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, 2002
---------------------------------------------
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 Identification Number)
incorporation or organization)
6901 Glenn Highway, Cambridge, Ohio 43725-9757
-----------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
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 May 8, 2002, the latest practicable date, 7,979,234.5 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 16
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 14
PART II - OTHER INFORMATION 15
SIGNATURES 16
2
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 2002 2001
Cash and due from banks $ 15,159 $ 15,665
Interest-bearing deposits in other financial institutions 62,738 89,299
--------- ---------
Cash and cash equivalents 77,897 104,964
Investment securities available for sale - at market 360 305
Investment securities held to maturity - at cost, approximate market value of
$13,722 and $19,083 as of March 31, 2002 and December 31, 2001, respectively 13,618 18,872
Mortgage-backed securities available for sale - at market 36,560 6,975
Mortgage-backed securities held to maturity - at cost, approximate market value of
$29,121 and $30,744 as of March 31, 2002 and December 31, 2001, respectively 28,670 30,765
Loans held for sale - at lower of cost or market 17,939 21,445
Loans receivable - net 803,956 850,001
Office premises and equipment - net 14,486 14,849
Real estate acquired through foreclosure 1,850 2,151
Federal Home Loan Bank stock - at cost 22,730 22,481
Accrued interest receivable 5,429 5,769
Prepaid expenses and other assets 2,542 4,779
Cash surrender value of life insurance 15,944 15,751
Goodwill and other intangible assets 2,953 2,953
Prepaid federal income taxes - 592
--------- ---------
Total assets $1,044,934 $1,102,652
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 697,568 $ 730,075
Advances from the Federal Home Loan Bank 239,755 258,850
Advances by borrowers for taxes and insurance 2,418 3,860
Accounts payable and accrued liabilities 4,663 10,975
Dividends payable 996 962
Accrued federal income taxes 840 -
Deferred federal income taxes 2,398 2,759
--------- ---------
Total liabilities 948,638 1,007,481
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares, 8,142,740 and
8,137,039 shares issued at March 31, 2002 and December 31, 2001, respectively 8,143 8,137
Additional paid-in capital 52,201 51,722
Retained earnings - substantially restricted 38,000 36,621
Accumulated comprehensive income, unrealized gains on securities designated
as available for sale, net of related tax effects 7 107
Less 176,285 and 126,019 shares of treasury stock at March 31, 2002 and
December 31, 2001, respectively - at cost (2,055) (1,416)
--------- ---------
Total stockholders' equity 96,296 95,171
--------- ---------
Total liabilities and stockholders' equity $1,044,934 $1,102,652
========= =========
3
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except per share data)
2002 2001
Interest income
Loans $15,344 $18,416
Mortgage-backed securities 569 255
Investment securities 218 242
Interest-bearing deposits and other 748 527
------ ------
Total interest income 16,879 19,440
Interest expense
Deposits 6,537 8,072
Borrowings 3,729 4,676
------ ------
Total interest expense 10,266 12,748
------ ------
Net interest income 6,613 6,692
Provision for losses on loans 207 156
------ ------
Net interest income after provision for losses on loans 6,406 6,536
Other income
Late charges, rent and other 694 578
Loan servicing fees (costs) 229 (20)
Service charges and other fees on deposits 208 213
Gain on sale of loans 1,064 625
Gain on sale of real estate acquired through foreclosure 58 11
------ ------
Total other income 2,253 1,407
General, administrative and other expense
Employee compensation and benefits 2,601 2,122
Occupancy and equipment 812 779
Federal deposit insurance premiums 33 30
Data processing 319 350
Advertising 185 174
Franchise taxes (refunds) (23) 278
Amortization of goodwill - 37
Other operating 1,212 947
------ ------
Total general, administrative and other expense 5,139 4,717
------ ------
Earnings before federal income taxes 3,520 3,226
Federal income taxes
Current 1,446 1,081
Deferred (301) 9
------ ------
Total federal income taxes 1,145 1,090
------ ------
NET EARNINGS $ 2,375 $ 2,136
====== ======
EARNINGS PER SHARE
Basic $.30 $.31
=== ===
Diluted $.29 $.30
=== ===
Dividends declared per share $.125 $.120
==== ====
4
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
(In thousands)
2002 2001
Net earnings $2,375 $2,136
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) during the period, net of taxes
(benefits)of $(52) and $6 in 2002 and 2001, respectively (100) 11
----- -----
Comprehensive income $2,275 $2,147
===== =====
Accumulated comprehensive income $ 7 $ 15
===== =====
5
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 2,375 $ 2,136
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (174) (373)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net (28) 12
Amortization of goodwill - 37
Depreciation and amortization 382 391
Amortization of purchase accounting adjustments, net 77 155
Provision for losses on loans 207 156
Gain on sale of real estate acquired through foreclosure (58) (11)
Federal Home Loan Bank stock dividends (249) (347)
Gain on sale of loans (440) (300)
Loans originated for sale in the secondary market (48,985) (25,291)
Proceeds from sale of loans in the secondary market 52,931 22,368
Increase (decrease) in cash due to changes in:
Accrued interest receivable 340 79
Prepaid expenses and other assets 2,237 5
Accrued interest and other liabilities (6,486) (22)
Federal income taxes
Current 1,432 362
Deferred (301) 9
------ ------
Net cash provided by (used in) operating activities 3,260 (634)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 5,255 10,300
Principal repayments on mortgage-backed securities 2,872 631
Purchases of mortgage-backed securities designated as available for sale (30,510) -
Purchases of investment securities (40) (2,995)
Loan principal repayments 92,916 53,742
Loan disbursements (47,362) (39,429)
Purchases of loans - (1,167)
Additions to office premises and equipment (19) (49)
Additions to real estate acquired through foreclosure (17) (81)
Proceeds from sale of real estate acquired through foreclosure 791 517
Purchase of Federal Home Loan Bank stock - (100)
Net increase in cash surrender value of life insurance (193) (70)
------ ------
Net cash provided by investing activities 23,693 21,299
------ ------
Net cash provided by operating and investing
activities (balance carried forward) 26,953 20,665
------ ------
6
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
2002 2001
Net cash provided by operating and investing
activities (balance brought forward) $ 26,953 $20,665
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits (32,507) 17,093
Proceeds from Federal Home Loan Bank advances - 22,750
Repayment of Federal Home Loan Bank advances (19,129) (45,348)
Dividends paid on common stock (996) (835)
Proceeds from exercise of stock options 53 188
Decrease in advances by borrowers for taxes and insurance (1,441) (1,662)
------- ------
Net cash used in financing activities (54,020) (7,814)
------- ------
Increase (decrease) in cash and cash equivalents (27,067) 12,851
Cash and cash equivalents at beginning of period 104,964 24,069
------- ------
Cash and cash equivalents at end of period $ 77,897 $36,920
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 10,195 $12,860
======= ======
Income taxes $ 400 $ 511
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (100) $ 11
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 624 $ 325
======= ======
Transfers from mortgage loans to real estate acquired through foreclosure $ 415 $ 666
======= ======
Supplemental disclosure of noncash financing activities:
Treasury shares received from settlement of Columbia Financial's
Employee Stock Ownership Plan $ 639 $ -
======= ======
7
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended March 31, 2002 and 2001
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, 2001. 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, 2002, are not necessarily indicative of
the results which may be expected for the entire year.
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
operates as a separate division of Advantage Bank.
In November 2001, the Corporation acquired Columbia Financial of
Kentucky, Inc. ("Columbia Financial") utilizing the purchase method of
accounting (the "Merger"). Columbia Financial was merged into the
Corporation upon consummation of the Merger and Columbia Financial's
banking subsidiary, Columbia Federal Savings Bank, merged into
AdvantageBank and operates as a division of Advantage. Hereinafter, the
terms "Advantage" or the "Bank" are used to describe all the
pre-existing individual financial institutions owned by the
Corporation.
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 common share is computed based upon the
weighted-average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of
additional potential common shares issuable under the Corporation's
stock option plans. The computations are as follows:
8
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended March 31, 2002 and 2001
3. Earnings Per Share (continued)
For the three months ended
March 31,
2002 2001
Weighted-average common shares
outstanding (basic) 7,966,767 6,942,012
Dilutive effect of assumed exercise
of stock options 115,828 75,888
--------- ---------
Weighted-average common shares
outstanding (diluted) 8,082,595 7,017,900
========= =========
Options to purchase 68,416 and 322,152 shares of common stock with
respective weighted-average exercise prices of $14.76 and $12.97 were
outstanding at March 31, 2002 and 2001, respectively, but were excluded
from the computation of common share equivalents because the exercise
prices were greater than the average market price of the common shares.
4. Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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
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.
9
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended March 31, 2002 and 2001
4. Effects of Recent Accounting Pronouncements (continued)
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Prior to adoption of SFAS No. 142, existing goodwill continued
to be amortized and tested for impairment under previously existing
standards. Upon adoption of SFAS No. 142, Camco designated the Ashland
division as a reporting unit. All of Camco's goodwill relates to the
Ashland division.
Pursuant to SFAS No. 142, within nine months of adoption Camco must
have completed the first step of the goodwill transitional impairment
test: a comparison, as of the beginning of the year, of Ashland'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 year - would be required as soon as
possible, but no later than the end of the 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, Camco must
disclose whether it 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 identified by this test would be
reported as an impairment loss, not as a change in accounting
principle. Management adopted SFAS No. 142 effective January 1, 2002,
as required. The adoption of SFAS No. 142 will result in the
elimination of annual goodwill amortization charges of approximately
$150,000. Camco recorded goodwill amortization totaling $37,000 for the
three-month period ended March 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries over
the recognition and measurement provisions in SFAS No. 121.
Accordingly, an entity must recognize an impairment loss if the
carrying value of a long-lived asset or asset group (a) is not
recoverable and (b) exceeds its fair value. Similar to SFAS No. 121,
SFAS No. 144 requires an entity to test an asset or asset group for
impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. SFAS No. 144 differs from
SFAS No. 121 in that it provides guidance on estimating future cash
flows to test recoverability. An entity may use either a
probability-weighted approach or best-estimate approach in developing
estimates of cash flow to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
Management adopted SFAS No. 144 effective January 1, 2002, without
material effect on the Corporation's financial condition or results of
operations.
10
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three-month periods ended March 31, 2002 and 2001
Discussion of Financial Condition Changes from December 31, 2001 to March 31,
2002
At March 31, 2002, Camco's consolidated assets totaled $1.0 billion, a decrease
of $57.7 million, or 5.2%, from the December 31, 2001 total. This decrease
consisted primarily of decreases in loans receivable and loans held for sale due
to high levels of refinance activity. This decrease was accompanied by a
corresponding decrease in deposits and Federal Home Loan Bank advances. Excess
cash was used to increase our mortgage-backed securities portfolio.
Cash and interest-bearing deposits in other financial institutions totaled $77.9
million at March 31, 2002, a decrease of $27.1 million, or 25.8%, from December
31, 2001 levels. Investment securities totaled $14.0 million at March 31, 2002,
a decrease of $5.2 million, or 27.1%, from the total at December 31, 2001, due
primarily to maturities.
Mortgage-backed securities totaled $65.2 million at March 31, 2002, an increase
of $27.5 million, or 72.8%, over December 31, 2001. Mortgage-backed securities
purchases totaled $30.5 million, while principal repayments totaled $2.9 million
during the three-month period ended March 31, 2002. Purchases of mortgage-backed
securities during the period were comprised of fixed-rate, intermediate term
U.S. Government agency securities yielding 5.41%, which were classified as
available for sale.
Loans receivable, including loans held for sale, totaled $821.9 million at March
31, 2002, a decrease of $49.6 million, or 5.7%, from December 31, 2001. The
decrease resulted primarily from principal repayments of $92.9 million and loan
sales of $52.5 million, which were partially offset by loan disbursements, which
totaled $96.3 million. The volume of loans originated and purchased during the
2002 three-month period was greater than that of the comparable 2001 period by
$30.5 million, or 46.2%, while the volume of loan sales increased by $30.4
million year to year. As interest rates in the economy have remained low,
consumer preference continues to favor long-term fixed-rate mortgage loans to
fund home purchases and to refinance current loans. Camco will continue its
interest-rate risk management strategy of selling low-yielding, long-term,
fixed-rate loans. Loan originations for portfolio during the three month period
ended March 31, 2002, were comprised primarily of $20.4 million of loans secured
by one- to four-family residential real estate, $21.5 million in consumer and
other loans and $3.2 million in loans secured by commercial real estate.
Management intends to expand its commercial real estate lending in future
periods as a means of increasing the yield on its loan portfolio.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$10.6 million and $7.9 million at March 31, 2002 and December 31, 2001,
respectively, constituting 1.29% and .90% of total net loans, including loans
held for sale, at those dates. At March 31, 2002, nonperforming loans were
comprised of $8.6 million in loans secured by one- to four-family residential
real estate, $611,000 in loans secured by multi-family residential real estate
and $1.4 million in loans secured by commercial real estate. Management believes
all nonperforming loans are adequately collateralized and no net loss is
expected on such loans. Loans delinquent greater than 30 days but less than 90
days totaled $9.2 million at March 31, 2002, compared to $14.2 million at
December 31, 2001, a decrease of $5.0 million, or 35.1%. The allowance for loan
losses totaled $4.4 million and $4.3 million at March 31, 2002 and December 31,
2001, respectively, representing 41.7% and 54.0% 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
March 31, 2002, 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 three-month periods ended March 31, 2002 and 2001
Discussion of Financial Condition Changes from December 31, 2001 to March 31,
2002 (continued)
Deposits totaled $697.6 million at March 31, 2002, a decrease of $32.5 million,
or 4.5%, from the total at December 31, 2001. The decrease resulted primarily
from management's decision not to bid on public deposits which matured during
the quarter, due to the current low interest rate environment. While management
has generally pursued a strategy of moderate growth in the deposit portfolio,
Advantage has not historically engaged in sporadic increases or decreases in
interest rates offered, nor has it offered the highest interest rates available
in its market areas. Advances from the Federal Home Loan Bank ("FHLB") decreased
by $19.1 million, or 7.4%, to a total of $239.8 million at March 31, 2002. Some
of the excess liquidity resulting from repayments on loans receivable and
proceeds from loan sales were used to repay FHLB borrowings during the period.
Stockholders' equity totaled $96.3 million at March 31, 2002, a $1.1 million, or
1.2%, increase over December 31, 2001. The increase resulted from net earnings
of $2.4 million and proceeds from exercise of stock options of $53,000, which
were partially offset by dividends of $996,000 and an increase in treasury
shares totaling $639,000. The increase in treasury shares represented the
receipt of shares in settlement of the employee stock ownership plan from the
Columbia Financial acquisition. Advantage is required to maintain minimum
regulatory capital pursuant to federal regulations. At March 31, 2002, the
Bank's regulatory capital exceeded all regulatory capital requirements.
Comparison of Results of Operations for the Three Months Ended March 31, 2002
and 2001
General
The acquisition of Columbia Financial, which was completed in November 2001 in a
transaction accounted for using the purchase method, provided increases in the
level of income and expenses during the period ended March 31, 2002, compared to
2001.
Camco's net earnings for the three months ended March 31, 2002 totaled $2.4
million, an increase of $239,000, or 11.2%, over the $2.1 million of net
earnings reported in the comparable 2001 period. The increase in earnings was
primarily attributable to an increase in other income of $846,000, which was
partially offset by an increase in general, administrative and other expense of
$422,000, an increase in the provision for losses on loans of $51,000, an
increase in federal income tax expense of $55,000, and a decrease in net
interest income of $79,000.
Net Interest Income
Total interest income for the three months ended March 31, 2002, amounted to
$16.9 million, a decrease of $2.6 million, or 13.2%, compared to the three-month
period ended March 31, 2001, generally reflecting the effects of a decrease in
yield on total interest-earning assets of 123 basis points, from 7.85% in the
2001 period to 6.62% in the 2002 period, which was partially offset by a $29.8
million, or 3.0%, increase in the average balance outstanding year to year.
12
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three-month periods ended March 31, 2002 and 2001
Comparison of Results of Operations for the Three Months Ended March 31, 2002
and 2001 (continued)
Net Interest Income (continued)
Interest income on loans totaled $15.3 million for the three months ended March
31, 2002, a decrease of $3.1 million, or 16.7%, from the comparable 2001 period.
The decrease resulted primarily from an $81.6 million, or 8.8%, decrease in the
average balance outstanding and a 68 basis point decrease in the average yield,
to 7.25% in the 2002 period. Interest income on mortgage-backed securities
totaled $569,000 for the three months ended March 31, 2002, a $314,000, or
123.1%, increase over the 2001 quarter. The increase was due primarily to a
$33.6 million, or 226.6%, increase in the average balance outstanding, which was
partially offset by a 218 basis point decrease in the average yield to 4.70% in
the 2002 period. Interest income on investment securities decreased by $24,000,
or 9.9%, due primarily to a 179 basis point decline in the average yield to
5.16% in the 2002 period, which was partially offset by a $3.0 million increase
in the average balance outstanding year to year. Interest income on other
interest-earning assets increased by $221,000, or 41.9%, due primarily to a
$74.8 million, or 224.6%, increase in the average balance outstanding year to
year, partially offset by a decrease in the yield of 356 basis points, to 2.77%
from 6.33% for the three-month periods ended March 31, 2002 and 2001,
respectively.
Interest expense on deposits decreased by $1.5 million, or 19.0%, to a total of
$6.5 million for the three months ended March 31, 2002, due primarily to a 141
basis point decrease in the average cost of deposits, to 3.69% in the current
quarter, which was partially offset by a $76.7 million, or 12.1%, increase in
average deposits outstanding. Interest expense on borrowings totaled $3.7
million for the three months ended March 31, 2002, a decrease of $947,000, or
20.3%, from the 2001 three-month period. The decrease resulted primarily from a
$60.0 million, or 19.6%, decrease in the average balance outstanding year to
year. Decreases in the level of average yields on interest-earning assets and
average cost of interest-bearing liabilities were due primarily to the overall
decrease in interest rates in the economy during 2001.
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 $6.6 million
for the three months ended March 31, 2002. The interest rate spread decreased to
approximately 2.32% at March 31, 2002, from 2.42% at March 31, 2001, while the
net interest margin decreased to approximately 2.59% for the three months ended
March 31, 2002, compared to 2.70% for the 2001 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.
Based on an analysis of these factors, management elected to record a provision
for losses on loans totaling $207,000 for the three months ended March 31, 2002,
an increase of $51,000, or 32.7%, over the comparable period in 2001. 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.
13
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three-month periods ended March 31, 2002 and 2001
Comparison of Results of Operations for the Three Months Ended March 31, 2002
and 2001 (continued)
Other Income
Other income totaled $2.3 million for the three months ended March 31, 2002, an
increase of $846,000, or 60.1%, over the comparable 2001 period. The increase in
other income was primarily attributable to a $249,000 increase in loan servicing
fees, a $439,000, or 70.2%, increase in gain on sale of loans and a $116,000, or
20.1%, increase in late charges, rent and other. 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 low 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 deposit transactions. The increase in loan servicing fees was due
primarily to increased sales and a partial recovery of an impairment charge on
mortgage servicing rights 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 $5.1 million for the three
months ended March 31, 2002, an increase of $422,000, or 8.9%, over the
comparable period in 2001. The acquisition of Columbia Financial in November
2001 resulted in a $578,000 increase in general, administrative and other
expense during the 2002 quarter, as compared to the 2001 quarter. Excluding the
operating costs of the Columbia division, general, administrative and other
expense declined year to year by $156,000, or 3.3%. The overall increase in
general, administrative and other expense was due to an increase of $479,000, or
22.6%, in employee compensation and benefits and an increase of $265,000, or
28.0%, in other operating costs, which were partially offset by a $301,000, or
108.3%, decrease in state franchise taxes and a $37,000 decrease in goodwill
amortization. The increase in employee compensation and benefits was comprised
of $328,000 in expense from the Columbia division and the remaining $151,000, or
7.1%, increase resulted primarily from an increase in management staffing levels
and normal merit compensation increases. Camco increased its management staffing
complement year to year as it continues to implement its corporate strategy
following the 2001 restructuring plan. The increase in other operating expense
was due primarily to costs related to greater loan volume year to year. The
decrease in franchise tax expense reflects the effects of refund claims on prior
year tax filings. The decrease in goodwill amortization was due to the adoption
of SFAS No. 142, a new accounting standard which eliminates goodwill
amortization.
Federal Income Taxes
The provision for federal income taxes totaled $1.1 million for the three months
ended March 31, 2002, an increase of $55,000, or 5.0%, compared to the three
months ended March 31, 2001. This increase was primarily attributable to a
$294,000, or 9.1%, increase in pre-tax earnings. The Corporation's effective tax
rate amounted to 32.5% and 33.8% for the three-month periods ended March 31,
2002 and 2001, 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, 2001.
14
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: None
(b) Reports on Form 8-K: None.
15
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, 2002 By: /s/Richard C. Baylor
------------------------ --------------------------------
Richard C. Baylor
Chief Executive Officer
Date: May 14, 2002 By: /s/Mark A. Severson
------------------------ --------------------------------
Mark A. Severson
Chief Financial Officer
16