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, 2001
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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
Indicate by check mark 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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 13, 2001, the latest practicable date, 7,044,189 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 19 pages
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
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 2001 2000
Cash and due from banks $ 18,131 $ 19,153
Interest-bearing deposits in other financial institutions 64,070 4,916
--------- ---------
Cash and cash equivalents 82,201 24,069
Investment securities available for sale - at market 301 309
Investment securities held to maturity - at cost, approximate market value of $6,532
and $16,617 as of September 30, 2001 and December 31, 2000 6,440 16,672
Mortgage-backed securities available for sale - at market 7,779 9,850
Mortgage-backed securities held to maturity - at cost, approximate market value of
$9,821 and $5,247 as of September 30, 2001 and December 31, 2000 9,672 5,273
Loans held for sale - at lower of cost or market 7,177 4,235
Loans receivable - net 841,053 926,437
Office premises and equipment - net 13,499 13,845
Real estate acquired through foreclosure 1,407 583
Federal Home Loan Bank stock - at cost 20,499 19,339
Accrued interest receivable on loans 5,458 5,611
Accrued interest receivable on mortgage-backed securities 100 111
Accrued interest receivable on investment securities and interest-bearing deposits 106 256
Prepaid expenses and other assets 2,236 1,439
Cash surrender value of life insurance 6,212 5,999
Goodwill and other intangible assets 2,991 3,103
Prepaid federal income taxes - 725
--------- ---------
Total assets $1,007,131 $1,037,856
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 649,280 $ 632,288
Advances from the Federal Home Loan Bank 262,942 313,471
Advances by borrowers for taxes and insurance 2,472 4,382
Accounts payable and accrued liabilities 4,192 5,328
Dividends payable 844 832
Accrued federal income taxes 534 -
Deferred federal income taxes 3,312 2,805
--------- ---------
Total liabilities 923,576 959,106
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares, 7,166,843 and
7,057,917 shares issued at September 30, 2001 and December 31, 2000, respectively 7,167 7,058
Additional paid-in capital 42,643 41,551
Retained earnings - substantially restricted 35,060 31,553
Less 126,019 shares of treasury stock - at cost (1,416) (1,416)
Accumulated comprehensive income, unrealized gains on securities designated
as available for sale, net of related tax effects 101 4
--------- ---------
Total stockholders' equity 83,555 78,750
--------- ---------
Total liabilities and stockholders' equity $1,007,131 $1,037,856
========= =========
3
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
2001 2000 2001 2000
Interest income
Loans $53,087 $53,075 $16,899 $18,474
Mortgage-backed securities 706 855 223 278
Investment securities 621 856 178 286
Interest-bearing deposits and other 2,139 1,382 783 507
------ ------ ------ ------
Total interest income 56,553 56,168 18,083 19,545
Interest expense
Deposits 23,918 20,820 7,729 7,616
Borrowings 13,102 15,707 4,092 5,588
------ ------ ------- -------
Total interest expense 37,020 36,527 11,821 13,204
------ ------ ------ ------
Net interest income 19,533 19,641 6,262 6,341
Provision for losses on loans 458 431 152 138
------ ------ ------ ------
Net interest income after provision
for losses on loans 19,075 19,210 6,110 6,203
Other income
Late charges, rent and other 2,084 1,523 739 527
Loan servicing fees (costs) (715) 540 (250) 135
Service charges and other fees on deposits 650 530 227 188
Gain on sale of loans 2,718 1,573 1,163 947
Loss on sale of investment and mortgage-backed
securities designated as available for sale - (37) - (42)
Gain on disposition of premises and equipment 30 15 27 5
Gain on sale of real estate acquired through foreclosure 56 49 14 13
------ ------ ------ ------
Total other income 4,823 4,193 1,920 1,773
General, administrative and other expense
Employee compensation and benefits 6,449 6,901 1,895 2,174
Occupancy and equipment 2,516 2,271 780 761
Federal deposit insurance premiums 90 88 30 30
Data processing 1,063 1,003 309 318
Advertising 614 561 167 160
Franchise taxes 855 815 289 262
Amortization of goodwill 112 112 37 37
Other operating 3,372 3,040 1,049 1,026
------ ------ ------ ------
Total general, administrative and other expense 15,071 14,791 4,556 4,768
------ ------ ------- -------
Earnings before federal income taxes 8,827 8,612 3,474 3,208
Federal income taxes
Current 2,348 2,731 734 937
Deferred 457 175 388 124
------ ------ ------ ------
Total federal income taxes 2,805 2,906 1,122 1,061
------ ------ ------ ------
NET EARNINGS $ 6,022 $ 5,706 $ 2,352 $ 2,147
====== ====== ====== ======
EARNINGS PER SHARE
Basic $0.87 $0.83 $0.34 $0.31
==== ==== ==== ====
Diluted $0.85 $0.82 $0.33 $0.31
==== ==== ==== ====
4
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine months ended Three months ended
September 30, September 30,
2001 2000 2001 2000
Net earnings $6,022 $5,706 $2,352 $2,147
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the period,
net of related taxes (benefits) of $50, $3, $32 and $(1)
for the nine and three months ended September 30,
2001 and 2000, respectively 97 6 62 (2)
Reclassification adjustment for realized losses included in
net earnings, net of tax benefits of $13 and $14, respectively - 24 - 28
----- ----- ----- -----
Comprehensive income $6,119 $5,736 $2,414 $2,173
===== ===== ===== =====
Accumulated comprehensive income (loss) $ 101 $ (94) $ 101 $ (94)
===== ===== ===== =====
5
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 6,022 $ 5,706
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (739) (273)
Amortization of premiums and discounts on investment
and mortgage-backed securities - net 49 21
Amortization of goodwill 112 112
Amortization of purchase accounting adjustments - net 233 (50)
Depreciation and amortization 1,057 890
Provision for losses on loans 458 431
Gain on sale of real estate acquired through foreclosure (56) (49)
Federal Home Loan Bank stock dividends (1,060) (962)
Gain on sale of loans (1,339) (634)
Gain on sale of premises and equipment (30) (15)
Loss on sale of investment and mortgage-backed securities
designated as available for sale - 37
Loans originated for sale in the secondary market (129,171) (85,862)
Proceeds from sale of loans in the secondary market 127,568 83,755
Increase (decrease) in cash, net of acquisition of Westwood
Homestead Financial Corporation, due to changes in:
Accrued interest receivable 314 (1,106)
Prepaid expenses and other assets (825) (44)
Accrued interest and other liabilities (1,124) 155
Federal income taxes:
Current 1,259 236
Deferred 457 25
------- -------
Net cash provided by operating activities 3,185 2,373
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 17,230 185
Proceeds from sale of mortgage-backed securities designated as available for sale - 5,045
Purchase of investment securities designated as held to maturity (6,995) (750)
Purchase of mortgage-backed securities designated as available for sale - (5,087)
Purchase of mortgage-backed securities designated as held to maturity (5,517) -
Purchase of loans (6,886) (2,426)
Loan disbursements (118,716) (173,699)
Principal repayments on loans 208,801 120,105
Principal repayments on mortgage-backed securities 3,349 1,903
Purchase of office premises and equipment (681) (1,077)
Proceeds from sales of real estate acquired through foreclosure 1,570 1,094
Additions to real estate acquired through foreclosure (87) (63)
Purchase of Federal Home Loan Bank stock (100) (2,077)
Proceeds from redemption of Federal Home Loan Bank stock - 504
Purchase of cash surrender value of life insurance - (80)
Net increase in cash surrender value of life insurance (213) (195)
Purchase of Westwood Homestead Financial Corporation - (1,879)
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Net cash provided by (used in) investing activities 91,755 (58,497)
------- -------
Net cash provided by (used in) operating and investing activities
(subtotal carried forward) 94,940 (56,124)
------- -------
6
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
2001 2000
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $94,940 $(56,124)
Cash flows provided by (used in) financing activities:
Net increase in deposits 16,992 57,872
Proceeds from Federal Home Loan Bank advances 38,250 235,178
Repayment of Federal Home Loan Bank advances (88,827) (227,461)
Dividends paid on common stock (2,514) (2,495)
Proceeds from exercise of stock options 1,201 8
Advances by borrowers for taxes and insurance (1,910) (1,343)
------ -------
Net cash provided by (used in) financing activities (36,808) 61,759
------ -------
Net increase in cash and cash equivalents 58,132 5,635
Cash and cash equivalents at beginning of period 24,069 16,954
------ -------
Cash and cash equivalents at end of period $82,201 $ 22,589
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $35,634 $ 36,943
====== =======
Income taxes $ 2,544 $ 2,452
====== =======
Supplemental disclosure of noncash investing activities:
Transfers of mortgage loans to real estate acquired
through foreclosure $ 2,251 $ 852
====== =======
Unrealized gains on investments and mortgage-backed
securities designated as available for sale $ 97 $ 30
====== =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 140 $ 1,379 $ 939
====== =======
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 $ - $ -
======= =======
7
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 accounting principles generally accepted in
the United States of America. 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, 2000. 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, 2001, 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 merged into the
Corporation 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.
On June 1, 2001, Camco's five wholly-owned community bank subsidiaries,
Cambridge Savings Bank, Marietta Savings Bank, First Federal Savings
Bank of Washington Court House, First Federal Bank for Savings and
Westwood Homestead Savings Bank, merged under the Cambridge Savings
Bank charter. At the effective time of the merger, Cambridge Savings
Bank was re-named Advantage Bank ("Advantage" or the "Bank"). Advantage
is headquartered in Cambridge, Ohio and each of the former banks
operate as separate divisions of Advantage Bank.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Camco and its two wholly-owned subsidiaries: Advantage Bank 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, 2001, is computed based on 6,961,160 and 6,987,461
weighted-average shares outstanding during the respective periods.
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.
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
8
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Earnings Per Share (continued)
per share totaled 7,053,690 and 7,102,921 for the nine and three month
periods ended September 30, 2001, respectively, and 6,951,009 and
6,978,301 for the nine and three month periods ended September 30,
2000, 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, 2001, totaled 92,530 and
115,460, and for the nine and three month periods ended September 30,
2000, totaled 41,477 and 46,403, respectively.
Options to purchase 252,152 and 65,416 shares of common stock with a
respective weighted-average exercise price of $13.11 and $14.84 were
outstanding at September 30, 2001, but were excluded from the
computation of common share equivalents for the nine and three month
periods ended September 30, 2001, because the exercise prices were
greater than the average market price of the common shares.
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.
4. Effects of Recent Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("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.
Management adopted SFAS No. 140 effective April 1, 2001, as required,
without material effect on the Corporation's financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations,"
which requires that all business combinations initiated after June 30,
2001 be accounted for using the purchase method. The
pooling-of-interests method of accounting is prohibited except for
combinations initiated before June 30, 2001. The remaining provisions
of SFAS No. 141 relating to business combinations accounted for by the
purchase method, including identification of intangible assets,
accounting for negative goodwill and financial statement presentation
and disclosure, are effective for combinations completed after June 30,
2001. Management adopted SFAS No. 141 effective July 1, 2001, as
required, without material effect on the Corporation's financial
position or results of operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which prescribes accounting for all purchased goodwill and
intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not
amortized, but is tested for impairment at the reporting unit level
annually and whenever an impairment indicator arises. All goodwill
should be assigned to reporting units that are
9
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
expected to benefit from the goodwill. When an entity reorganizes its
reporting structure, goodwill should be reallocated to reporting units
based on the relative fair values of the units. Goodwill impairment
should be tested with a two-step approach. First, the fair value of the
reporting unit should be compared to its carrying value, including
goodwill. If the reporting unit's carrying value exceeds its fair
value, then any goodwill impairment should be measured as the excess of
the goodwill's carrying value over its implied fair value. The implied
fair value of goodwill should be calculated in the same manner as
goodwill is calculated for a business combination, using the reporting
units' fair value as the "purchase price." Therefore, the goodwill's
implied fair value will be the excess of the "purchase price" over the
amounts allocated to assets, including unrecognized intangible assets,
and liabilities of the reporting unit. Goodwill impairment losses
should be reported in the income statement as a separate line item
within operations, except for such losses included in the calculation
of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized
over its useful economic life. The useful life of an intangible asset
is indefinite if it extends beyond the foreseeable horizon. If an
asset's life is indefinite, the asset should not be amortized until the
life is determined to be finite. Intangible assets being amortized
should be tested for impairment in accordance with SFAS No. 121.
Intangible assets not being amortized should be tested for impairment,
annually and whenever there are indicators of impairment, by comparing
the asset's fair value to its carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Early adoption is permitted for companies with fiscal years
beginning after March 15, 2001, but only if the first quarter financial
statements have not previously been issued. Calendar year end companies
may not adopt early. Until adoption of SFAS No. 142, existing goodwill
continues to be amortized and tested for impairment under previously
existing standards. As of the date SFAS No. 142 is adopted and based on
the company's current reporting structure, reporting units should be
established; net assets should be assigned to reporting units, unless
they do not relate to a reporting unit; and goodwill should be assigned
to one or more reporting units.
Within nine months of adopting SFAS No. 142, a company must have
completed the first step of the goodwill transitional impairment test:
a comparison, as of the beginning of the fiscal year, of each reporting
unit's fair value with its carrying value. If the carrying value
exceeds fair value, the second step - calculating the amount of
goodwill impairment as of the beginning of the fiscal year - would be
required as soon as possible, but no later than the end of the fiscal
year. Any transitional impairment loss would be reported as a change in
accounting principle in the first interim period financial statements
of the implementation year, regardless of when the loss measurement is
completed. After completion of the first step of the transitional test,
a company should disclose which segments might have to recognize an
impairment loss and when the potential loss would be measured.
If an impairment indicator arises before the completion of the
transition testing, a full impairment test would be required as soon as
possible. Any goodwill impairment resulting from this test should be
reported as an impairment loss, not as a change in accounting
principle. The adoption of SFAS No. 142 will result in the elimination
of annual goodwill amortization charges of approximately $150,000.
10
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the nine and three month periods ended September 30, 2001 and 2000
Discussion of Financial Condition Changes from December 31, 2000 to September
30, 2001
At September 30, 2001, Camco's consolidated assets totaled $1.0 billion, a
decrease of $30.7 million, or 3.0%, from the December 31, 2000 total. The
decrease in total assets consisted primarily of decreases in loans receivable
and investment securities, partially offset by an increase in interest-bearing
deposits. The decrease in assets resulted from a $50.5 million decrease in
advances from the Federal Home Loan Bank, which was partially offset by a $17.0
million increase in deposits and a $4.8 million increase in stockholders'
equity.
Cash and interest-bearing deposits in other financial institutions totaled $82.2
million at September 30, 2001, an increase of $58.1 million, or 241.5%, over
December 31, 2000 levels. Investment securities totaled $6.7 million at
September 30, 2001, a decrease of $10.2 million, or 60.3%, from the total at
December 31, 2000. Purchases of investment securities totaled $7.0 million,
while maturities amounted to $17.2 million during the nine-month period ended
September 30, 2001. Proceeds from principal repayments on loans and maturities
of investment securities have contributed to growth in cash and cash equivalents
while management researches viable alternatives for redeployment.
Mortgage-backed securities totaled $17.5 million at September 30, 2001, an
increase of $2.3 million, or 15.4%, over December 31, 2000. Mortgage-backed
securities purchases totaled $5.5 million, while principal repayments totaled
$3.3 million.
Loans receivable, including loans held for sale, decreased by $82.4 million, or
8.9%, during the nine months ended September 30, 2001, to a total of $848.2
million. The decrease resulted primarily from principal repayments of $208.8
million and loan sales of $126.2 million, which were partially offset by loan
disbursements, including purchased loans, which totaled $254.8 million. The
volume of loans originated and purchased during the 2001 nine-month period was
less than that of the 2000 period by $7.2 million, or 2.8%, while the volume of
loan sales increased by $43.1 million year to year.
As interest rates in the economy have declined over the first nine months of
2001, consumer preference has shifted to long-term fixed-rate mortgage loans to
fund home purchases and to refinance current loans. Camco's loan production in
this lower interest rate environment has clearly shifted to fixed-rate mortgage
loans and Camco will continue its asset/liability management strategy of selling
low-yielding, long-term, fixed-rate loans.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$6.8 million and $4.7 million at September 30, 2001 and December 31, 2000,
respectively, constituting .81% and .51% of total net loans, including loans
held for sale, at those dates. At September 30, 2001, nonperforming loans
consisted primarily of one- to four-family residential properties which
management believes are adequately collateralized. The consolidated allowance
for loan losses totaled $3.3 million and $2.9 million at September 30, 2001 and
December 31, 2000, respectively, representing 48.4% and 61.5% of nonperforming
loans, respectively, at those dates. Although management believes that its
allowance for loan losses is adequate based upon the available facts and
circumstances at September 30, 2001, 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.
11
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Discussion of Financial Condition Changes from December 31, 2000 to September
30, 2001 (continued)
Deposits totaled $649.3 million at September 30, 2001, an increase of $17.0
million, or 2.7%, over December 31, 2000 levels. The increase resulted primarily
from management's continuing efforts to achieve growth in deposits through
marketing and pricing strategies. Advances from the Federal Home Loan Bank
("FHLB") decreased by $50.5 million, or 16.1%, to a total of $262.9 million at
September 30, 2001. The proceeds from deposit growth, and a portion of the
excess liquidity resulting from repayments on loans receivable and proceeds from
loan sales, were used to repay FHLB borrowings during the period.
Advantage is required to maintain minimum regulatory capital pursuant to federal
regulations. At September 30, 2001, the Bank's regulatory capital exceeded all
regulatory capital requirements.
Comparison of Results of Operations for the Nine Months Ended September 30, 2001
and 2000
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,
particularly gains on sale of loans. Camco's operations are also influenced by
the level of general, administrative and other expenses, including employee
compensation and benefits, occupancy and equipment and data processing, as well
as various other operating expense categories, including federal income tax
expense.
Camco's net earnings for the nine months ended September 30, 2001 totaled $6.0
million, an increase of $316,000, or 5.5%, over the $5.7 million of net earnings
reported in the comparable 2000 period. Camco's results for the nine months
ended September 30, 2001, included a $1.1 million pre-tax restructuring charge
related to the consolidation of Camco's five bank subsidiaries in June 2001. The
restructuring charge was primarily comprised of one-time compensation charges
and professional fees associated with the consolidation. Camco anticipates that
the approximate pre-tax savings from the restructuring, coupled with other
personnel reductions, may amount to $1.7 million in 2002. Excluding the
restructuring charge, the Corporation's net earnings for the nine months ended
September 30, 2001, would have totaled $6.7 million, representing an increase of
$1.0 million, or 18.1%, over the reported net earnings for the nine months ended
September 30, 2000.
The $316,000 increase in net earnings for the nine months ended September 30,
2001, was primarily attributable to a $630,000 increase in other income and a
$101,000 decrease in the provision for federal income taxes, which were
partially offset by a $280,000 increase in general, administrative and other
expense, a $27,000 increase in the provision for losses on loans and a $108,000
decrease in net interest income.
12
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Comparison of Results of Operations for the Nine Months Ended September 30, 2001
and 2000 (continued)
Net Interest Income
Total interest income for the nine months ended September 30, 2001, amounted to
$56.6 million, an increase of $385,000, or .7%, over the nine-month period ended
September 30, 2000, generally reflecting the growth in average interest-earning
assets outstanding of approximately $29.2 million, or 3.1%.
Interest income on loans and mortgage-backed securities totaled $53.8 million
for the nine months ended September 30, 2001, a decrease of $137,000, or .3%,
from the comparable 2000 period. The decrease resulted primarily from a 6 basis
point decline in average yield, to 7.83% in the 2001 period, which was partially
offset by a $4.8 million, or .5%, increase in the average balance outstanding.
Interest income on investment securities and other interest-earning assets
increased by $522,000, or 23.3%, due primarily to a $24.3 million, or 56.6%,
increase in the average balance outstanding year to year, offset by a 147 basis
point decrease in average yield, to 5.46% in the 2001 period.
Interest expense on deposits increased by $3.1 million, or 14.9%, to a total of
$23.9 million for the nine months ended September 30, 2001, due primarily to a
$66.7 million, or 11.5%, increase in average deposits outstanding year to year,
which was partially offset by a 14 basis point decrease in the average cost of
deposits, to 4.93% for the 2001 period. Interest expense on borrowings totaled
$13.1 million for the nine months ended September 30, 2001, a decrease of $2.6
million, or 16.6%, from the 2000 nine-month period. The decrease resulted
primarily from a $42.1 million, or 12.8%, decrease in the average balance
outstanding year to year, coupled with a 28 basis point decrease in average cost
of borrowings to 6.09% in the 2001 period.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $108,000, or .5%, to a total of $19.5 million
for the nine months ended September 30, 2001. The interest rate spread decreased
to approximately 2.38% at September 30, 2001, from 2.49% at September 30, 2000,
while the net interest margin decreased to approximately 2.65% for the nine
months ended September 30, 2001, compared to 2.74% for the 2000 period.
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 Bank,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market areas
and other factors related to the collectibility of the Bank's loan portfolio.
Management elected to record a provision for losses on loans totaling $458,000
for the nine months ended September 30, 2001, an increase of $27,000, or 6.3%,
over the comparable period in 2000. The current period provision generally
reflects the increase in the level of nonperforming loans during 2001. There can
be no assurance that the allowance for loan losses will be adequate to cover
losses on nonperforming loans in the future.
13
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Comparison of Results of Operations for the Nine Months Ended September 30, 2001
and 2000 (continued)
Other Income
Other income totaled $4.8 million for the nine months ended September 30, 2001,
an increase of $630,000, or 15.0%, over the comparable 2000 period. The increase
in other income was primarily attributable to a $1.1 million, or 72.8%, increase
in gain on sale of loans, an increase of $561,000, or 36.8%, in late charges,
rent and other and a $120,000, or 22.6%, increase in service charges and fees on
deposits, which were substantially offset by a decrease of $1.3 million in loan
servicing fees. The increase in gain on sale of loans was due to the 51.9%
increase in sales volume, as a result of the demand for fixed-rate loans in the
declining interest rate environment. The increase in late charges, rent and
other was due primarily to an increase in income at Camco's title insurance
agency subsidiary, as well as increases in insurance and other transaction fees
year to year. The decrease in loan servicing fees was primarily due to a $1.4
million charge related to the mortgage servicing rights asset, based upon the
Corporation's ongoing fair value analysis of the mortgage servicing rights
asset.
General, Administrative and Other Expense
General, administrative and other expense totaled $15.1 million for the nine
months ended September 30, 2001, an increase of $280,000, or 1.9%, over the
comparable period in 2000. Exclusive of a $1.1 million restructuring charge,
general, administrative and other expense would have totaled $14.0 million, a
decrease of $808,000, or 5.5%, for the nine months ended September 30, 2001,
compared to the nine months ended September 30, 2000. Exclusive of the
restructuring charge, employee compensation and benefits decreased by $1.0
million, or 15.2%, and advertising decreased by $22,000, or 3.9%, which were
partially offset by an increase in occupancy and equipment of $95,000, or 4.2%,
an increase in data processing of $60,000, or 6.0%, and an increase in other
operating expenses of $64,000, or 2.1%. The decrease in employee compensation
and benefits was primarily attributable to a decrease in staffing levels due to
employee retirements, attrition, and the closing of unprofitable loan production
offices. The increase in occupancy and equipment expense was due to an increase
in depreciation expense period to period. Data processing expense increased over
the comparable 2000 period due to costs relating to implementation of an
internal wide area network and continued growth.
Federal Income Taxes
The provision for federal income taxes totaled $2.8 million for the nine months
ended September 30, 2001, a decrease of $101,000, or 3.5%, from the nine months
ended September 30, 2000. The Corporation's effective tax rate amounted to 31.8%
and 33.7% for the nine-month periods ended September 30, 2001 and 2000,
respectively. The decrease in the provision for federal income taxes was
primarily attributable to refunds claimed for prior years' tax liabilities.
14
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended September 30,
2001 and 2000
General
Camco's net earnings for the three months ended September 30, 2001 totaled $2.4
million, an increase of $205,000, or 9.5%, over the $2.1 million of net earnings
reported in the comparable 2000 period. The increase in earnings was primarily
attributable to an increase in other income of $147,000 and a decrease in
general, administrative and other expense of $212,000, which were partially
offset by a decrease in net interest income of $79,000 and increases in the
provision for loan losses of $14,000 and federal income tax expense of $61,000.
Net Interest Income
Total interest income for the three months ended September 30, 2001, amounted to
$18.1 million, a decrease of $1.5 million, or 7.5%, compared to the three-month
period ended September 30, 2000, generally reflecting the effects of the
decrease in average interest-earning assets of approximately $24.8 million, or
2.5%.
Interest income on loans and mortgage-backed securities totaled $17.1 million
for the three months ended September 30, 2001, a decrease of $1.6 million, or
8.7%, from the comparable 2000 period. The decrease resulted primarily from a
$61.5 million, or 6.5%, decrease in the average balance outstanding year to
year. Interest income on investment securities and other interest-earning assets
increased by $168,000, or 21.2%, due primarily to a $36.7 million, or 80.0%,
increase in the average balance outstanding year to year, partially offset by a
decrease in the yield of 48 basis points, from 5.13% to 4.65% for the
three-month periods ended September 30, 2001 and 2000, respectively.
Interest expense on deposits increased by $113,000, or 1.5%, to a total of $7.7
million for the three months ended September 30, 2001, due primarily to a $50.2
million, or 8.3%, increase in average deposits outstanding, partially offset by
a 32 basis point decrease in the average cost of deposits, to 4.71% in the
current quarter. Interest expense on borrowings totaled $4.1 million for the
three months ended September 30, 2001, a decrease of $1.5 million, or 26.8%,
from the 2000 three-month period. The decrease resulted primarily from a $76.3
million, or 22.3%, decrease in the average balance outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $79,000, or 1.2%, to a total of $6.3 million
for the three months ended September 30, 2001. The interest rate spread
increased to approximately 2.33% at September 30, 2001, from 2.29% at September
30, 2000, while the net interest margin increased to approximately 2.58% for the
three months ended September 30, 2001, compared to 2.55% for the 2000 period.
15
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended September 30,
2001 and 2000 (continued)
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Bank, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions relate to
the Bank's market areas and other factors related to the collectibility of the
Bank's loan portfolio, management elected to record a provision for losses on
loans totaling $152,000 for the three months ended September 30, 2001, an
increase of $14,000, or 10.1%, over the comparable period in 2000. The current
period provision was predicated primarily on the 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 $1.9 million for the three months ended September 30, 2001,
an increase of $147,000, or 8.3%, over the comparable 2000 period. The increase
in other income was primarily attributable to a $216,000, or 22.8%, increase in
gain on sale of loans, an increase of $212,000, or 40.2%, in late charges, rent
and other and a $39,000, or 20.7%, increase in service charges and fees on
deposits, which were partially offset by a decrease of $385,000 in loan
servicing fees. The increase in gain on sale of loans was due to the increase in
sales volume, as a result of the demand for fixed-rate loans in the declining
interest rate environment. The increase in late charges, rent and other was due
primarily to an increase in fees from Camco's title agency subsidiary, as well
as increases in insurance fees and other fees on loans and deposits
transactions. The decrease in loan servicing fees was primarily due to a
$590,000 charge related to the mortgage servicing rights asset. This charge was
based upon the Corporation's ongoing fair value analysis of the mortgage
servicing rights asset.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.6 million for the three
months ended September 30, 2001, a decrease of $212,000, or 4.4%, from the
comparable period in 2000. Employee compensation and benefits decreased by
$279,000, or 12.8%, partially offset by an increase of $19,000, or 2.5%, in
occupancy and equipment and a $27,000, or 10.3%, increase in franchise taxes.
The decrease in employee compensation and benefits was primarily attributable to
a decrease in staffing levels due to employee retirements and attrition. The
increase in occupancy expense was due to an increase in depreciation expense
period-to-period.
16
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended September 30,
2001 and 2000 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $1.1 million for the three months
ended September 30, 2001, an increase of $61,000, or 5.7%, compared to the three
months ended September 30, 2000. This increase was primarily attributable to a
$266,000, or 8.3%, increase in pre-tax earnings, which was partially offset by
refunds claimed of prior years' tax liabilities. The Corporation's effective tax
rate amounted to 32.3% and 33.1% for the three-month periods ended September 30,
2001 and 2000, 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, 2000.
Business Combination
In June 2001, Camco and Columbia Financial of Kentucky, Inc. ("Columbia
Financial") announced the signing of a definitive agreement for Camco to acquire
Columbia Financial. Columbia Financial's community bank subsidiary, Columbia
Federal Savings Bank, will merge into Camco's Advantage Bank subsidiary and
operate as a division of the Bank under the name Columbia Savings Bank.
The agreement provides for Columbia Financial shareholders to receive .3681
share of Camco common stock and $6.90 cash for each Columbia Financial share,
subject to various closing conditions. The initial transaction value was
approximately $30.2 million on a fully-diluted basis.
The merger, which will be accounted for as a purchase, is expected to be
consummated in November 2001.
At March 31, 2001, Columbia Financial reported assets of $108.4 million,
deposits of $78.5 million and tangible equity of $29.1 million. Columbia
Financial is headquartered in Fort Mitchell, Kentucky and Columbia Federal
Savings Bank has community banking offices in Fort Mitchell, Covington, Crescent
Springs, Erlanger and Florence, Kentucky.
17
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
(b) Reports on Form 8-K: None.
18
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, 2001 By: /s/Richard C. Baylor
--------------------------- --------------------------
Richard C. Baylor
Chief Executive Officer
Date: November 14, 2001 By: /s/Kristina K. Tipton
--------------------------- --------------------------
Kristina K. Tipton
Controller
19