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 June 30, 2003
-----------------------------------------------
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
--------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6901 Glenn Highway, Cambridge, Ohio 43725-9757
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (740) 435-2020
Indicate by check mark whether the registrant (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 [ ]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of August 8, 2003, the latest practicable date, 7,475,224 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 22
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 14
Quantitative and Qualitative Disclosures about
Market Risk 20
Controls and Procedures 20
PART II - OTHER INFORMATION 21
SIGNATURES 22
Page 2 of 22
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
JUNE 30, DECEMBER 31,
ASSETS 2003 2002
Cash and due from banks $ 32,302 $ 20,215
Interest-bearing deposits in other financial institutions 23,586 36,807
----------- -----------
Cash and cash equivalents 55,888 57,022
Investment securities available for sale - at market 39,717 38,789
Investment securities held to maturity - at cost, approximate market
value of $3,268 and $5,501 as of June 30, 2003 and December 31,
2002, respectively 3,132 5,368
Mortgage-backed securities available for sale - at market 128,580 97,332
Mortgage-backed securities held to maturity - at cost, approximate market
value of $12,459 and $20,634 as of June 30, 2003 and December 31,
2002, respectively 12,204 20,000
Loans held for sale - at lower of cost or market 14,385 55,493
Loans receivable - net 747,290 741,465
Office premises and equipment - net 14,008 14,492
Real estate acquired through foreclosure 1,461 1,589
Federal Home Loan Bank stock - at cost 24,008 23,539
Accrued interest receivable 4,669 4,922
Prepaid expenses and other assets 1,683 2,130
Cash surrender value of life insurance 17,353 17,372
Goodwill - net of accumulated amortization 2,953 2,953
Prepaid federal income taxes -- 774
----------- -----------
Total assets $ 1,067,331 $ 1,083,240
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 685,183 $ 694,072
Advances from the Federal Home Loan Bank 273,800 276,276
Advances by borrowers for taxes and insurance 2,189 3,509
Accounts payable and accrued liabilities 4,265 4,298
Dividends payable 1,054 1,046
Accrued federal income taxes 72 --
Deferred federal income taxes 4,254 5,438
----------- -----------
Total liabilities 970,817 984,639
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding -- --
Common stock - $1 par value; authorized 14,900,000 shares; 8,390,109 and
8,311,145 shares issued at June 30, 2003 and December 31, 2002, respectively 8,390 8,311
Additional paid-in capital 54,749 54,063
Retained earnings - substantially restricted 45,073 42,497
Accumulated other comprehensive income - unrealized gains on securities
designated as available for sale, net of related tax effects 1,528 2,098
Less 914,885 and 622,260 shares of treasury stock at June 30, 2003 and
December 31, 2002, respectively - at cost (13,226) (8,368)
----------- -----------
Total stockholders' equity 96,514 98,601
----------- -----------
Total liabilities and stockholders' equity $ 1,067,331 $ 1,083,240
=========== ===========
Page 3 of 22
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
Interest income
Loans $24,702 $30,179 $11,979 $14,835
Mortgage-backed securities 2,039 1,806 991 1,237
Investment securities 711 491 367 273
Interest-bearing deposits and other 1,159 1,452 581 704
------- ------- ------- -------
Total interest income 28,611 33,928 13,918 17,049
Interest expense
Deposits 8,633 12,464 4,150 5,927
Borrowings 7,667 7,527 3,823 3,798
------- ------- ------- -------
Total interest expense 16,300 19,991 7,973 9,725
------- ------- ------- -------
Net interest income 12,311 13,937 5,945 7,324
Provision for losses on loans 675 414 255 207
------- ------- ------- -------
Net interest income after provision
for losses on loans 11,636 13,523 5,690 7,117
Other income
Late charges, rent and other 1,998 1,467 1,150 773
Loan servicing fees 813 756 412 382
Service charges and other fees on deposits 569 442 303 234
Valuation of mortgage servicing rights - net 590 740 90 261
Gain on sale of loans 2,710 820 1,271 380
Gain (loss) on sale of real estate acquired through foreclosure (62) 105 (63) 47
Gain on investment securities transactions 185 27 185 27
------- ------- ------- -------
Total other income 6,803 4,357 3,348 2,104
General, administrative and other expense
Employee compensation and benefits 5,717 5,151 2,799 2,454
Occupancy and equipment 1,856 1,698 916 886
Data processing 675 559 372 240
Advertising 364 482 187 297
Franchise taxes 597 286 321 309
Other operating 2,430 2,648 1,265 1,403
Restructuring charges (credits) - (112) - (16)
------- ------- ------- -------
Total general, administrative and other expense 11,639 10,712 5,860 5,573
------- ------- ------- -------
Earnings before federal income taxes 6,800 7,168 3,178 3,648
Federal income taxes
Current 2,876 2,765 1,965 1,319
Deferred (758) (442) (1,015) (141)
------- ------- ------- -------
Total federal income taxes 2,118 2,323 950 1,178
------- ------- ------- -------
NET EARNINGS $ 4,682 $ 4,845 $ 2,228 $ 2,470
======= ======= ======= =======
EARNINGS PER SHARE
Basic $.62 $.61 $.30 $.31
======= ======= ======= =======
Diluted $.61 $.60 $.29 $.31
======= ======= ======= =======
Page 4 of 22
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
Net earnings $ 4,682 $ 4,845 $ 2,228 $ 2,470
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) during the period,
net of taxes (benefits) of $(231), $428, $(29) and $480
for the respective periods (448) 831 (56) 931
Reclassification adjustment for realized gains included
in earnings, net of taxes of $63 and $9 for each of the six
and three month periods ended June 30, 2003 and 2002,
respectively (122) (18) (122) (18)
------- ------- ------- -------
Comprehensive income $ 4,112 $ 5,658 $ 2,050 $ 3,383
======= ======= ======= =======
Accumulated comprehensive income $ 1,528 $ 920 $ 1,528 $ 920
======= ======= ======= =======
Page 5 of 22
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
2003 2002
Cash flows from operating activities:
Net earnings for the period $ 4,682 $ 4,845
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (243) (270)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 1,128 30
Amortization of purchase accounting adjustments - net 47 137
Depreciation and amortization 883 652
Provision for losses on loans 675 414
Federal Home Loan Bank stock dividends (469) (519)
(Gain) loss on sale of real estate acquired through foreclosure 62 (105)
Gain on investment securities transactions (185) (27)
Gain on sale of loans (2,710) (820)
Loans originated for sale in the secondary market (163,855) (97,869)
Proceeds from sale of loans in the secondary market 207,673 87,397
Increase (decrease) in cash due to changes in:
Accrued interest receivable 253 238
Prepaid expenses and other assets 447 2,092
Accrued interest and other liabilities (25) (5,278)
Federal income taxes:
Current 846 937
Deferred (758) (442)
--------- ---------
Net cash provided by (used in) operating activities 48,451 (8,588)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities and interest-bearing deposits 11,000 9,769
Proceeds from disposition of investment securities -- 44
Proceeds from sale of mortgage-backed securities designated as available for sale 6,990 --
Purchase of investment securities designated as held to maturity -- (1,048)
Purchase of investment securities designated as available for sale (10,300) (20,607)
Purchase of mortgage-backed securities designated as held to maturity (256) (2,065)
Purchase of mortgage-backed securities designated as available for sale (78,600) (87,558)
Principal repayments on mortgage-backed securities 47,202 7,335
Loan principal repayments 170,930 184,753
Loan disbursements (172,321) (100,582)
Purchase of loans (6,212) (2,125)
Additions to office premises and equipment (399) (667)
Additions to real estate acquired through foreclosure -- (18)
Proceeds from sale of real estate acquired through foreclosure 1,394 1,599
Proceeds from sale of office premises and equipment 5 --
Proceeds from redemption of life insurance 422 --
Net increase in cash surrender value of life insurance (403) (399)
--------- ---------
Net cash used in investing activities (30,548) (11,569)
--------- ---------
Net cash provided by (used in) operating and investing activities
(balance carried forward) 17,903 (20,157)
--------- ---------
Page 6 of 22
CAMCO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
2003 2002
Net cash provided by (used in) operating and investing activities
(balance brought forward) $ 17,903 $ (20,157)
Cash flows provided by (used in) financing activities:
Net decrease in deposits (8,889) (26,730)
Proceeds from Federal Home Loan Bank advances 6,500 43,500
Repayment of Federal Home Loan Bank advances (8,997) (36,803)
Dividends paid on common stock (2,106) (2,036)
Purchase of treasury stock (4,858) (1,969)
Proceeds from exercise of stock options 633 1,354
Decrease in advances by borrowers for taxes and insurance (1,320) (1,549)
--------- ---------
Net cash used in financing activities (19,037) (24,233)
--------- ---------
Net decrease in cash and cash equivalents (1,134) (44,390)
Cash and cash equivalents at beginning of period 57,022 104,964
--------- ---------
Cash and cash equivalents at end of period $ 55,888 $ 60,574
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 15,042 $ 20,029
========= =========
Income taxes $ 2,044 $ 1,903
========= =========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (570) $ 813
========= =========
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 2,563 $ 1,033
========= =========
Transfers from loans to real estate acquired through foreclosure $ 1,328 $ 1,116
========= =========
Issuance of loans upon sale of real estate acquired through foreclosure $ 621 $ 312
========= =========
Supplemental disclosure of noncash financing activities:
Treasury shares received from settlement of Columbia Financial's
Employee Stock Ownership Plan $ -- $ 639
========= =========
Dividends declared but unpaid $ 1,054 $ 1,039
========= =========
Page 7 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six- and three-month periods ended June 30, 2003 and 2002
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, 2002. 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 six
and three month periods ended June 30, 2003, are not necessarily
indicative of the results which may be expected for the entire year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of Camco and two wholly-owned subsidiaries: Advantage Bank ("Advantage"
or the "Bank") and Camco Title Insurance Agency, Inc., as well as a
second tier subsidiary, Camco Mortgage Corporation. All significant
intercompany balances and transactions have been eliminated.
3. Critical Accounting Policies
----------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as disclosures found elsewhere in this
quarterly report, are based upon Camco Financial's consolidated
financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires Camco
Financial to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Several factors
are considered in determining whether or not a policy is critical in
the preparation of financial statements. These factors include, among
other things, whether the estimates are significant to the financial
statements, the nature of the estimates, the ability to readily
validate the estimates with other information including third parties
or available prices, and sensitivity of the estimates to changes in
economic conditions and whether alternative accounting methods may be
utilized under US GAAP. Management has discussed the development and
the selection of critical accounting policies with the Company's audit
committee.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses and the valuation of mortgage servicing assets. Actual
results could differ from those estimates.
ALLOWANCE FOR LOAN LOSSES
We have developed policies and procedures for assessing the adequacy of
the allowance for loan losses that reflect our evaluation of credit
risk after careful consideration of all information available to us. In
developing this assessment, we must rely on estimates and exercise
judgment regarding matters where the ultimate outcome is unknown such
as economic factors, developments affecting companies in specific
industries and issues with respect to single borrowers. Depending on
changes in circumstances, future assessments of credit risk may yield
materially different results, which may require an increase or a
decrease in the allowance for loan losses.
Page 8 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six- and three-month periods ended June 30, 2003 and 2002
3. Critical Accounting Policies (continued)
----------------------------
ALLOWANCE FOR LOAN LOSSES (continued)
The allowance is regularly reviewed by management to determine whether
the amount is considered adequate to absorb probable losses. This
evaluation includes specific loss estimates on certain individually
reviewed loans, statistical loss estimates for loan pools that are
based on historical loss experience, and general loss estimates that
are based upon the size, quality, and concentration characteristics of
the various loan portfolios, adverse situations that may affect a
borrower's ability to repay, and current economic and industry
conditions. Also considered as part of that judgment is a review of the
Bank's trends in delinquencies and loan losses, as well as trends in
delinquencies and losses for the region and nationally, and economic
factors.
While the Company strives to reflect all known risk factors in its
evaluations, judgment errors may occur. If different assumptions or
conditions were to prevail, the amount and timing of loan losses could
be materially different.
The allowance for loan losses is maintained at a level believed
adequate by management to absorb probable losses inherent in the loan
portfolio. Management's evaluation of the adequacy of the allowance is
an estimate based on management's current judgment about the credit
quality of the loan portfolio.
MORTGAGE SERVICING ASSETS
Servicing assets are recognized as separate assets when loans are sold
with servicing retained. A pooling methodology to the servicing
valuation, in which loans with similar characteristics were "pooled"
together, is applied for valuation purposes. Once pooled, each grouping
of loans is evaluated on a discounted earnings basis to determine the
present value of future earnings that a purchaser could expect to
realize from the portfolio. Earnings are projected from a variety of
sources including loan service fees, interest earned on float, net
interest earned on escrow balances, miscellaneous income and costs to
service the loans. The present value of future earnings is the
estimated market value for the pool. Events that may significantly
affect the estimates used are changes in interest rates and the related
impact on mortgage loan prepayment speeds and the payment performance
of the underlying loans. If the fair value is less than carrying value,
impairment is recognized through a valuation allowance for each
impaired pool.
Management believes the accounting estimates related to the allowance
for loan losses and the capitalization, amortization, and valuations of
mortgage servicing assets are "critical accounting estimates" because:
(1) the estimates are highly susceptible to change from period to
period because they require management to make assumptions concerning
the changes in the types and volumes of the portfolios, rates of future
prepayments, and anticipated economic conditions, and (2) the impact of
recognizing an impairment or loan loss could have a material effect on
Camco's assets reported on the balance sheet as well as its net income.
Management has discussed the development and selection of these
critical accounting estimates with the audit committee of the board of
directors and the audit committee has reviewed the Corporation's
disclosures relating to them in this Management's Discussion and
Analysis.
Page 9 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six- and three-month periods ended June 30, 2003 and 2002
4. 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 include the dilutive effect of
additional potential common shares issuable under the Corporation's
stock option plans. The computations are as follows:
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
Weighted-average common shares
outstanding (basic) 7,599,184 7,972,857 7,524,761 7,978,880
Dilutive effect of assumed exercise
of stock options 84,932 121,281 84,773 134,300
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 7,684,116 8,094,138 7,609,534 8,113,180
========= ========= ========= =========
Options to purchase 64,036 and 69,116 shares of common stock with
respective weighted-average exercise prices of $16.18 and $14.82 were
outstanding at June 30, 2003 and 2002, respectively, but were excluded
from the computation of common share equivalents for each of the six
and three month periods then ended, because the exercise prices were
greater than the average market price of the common shares.
5. Stock Option Plans
------------------
Camco presently has options outstanding under four stock option plans.
Under the 1995 Plan and the 2002 Plan, 161,488 and 400,000 shares,
respectively, were reserved for issuance. Additionally, in connection
with the 1996 acquisition of First Savings, 265,876 shares were
reserved for issuance under the First Ashland stock option plan. In
connection with the 2000 acquisition of Westwood Homestead, 311,794
shares were reserved for issuance under the Westwood stock option plan.
The Corporation accounts for its stock option plans in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," which contains
a fair-value based method for valuing stock-based compensation that
entities may use, that measures compensation cost at the grant date
based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period.
Alternatively, SFAS No. 123 permits entities to continue to account for
stock options and similar equity instruments under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options
using APB Opinion No. 25 are required to make pro forma disclosures of
net earnings and earnings per share, as if the fair-value based method
of accounting defined in SFAS No. 123 had been applied.
The Corporation utilizes APB Opinion No. 25 and related Interpretations
in accounting for its stock option plans. Accordingly, no compensation
cost has been recognized for the plans. Had compensation cost for the
Corporation's stock option plans been determined based on the fair
value at the grant dates for awards under the plans consistent with the
accounting method utilized in SFAS No. 123, the Corporation's net
earnings and earnings per share for the six- and three-month periods
ended June 30, 2003 and 2002, would have been reported as the pro forma
amounts indicated below:
Page 10 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
5. Stock Option Plans (continued)
------------------
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
Net earnings (In thousands) As reported $4,682 $4,845 $2,228 $2,470
Stock-based compensation, net of tax (10) (2) (5) (1)
------ ------ ------ ------
Pro-forma $4,672 $4,843 $2,223 $2,469
====== ====== ====== ======
Earnings per share
Basic As reported $.62 $.61 $.30 $.31
Stock-based compensation, net of tax (.01) - - -
------ ------ ------ ------
Pro-forma $.61 $.61 $.30 $.31
====== ====== ====== ======
Diluted As reported $.61 $.60 $.29 $.31
Stock-based compensation, net of tax - - - -
------ ------ ------ ------
Pro-forma $.61 $.60 $.29 $.31
====== ====== ====== ======
The fair value of each option grant is estimated on the date of grant
using the modified Black-Scholes options-pricing model with the
following assumptions used for grants during 2003, 2002 and 2001:
dividend yield of 3.50%, 3.84% and 4.07%, respectively; expected
volatility of 16.88%, 16.34%, and 17.06%, respectively; a risk-free
interest rate of 3.95%, 2.00% and 3.00%, respectively, and an expected
life of ten years for all grants.
A summary of the status of the Corporation's stock option plans as of
June 30, 2003 and December 31, 2002 and 2001, and changes during the
periods ending on those dates is presented below:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002 2001
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at beginning of period 323,291 $ 9.79 503,005 $10.16 688,655 $10.53
Granted 56,948 16.13 3,700 14.55 8,500 11.93
Exercised (78,964) 8.01 (174,106) 10.84 (115,656) 10.91
Forfeited (4,318) 13.75 (9,308) 11.91 (78,494) 12.50
------- ------- --------- ------ -------- ------
Outstanding at end of period 296,957 $ 11.42 323,291 $ 9.79 503,005 $10.16
======= ======= ========= ====== ======== ======
Options exercisable at period-end 249,666 $ 13.59 323,291 $ 9.79 503,005 $10.16
======= ======= ========= ====== ======== ======
Weighted-average fair value of
options granted during the period $ 2.60 $ 1.36 $ 1.37
====== ====== ======
Page 11 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
5. Stock Option Plans (continued)
------------------
The following information applies to options outstanding at June 30,
2003:
Number outstanding 166,201
Range of exercise prices $7.40 - $9.79
Number outstanding 130,756
Range of exercise prices $11.36 - $16.59
Weighted-average exercise price $11.42
Weighted-average remaining contractual life 5.0 yrs
6. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 provides financial accounting and reporting guidance for
costs associated with exit or disposal activities, including one-time
termination benefits, contract termination costs other than for a
capital lease, and costs to consolidate facilities or relocate
employees. SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. Management adopted SFAS No. 146
effective January 1, 2003, without material effect on the Corporation's
financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. SFAS No. 148 is effective for fiscal years
beginning after December 15, 2002. The expanded annual disclosure
requirements and the transition provisions are effective for fiscal
years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The Corporation
adopted the disclosure provisions of SFAS No. 148 effective December
31, 2002, without material effect on the Corporation's financial
position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others."
FIN 45 requires a guarantor entity, at the inception of a guarantee
covered by the measurement provisions of the interpretation, to record
a liability for the fair value of the obligation undertaken in issuing
the guarantee. Camco has financial letters of credit which require
Camco to make payment if the customer's financial condition
deteriorates, as defined in the agreements. FIN 45 requires Camco to
record a liability generally equal to fees received for these letters
of credit when guaranteeing obligations. FIN 45 applies prospectively
to guarantees Camco issues or modifies subsequent to December 31, 2002.
Camco had no letters of credit outstanding at June 30, 2003.
Page 12 of 22
CAMCO FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
6. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or
both. FIN 46 also requires disclosures about variable interest entities
that a company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January
31, 2003. The consolidation requirements apply to existing entities in
the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Corporation adopted the
disclosure requirements of FIN 46 effective January 31, 2003, without
material effect on its financial statements.
In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" which clarifies
certain implementation issues raised by constituents and amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to include the conclusions reached by the FASB on certain
FASB Staff Implementation Issues that, while inconsistent with
Statement 133's conclusions, were considered by the Board to be
preferable; amends SFAS No. 133's discussion of financial guarantee
contracts and the application of the shortcut method to an
interest-rate swap agreement that includes an embedded option and
amends other pronouncements.
The guidance in Statement 149 is effective for new contracts entered
into or modified after June 30, 2003 and for hedging relationships
designated after that date, except for the following:
- guidance incorporated from FASB Staff Implementation Issues
that was effective for periods beginning prior to June 15,
2003 should continue to be applied according to the effective
dates in those issues
- guidance relating to forward purchase and sale agreements
involving when-issued securities should be applied to both
existing contracts and new contracts entered into after June
30, 2003.
Management does not expect SFAS No. 149 to have a material effect on
the Corporation's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity", which changes the classification in the statement of financial
position of certain common financial instruments from either equity or
mezzanine presentation to liabilities and requires an issuer of those
financial statements to recognize changes in fair value or redemption
amount, as applicable, in earnings. SFAS No. 150 requires an issuer to
classify certain financial instruments as liabilities, including
mandatorily redeemable preferred and common stocks.
SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and, with one exception, is effective at
the beginning of the first interim period beginning after June 15, 2003
(July 1, 2003 as to the Corporation). The effect of adopting SFAS No.
150 must be recognized as a cumulative effect of an accounting change
as of the beginning of the period of adoption. Restatement of prior
periods is not permitted. Management is continuing to evaluate the
effect of the provisions of SFAS No. 150 on the Corporation's financial
statements.
Page 13 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the six- and three-month periods ended June 30, 2003 and 2002
Discussion of Financial Condition Changes from December 31, 2002 to June 30,
----------------------------------------------------------------------------
2003
----
At June 30, 2003, Camco's consolidated assets totaled $1.067 billion, a decrease
of $15.9 million, or 1.5%, from the December 31, 2002 total. The decrease in
total assets was comprised primarily of decreases in loans held for sale and
investment securities, which were partially offset by an increase in
mortgage-backed securities.
Cash and interest-bearing deposits in other financial institutions totaled $55.9
million at June 30, 2003, a decrease of $1.1 million, or 2.0%, from December 31,
2002 levels. Investment securities totaled $42.8 million at June 30, 2003, a
decrease of $1.3 million, or 3.0%, from the total at December 31, 2002.
Investment securities purchases, which were comprised primarily of $10.3 million
of intermediate-term callable U.S. Government agency obligations with an average
yield of 2.95%, were offset by $11.0 million of maturities.
Mortgage-backed securities totaled $140.8 million at June 30, 2003, an increase
of $23.5 million, or 20.0%, over December 31, 2002. Mortgage-backed securities
purchases totaled $78.9 million, while principal repayments totaled $47.2
million and sales totaled $7.0 million during the six-month period ended June
30, 2003. Purchases of mortgage-backed securities during the period were
comprised primarily of ten-year balloon amortizing U.S. Government agency
securities yielding 3.27%, which were classified as available for sale.
Purchases of mortgage-backed securities were funded primarily with proceeds from
the sale of loans.
Loans receivable, including loans held for sale, totaled $761.7 million at June
30, 2003, a decrease of $35.3 million, or 4.4%, from December 31, 2002. The
decrease resulted primarily from principal repayments of $170.9 million and loan
sales of $205.0 million, which were partially offset by loan disbursements and
purchases totaling $342.4 million. The volume of loans originated and purchased
during the first six months of 2003 was greater than that of the comparable 2002
period by $141.8 million, or 70.7%, while the volume of loan sales increased by
$118.4 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 during the six-month period ended June 30,
2003, were comprised primarily of $270.7 million of loans secured by one- to
four-family residential real estate, $44.9 million in consumer and other loans
and $26.8 million in loans secured by commercial real estate. Management will
continue to expand its commercial real estate lending in future periods as a
means of increasing the yield on its loan portfolio.
The allowance for loan losses totaled $5.8 million and $5.5 million at June 30,
2003 and December 31, 2002, respectively, representing 42.0% and 40.3% of
nonperforming loans, respectively, at those dates. Nonperforming loans (90 days
or more delinquent plus nonaccrual loans) totaled $13.7 million and $13.6
million at June 30, 2003 and December 31, 2002, respectively, constituting 1.80%
and 1.71% of total net loans, including loans held for sale, at those dates. At
June 30, 2003, nonperforming loans were comprised of $9.8 million in one- to
four-family residential real estate loans, $2.2 million in nonresidential real
estate loans, $1.0 in commercial real estate loans and $760,000 of consumer
loans. Management believes all nonperforming loans are adequately collateralized
and no loss is expected over and above allocated reserves on such loans. Loans
delinquent greater than 30 days but less than 90 days totaled $9.5 million at
June 30, 2003, compared to $10.5 million at December 31, 2002, a decrease of
$1.0 million, or 9.5%. Although management believes that its allowance for loan
losses is adequate based upon the available facts and circumstances at June 30,
2003, there can be no assurance that increased provisions will not be necessary
in future periods, which could adversely affect Camco's results of operations.
Page 14 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
Discussion of Financial Condition Changes from December 31, 2002 to June 30,
----------------------------------------------------------------------------
2003 (continued)
----
Deposits totaled $685.2 million at June 30, 2003, a decrease of $8.9 million, or
1.3%, from the total at December 31, 2002. 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.
Stockholders' equity totaled $96.5 million at June 30, 2003, a decrease of $2.1
million, or 2.1%, from December 31, 2002. The decrease resulted primarily from
dividends of $2.1 million, purchases of treasury shares totaling $4.9 million
and a $570,000 decrease in the unrealized gains on available for sale
securities, which were partially offset by net earnings of $4.7 million and
proceeds from the exercise of stock options of $633,000. The increase in
treasury shares represented purchases under the 5% stock repurchase plan that
was announced in October 2002.
Advantage is required to maintain minimum regulatory capital pursuant to federal
regulations. At June 30, 2003, the Bank's regulatory capital exceeded all
regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 2003 and
------------------------------------------------------------------------------
2002
----
General
-------
Camco's net earnings for the six months ended June 30, 2003 totaled $4.7
million, a decrease of $163,000, or 3.4%, from the $4.8 million of net earnings
reported in the comparable 2002 period. The decrease in earnings was primarily
attributable to a decrease of $1.6 million in net interest income, an increase
in the provision for losses on loans of $261,000 and an increase in general,
administrative and other expense of $927,000, which were partially offset by an
increase in other income of $2.4 million and a decrease in federal income tax
expense of $205,000.
Net Interest Income
-------------------
Total interest income amounted to $28.6 million for the six months ended June
30, 2003, a decrease of $5.3 million, or 15.7%, compared to the six-month period
ended June 30, 2002, generally reflecting the effects of a decrease in yield on
total interest-earning assets of 103 basis points, from 6.62% in the 2002 period
to 5.59% in the 2003 period, coupled with a $2.0 million, or .2%, decrease in
the average balance of interest-earning assets outstanding year to year.
Interest income on loans totaled $24.7 million for the six months ended June 30,
2003, a decrease of $5.5 million, or 18.1%, from the comparable 2002 period. The
decrease resulted primarily from a $63.2 million, or 7.6%, decrease in the
average balance outstanding and an 83 basis point decrease in the average yield,
to 6.44% in the 2003 period. Interest income on mortgage-backed securities
totaled $2.0 million for the six months ended June 30, 2003, a $233,000, or
12.9%, increase year to year. The increase was due primarily to a $46.3 million,
or 60.3%, increase in the average balance outstanding, which was partially
offset by a 139 basis point decrease in the average yield, to 3.32% in the 2003
period. Interest income on investment securities increased by $220,000, or
44.8%, due primarily to a $20.5 million increase in the average balance
outstanding, which was partially offset by a decline in the average yield year
to year. Interest income on other interest-earning assets decreased by $293,000,
or 20.2%, due primarily to a decrease in the average yield, to 2.52% in the 2003
period, coupled with a decrease of $5.5 million, or 5.7%, in the average balance
outstanding year to year.
Page 15 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
Comparison of Results of Operations for the Six Months Ended June 30,
---------------------------------------------------------------------
2003 and 2002 (continued)
-------------
Net Interest Income (continued)
-------------------
Interest expense on deposits totaled $8.6 million for the six months ended June
30, 2003, a decrease of $3.8 million, or 30.7%, compared to the 2002 period, due
primarily to a 104 basis point decrease in the average cost of deposits, to
2.61%, and a $20.8 million, or 3.0%, decrease in average deposits outstanding
year to year. Interest expense on borrowings totaled $7.7 million for the six
months ended June 30, 2003, an increase of $140,000, or 1.9%, over the 2002
six-month period. The increase resulted primarily from a $20.7 million, or 8.1%,
increase in the average balance outstanding year to year, partially offset by a
35 basis point decrease in the average cost to 5.58%. Decreases in the level of
average yields on interest-earning assets and average costs of interest-bearing
liabilities were due primarily to the overall decrease in interest rates in the
economy.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $1.6 million, or 11.7%, to a total of $12.3
million for the six months ended June 30, 2003. The interest rate spread
decreased to approximately 2.11% at June 30, 2003, from 2.35% at June 30, 2002,
while the net interest margin decreased to approximately 2.41% for the six
months ended June 30, 2003, compared to 2.72% for the 2002 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 upon an analysis of these factors, management recorded a provision for
losses on loans totaling $675,000 for the six months ended June 30, 2003, an
increase of $261,000, or 63.0%, over the comparable period in 2002. The current
period provision was predicated primarily on the increased percentage of loans
secured by commercial real estate within the loan portfolio and the increase in
the level of classified loans. Management believes all classified loans are
adequately collateralized, however, there can be no assurance that the loan loss
allowance will be adequate to absorb losses on known classified assets or that
the allowance will be adequate to cover losses on classified assets in the
future.
Other Income
------------
Other income totaled $6.8 million for the six months ended June 30, 2003, an
increase of $2.4 million, or 56.1%, over the comparable 2002 period. The
increase in other income was primarily attributable to a $1.9 million increase
in the gain on sale of loans and a $531,000, or 36.2%, increase in late charges,
rent and other. The increase in the gain on sale of loans was due to the $118.4
million, or 136.7%, increase in sales volume, as Advantage continued to sell
fixed-rate loans originated in the current low interest rate environment, as
well as an increase in prices on such sales. The increase in late charges, rent
and other was due primarily to an increase in title premiums and other fees on
loans, an increase in ATM fees and proceeds of $175,000 from a life insurance
policy due to the death of an officer of the Bank.
Page 16 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
Comparison of Results of Operations for the Six Months Ended June 30, 2003 and
------------------------------------------------------------------------------
2002 (continued)
----
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense totaled $11.6 million for the six
months ended June 30, 2003, an increase of $927,000, or 8.7%, over the
comparable period in 2002. The increase in general, administrative and other
expense was due primarily to a $566,000, or 11.0%, increase in employee
compensation and benefits, an increase of $311,000, in franchise taxes, an
increase of $158,000 or 9.3%, in occupancy and equipment and an increase of
$116,000, or 20.8%, in data processing, which were partially offset by a
$118,000 or 24.5%, decrease in advertising and a $106,000, or 4.2%, decrease in
other operating costs. The increase in employee compensation and benefits was
due primarily to an increase in incentive compensation and 401(k) plan costs, as
well as normal merit increases, which were partially offset by an increase in
deferred loan origination costs related to the increase in loan volume year to
year. The increase in franchise tax expense reflects the effects of refund
claims recorded in 2002. The increase in occupancy and equipment was due
primarily to an increase in office repairs and maintenance expenses, as well as
costs associated with the new Dover office location. The increase in data
processing was due primarily to costs associated with special processing
services and an increase in the cost of the annual contract with the Bank's data
processing provider. The decrease in advertising was due primarily to cost
savings realized from implementation of a plan to centralize the purchase of
advertising contracts. The decrease in other operating costs was due primarily
to a decrease in long distance telephone costs following a change in service
providers and a decrease in FHLB charges due to use of bonds as pledged
collateral versus letters of credit.
Federal Income Taxes
--------------------
The provision for federal income taxes totaled $2.1 million for the six months
ended June 30, 2003, a decrease of $205,000, or 8.8%, compared to the six months
ended June 30, 2002. This decrease was primarily attributable to a $368,000, or
5.1%, decrease in pre-tax earnings and the non-taxable redemption of a life
insurance policy. The Corporation's effective tax rates amounted to 31.1% and
32.4% for the six-month periods ended June 30, 2003 and 2002, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 2003 and
--------------------------------------------------------------------------------
2002
----
General
-------
Camco's net earnings for the three months ended June 30, 2003 totaled $2.2
million, a decrease of $242,000, or 9.8%, from the $2.5 million of net earnings
reported in the comparable 2002 period. The decrease in earnings was primarily
attributable to a decrease of $1.4 million in net interest income, an increase
in the provision for losses on loans of $48,000 and an increase in general,
administrative and other expense of $287,000, which were partially offset by an
increase in other income of $1.2 million and a decrease in federal income tax
expense of $228,000.
Net Interest Income
-------------------
Total interest income amounted to $13.9 million for the three months ended June
30, 2003, a decrease of $3.1 million, or 18.4%, compared to the three-month
period ended June 30, 2002, generally reflecting the effects of a decrease in
yield on total interest-earning assets of 118 basis points, from 6.66% in the
2002 period to 5.48% and an $8.5 million, or .8%, decrease in the average
balance of interest-earning assets outstanding year to year.
Page 17 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
Comparison of Results of Operations for the Three Months Ended June 30, 2003 and
--------------------------------------------------------------------------------
2002 (continued)
----
Net Interest Income (continued)
-------------------
Interest income on loans totaled $12.0 million for the three months ended June
30, 2003, a decrease of $2.9 million, or 19.3%, from the comparable 2002 period.
The decrease resulted primarily from a $52.9 million, or 6.5%, decrease in the
average balance outstanding and a 100 basis point decrease in the average yield,
to 6.32% in the 2003 period. Interest income on mortgage-backed securities
totaled $991,000 for the three months ended June 30, 2003, a $246,000, or 19.9%,
decrease from the 2002 quarter. The decrease was due primarily to a 176 basis
point decrease in the average yield, to 3.08% for the 2003 period, which was
partially offset by a $26.5 million, or 26.0%, increase in the average balance
outstanding in the 2003 period. Interest income on investment securities
increased by $94,000, or 34.4%, due primarily to a $17.2 million increase in the
average balance outstanding, which was partially offset by a 99 basis point
decrease in the average yield, to 3.54% in the 2003 period. Interest income on
other interest-earning assets decreased by $123,000, or 17.5%, due primarily to
a decrease in the average yield, to 2.63% in the 2003 period.
Interest expense on deposits totaled $4.2 million for the three months ended
June 30, 2003, a decrease of $1.8 million, or 30.0%, compared to the same
quarter in 2002, due primarily to a 98 basis point decrease in the average cost
of deposits, to 2.52% in the current quarter, and a $19.1 million, or 2.8%,
decrease in average deposits outstanding. Interest expense on borrowings totaled
$3.8 million for the three months ended June 30, 2003, an increase of $25,000,
or .7%, over the same 2002 three-month period. The increase resulted primarily
from a $15.1 million, or 5.8%, increase in the average balance outstanding year
to year, partially offset by a 28 basis point decrease in the average cost to
5.60%. Decreases in the level of average yields on interest-earning assets and
average costs of interest-bearing liabilities were due primarily to the overall
decrease in interest rates in the economy.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $1.4 million, or 18.7%, to a total of $6.0
million for the three months ended June 30, 2003. The interest rate spread
decreased to approximately 2.06% at June 30, 2003, from 2.50% at June 30, 2002,
while the net interest margin decreased to approximately 2.34% for the three
months ended June 30, 2003, compared to 2.86% for the 2002 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 upon an analysis of these factors, management recorded a provision for
losses on loans totaling $255,000 for the three months ended June 30, 2003, an
increase of $48,000, or 23.2%, over the comparable period in 2002. The current
period provision was predicated primarily on the increased percentage of loans
secured by commercial real estate within the loan portfolio, the level of
charge-offs recorded during the period and the increase in the level of
classified loans. Management believes all classified loans are adequately
collateralized, however, there can be no assurance that the loan loss allowance
will be adequate to absorb losses on known classified assets or that the
allowance will be adequate to cover losses on classified assets in the future.
Page 18 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
Comparison of Results of Operations for the Three Months Ended June 30, 2003 and
--------------------------------------------------------------------------------
2002 (continued)
----
Other Income
------------
Other income totaled $3.3 million for the three months ended June 30, 2003, an
increase of $1.2 million, or 59.1%, over the comparable 2002 period. The
increase in other income was primarily attributable to an $891,000 increase in
gain on sale of loans and a $377,000, or 48.8%, increase in late charges, rent
and other. The increase in gain on sale of loans was due primarily to the $93.6
million, or 89.8%, increase in sales volume, as Advantage continued to sell
fixed-rate loans originated in the low interest rate environment. The increase
in late charges, rent and other was due primarily to an increase in title
premiums and other fees on loans, an increase in ATM fees and proceeds of
$175,000 from a life insurance policy due to the death of an officer of the
Bank.
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense totaled $5.9 million for the three
months ended June 30, 2003, an increase of $287,000, or 5.2%, over the
comparable period in 2002. The increase in general, administrative and other
expense was due primarily to a $345,000, or 10.8%, increase in employee
compensation and benefits, an increase of $132,000, or 55.0%, in data processing
expense and an increase of $30,000 or 3.4%, in occupancy and equipment, which
were partially offset by a $110,000, or 37.0%, decrease in advertising and a
$122,000, or 8.8%, decrease in other operating costs. The increase in employee
compensation and benefits was due primarily to an increase in incentive
compensation and 401(k) plan costs, as well as normal merit increases. The
increase in data processing expense was primarily due to costs associated with
special processing services and an increase in the cost of the annual contract
with the Bank's data processing provider. The increase in occupancy and
equipment was due primarily to an increase in office repairs and maintenance
expenses, as well as costs associated with the new Dover office location. The
decrease in advertising was primarily due to cost savings realized from
implementation of a plan to centralize advertising contracts purchased, and the
decrease in other operating costs was due primarily to a decrease in long
distance telephone costs following a change in service providers and a decrease
in FHLB charges due to use of bonds as pledged collateral versus letters of
credit.
Federal Income Taxes
--------------------
The provision for federal income taxes totaled $950,000 for the three months
ended June 30, 2003, a decrease of $228,000, or 19.4%, compared to the three
months ended June 30, 2002. This decrease was primarily attributable to a
$470,000, or 12.9%, decrease in pre-tax earnings and the effect of a non-taxable
redemption of a life insurance policy. The Corporation's effective tax rates
amounted to 29.9% and 32.3% for the three-month periods ended June 30, 2003 and
2002, respectively.
Page 19 of 22
CAMCO FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2003 and 2002
ITEM 3: 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, 2002.
ITEM 4: Controls and Procedures
-----------------------
The Corporation's Chief Executive Officer and Chief Financial Officer evaluated
the disclosure controls and procedures (as defined under Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this quarterly report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Corporation's disclosure controls and procedures are effective.
There were no significant changes in the Corporation's internal controls or in
other factors that materially affected, or are reasonably likely to materially
affect, these controls.
Page 20 of 22
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
---------------------------------------------------
Not applicable
ITEM 5. Other Information
-----------------
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
31.1 Written Statement of Chief Executive Officer furnished
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
31.2 Written Statement of Chief Financial Officer furnished
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
32.1 Written Statement of Chief Executive Officer furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
32.2 Written Statement of Chief Financial Officer furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
(b) Reports on Form 8-K: On April 25, 2003, a Form 8-K
was filed to report earnings for
the quarter ended March 31, 2003.
On May 27, 2003, a Form 8-K was
filed to report quarterly cash
dividend and announce a 5% stock
repurchase.
Page 21 of 22
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: August 11, 2003 By: /s/ Richard C. Baylor
-------------------- --------------------------------------------
Richard C. Baylor
Chief Executive Officer
Date: August 11, 2003 By: /s/ Mark A. Severson
-------------------- --------------------------------------------
Mark A. Severson
Chief Financial Officer
Page 22 of 22