance 2,977 3,360
Accounts payable and accrued liabilities 4,353 3,006
Dividends payable 832 832
Accrued federal income taxes 480 133
Deferred federal income taxes 1,089 2,630
--------- -------
Total liabilities 951,422 750,873
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares, 7,057,917 and
5,752,310 shares issued at September 30, 2000 and December 31, 1999, respectively 7,058 5,752
Additional paid-in capital 41,551 30,351
Retained earnings - substantially restricted 30,439 27,205
Less 126,019 and 41,888 shares of treasury stock - at cost (1,416) (575)
Accumulated comprehensive loss, unrealized losses on securities designated
as available for sale, net of related tax effects (94) (124)
--------- -------
Total stockholders' equity 77,538 62,609
--------- -------
Total liabilities and stockholders' equity $1,028,960 $813,482
========= =======
</TABLE>
3
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income
Loans $53,075 $34,526 $18,474 $12,496
Mortgage-backed securities 855 540 278 199
Investment securities 856 635 286 242
Interest-bearing deposits and other 1,382 1,157 507 370
------ ------ ------ ------
Total interest income 56,168 36,858 19,545 13,307
Interest expense
Deposits 20,820 14,211 7,616 4,794
Borrowings 15,707 7,064 5,588 3,042
------ ------ ------ ------
Total interest expense 36,527 21,275 13,204 7,836
------ ------ ------ ------
Net interest income 19,641 15,583 6,341 5,471
Provision for losses on loans 431 168 138 45
------ ------ ------ ------
Net interest income after provision
for losses on loans 19,210 15,415 6,203 5,426
Other income
Late charges, rent and other 1,523 1,698 527 495
Loan servicing fees 540 416 135 218
Service charges and other fees on deposits 530 419 188 158
Gain on sale of loans 1,573 1,557 947 225
Loss on sale of investment and mortgage-backed
securities designated as available for sale (37) - (42) -
Gain (loss) on disposition of fixed assets 15 (3) 5 (4)
Gain on sale of real estate acquired through foreclosure 49 12 13 26
------ ------ ------ ------
Total other income 4,193 4,099 1,773 1,118
General, administrative and other expense
Employee compensation and benefits 6,901 5,834 2,174 2,038
Office occupancy and equipment 2,271 1,835 761 628
Federal deposit insurance premiums 88 220 30 74
Data processing 1,003 636 318 187
Advertising 561 484 160 153
Franchise taxes 815 667 262 229
Amortization of goodwill 112 112 37 37
Other operating 3,040 2,989 1,026 976
------ ------ ------ ------
Total general, administrative and other expense 14,791 12,777 4,768 4,322
------ ------ ------ ------
Earnings before federal income taxes 8,612 6,737 3,208 2,222
Federal income taxes
Current 2,731 2,002 937 752
Deferred 175 279 124 -
------ ------ ------ ------
Total federal income taxes 2,906 2,281 1,061 752
------ ------ ------ ------
NET EARNINGS $ 5,706 $ 4,456 $ 2,147 $ 1,470
====== ====== ====== ======
EARNINGS PER SHARE
Basic $0.83 $0.78 $0.31 $0.26
==== ==== ==== ====
Diluted $0.82 $0.76 $0.31 $0.25
==== ==== ==== ====
</TABLE>
4
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net earnings $5,706 $4,456 $2,147 $1,470
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the period,
net of tax of $3, $(87), $(1), and $(25), respectively 6 (169) (2) (49)
Reclassification adjustment for realized losses
included in net earnings, net of related taxes of
$(13) and $(14) for the nine and three months ended
September 30, 2000, respectively 24 - 28 -
----- ----- ----- -----
Comprehensive income $5,736 $4,287 $2,173 $1,421
===== ===== ===== =====
Accumulated comprehensive loss $ (94) $ (73) $ (94) $ (73)
===== ===== ===== =====
</TABLE>
5
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 5,706 $ 4,456
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (273) (269)
Amortization of premiums and discounts on investment
and mortgage-backed securities - net 21 (4)
Amortization of goodwill 112 112
Amortization of purchase accounting adjustments - net (50) 78
Depreciation and amortization 890 725
Provision for losses on loans 431 168
Gain on sale of real estate acquired through foreclosure (49) (12)
Federal Home Loan Bank stock dividends (962) (518)
Gain on sale of loans (634) (385)
(Gain) loss on sale of premises and equipment (15) 3
Loss on sale of investment and mortgage-backed securities
designated as available for sale 37 -
Loans originated for sale in the secondary market (85,862) (70,622)
Proceeds from sale of loans in the secondary market 83,755 78,457
Increase (decrease) in cash, net of acquisition of Westwood
Homestead Financial Corporation, due to changes in:
Accrued interest receivable (1,106) (645)
Prepaid expenses and other assets (44) (1,151)
Accrued interest and other liabilities 155 705
Federal income taxes:
Current 236 (294)
Deferred 25 279
------- -------
Net cash provided by operating activities 2,373 11,083
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 185 5,508
Proceeds from sale of investment securities designated as available for sale - 15
Proceeds from sale of mortgage-backed securities designated as available for sale 5,045 -
Purchase of investment securities designated as available for sale - (22)
Purchase of investment securities designated as held to maturity (750) (10,896)
Purchase of mortgage-backed securities designated as available for sale (5,087) (5,080)
Purchase of mortgage-backed securities designated as held to maturity - (1,992)
Purchase of loans (2,426) (21,871)
Loan disbursements (173,699) (260,381)
Principal repayments on loans 120,105 131,940
Principal repayments on mortgage-backed securities 1,903 2,265
Purchase of office premises and equipment (1,077) (1,316)
Proceeds from sales of real estate acquired through foreclosure 1,094 583
Additions to real estate acquired through foreclosure (63) (153)
Purchase of Federal Home Loan Bank stock (2,077) (4,081)
Proceeds from redemption of Federal Home Loan Bank stock 504 -
Purchase of cash surrender value of life insurance (80) (250)
Net increase in cash surrender value of life insurance (195) (184)
Purchase of Westwood Homestead Financial Corporation (1,879) -
------- -------
Net cash used in investing activities (58,497) (165,915)
------- -------
Net cash used in operating and investing activities
(subtotal carried forward) (56,124) (154,832)
------- -------
</TABLE>
6
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Camco Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
2000 1999
<S> <C> <C>
Net cash used in operating and investing activities
(subtotal brought forward) $ (56,124) $(154,832)
Cash flows provided by (used in) financing activities:
Net increase in deposits 57,872 11,452
Proceeds from Federal Home Loan Bank advances 235,178 163,055
Repayment of Federal Home Loan Bank advances (227,461) (35,867)
Dividends paid on common stock (2,495) (1,961)
Proceeds from exercise of stock options 8 -
Advances by borrowers for taxes and insurance (1,343) 46
Purchase of treasury shares - (341)
------- --------
Net cash provided by financing activities 61,759 136,384
------- --------
Net increase (decrease) in cash and cash equivalents 5,635 (18,448)
Cash and cash equivalents at beginning of period 16,954 35,815
------- --------
Cash and cash equivalents at end of period $ 22,589 $ 17,367
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 36,943 $ 20,843
======= ========
Income taxes $ 2,452 $ 1,594
======= ========
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure $ 852 $ 1,064
======= ========
Unrealized gains (losses) on investments and mortgage-backed
securities designated as available for sale $ 30 $ (169)
======= ========
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 939 $ 1,172
======= ========
Shares issued in conjunction with 5% stock dividend $ - $ 272
======= ========
Liabilities assumed, stock and cash paid in acquisition of
Westwood Homestead Financial Corporation $159,698 $ -
Less: fair value of assets received 159,698 -
------- --------
Amount assigned to goodwill $ - $ -
======= ========
</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,
1999. 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 nine and three month
periods ended September 30, 2000, are not necessarily indicative of the
results which may be expected for the entire year.
In January 2000, the Corporation acquired Westwood Homestead Financial
Corporation ("Westwood Financial") utilizing the purchase method of
accounting (the "Merger"). Westwood Financial was dissolved upon
consummation of the Merger and Westwood Financial's banking subsidiary,
Westwood Homestead Savings Bank, continued operations as a wholly-owned
subsidiary of the Corporation. Camco paid $11.1 million in cash and
issued 1,304,875 of its common shares in connection with the Merger.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Camco and its six 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"), Westwood Homestead
Savings Bank ("Westwood") (collectively hereinafter "the Banks") and
Camco Title Insurance 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 nine and three month periods ended
September 30, 2000, is computed based on 6,909,532 and 6,931,898
weighted-average shares outstanding during the respective periods.
Basic earnings per share for the nine and three month periods ended
September 30, 1999, is computed based on 5,730,981 and 5,715,774
weighted-average shares outstanding during the respective periods.
8
<PAGE>
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 plans. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings
per share totaled 6,951,009 and 6,978,301 for the nine and three month
periods ended September 30, 2000, respectively, and 5,842,657 and
5,810,791 for the nine and three month periods ended September 30,
1999, respectively.
Incremental shares related to the assumed exercise of stock options
included in the computation of diluted earnings per share for the nine
and three month periods ended September 30, 2000, totaled 41,477 and
46,403, and for the nine and three month periods ended September 30,
1999, totaled 111,676 and 95,017, respectively.
Options to purchase 432,795 shares of common stock with a
weighted-average exercise price of $12.16 were outstanding at September
30, 2000, but were excluded from the computation of common share
equivalents for the nine and three month periods ended September 30,
2000, because the exercise prices were greater than the average market
price of the common shares.
Options to purchase 68,485 shares of common stock with a
weighted-average exercise price of $14.17 were outstanding at September
30, 1999, but were excluded from the computation of common share
equivalents for the nine and three month periods ended September 30,
1999, because the exercise prices were greater than the average market
price of the common shares.
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, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. 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.
9
<PAGE>
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which revises the standards for accounting for
securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000. SFAS
No. 140 is not expected to have a material effect on the Corporation's
financial position or results of operations.
10
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 2000 and 1999
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's
operations are also influenced by the level of general, administrative and other
expenses, including employee compensation and benefits, occupancy and equipment,
federal deposit insurance premiums, as well as various other operating expense
categories, including federal income tax expense.
Discussion of Financial Condition Changes from December 31, 1999 to September
30, 2000
At September 30, 2000, Camco's consolidated assets totaled $1.0 billion, an
increase of $215.5 million, or 26.5%, over the December 31, 1999 total. The
increase was primarily due to the acquisition of Westwood Financial, in January
2000, which resulted in net asset growth of approximately $159.7 million and
deposit growth of $100.5. The additional increase in total assets was through
internal growth, primarily in loans receivable, and was funded by deposit growth
of $57.9 million and an increase of $42.4 million in advances from the Federal
Home Loan Bank ("FHLB").
Cash and interest-bearing deposits in other financial institutions totaled $22.6
million at September 30, 2000, an increase of $5.6 million, or 33.2%, over
December 31, 1999 levels. Investment securities totaled $17.7 million at
September 30, 2000, an increase of $571,000, or 3.3%, over the total at December
31, 1999. Investment securities purchases totaled $750,000, while maturities
amounted to $185,000, during the nine month period ended September 30, 2000.
Mortgage-backed securities totaled $15.7 million at September 30, 2000, an
increase of $3.3 million, or 26.4%, over December 31, 1999, due primarily to the
$5.2 million of mortgage-backed securities acquired through the Merger, which
was partially offset by principal repayments totaling $1.9 million.
Loans receivable, including loans held for sale, increased by $196.9 million, or
27.1%, during the nine months ended September 30, 2000, to a total of $923.1
million. The increase resulted primarily from loans acquired through the Merger
totaling $142.0 million and loan disbursements, including purchased loans,
totaling $262.0 million, which were partially offset by principal repayments of
$120.1 million and loan sales of $83.1 million. The volume of loans originated
and purchased during the 2000 nine month period was less than that of the 1999
period by $90.9 million, or 25.8%, while the volume of loan sales increased by
$5.0 million year to year. Loan origination volume has been affected during the
2000 period by the overall increase in interest rates in the economy.
11
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Discussion of Financial Condition Changes from December 31, 1999 to September
30, 2000 (continued)
During the nine months ended September 30, 2000, continued rising interest rates
shifted consumer preference from fixed-rate mortgages to adjustable-rate
mortgages ("ARMs"). The majority of loans originated by Camco in 2000 have been
ARMs and Camco has adopted a short term strategy of selling both fixed and
adjustable rate loans to control its balance sheet growth and manage its
interest rate risk.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$4.4 million and $4.0 million at September 30, 2000 and December 31, 1999,
respectively, constituting .47% and .55% of total net loans, including loans
held for sale, at those dates. At September 30, 2000, nonperforming loans
consisted primarily of one- to four-family residential properties which
management believes are adequately collateralized. The consolidated allowance
for loan losses totaled $2.8 million and $1.9 million at September 30, 2000 and
December 31, 1999, respectively, representing 65.0% and 46.9% of nonperforming
loans, respectively, at those dates. The allowance for loan losses was increased
as a result of the Merger by $641,000 which represented the allowance maintained
by Westwood prior to the Merger. Although management believes that its allowance
for loan losses is adequate based upon the available facts and circumstances at
September 30, 2000, 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 $620.2 million at September 30, 2000, an increase of $158.4
million, or 34.3%, over December 31, 1999 levels. The increase resulted
primarily from deposits of $100.5 million acquired in the Merger coupled with
deposit portfolio growth of $57.9 million, or 12.5%, which resulted primarily
from management's continuing efforts to achieve growth of deposits primarily
through marketing and pricing strategies. Advances from the Federal Home Loan
Bank ("FHLB") increased by $42.4 million, or 15.2%, to a total of $321.5 million
at September 30, 2000. The increase was due primarily to net current period
borrowings totaling $7.7 million, coupled with advances of $34.7 million
acquired through the Merger. The proceeds from deposit growth and FHLB advances
were primarily used to fund loan originations during the nine month period.
The Banks are required to maintain minimum regulatory capital pursuant to
federal regulations. At September 30, 2000, the Banks' regulatory capital
exceeded all regulatory capital requirements.
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999
General
The inclusion of the accounts of Westwood, which Camco acquired in January 2000
in a transaction accounted for using the purchase method of accounting,
significantly contributed to the increases in the level of income and expenses
during the nine and three month periods ended September 30, 2000, compared to
the nine and three month periods ended September 30, 1999. The consolidated
statements of earnings for the nine and three month periods ended September 30,
1999, were not restated for the Merger.
12
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999 (continued)
General (continued)
Camco's net earnings for the nine months ended September 30, 2000 totaled $5.7
million, an increase of $1.2 million, or 28.1%, over the $4.5 million of net
earnings reported in the comparable 1999 period. The increase in earnings was
primarily attributable to a $4.1 million increase in net interest income and an
increase in other income of $94,000, which were partially offset by a $263,000
increase in the provision for losses on loans, a $2.0 million increase in
general, administrative and other expense and a $625,000 increase in the
provision for federal income taxes.
Net Interest Income
Total interest income for the nine months ended September 30, 2000, amounted to
$56.2 million, an increase of $19.3 million, or 52.4%, over the nine month
period ended September 30, 1999, generally reflecting the effects of growth in
average interest-earning assets of approximately $286.4 million. The acquisition
of Westwood accounted for approximately $9.6 million of interest income during
the nine month period ended September 30, 2000.
Interest income on loans and mortgage-backed securities totaled $53.9 million
for the nine months ended September 30, 2000, an increase of $18.9 million, or
53.8%, over the comparable 1999 period. The increase resulted primarily from a
$286.1 million, or 45.8%, increase in the average balance outstanding year to
year, and a 43 basis point increase in the average yield. Interest income on
investments and other interest-bearing assets increased by $446,000, or 24.9%,
due primarily to an increase of 135 basis points in the weighted-average yield,
and a $213,000, or 0.5%, increase in the average balance outstanding year to
year.
Total interest expense amounted to $36.5 million for the nine months ended
September 30, 2000, an increase of $15.3 million, or 71.7%, over the comparable
nine month period in 1999. The acquisition of Westwood accounted for
approximately $5.8 million of the overall increase in the 2000 period. Interest
expense on deposits increased by $6.6 million, or 46.5%, to a total of $20.8
million for the nine months ended September 30, 2000, due primarily to a $129.5
million, or 28.7%, increase in average deposits outstanding over the nine month
period ended September 30, 1999, and an increase of 59 basis points in the
weighted-average interest rates paid. Interest expense on borrowings totaled
$15.7 million for the nine months ended September 30, 2000, an increase of $8.6
million, or 122.4%, over the 1999 nine month period. The increase resulted
primarily from a $149.3 million, or 83.2%, increase in the average balance
outstanding year to year and an increase of 112 basis points in the
weighted-average interest rates paid.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $4.1 million, or 26.0%, to a total of $19.6
million for the nine months ended September 30, 2000. The interest rate spread
decreased to approximately 2.49% for the nine months ended September 30, 2000,
from 2.86% for the 1999 period, while the net interest margin decreased to
approximately 2.74% in 2000, compared to 3.11% in 1999.
13
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999 (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 Camco, the
status of past due principal and interest payments, general economic conditions,
particularly as such conditions relate to Camco's market area, and other factors
related to the collectibility of Camco's loan portfolio. The provision for
losses on loans totaled $431,000 for the nine months ended September 30, 2000,
an increase of $263,000 over the comparable period in 1999. The current period
provision generally reflects the effects of loan portfolio growth. There can be
no assurance that the allowance for loan losses will be adequate to cover losses
on nonperforming loans in the future.
Other Income
Other income totaled $4.2 million for the nine months ended September 30, 2000,
an increase of $94,000, or 2.3%, over the comparable 1999 period. The increase
in other income was primarily attributable to an increase of $124,000, or 29.8%,
in loan servicing fees, an increase of $111,000, or 26.5%, in service charges
and fees on deposits and a $16,000, or 1.0%, increase in gains on sale of loans,
which were partially offset by a decrease of $175,000, or 10.3%, in late
charges, rent and other. The increase in loan servicing fees was due to an
increase in the servicing portfolio year to year. The increase in service
charges and fees on deposits was due to the growth in deposits year to year. The
decrease in late charges, rent and other was primarily attributable to a
$145,000 decrease in title company fees compared to the same period in 1999.
General, Administrative and Other Expense
General, administrative and other expense totaled $14.8 million for the nine
months ended September 30, 2000, an increase of $2.0 million, or 15.8%, over the
comparable period in 1999. This increase was due primarily to a $1.1 million, or
18.3%, increase in employee compensation and benefits, a $436,000, or 23.8%,
increase in occupancy and equipment, a $367,000, or 57.7%, increase in data
processing expense, and a $148,000, or 22.2%, increase in franchise taxes which
were partially offset by a decrease in federal deposit insurance premiums of
$132,000, or 60.0%.
The acquisition of Westwood accounted for a $2.0 million increase in general,
administrative and other expenses. Exclusive of the effects of the Merger,
employee compensation and benefits increased by $69,000, or 1.2%, resulting
primarily from normal merit increases. Office occupancy and equipment expense
increased by $143,000, or 7.8%, which was due to increased depreciation and
increased building maintenance costs, and data processing expense increased by
$257,000, or 40.4%, due to costs related to a conversion to an internal wide
area network. These increases were partially offset by a decrease of $132,000,
or 60.0% in federal deposit insurance premiums, due to decreased premium rates.
14
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Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $2.9 million for the nine months
ended September 30, 2000, an increase of $625,000, or 27.4%, over the nine
months ended September 30, 1999. This increase was attributable to a $1.9
million, or 27.8%, increase in pre-tax earnings. The Corporation's effective tax
rate amounted to 33.7% and 33.9% for the nine months ended September 30, 2000
and 1999, respectively.
Comparison of Results of Operations for the Three Months Ended September 30,
2000 and 1999
General
Camco's net earnings for the three months ended September 30, 2000 totaled $2.1
million, an increase of $677,000, or 46.1%, over the $1.5 million of net
earnings reported in the comparable 1999 period. The increase in earnings was
primarily attributable to an $870,000 increase in net interest income and an
increase of $655,000 in other income, which were partially offset by a $93,000
increase in the provision for losses on loans, an increase in general,
administrative and other expense of $446,000 and an increase in the provision
for federal income taxes of $309,000.
Net Interest Income
Total interest income for the three months ended September 30, 2000, amounted to
$19.5 million, an increase of $6.2 million, or 46.9%, over the three month
period ended September 30, 1999, generally reflecting the effects of growth in
average interest-earning assets outstanding of approximately $275.5 million, or
38.3%.
Interest income on loans and mortgage-backed securities totaled $18.8 million
for the three months ended September 30, 2000, an increase of $6.1 million, or
47.7%, over the comparable 1999 period. The increase resulted primarily from a
$269.3 million, or 39.6%, increase in the average balance outstanding year to
year, and a 43 basis point increase in the average yield. Interest income on
investments and other interest-bearing assets increased by $181,000, or 29.6%,
due primarily to an increase of 73 basis points in the weighted-average yield,
coupled with a $6.3 million, or 15.8%, increase in the average balance
outstanding year to year.
Interest expense on deposits increased by $2.8 million, or 58.9%, to a total of
$7.6 million for the three months ended September 30, 2000, due primarily to a
$148.1 million, or 32.4%, increase in average deposits outstanding over the
prior year and an increase of 84 basis points in the weighted-average interest
rates paid. Interest expense on borrowings totaled $5.6 million for the three
months ended September 30, 2000, an increase of $2.5 million, or 83.7%, over the
1999 three month period. The increase resulted primarily from a $118.1 million,
or 52.6%, increase in the average balance outstanding year to year, coupled with
an increase of 111 basis points in the weighted-average interest rates paid.
15
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Three Months Ended September 30,
2000 and 1999 (continued)
Net Interest Income
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $870,000, or 15.9%, to a total of $6.3 million
for the three months ended September 30, 2000. The interest rate spread
decreased to approximately 2.29% for the three months ended September 30, 2000,
from 2.75% for the 1999 period, while the net interest margin decreased to
approximately 2.55% in 2000, compared to 3.02% in 1999.
Provision for Losses on Loans
Management elected to record a provision for losses on loans totaling $138,000
for the three months ended September 30, 2000, an increase of $93,000 over the
comparable period in 1999. The current period provision generally reflects the
effects of loan portfolio growth. There can be no assurance that the allowance
for loan losses will be adequate to cover losses on nonperforming loans in the
future.
Other Income
Other income totaled $1.8 million for the three months ended September 30, 2000,
an increase of $655,000, or 58.6%, over the comparable 1999 period. The increase
in other income was primarily attributable to a $722,000, or 320.9%, increase in
gains on sale of loans, an increase of $32,000, or 6.5%, in late charges, rent
and other and a $30,000, or 19.0%, increase in service charges on deposits,
which were partially offset by a decrease of $83,000, or 38.1%, in loan
servicing fees and a $42,000 loss on sale of investments. The increase
attributable to the gain on sale of loans was due to increased secondary market
sales volume, which was precipated in large part by asset/liability
restructuring at one of the Bank subsidiaries.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.8 million for the three
months ended September 30, 2000, an increase of $446,000, or 10.3%, over the
comparable period in 1999. This increase was due primarily to a $136,000, or
6.7%, increase in employee compensation and benefits, a $133,000, or 21.2%,
increase in occupancy and equipment, a $131,000, or 70.1%, increase in data
processing expense and a $33,000, or 14.4%, increase in franchise taxes, which
were partially offset by a decrease in federal deposit insurance premiums of
$44,000, or 59.5%.
16
<PAGE>
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Three Months Ended September 30,
2000 and 1999 (continued)
General, Administrative and Other Expense (continued)
The general administrative and other expenses attributable to Westwood for the
three months ended September 30, 2000, totaled $696,000. Exclusive of the
effects of the Merger, general, administrative and other expense decreased by
$250,000, or 5.8%. Employee compensation and benefits decreased by $232,000, or
11.4%, and federal deposit insurance premiums decreased by $49,000, or 66.2%,
which were partially offset by a $93,000, or 49.7%, increase in data processing
expense. The decrease in employee compensation and benefits was primarily due to
closing of non-profitable loan production offices.
Federal Income Taxes
The provision for federal income taxes totaled $1.1 million for the three months
ended September 30, 2000, an increase of $309,000, or 41.1%, over the three
months ended September 30, 1999. This increase is attributable to a $986,000, or
44.4%, increase in pre-tax earnings. The Corporation's effective tax rate
amounted to 33.1% and 33.8% for the three month periods ended September 30, 2000
and 1999, respectively.
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, 1999.
17
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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
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15 Independent Accountants' Report
27 Financial data schedule for the nine
months ended September 30, 2000.
(b) Reports on Form 8-K: None.
18
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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: November 14, 2000 By: /s/Larry A. Caldwell
------------------------------ --------------------------
Larry A. Caldwell
Chief Executive Officer
Date: November 14, 2000 By: /s/Kristina K. Tipton
------------------------------ --------------------------
Kristina K. Tipton
Assistant Controller
19
