SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File Number: 0-25196
CAMCO FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0110823
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6901 Glenn Highway, Cambridge, Ohio 43725
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 435-2020
Securities registered pursuant to Section 12(b)of the Act:
None None
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(Title of Each Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value per share
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(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the last sale reported as of March 28,
2001, was $72.9 million. (The exclusion from such amount of the market value of
the shares owned by any person shall not be deemed an admission by the
registrant that such person is an affiliate of the registrant.)
The registrant's revenues for the fiscal year ended December 31, 2000,
were $81.2 million. 6,952,114.1 shares of the Registrant's common
stock were outstanding on March 28, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of Form 10-K: Portions of the Proxy Statement for the 2001 Annual
Meeting of Stockholders
PART I
Item 1. Business.
General
Camco Financial Corporation ("Camco") is a multiple savings and loan
holding company organized under Delaware law in 1970. Through its wholly-owned
subsidiaries, Cambridge Savings Bank ("Cambridge Savings"), Marietta Savings
Bank ("Marietta Savings"), First Federal Savings Bank of Washington Court House
("First Federal"), First Federal Bank for Savings ("First Savings"), and
Westwood Homestead Savings Bank ("Westwood Savings"), Camco is engaged in the
financial services business in Ohio, Kentucky and West Virginia. Camco Title
Insurance Agency, Inc. ("Camco Title"), a wholly-owned subsidiary of Camco, is
engaged in the title insurance agency business.
Cambridge Savings, Marietta Savings, First Federal, First Savings and
Westwood Savings (collectively, the "Banks") are members of the Federal Home
Loan Bank (the "FHLB") of Cincinnati, and their accounts are insured up to
applicable limits by the Savings Association Insurance Fund (the "SAIF")
administered by the Federal Deposit Insurance Corporation (the "FDIC"). First
Federal and First Savings are subject to regulation, examination and supervision
by the United States Department of the Treasury, Office of Thrift Supervision
(the "OTS") and the FDIC. Cambridge Savings, Marietta Savings and Westwood
Savings are regulated by the Ohio Department of Financial Institutions, Division
of Savings Banks (the "Division") and the FDIC.
Cambridge Savings and Marietta Savings each own 50% of the outstanding
stock of Camco Mortgage Corporation ("CMC"), a service corporation engaged in
mortgage lending and related activities in central and southeastern Ohio.
Marietta Savings owns 100% of the outstanding stock of WestMar Mortgage Company
("WestMar"), a service corporation engaged in mortgage lending activities,
primarily in Wood County, West Virginia. First Savings owns 100% of the stock of
First S&L Corporation, a Kentucky corporation incorporated in 1975 for the
purpose of acquiring stock in a data processing company located in Cincinnati,
Ohio. First S&L Corporation was inactive during 2000.
Camco Title Insurance Agency, Inc. ("Camco Title"), a wholly-owned
subsidiary of Camco, is engaged in the title insurance agency business.
In January 2001, Camco announced a restructuring, whereby Camco will
merge its five separate bank charters into one savings bank operating under the
name AdvantageBank, and will convert all of its banking facilities to one common
data processing platform. The restructuring requires regulatory approval which
is anticipated in the second quarter of 2001. The offices in each of the regions
presently served by Camco's five affiliate banks will operate as divisions of
AdvantageBank.
The financial statements for Camco and its subsidiaries are prepared on
a consolidated basis. The information as of and for the years ended December 31,
1996 and 1997 has been restated in this document and the consolidated financial
statements to reflect the effects of the merger of Camco with GF Bancorp, Inc.
which was completed in January 1998 (the "Germantown Merger").
The principal source of revenue for Camco on an unconsolidated basis is
dividends from the Banks. Payment of dividends to Camco by the Banks is subject
to various regulatory restrictions and tax considerations. See "REGULATION."
References in this report to various aspects of the business,
operations and financial condition of Camco may be limited to the Banks, as the
context requires.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of Camco at the dates
indicated. This selected financial data should be read in conjunction with the
consolidated financial statements appearing elsewhere in this document.
At December 31,
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SELECTED CONSOLIDATED FINANCIAL DATA: (1) 2000 1999 1998 1997 1996
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(In thousands)
Total amount of:
Assets $1,037,856 $813,482 $637,135 $570,170 $517,488
Interest-bearing deposits in other financial 4,916 247 22,609 10,473 10,875
institutions
Investment securities available for sale - at market 309 273 1,292 3,572 7,177
Investment securities - at cost 16,672 16,864 10,962 17,489 21,844
Mortgage-backed securities available for sale - at market 9,850 6,475 3,476 8,447 10,148
Mortgage-backed securities - at cost 5,273 5,944 5,019 8,207 10,700
Loans receivable - net (2) 930,672 726,225 548,669 481,501 420,818
Deposits 632,288 461,787 443,227 422,368 398,161
FHLB advances and other borrowings 313,471 279,125 125,483 82,319 58,354
Stockholders' equity - substantially restricted 78,750 62,609 60,139 55,331 51,391
Year ended December 31,
SELECTED CONSOLIDATED OPERATING DATA: (1) 2000 1999 1998 1997 1996
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(In thousands, except per share data)
Total interest income $75,671 $51,093 $44,283 $41,217 $32,812
Total interest expense 49,609 29,907 24,852 22,778 17,811
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Net interest income 26,062 21,186 19,431 18,439 15,001
Provision for losses on loans 568 247 250 385 141
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Net interest income after provision for loan losses 25,494 20,939 19,181 18,054 14,860
Other income 5,536 5,190 7,552 3,945 3,700
General, administrative and other expense 19,530 17,113 16,319 13,733 13,762
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Earnings before federal income taxes 11,500 9,016 10,414 8,266 4,798
Federal income taxes 3,848 3,076 3,410 2,922 1,588
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Net earnings $ 7,652 $ 5,940 $ 7,004 $ 5,344 $ 3,210
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Earnings per share: (3)
Basic $ 1.11 $ 1.04 $ 1.22 $ 0.93 $ 0.71
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Diluted $ 1.10 $ 1.02 $ 1.19 $ 0.91 $ 0.70
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At or for the year ended December 31,
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2000 1999 1998 1997 1996
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Return on average assets (4) 0.83% .82% 1.16% .98% .70%
Return on average equity (4) 10.83 9.68 12.13 10.01 7.52
Average equity to average assets (4) 7.64 8.46 9.56 9.81 9.36
Dividend payout ratio (5) 43.24 44.37 31.23 51.34 56.47
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(1) The information as of and for the years ended December 31, 1996 and 1997
has previously been restated to reflect the effects of the Germantown
Merger which was completed in January 1998.
(2) Includes loans held for sale.
(3) Earnings per share has been adjusted to give effect to the merger with GF
Bancorp and a three-for-two stock split which were effected during 1998 and
the 5% stock dividends which were effected during each of the years ended
December 31, 1999, 1997 and 1996.
(4) Ratios are based upon the mathematical average of the balances at the
beginning and the end of the year.
(5) Represents dividends per share divided by basic earnings per share.
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Lending Activities
General. Camco's primary lending activities include the origination of
conventional fixed-rate and variable-rate mortgage loans for the construction,
acquisition or refinancing of single-family homes located in the Banks' primary
market areas. Construction and permanent mortgage loans on condominiums,
multifamily (over four units) and nonresidential properties are also offered by
Camco. In addition to mortgage lending, Camco makes a variety of consumer loans.
Loan Portfolio Composition. The following table presents certain
information regarding the composition of Camco's loan portfolio, including loans
held for sale, at the dates indicated:
At December 31,
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2000 1999 1998 1997 1996
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Percent Percent Percent Percent Percent
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
Type of loan:
Construction $ 56,039 6.0% $ 60,565 8.3% $ 37,169 6.8% $ 14,505 3.0% $ 20,489 4.9%
Existing residential 764,828 82.2 619,621 85.3 485,107 88.4 431,646 89.7 370,648 88.0
properties (1)
Nonresidential real estate 54,722 5.9 20,831 2.9 15,019 2.7 11,294 2.3 12,529 3.0
Developed building lots 5,640 0.6 4,649 .6 3,895 .7 1,870 0.4 1,406 0.3
Education loans 1,459 0.2 1,847 .3 2,096 .4 2,224 0.5 2,037 0.5
Consumer and other loans (2) 71,719 7.7 49,232 6.8 29,835 5.5 32,430 6.7 25,180 6.0
------- ----- ------- ----- ------- ----- ------- ----- -------
Total 954,407 102.6 756,745 104.2 573,121 104.5 493,969 102.6 432,289 102.7
Less:
Undisbursed loans in (19,911) (2.1) (27,569) (3.8) (22,262) (4.1) (10,059) (2.1) (9,292) (2.2)
process
Unamortized yield (918) (0.1) (1,088) (.1) (407) (.1) (813) (0.2) (806) (0.2)
adjustments
Allowance for loan losses (2,906) (0.3) (1,863) (.3) (1,783) (.3) (1,596) (0.3) (1,373) (0.3)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans, net $930,672 100.0% $726,225 100.0% $548,669 100.0% $481,501 100.0% $420,818 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
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(1) Includes loans held for sale.
(2) Includes second mortgage loans.
Camco's loan portfolio was approximately $930.7 million at December 31,
2000, and represented 89.7% of total assets.
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Loan Maturity Schedule. The following table sets forth certain
information as of December 31, 2000, regarding the dollar amount of loans
maturing in Camco's portfolio based on the contractual terms to maturity of the
loans. Demand loans, loans having no stated schedule of repayments and loans
having no stated maturity, are reported as due in one year or less.
Due during the year
ending Due in
December 31, Due in years years after
2001 2002-2006 2006 Total
(In thousands)
Real estate loans (1):
One- to four- family $16,166 $ 85,138 $644,347 $745,651
Multifamily and nonresidential 1,406 17,330 92,696 111,432
Consumer and other loans 10,059 31,708 31,411 73,178
------ ------- ------- -------
Total $27,631 $134,176 $768,454 $930,261
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(1) Excludes loans held for sale of $4.2 million and does not consider the
effects of unamortized yield adjustments of $918,000 and the allowance
for loan losses of $2.9 million.
The following table sets forth at December 31, 2000, the dollar amount
of all loans due after one year from December 31, 2000, which have predetermined
interest rates and have floating or adjustable interest rates:
Due after
December 31, 2001
(In thousands)
Fixed rate of interest $305,626
Adjustable rate of interest 597,004
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Total $902,630
=======
Generally, loans originated by the Banks are on a fully amortized
basis. The Banks have no rollover provisions in their loan documents and
anticipate that loans will be paid in full by the maturity date.
Residential Loans. The primary lending activity of the Banks is the
origination of fixed-rate and adjustable-rate conventional loans for the
acquisition, refinancing or construction of single-family residences. At
December 31, 2000, 78.1% of the total outstanding loans consisted of loans
secured by mortgages on one- to four-family residential properties. The Banks
also originate loans on multifamily housing (over four units) and condominiums.
Each of such loans is secured by a mortgage on the underlying real estate and
improvements thereon.
Federal regulations and Ohio law limit the amount which the Banks may
lend in relationship to the appraised value of the underlying real estate at the
time of loan origination (the "Loan-to-Value Ratio" or "LTV"). In accordance
with such regulations and law, the Banks make loans on single-family residences
up to 97% of the value of the real estate and improvements. The Banks generally
require the borrower on each loan which has an LTV in excess of 85% to obtain
private mortgage insurance.
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The interest rate adjustment periods on adjustable-rate mortgage loans
("ARMs") offered by the Banks are generally one, three, five or seven years. The
interest rates initially charged on ARMs and the new rates at each adjustment
date are determined by adding a stated margin to a designated interest rate
index. For the past several years, the Banks have used the one-year, three-year,
five-year and seven-year United States Treasury bill rates, adjusted to a
constant maturity, as the index for their one-year, three-year, five-year and
seven-year adjustable-rate loans, respectively. The initial interest rate for a
three-year, a five-year and a seven-year ARM is set slightly higher than for the
one-year ARM to compensate for the reduced interest rate sensitivity. The
maximum adjustment at each adjustment date for ARMs is usually 2%, with a
maximum adjustment of 6% over the term of the loan.
From time to time, the Banks originate ARMs which have an initial
interest rate that is lower than the sum of the specified index plus the margin.
Such loans are subject to increased risk of delinquency or default due to
increasing monthly payments as the interest rates on such loans increase to the
fully indexed level. The Banks attempt to reduce the risk by underwriting such
loans at the fully indexed rate. None of the Banks' ARMs have negative
amortization features.
Residential mortgage loans offered by the Banks are usually for terms
of 10 to 30 years, which could have an adverse effect upon earnings if the loans
do not reprice as quickly as the cost of funds. To minimize such effect, the
Banks emphasize the origination of ARMs and sell fixed-rate loans when
conditions favor such a sale. Furthermore, experience reveals that, as a result
of prepayments in connection with refinancings and sales of the underlying
properties, residential loans generally remain outstanding for periods which are
substantially shorter than the maturity of such loans.
Of the total mortgage loans originated by the Banks during the year
ended December 31, 2000, 60.6% were ARMs and 39.4% were fixed-rate loans.
Adjustable-rate loans comprised 63.4% of Camco's total outstanding loans at
December 31, 2000.
Construction Loans. The Banks offer residential construction loans both
to owner-occupants and to builders for homes being built under contract with
owner-occupants. The Banks also make loans to persons constructing projects for
investment purposes. At December 31, 2000, a total of $56.0 million, or
approximately 6.0% of Camco's total loans, consisted of construction loans,
primarily for one- to four-family properties.
Construction loans to owner-occupants are typically adjustable-rate
long-term loans on which the borrower pays only interest on the disbursed
portion during the construction period. Some construction loans to builders,
however, have terms of up to 24 months at fixed rates of interest.
Construction loans for investment properties involve greater
underwriting and default risks to the Banks than do loans secured by mortgages
on existing properties or construction loans for single-family residences. Loan
funds are advanced upon the security of the project under construction, which is
more difficult to value in the case of investment properties before the
completion of construction. Moreover, because of the uncertainties inherent in
estimating construction costs, it is relatively difficult to evaluate precisely
the total loan funds required to complete a project and the related
Loan-to-Value Ratios. In the event a default on a construction loan occurs and
foreclosure follows, Camco could be adversely affected in that it would have to
take control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. At December 31, 2000, the
Banks had 17 construction loans in the amount of $4.6 million on investment
properties.
Nonresidential Real Estate Loans. The Banks originate loans secured by
mortgages on nonresidential real estate, including retail, office and other
-6-
types of business facilities and apartment projects containing 36 or more units.
Nonresidential real estate loans are generally made on an adjustable-rate basis
for terms of up to 20 years. Nonresidential real estate loans originated by the
Banks generally have an LTV of 80% or less. The largest nonresidential real
estate loan outstanding at December 31, 2000, was a $2.3 million loan secured by
an office building in Cincinnati, Ohio. Nonresidential real estate loans
comprised 5.9% of total loans at December 31, 2000.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Banks have endeavored to reduce
this risk by carefully evaluating the credit history and past performance of the
borrower, the location of the real estate, the quality of the management
constructing or operating the property, the debt service ratio, the quality and
characteristics of the income stream generated by the property and appraisals
supporting the property's valuation.
Federal law limits an association's investment in nonresidential real
estate loans to 400% of the association's capital. At December 31, 2000, Camco's
investment in nonresidential real estate loans was approximately 69.5% of its
total capital.
Consumer Loans. The Banks make various types of consumer loans,
including loans made to depositors on the security of their savings deposits,
automobile loans, education loans, home improvement loans, home equity line of
credit loans and unsecured personal loans. Home equity loans and unsecured loans
are generally made at a variable rate of interest for terms of up to 10 years.
Most other consumer loans are generally made at fixed rates of interest for
terms of up to 10 years. The risk of default on consumer loans during an
economic recession is greater than for residential mortgage loans. At December
31, 2000, education, consumer and other loans constituted 7.9% of Camco's total
loans.
Loan Solicitation and Processing. Loan originations are developed from
a number of sources, including: solicitations by Camco's lending staff;
referrals from real estate brokers and builders; continuing business with
depositors, other borrowers and real estate developers; and walk-in customers.
Camco does not use loan brokers. Camco's management stresses the importance of
individualized attention to the financial needs of its customers.
The loan origination process is decentralized, with each of the Banks
having autonomy in loan processing and approval for its respective market area.
Mortgage loan applications from potential borrowers are taken by one of the loan
officers of the Bank originating the loan, after which they are forwarded to the
Bank's loan department for processing. On new loans, the loan department
typically obtains a credit report, verification of employment and other
documentation concerning the borrower and orders an appraisal of the fair market
value of the real estate which will secure the loan. The real estate is
thereafter physically inspected and appraised by a staff appraiser or by a
designated fee appraiser approved by the Board of Directors of the originating
Bank. Upon the completion of the appraisal and the receipt of all necessary
information regarding the borrower, the mortgage loan application is submitted
to the Bank's loan committee for approval. If the loan is approved, an
attorney's opinion of title or title insurance is obtained on the real estate
which will secure the loan. Borrowers are required to carry satisfactory fire
and casualty insurance and flood insurance, if applicable, and to name the
originating Bank as an insured mortgagee.
The procedure for approval of construction loans is the same as for
residential mortgage loans, except that the appraiser evaluates the building
plans, construction specifications and construction cost estimates. The
originating Bank also evaluates the feasibility of the proposed construction
project and the experience and record of the builder.
-7-
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Loan Originations, Purchases and Sales. The Banks have been actively
originating new 30-year, 15-year and 10-year fixed-rate real estate loans as
well as adjustable-rate real estate loans and consumer loans. Generally all
residential fixed-rate loans made by the Banks are originated on documentation
which will permit a possible sale of such loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") or other secondary mortgage market participants.
When a mortgage loan is sold to the FHLMC, the selling Bank services the loan by
collecting monthly payments of principal and interest and forwarding such
payments to the FHLMC, net of a servicing fee. During the year ended December
31, 2000 the Banks also sold loans with servicing released. Fixed-rate loans not
sold to the FHLMC and substantially all of the ARMs originated by the Banks are
held in the Banks' loan portfolios. During the year ended December 31, 2000,
Camco sold approximately $119.5 million in loans to the FHLMC and others. Gross
income from loans serviced by Camco for others was $1.3 million for the year
ended December 31, 2000.
From time to time, the Banks sell participation interests in mortgage
loans originated by them and purchase whole loans or participation interests in
loans originated by other lenders. The Banks held whole loans and participations
in loans originated by other lenders of approximately $45.0 million at December
31, 2000. Loans which the Banks purchase must meet or exceed the underwriting
standards for loans originated by the Banks.
In recent years, Camco has purchased mortgage-backed securities insured
or guaranteed by U.S. Government agencies in order to improve Camco's asset
yield by profitably investing excess funds. Camco intends to continue to
purchase such mortgage-backed securities when conditions favor such an
investment. See "Investment Activities."
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The following table presents Camco's mortgage loan origination,
purchase, sale and principal repayment activity for the periods indicated:
Year ended December 31,
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(In thousands)
Loans originated:
Construction $ 71,929 $ 66,437 $ 49,152 $ 34,293 $ 24,182
Permanent 202,004 324,648 328,046 168,519 121,793
Consumer and other 84,526 34,158 67,243 54,351 43,749
------- -------- ------- ------- -------
Total loans originated 358,459 425,243 444,441 257,163 189,724
------- -------- ------- ------- -------
Loan purchased (1) 8,639 31,430 18,982 12,514 -
Reductions:
Principal repayments (1) 178,663 176,804 194,594 134,794 95,508
Loans sold (1) 124,496 96,892 205,899 77,665 61,687
Transfers from loans to real estate owned 1,432 1,220 477 978 92
------- -------- ------- ------- -------
Total reductions 304,591 274,916 400,970 213,437 157,287
Increase (decrease) in other items, net (2) (2,552) (277) (3,444) 137 456
Increase due to mergers (3) 147,196 - - - 70,812
------- -------- ------- ------- -------
Net increase $207,151 $181,480 $ 59,009 $ 56,377 $103,705
======= ======= ======= ======= =======
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(1) Includes mortgage-backed securities.
(2) Other items primarily consist of amortization of deferred loan origination
fees, the provision for losses on loans and unrealized gains on
mortgage-backed securities designated as available for sale.
(3) The 1996 increase resulted from the merger with First Savings and the 2000
increase resulted from the merger with Westwood Savings.
Lending Limit. Federal regulations and Ohio law generally impose a
lending limit on the aggregate amount that a savings association can lend to one
borrower to an amount equal to 15% of the association's total capital for
risk-based capital purposes plus any loan reserves not already included in total
capital (the "Lending Limit Capital"). A savings association may loan to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying this limit, the regulations require that
loans to certain related or affiliated borrowers be aggregated. An exception to
this limit permits loans of any type to one borrower of up to $500,000.
The largest amount which the Banks could have loaned to one borrower at
December 31, 2000, was approximately $3.4 million for Cambridge Savings, $2.2
million for Marietta Savings, $1.9 million for First Federal, $2.1 million for
First Savings and $2.0 million for Westwood Savings. The largest amount
Cambridge Savings had outstanding to one borrower and related persons or
entities at December 31, 2000, was $1.3 million, which consisted of 10 loans
secured by personal residences and one-to-four family rental properties. The
largest amount Marietta Savings had outstanding to one borrower and related
persons or entities at December 31, 2000, was $2.0 million, which consisted of
15 loans secured by a personal residence, commercial properties and leasing
business residuals. The largest amount First Federal had outstanding to one
borrower was $1.8 million, which consisted of one loan secured by a multifamily
apartment building. The largest amount First Savings had outstanding to one
borrower and related persons or entities at December 31, 2000, was $1.5 million,
-9-
which consisted of 3 loans secured by a warehouse, apartments and a golf course.
The largest amount Westwood Savings had outstanding to one borrower and related
persons or entities at December 31, 2000, was $4.9 million which consisted of 14
loans secured by one-to-four family rental units and commercial properties. The
Westwood Savings loans were originated at a time when their loans to one
borrower limitation was higher. As such, these loans are not in violation of the
applicable federal regulation.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Banks may receive loan origination fees or "points" of up to 2.0% of
the loan amount, depending on the type of loan, plus reimbursement of certain
other expenses. Loan origination fees and other fees are a volatile source of
income, varying with the volume of lending and economic conditions. All
nonrefundable loan origination fees and certain direct loan origination costs
are deferred and recognized as an adjustment to yield over the life of the
related loan in accordance with Statement of Financial Accounting Standards
("SFAS") No. 91.
Delinquent Loans, Nonperforming Assets and Classified Assets. The Banks
attempt to minimize loan delinquencies through the assessment of late charges
and adherence to established collection procedures. Generally, after a loan
payment is 15 days delinquent, a late charge of 5% of the amount of the payment
is assessed and a loan officer contacts the borrower by mail or phone to request
payment. In certain limited instances, the Banks may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his or
her financial affairs. The Banks generally initiate foreclosure proceedings, in
accordance with applicable laws, when it appears that a modification or
moratorium would not be productive.
Real estate which has been or will be acquired by one of the Banks as a
result of foreclosure or by deed in lieu of foreclosure is classified as "real
estate owned" until it is sold. "Real estate owned" is recorded at the lower of
the book value of the loan or the fair value of the property less estimated
selling expenses at the date of acquisition. Periodically, "real estate owned"
is reviewed to ensure that fair value is not less than carrying value, and any
write-down resulting therefrom is charged to earnings as a provision for losses
on real estate acquired through foreclosure. All costs incurred from the date of
acquisition are expensed in the period paid.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
At December 31,
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Loans delinquent for:
30 to 89 days $10,557 $13,792 $10,028 $6,723 $6,291
90 or more days 4,726 3,975 4,296 1,939 2,556
------ ------ ------ ----- -----
Total delinquent loans $15,283 $17,767 $14,324 $8,662 $8,847
====== ====== ====== ===== =====
Ratio of total delinquent loans to
total net loans (1) 1.64% 2.45% 2.61% 1.80% 2.10%
==== ==== ==== ==== ====
(1) Total net loans includes loans held for sale.
-10-
Nonaccrual status denotes loans for which, in the opinion of
management, the collection of additional interest is unlikely, or loans that
meet nonaccrual criteria as established by regulatory authorities. Payments
received on a nonaccrual loan are either applied to the outstanding principal
balance or recorded as interest income, depending on management's assessment of
the collectibility of the loan. The following table sets forth information with
respect to Camco's nonaccruing and delinquent loans for the periods indicated.
At December 31,
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Loans accounted for on nonaccrual basis:
Real estate:
Residential $2,068 $1,980 $1,328 $ 830 $ 1,086
Nonresidential 197 429 233 27 655
Consumer and other 157 141 64 79 40
----- ----- ----- ----- -----
Total nonaccrual loans 2,422 2,550 1,625 936 1,781
----- ----- ----- ----- -----
Accruing loans delinquent 90 days or more:
Real estate:
Residential 1,836 1,140 2,030 710 652
Consumer and other 468 285 641 293 123
----- ----- ----- ----- -----
Total loans 90 days past due 2,304 1,425 2,671 1,003 775
----- ----- ----- ----- -----
Total nonperforming loans $4,726 $3,975 $4,296 $1,939 $2,556
===== ===== ===== ===== =====
Allowance for loan losses $2,906 $1,863 $1,783 $1,596 $1,373
===== ===== ===== ===== =====
Nonperforming loans as a percent of total net
loans .51% .55% .78% .40% .61%
=== === === === ===
Allowance for loan losses as a percent of
nonperforming loans 61.5% 46.9% 41.5% 82.3% 53.7%
==== ==== ==== ==== ====
The amount of interest income that would have been recorded had
nonaccrual loans performed in accordance with contractual terms totaled
approximately $188,000 for the year ended December 31, 2000. Interest collected
on such loans and included in net earnings was $42,000.
At December 31, 2000, there were no loans which were not classified as
nonaccrual, 90 days past due or restructured which management considered
classifying in the near future due to concerns as to the ability of the
borrowers to comply with repayment terms.
Federal regulations require each of the Banks to classify its assets on
a regular basis. Problem assets are to be classified as either (i)
"substandard," (ii) "doubtful" or (iii) "loss." Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the same weaknesses as substandard assets with
the additional characteristic that the weaknesses make collection or liquidation
in full highly questionable and improbable on the basis of existing facts,
conditions and value. Assets classified as "loss" are considered uncollectible
and of such little value that their treatment as assets without the
establishment of a specific reserve is unwarranted. Federal regulations provide
for the reclassification of real estate assets by federal examiners.
-11-
Assets classified as substandard or doubtful require the institution to
establish prudent general allowances for losses. If an asset or portion thereof
is classified as loss, the institution must either establish specific allowances
for losses in the amount of 100% of the portion of the asset classified loss or
charge off such amount.
At December 31, 2000, the aggregate amounts of Camco's classified
assets were as follows:
At December 31, 2000
--------------------
(In thousands)
Classified assets:
Substandard $3,280
Doubtful 20
Loss 8
-----
Total classified assets $3,308
=====
The regulations also include a "special mention" category, consisting
of assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification, but which possess credit deficiencies
or potential weaknesses deserving management's close attention. Camco had assets
in the amount of $1.1 million designated as "special mention" at December 31,
2000.
Allowance for Loan Losses. The following table sets forth an analysis
of Camco's allowance for loan losses:
Year ended December 31,
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Balance at beginning of year $1,863 $1,783 $1,596 $1,373 $1,128
Charge-offs:
1-4 family residential real estate 9 82 9 30 3
Multifamily and nonresidential real estate 41 12 - 124 -
Consumer 122 79 61 22 6
----- ----- ----- ----- -----
Total charge-offs 172 173 70 176 9
----- ----- ----- ----- -----
Recoveries:
1-4 family residential real estate - - - 2 -
Multifamily and nonresidential real estate - 2 - 4 -
Consumer 6 4 7 8 4
----- ----- ----- ----- -----
Total recoveries 6 6 7 14 4
----- ----- ----- ----- -----
Net charge-offs (166) (167) (63) (162) (5)
Provision for losses on loans 568 247 250 385 141
Increase attributable to mergers (1) 641 - - - 109
----- ----- ----- ----- -----
Balance at end of year $2,906 $1,863 $1,783 $1,596 $1,373
===== ===== ===== ===== =====
Net charge-offs to average loans .02% .03% .01% .04% -%
=== === === === ====
(1) The 1996 increase is due to the merger with First Savings and the 2000
increase due to the merger with Westwood Savings.
-12-
The following table sets forth the allocation of Camco's allowance for
loan losses by type of loan at the dates indicated:
At December 31,
2000 1999 1998 1997 1996
------ ------ ------ ------ ----
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total of total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at year end
applicable to:
Mortgage loans $2,440 92.1% $1,350 92.9% $1,340 94.1% $1,030 92.8% $1,072 93.5%
Consumer and other 466 7.9 513 7.1 443 5.9 566 7.2 301 6.5
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
loans
Total $2,906 100.0% $1,863 100.0% $1,783 100.0% $1,596 100.0% $1,373 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Investment Activities
Federal regulations require that the Banks maintain a minimum amount of
liquid assets, which may be invested in United States Treasury obligations,
securities of various agencies of the federal government, certificates of
deposit at insured banks, bankers' acceptances and federal funds sold. The Banks
are also permitted to make limited investments in commercial paper, corporate
debt securities and certain mutual funds, as well as other investments permitted
by federal laws and regulations. It has generally been Camco's policy to
maintain liquid assets at the Banks in excess of regulatory requirements in
order to shorten the maturities of the investment portfolios and improve the
matching of short-term investments and interest rate sensitive savings deposit
liabilities.
The following table sets forth the composition of Camco's investment
securities portfolio, except its stock in the FHLB of Cincinnati, at the dates
indicated:
At December 31,
2000 1999 1998
------ ------ ------
Amortized % of Fair % of Amortized % of Fair % of Amortized % of Fair % of
cost Total Value Total cost Total value Total cost Total value Total
------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Held to maturity: (Dollars in thousands)
U.S. Government
agency obligations $16,482 51.3% $16,427 51.3% $16,584 55.8% $16,166 55.7% $10,782 52.3% $10,805 51.8%
Municipal bonds 190 .6 190 .6 280 .9 286 1.0 180 .9 193 .9
Mortgage-backed 5,273 16.4 5,247 16.4 5,944 20.0 5,818 20.0 5,019 24.4 5,102 24.5
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
securities
Total 21,945 68.3 21,864 68.3 22,808 76.7 22,270 76.7 15,981 77.6 16,100 77.2
Available for sale:
U.S. Government
agency obligations - - - - - - - - 1,003 4.9 1,004 4.8
Corporate equity 245 .8 309 1.0 228 .8 273 1.0 214 1.0 288 1.4
securities
Mortgage-backed 9,908 30.9 9,850 30.7 6,704 22.5 6,475 22.3 3,405 16.5 3,476 16.6
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total 10,153 31.7 10,159 31.7 6,932 23.3 6,748 23.3 4,622 22.4 4,768 22.8
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total investments and
mortgage-backed
securities $32,098 100.0% $32,023 100.0% $29,740 100.0% $29,018 100.0% $20,603 100.0% $20,868 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
-13-
The following table presents the contractual maturities or terms to
repricing of Camco's investment securities, except its stock in the FHLB of
Cincinnati and corporate equity securities, and the weighted average yields at
December 31, 2000:
At December 31, 2000
-----------------------------------------------------------------------------------------------------
After one After five
One year or less through five years through ten years After ten years Total
----------------- ------------------- ----------------- ----------------- ---------------------------
Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Fair average
cost yield Cost yield cost yield cost yield cost value yield
------ ------- ------ ------- ------ ------- --------- ----- ------ ----- -----
(Dollars in thousands)
U.S. Government
agency obligations $1,000 5.49% $15,482 6.27% $ - -% $ - -% $16,482 $16,427 6.22%
Municipal bonds - - 100 4.10 - - 90 6.66 190 190 5.31
Mortgage-backed
securities 37 8.74 223 8.43 816 7.50 14,105 7.20 15,181 15,097 5.18
----- ---- ------ ---- --- ---- ------ ---- ------ ------ ----
Total $1,037 5.60% $15,805 6.25% $816 7.50% $14,195 7.16% $31,853 $31,714 5.73%
===== ==== ====== ==== === ==== ====== ==== ====== ====== ====
Deposits and Borrowings
General. Deposits have traditionally been the primary source of Camco's
funds for use in lending and other investment activities. In addition to
deposits, Camco derives funds from interest payments and principal repayments on
loans, advances from the FHLB of Cincinnati and income on earning assets. Loan
payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate more in response to general interest rate and money market
conditions. Borrowings from the FHLB of Cincinnati are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. FHLB advances and other borrowings are also used on a longer term basis
for general business purposes.
Deposits. Deposits are attracted principally from within Camco's
primary market area through the offering of a broad selection of deposit
instruments, including interest and non-interest bearing checking accounts,
money market deposit accounts, regular passbook savings accounts, term
certificate accounts and retirement savings plans. Interest rates paid, maturity
terms, service fees and withdrawal penalties for the various types of accounts
are established periodically by management of the Banks based on their
particular liquidity requirements, growth goals and interest rates paid by
competitors. Interest rates paid by Camco on deposits are not limited by federal
or state law or regulation. Camco generally does not obtain funds through
brokers or offer premiums to attract deposits. Camco does not have a significant
amount of savings accounts from outside its primary market area.
-14-
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by the Banks at the dates indicated:
At December 31,
2000 1999 1998
------ ------ ----
Weighted
average Percent Percent Percent
rate at of total of total of total
12/31/00 Amount deposits Amount deposits Amount deposits
(Dollars in thousands)
Withdrawable accounts:
Interest and non-interest bearing
checking accounts 1.60% $ 90,830 14.4% $ 71,582 15.5% $ 70,944 16.0%
Money market demand accounts 5.39 45,047 7.1 26,898 5.8 24,402 5.5
Passbook and statement savings
accounts 2.90 69,706 11.0 71,128 15.4 74,405 16.8
---- ------- ---- ------- ---- ------- -----
Total withdrawable accounts 2.87 205,583 32.5 169,608 36.7 169,751 38.3
Certificates accounts:
Term:
Seven days to one year 6.49 64,693 10.2 41,093 8.9 88,134 19.9
One to two years 6.42 139,103 22.0 108,118 23.4 58,940 13.3
Two to eight years 6.31 117,146 18.5 83,299 18.1 62,429 14.1
Negotiated rate certificates 6.90 56,552 9.0 28,618 6.2 27,338 6.2
Individual retirement accounts 6.26 49,211 7.8 31,051 6.7 36,635 8.2
---- ------- ----- ------- ----- ------- -----
Total certificate accounts 6.40 426,705 67.5 292,179 63.3 273,476 61.7
---- ------- ----- ------- ----- ------- -----
Total deposits 5.28% $632,288 100.0% $461,787 100.0% $443,227 100.0%
==== ======= ===== ======= ===== ======= =====
The following table presents the amount and contractual maturities of
Camco's time deposits at December 31, 2000:
Amount Due
Up to Over
one year 1-3 years 3-5 years 5 years Total
-------- --------- --------- ------- ------
(Dollars in thousands)
Amount maturing $256,201 $146,014 $16,466 $8,024 $426,705
======= ======= ====== ===== =======
Average rate 6.30% 6.56% 6.18% 6.91% 6.40%
==== ==== ==== ==== ====
The following table sets forth the amount and maturities of Camco's
time deposits in excess of $100,000 at December 31, 2000:
Maturity At December 31, 2000
-------- --------------------
(In thousands)
Three months or less $ 29,763
Over three to six months 15,895
Over six to twelve months 23,488
Over twelve months 40,495
-------
Total $109,641
=======
Borrowings. The twelve regional FHLBs function as central reserve
banks, providing credit for their member institutions. As members in good
standing of the FHLB of Cincinnati, the Banks are authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
-15-
creditworthiness have been met. Advances are made pursuant to several different
programs, each having its own interest rate and range of maturities. Depending
on the program, limitations on the amount of advances are based either on a
fixed percentage of an institution's regulatory capital or on the FHLB's
assessment of the institution's creditworthiness. Under current regulations, a
member institution must meet certain qualifications to be eligible for FHLB
advances. The extent to which an association is eligible for such advances will
depend upon whether it meets the Qualified Thrift Lender ("QTL") test. See
"REGULATION - Federal Regulation -- Qualified Thrift Lender Test." If an
institution meets the QTL test, it will be eligible for 100% of the advances it
would otherwise be eligible to receive. If an institution does not meet the QTL
test, it will be eligible for such advances only to the extent it holds QTL test
assets. At December 31, 2000, each of the Banks met the QTL test.
The following table sets forth the maximum amount of Camco's FHLB
advances outstanding at any month end during the periods shown and the average
aggregate balances of FHLB advances for such periods:
Year ended December 31,
2000 1999 1998
------ ------ ------
(Dollars in thousands)
Maximum amount outstanding $357,411 $279,125 $125,483
Average amount outstanding $325,805 $200,285 $ 95,257
Weighted average interest cost of FHLB advances
based on month end balances 6.37% 5.39% 5.53%
The following table sets forth certain information with respect to
Camco's FHLB advances at the dates indicated:
At December 31,
2000 1999 1998
------ ------ ------
(Dollars in thousands)
Amount outstanding $313,471 $279,125 $125,483
Weighted average interest rate 6.20% 5.71% 5.41%
-16-
Yields Earned and Rates Paid
The following table sets forth the weighted average yields earned on
Camco's interest-earning assets, the weighted average interest rates paid on
Camco's interest-bearing liabilities and the interest rate spread between the
weighted average yields earned and rates paid by Camco at the dates indicated:
At December 31,
----------------------------------------------
2000 1999 1998
------ ------ ------
Weighted average yield on:
Loan portfolio (1) 8.01% 7.47% 7.81%
Investment portfolio (2) 6.82 6.17 6.61
Total interest-earning assets (3) 7.92 7.39 7.63
Weighted average rate paid on:
Deposits 5.28 4.39 4.46
FHLB advances 6.20 5.71 5.41
Total interest-bearing liabilities 5.53 4.81 4.69
Interest rate spread (spread between weighted average
rate on all interest-earning assets and all
interest-bearing liabilities) 2.39 2.58 2.94
- ----------------------------
(1) Includes loans held for sale and excludes the allowance for loan and lease
losses.
(2) Interest on mortgage-backed securities included.
(3) Earnings on FHLB stock and cash surrender value of life insurance included.
Average Yield and Rate Analysis
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resulting
yields, and the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. The table does
not reflect any effect of income taxes. Balances are based on the average of
month-end balances which, in the opinion of management, do not differ materially
from daily balances:
Year ended December 31,
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
Average Interest Average Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate balance paid rate
------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
Interest-earning assets:
Loans receivable (1) $903,226 $71,524 7.92% $637,755 $47,904 7.51% $499,515 $40,478 8.10%
Mortgage-backed securities (2) 15,920 1,120 7.04 11,173 759 6.79 10,435 779 7.47
Investment securities (2) 17,529 1,141 6.51 14,963 896 5.99 16,696 1,037 6.21
Interest-bearing deposits
and other interest-earning
assets 26,115 1,886 7.22 26,896 1,534 5.70 31,482 1,989 6.32
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets $962,790 75,671 7.86 $690,787 51,093 7.40 $558,128 44,283 7.93
======= ======= =======
Interest-bearing liabilities:
Deposits $590,418 28,869 4.89 $452,939 19,119 4.22 $428,911 19,538 4.56
FHLB advances 325,805 20,740 6.37 200,285 10,788 5.39 95,257 5,314 5.53
------- ------ ---- ------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities $916,223 49,609 5.41 $653,224 29,907 4.58 $524,168 24,852 4.74
======= ------ ---- ======= ------ ---- ======= ------ ----
Net interest income; interest
rate spread $26,062 2.45% $21,186 2.82% $19,431 3.19%
====== ==== ====== ==== ====== ====
Net interest margin (3) 2.71% 3.07% 3.48%
==== ==== ====
Average interest-earning assets
to average interest-bearning
liabilities 105.08% 105.75% 106.48%
====== ====== ======
- ------------------------------------
(1) Includes nonaccrual loans.
(2) Includes securities designated as available for sale.
(3) Net interest income as a percent of average interest-earning assets.
-17-
Rate/Volume Analysis
The following table describes the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Camco's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been designated as "Other."
Year ended December 31,
2000 vs. 1999 1999 vs. 1998
-------------------------------------- -------------------------------------
Increase (decrease) due to Increase (decrease) due to
--------------------------- --------------------------
Volume Rate Other Total Volume Rate Other Total
------ ---- ----- ----- ------ ---- ----- -----
(Dollars in thousands)
Interest income attributable to:
Loans receivable (1) $20,259 $ 2,643 $ 1,079 $23,981 $11,244 $(3,016) $(822) $7,406
Investment securities (2) 109 460 28 597 (397) (229) 30 (596)
------ ------ ------ ------ ------ ------ ---- -----
Total interest income 20,368 3,103 1,107 24,578 10,847 (3,245) (792) 6,810
------ ------ ------ ------ ------ ------ ---- -----
Interest expense attributable to:
Deposits 5,802 3,035 913 9,750 1,095 (1,433) (81) (419)
FHLB advances 6,766 1,963 1,223 9,952 5,859 (183) (202) 5,474
------ ------ ------ ------ ------ ------ ---- -----
Total interest expense 12,568 4,998 2,136 19,702 6,954 (1,616) (283) 5,055
------ ------ ------ ------ ------ ------ ---- -----
Increase (decrease) in net interest
income $ 7,800 $(1,895) $(1,029) $ 4,876 $ 3,893 $(1,629) $(509) $1,755
====== ======= ======= ====== ====== ====== ==== =====
- --------------------------
(1) Includes mortgage-backed securities.
(2) Includes interest-bearing deposits and other.
Competition
The Banks compete for deposits with other savings associations, savings
banks, commercial banks and credit unions and with the issuers of commercial
paper and other securities, such as shares in money market mutual funds. The
primary factors in competing for deposits are interest rates and convenience of
office location. In making loans, the Banks compete with other savings banks,
savings associations, commercial banks, consumer finance companies, credit
unions and other lenders. The Banks compete for loan originations primarily
through the interest rates and loan fees they charge and through the efficiency
and quality of the services they provide to borrowers. Competition is affected
by, among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels and other factors which
are not readily predictable.
-18-
Service Corporation Activities
Federal regulations permit savings associations to invest an amount up
to 2% of their assets in the stock, paid-in surplus and unsecured obligations of
subsidiary service corporations engaged in certain activity. In addition,
federal regulations generally authorize such institutions which meet the minimum
regulatory capital requirements to invest up to 50% of their regulatory capital
in conforming first mortgage loans made by service corporations.
At December 31, 2000, Cambridge Savings and Marietta Savings each had a
direct investment in the capital stock of CMC in the amount of approximately
$908,000. The principal business of CMC is originating first mortgage loans on
residential real estate located primarily in Coshocton, Muskingum, Stark and
Tuscarawas Counties, Ohio. Loans originated by CMC are generally sold to
Cambridge Savings. CMC originated $88.1 million of mortgage loans in 2000, $69.2
million of which were sold to Cambridge Savings and $12.4 million of which were
sold to Marietta Savings, compared to $129.8 million of mortgage loans in 1999,
$122.6 million of which were sold to Cambridge Savings and $7.2 million of which
were sold to Marietta Savings.
Marietta Savings had a direct investment in the capital stock of
WestMar in the amount of approximately $414,000 at December 31, 2000. The
principal business of WestMar is originating first mortgage loans on residential
real estate located in Wood County, West Virginia. WestMar originated $7.6
million of mortgage loans in 2000, $5.7 million of which were sold to Marietta
Savings, compared to $11.1 million of mortgage loans in 1999, $9.5 million of
which were sold to Marietta Savings.
First S&L Corporation had not conducted any business during the year
ended December 31, 2000, and was capitalized on a nominal basis at December 31,
2000.
Employees
As of December 31, 2000, Camco had 232 full-time employees and 45
part-time employees. Camco believes that relations with its employees are good.
Camco offers health and disability benefits and a 401(k) salary savings plan.
None of the employees of Camco are represented by a collective bargaining unit.
REGULATION
General
As a savings and loan holding company within the meaning of the Home
Owners' Loan Act of 1933, as amended (the "HOLA"), Camco is subject to
regulation, examination and oversight by the OTS. First Federal and First
Savings are subject to regulation by the OTS and the FDIC. Cambridge Savings,
Marietta Savings and Westwood Savings are subject to regulation by the Division
and the FDIC. Camco and the Banks must file periodic reports with these
governmental agencies, as applicable, concerning their activities and financial
condition. Examinations are conducted periodically by the applicable regulators
to determine whether Camco and the Banks are in compliance with various
regulatory requirements and are operating in a safe and sound manner. The Banks
are members of the FHLB of Cincinnati and are also subject to certain
regulations promulgated by the Board of Governors of the Federal Reserve System
("FRB").
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act repealed prior laws which had generally prevented
banks from affiliating with securities and insurance firms and made other
significant changes in the financial services in which various types of
financial institutions may engage.
-19-
Prior to the GLB Act, unitary savings and loan holding companies which
met certain requirements were the only financial institution holding companies
that were permitted to engage in any type of business activity, whether or not
the activity was a financial service. The GLB Act continues those broad powers
for unitary thrift holding companies in existence on May 4, 1999. Any thrift
holding company formed after May 4, 1999, however, will be subject to the same
restrictions as multiple thrift holding companies, which generally are limited
to activities that are considered incidental to banking.
The GLB authorizes a new "financial holding company," which can own
banks and thrifts and which are also permitted to engage in a variety of
financial activities, including insurance and securities underwriting and agency
activities, as long as the depository institutions it owns are well capitalized,
well managed and meet certain other tests.
The GLB Act is not expected to have a material effect on the activities
in which Camco and the Banks currently engage, except to the extent that
competition from other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
Ohio Regulation
As savings banks incorporated under Ohio law, Cambridge Savings,
Marietta Savings and Westwood Savings are subject to regulation by the Division.
Such regulation affects the internal organization of Cambridge Savings, Marietta
Savings and Westwood Savings, as well as their savings, mortgage lending and
other investment activities. Ohio law requires that Cambridge Savings, Marietta
Savings and Westwood Savings each maintain at least 60% of their assets in
housing-related and other specified investments. At December 31, 2000, Cambridge
Savings, Marietta Savings and Westwood Savings had at least 60% of their
respective assets in such investments. The ability of Ohio savings banks to
engage in certain state-authorized investments is subject to oversight and
approval by the FDIC. See "Federal Regulation - State Chartered Bank
Activities."
Ohio law generally limits the aggregate amount that a savings bank can
lend to one borrower to an amount equal to 15% of the institution's unimpaired
capital and surplus. See "Lending Activities - Lending Limit."
The Division is responsible for the regulation and supervision of Ohio
savings banks in accordance with the laws of the State of Ohio. Periodic
examinations by the Division are usually conducted on a joint basis with the
federal examiners. Ohio law requires that Cambridge Savings, Marietta Savings
and Westwood Savings maintain federal deposit insurance as a condition of doing
business.
Any mergers involving, or acquisitions of control of, Ohio savings
banks must be approved by the Division. The Division may initiate certain
supervisory measures or formal enforcement actions against Ohio savings banks.
Ultimately, if the grounds provided by law exist, the Division may place an Ohio
savings bank in conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically
governing savings banks, Cambridge Savings, Marietta Savings and Westwood
Savings are also governed by Ohio corporate law, to the extent such law does not
conflict with the laws specifically governing savings banks.
-20-
Federal Regulation
Supervision and Examination. The FDIC is responsible for the regulation
and supervision of all commercial banks and state savings banks that are not
members of the Federal Reserve System ("Non-member Banks"), including Cambridge
Savings, Marietta Savings and Westwood Savings. The OTS is responsible for the
regulation and supervision of all savings associations, including First Federal
and First Savings. Each of the Banks must undergo a full-scope, on-site
examination by its primary federal regulator at least (a) once every twelve
months, if the bank has total assets of $250 million or more, or (b) once every
eighteen months, if the institution has total assets of less than $250 million
and satisfies other specified criteria. In lieu of conducting its own
examination, the federal regulator may accept a state examination every other
examination period.
The FDIC issues regulations governing the operations of Non-member
Banks, examines such institutions and may initiate enforcement actions against
such institutions and certain persons affiliated with them for violations of
laws and regulations or for engaging in unsafe or unsound practices. If the
grounds provided by law exist, the FDIC may appoint a conservator or a receiver
for a Non-member Bank.
The OTS issues regulations governing the operations of savings
associations, regularly examines such institutions and imposes assessments on
savings associations based on their asset size to cover the costs of this
supervision and examination. It also promulgates regulations that prescribe
permissible activities for federally chartered associations, including the types
of lending that such associations may engage in and the investments in real
estate, subsidiaries and securities they may make. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Non-member Banks and savings associations are subject to regulatory
oversight under various consumer protection and fair lending laws. These laws
govern, among other things, truth-in-lending disclosure, equal credit
opportunity, fair credit reporting and community reinvestment. Failure to abide
by federal laws and regulations governing community reinvestment could limit the
ability of an institution to open a new branch or engage in a merger
transaction.
State-Chartered Bank Activities. The ability of Cambridge Savings,
Marietta Savings and Westwood Savings to engage in any state-authorized
activities or make any state-authorized investments, as principal, is limited if
such activity is conducted or investment is made in a manner different than that
permitted for, or subject to different terms and conditions than those imposed
on, national banks. Engaging as a principal in any such activity or investment
not permissible for a national bank is subject to approval by the FDIC. Such
approval will not be granted unless certain capital requirements are met and
there is not a significant risk to the FDIC insurance fund. Most equity and real
estate investments (excluding office space and other real estate owned)
authorized by state law are not permitted for national banks. Certain exceptions
are granted for activities deemed by the FRB to be closely related to banking
and for FDIC-approved subsidiary activities.
Liquidity. OTS regulations require that each of First Federal and First
Savings maintain an average daily balance of liquid assets (cash, certain time
deposits, bankers' acceptances, and specified United States Government, state or
federal agency obligations). During fiscal 1998, certain maturity requirements
were removed, which, for First Federal and First Savings, resulted in a greater
eligible liquidity amount and percentage at December 31, 2000, than at prior
year ends. At December 31, 1999, such minimum requirement was an amount equal to
a monthly average of not less than 4% of its net withdrawable savings deposits
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plus borrowings payable in one year or less computed as of the end of the prior
quarter or based on the average daily balance during the prior quarter. Monetary
penalties may be imposed upon associations failing to meet liquidity
requirements. The liquidity requirement of First Federal and First Savings was
approximately $3.9 million, or 4%, and $2.8 million, or 4%, respectively. First
Federal and First Savings' December 2000, monthly average exceeded the liquidity
requirement by approximately $3.4 million and $1.7 million, respectively.
Cambridge Savings, Marietta Savings and Westwood Savings are not
required to maintain a specific level of liquidity; however, the FDIC expects
them to maintain adequate liquidity to protect safety and soundness.
Qualified Thrift Lender Trust
Savings associations must meet one of two tests in order to be a
qualified thrift lender ("QTL"). The first test requires a savings association
to maintain a specified level of investments in assets that are designated as
qualifying thrift investments ("QTIs"). Generally, QTIs are assets related to
domestic residential real estate and manufactured housing, although they also
include credit card, student and small business loans and stock issued by any
FHLB, the FHLMC or the FNMA. Under the QTL test, 65% of an institution's
"portfolio assets" (total assets less goodwill and other intangibles, property
used to conduct business and 20% of liquid assets) must consist of QTI on a
monthly average basis in nine out of every 12 months. The second test permits a
savings association to qualify as a QTL by meeting the definition of "domestic
building and loan association" under the Internal Revenue Code of 1986, as
amended (the "Code"). In order for an institution to meet the definition of a
"domestic building and loan association" under the Code, at least 60% of its
assets must consist of specified types of property, including cash, loans
secured by residential real estate or deposits, educational loans and certain
governmental obligations. The OTS may grant exceptions to the QTL tests under
certain circumstances. If a savings association fails to meet either one of the
QTL tests, the association and its holding company become subject to certain
operating and regulatory restrictions and the savings association will not be
eligible for new FHLB advances.
Limitations on Capital Distributions. The OTS imposes various
restrictions or requirements on the ability of associations, including First
Federal and First Savings, to make capital distributions. Capital distributions
include, without limitation, payments of cash dividends, repurchases and certain
other acquisitions by an association of its shares and payments to stockholders
of another association in an acquisition of such other association.
An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (i) if the
proposed distribution would cause total distributions for the calendar year to
exceed net income for that year to date plus the savings association's retained
net income for that year to date plus the retained net income for the preceding
two years; (ii) if the savings association will not be at least adequately
capitalized following the capital distribution; (iii) if the proposed
distribution would violate a prohibition contained in any applicable statute,
regulation or agreement between the savings association and the OTS (or the
FDIC), or violate a condition imposed on the savings association in an
OTS-approved application or notice. If a savings association subsidiary of a
holding company is not required to file an application, it must file a notice of
the proposed capital distribution with the OTS. First Federal and First Savings
paid dividends to Camco totaling $2.8 million during 2000.
Lending Limits. OTS regulations generally limit the aggregate amount
that First Federal and First Savings can lend to one borrower to an amount equal
to 15% of the association's Lending Limit Capital. A savings association may
lend to one borrower an additional amount not to exceed 10% of the association's
unimpaired capital and surplus, if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." Certain types of loans are not subject to these
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limits. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying these limits,
the regulations require that loans to certain related borrowers be aggregated.
At December 31, 2000, First Federal and First Savings were in compliance with
these lending limits. See "Lending Activities - Federal Lending Limit."
Regulatory Capital Requirements. The Banks are required by applicable
law and regulations to meet certain minimum capital requirements. The capital
standards include a leverage limit, or core capital requirement, a tangible
capital requirement applicable to First Federal and First Savings, and a
risk-based capital requirement.
For First Federal and First Savings, the leverage limit requires "core
capital" of at least 4% of total assets. "Core capital" is comprised of common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in consolidated
subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual
associations and certain purchased mortgage servicing rights.
The tangible capital requirement provides that First Federal and First
Savings must maintain "tangible capital" of not less than 1.5% of its adjusted
total assets. "Tangible capital" is defined as core capital minus any
"intangible assets."
For Cambridge Savings, Marietta Savings and Westwood Savings the
leverage capital requirement is a minimum level of Tier 1 capital to average
total consolidated assets of 3%, if they have the highest regulatory examination
rating, well diversified risk and minimal anticipated growth or expansion, and
between 4% and 5% of average total consolidated assets if they do not meet those
criteria. "Tier 1" capital includes common stockholders equity, noncumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less all intangibles, other than includable purchased
mortgage servicing rights and credit card relationships.
Pursuant to the risk-based capital requirement, the Banks must maintain
total capital, which consists of core or Tier 1 capital and certain general
valuation reserves, of 8% of risk-weighted assets. For purposes of computing
risk-based capital, assets and certain off-balance sheet items are weighted at
percentage levels ranging from 0% to 100%, depending on their relative risk.
There are certain differences between the risk weightings applicable to First
Federal and First Savings and those applicable to Cambridge Savings, Marietta
Savings and Westwood Savings.
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The following tables present certain information regarding compliance
by the Banks with applicable regulatory capital requirements at December 31,
2000:
At December 31, 2000
-------------------------------------------------------------------------------------
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
-------------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Cambridge Savings
- -----------------
Total capital $22,805 12.1% $15,052 8.0% $18,815 10.0%
(to risk-weighted assets)
Tier I capital 21,975 11.7 7,526 4.0 11,289 6.0
(to risk-weighted assets)
Tier I leverage 21,975 6.6 13,388 4.0 16,736 5.0
Marietta Savings
- ----------------
Total capital 14,594 11.7 9,975 8.0 12,469 10.0
(to risk-weighted assets)
Tier I capital 13,943 11.2 4,987 4.0 7,481 6.0
(to risk-weighted assets)
Tier I leverage 13,943 7.3 7,606 4.0 9,507 5.0
Westwood Savings
- ----------------
Total capital 13,381 14.0 7,644 8.0 9,555 10.0
(to risk-weighted assets)
Tier I capital 12,710 13.3 3,822 4.0 5,733 6.0
(to risk-weighted assets)
Tier I leverage 12,710 8.1 6,288 4.0 7,861 5.0
First Federal
- -------------
Tangible capital 11,918 5.7 3,136 1.5 10,452 5.0
Core capital 11,918 5.7 8,362 4.0 12,543 6.0
Risk-based capital 12,366 10.6 9,335 8.0 11,669 10.0
First Savings
- -------------
Tangible capital 10,332 7.5 2,076 1.5 6,919 5.0
Core capital 10,332 7.5 5,535 4.0 8,302 6.0
Risk-based capital 10,638 11.9 7,153 8.0 8,941 10.0
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The OTS has adopted an interest rate risk component to the risk-based
capital requirement. Pursuant to that requirement, a savings association must
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio, as determined under the methodology established by
the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
that excess exposure from its total capital when determining its level of
risk-based capital. In general, an association with less than $300 million in
assets and a risk-based capital ratio of greater than 12% will not be subject to
this requirement. First Federal and First Savings currently qualifies for such
exception.
The FDIC has adopted a new interest rate risk component to the capital
requirements applicable to Non-member Banks. It includes a final rule to allow
for an increase in a Non-member Bank's risk-based capital requirements on an
individualized basis to address the bank's exposure to a decline in the economic
value of its capital due to a change in interest rates. It also includes a
proposed policy to provide for measurement of such decline in economic value by
determining the amount of change in the present value of an institution's
assets, liabilities and off-balance sheet items as a result of a 200 basis point
change in interest rates, and taking into account an institution's management of
its interest rate risk and the overall risk exposure of the institution. There
is a proposed exemption from the policy for small, well-managed institutions
with moderate interest rate risk exposure based on asset maturities or repricing
schedules. Such institutions must still measure and assess interest rate risk.
The FDIC has an outstanding proposal to add a market risk component to
the capital requirements of Non-member Banks. Such component would require
additional capital for general or specific market risk of trading portfolios of
debt and equity securities and other investments or assets. The policy will
apply to an institution with less than $5 billion in assets only if its trading
portfolio constitutes at least 10% of the institution's assets. Cambridge
Savings, Marietta Savings and Westwood Savings cannot predict in what form this
market risk component will be adopted, if at all. At December 31, 2000,
Cambridge Savings, Marietta Savings and Westwood Savings did not have trading
portfolios. The FDIC may also require additional capital to address
concentrations of credit and non-traditional activities on a case-by-case basis.
The OTS and FDIC have adopted regulations governing prompt corrective
action to resolve the problems of capital deficient and otherwise troubled
savings associations and Non-member Banks. At each successively lower defined
capital category, an institution is subject to more restrictive and numerous
mandatory or discretionary regulatory actions or limits, and the applicable
agency has less flexibility in determining how to resolve the problems of the
institution. In addition, the agency generally can downgrade an institution's
capital category, notwithstanding its capital level, if, after notice and
opportunity for hearing, the institution is deemed to be engaging in an unsafe
or unsound practice, because it has not corrected deficiencies that resulted in
it receiving a less than satisfactory examination rating on matters other than
capital or it is deemed to be in an unsafe or unsound condition. An
undercapitalized institution must submit a capital restoration plan to the
applicable agency within 45 days after it becomes undercapitalized. Such
institution will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. Furthermore, critically
undercapitalized institutions must be placed in conservatorship or receivership
within 90 days of reaching that capitalization level, except under limited
circumstances. Each of the Banks' capital levels at December 31, 2000, met the
standards for well-capitalized institutions.
Federal law prohibits a financial institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
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restoration plan until the institution has been adequately capitalized on
average during each of the four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (a) an amount equal to 5% of the
institution's total assets at the time it became undercapitalized or (b) the
amount necessary to bring the institution into compliance with all capital
standards applicable to such institution at the time the institution fails to
comply with its capital restoration plan.
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of federally insured banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the Bank Insurance Fund ("BIF")
for commercial banks and state savings banks and the SAIF for savings
associations. The Banks are members of the SAIF and their deposit accounts are
insured by the FDIC, up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including the Banks, and has
authority to initiate enforcement actions against federally insured savings
associations, if the FDIC does not believe the OTS has taken appropriate action
to safeguard safety and soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Transactions with Affiliates and Insiders
Loans to executive officers, directors and principal shareholders and
their related interests must conform to the lending limit on loans to one
borrower, and the total of such loans to executive officers, directors,
principal shareholders and their related interests cannot exceed the
association's Lending Limit Capital (or 200% of Lending Limit Capital for
qualifying institutions with less than $100 million in assets). Most loans to
directors, executive officers and principal shareholders must be approved in
advance by a majority of the "disinterested" members of the board of directors
of the association with any "interested" director not participating. All loans
to directors, executive officers and principal shareholders must be made on
terms substantially the same as offered in comparable transactions with the
general public or as offered to all employees in a company-wide benefit program,
and loans to executive officers are subject to additional limitations. The Banks
were in compliance with such restrictions at December 31, 2000.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate is any company or entity which controls, is controlled by or is under
common control with the financial institution. In a holding company context, the
parent holding company of a savings association and any companies that are
controlled by such parent holding company are affiliates of the institution.
Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a
financial institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus for any one affiliate and 20% of such capital stock and
surplus for the aggregate of such transactions with all affiliates, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or the subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.
In addition to limits in Sections 23A and 23B, First Federal and First Savings
may not make any loan or other extension of credit to an affiliate unless the
affiliate is engaged only in activities permissible for a bank holding company
and may not purchase or invest in securities of any affiliate, except shares of
a subsidiary. Exemptions from Sections 23A or 23B of the FRA may be granted only
by the FRB. The Banks were in compliance with these requirements at December 31,
2000.
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Change in Control
Federal Law. The Federal Deposit Insurance Act (the "FDIA") provides
that no person, acting directly or indirectly or in concert with one or more
persons, shall acquire control of any insured depository institution or holding
company, unless 60-days prior written notice has been given to the primary
federal regulator for that institution and such regulator has not issued a
notice disapproving the proposed acquisition. Control, for purposes of the FDIA,
means the power, directly or indirectly, alone or acting in concert, to direct
the management or policies of an insured institution or to vote 25% or more of
any class of securities of such institution. Control exists in situations in
which the acquiring party has direct or indirect voting control of at least 25%
of the institution's voting shares, controls in any manner the election of a
majority of the directors of such institution or is determined to exercise a
controlling influence over the management or policies of such institution. In
addition, control is presumed to exist, under certain circumstances where the
acquiring party (which includes a group "acting in concert") has voting control
of at least 10% of the institution's voting stock. These restrictions do not
apply to holding company acquisitions. See "Holding Company Regulation".
Ohio Law. A statutory limitation on the acquisition of control of an
Ohio savings bank requires the written approval of the Division prior to the
acquisition by any person or entity of a controlling interest in an Ohio
association. Control exists, for purposes of Ohio law, when any person or entity
which, either directly or indirectly, or acting in concert with one or more
other persons or entities, owns, controls, holds with power to vote, or holds
proxies representing, 15% or more of the voting shares or rights of an
association, or controls in any manner the election or appointment of a majority
of the directors. A director will not be deemed to be in control by virtue of an
annual solicitation of proxies voted as directed by a majority of the board of
directors. Ohio law also requires that certain acquisitions of voting securities
that would result in the acquiring shareholder owning 20%, 33-1/3% or 50% of the
outstanding voting securities of Camco must be approved in advance by the
holders of at least a majority of the outstanding voting shares represented at a
meeting at which a quorum is present and a majority of the portion of the
outstanding voting shares represented at such a meeting, excluding the voting
shares by the acquiring shareholder. This statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers. Under
certain circumstances, interstate mergers and acquisitions involving savings
banks incorporated under Ohio law are permitted by Ohio law. A financial
institution or financial institution holding company with its principal place of
business in another state may acquire a savings and loan association or savings
and loan holding company incorporated under Ohio law if, in the discretion of
the Division, the laws of such other state give an Ohio institution or an Ohio
holding company reciprocal rights.
Holding Company Regulation
Camco is a multiple savings and loan holding company subject to the
regulatory oversight, examination and enforcement authority of the OTS. Though
Cambridge Savings, Marietta Savings and Westwood Savings are not savings
associations, they have elected to be treated as such for holding company
purposes, so that Camco is not regulated as a bank holding company. Camco is
required to register and file periodic reports with the OTS. If the OTS
determines that the continuation of a particular activity by a savings and loan
holding company constitutes a serious threat to the financial condition of its
subsidiary institutions, the OTS may impose restrictions on the holding company.
Such restrictions may include limiting the payment of dividends, transactions
with affiliates or any other activities deemed to pose a serious threat to the
subsidiary institutions.
Generally, no savings and loan holding company may (i) acquire or
retain control of a savings association or another savings and loan holding
company or control the assets thereof or (ii) acquire or retain more than 5% of
the voting shares of a savings association or holding company thereof, which is
not a subsidiary, without the prior written approval of the Director of the OTS.
-27-
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash, without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the Director of the OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock may also
acquire control of any savings institution, other than a subsidiary institution,
or any other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). As under prior law, the Director of the OTS may approve
an acquisition resulting in a multiple savings and loan holding company
controlling savings associations in more than one state in the case of certain
emergency thrift acquisitions.
As a multiple savings and loan holding company, the activities of Camco
and those of any of its subsidiaries (other than the Banks) are subject to
certain restrictions. Generally, no multiple savings and loan holding company or
subsidiary thereof that is not a savings association may engage in any business
activity other than (i) furnishing or performing management services for a
subsidiary savings association, (ii) conducting an insurance agency or an escrow
business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings association, (iv) holding or managing properties used
or occupied by a subsidiary savings association, (v) acting as trustee under
deeds of trust, (vi) engaging in those activities previously directly authorized
by federal regulation as of March 5, 1987, to be engaged in by multiple holding
companies, or (vii) furnishing or performing such other services or engaging in
those activities authorized by the FRB as permissible for bank holding
companies, unless the director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies. Those activities described in
(vii) above must also be approved by the Director of the OTS prior to being
engaged in by a multiple holding company.
Federal law provides that an insured institution shall be liable for
any loss incurred by the FDIC in connection with the default or potential
default of, or federal assistance provided to, an insured institution which is
controlled by the same holding company. Such loss would be apportioned among all
of the insured institutions controlled by the holding company.
Federal Reserve Requirements
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $42.8
million (subject to an exemption of up to $5.5 million), and of 10% of net
transaction accounts in excess of $42.8 million. At December 31, 2000, each of
the Banks was in compliance with its reserve requirements.
Federal Home Loan Bank System
The FHLBs provide credit to their members in the form of advances. As
members of the FHLB of Cincinnati, the Banks are each required to maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of their
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of their advances from the FHLB of Cincinnati.
Camco is in compliance with this requirement with an aggregate investment by the
Banks in FHLB of Cincinnati stock of $19.3 million at December 31, 2000.
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Generally, the FHLB is not permitted to make new advances to a member
without positive tangible capital. Upon the origination or renewal of a loan or
advance, the FHLB of Cincinnati is required to obtain and to maintain a security
interest in collateral in one or more of the following categories: fully
disbursed, whole first mortgage loans on improved residential property or
securities representing a whole interest in such loans; securities issued,
insured or guaranteed by the United States Government or an agency thereof;
deposits in any FHLB; or other real estate related collateral (up to 30% of the
member's capital) acceptable to the applicable FHLB, if such collateral has a
readily ascertainable value and the FHLB can perfect its security interest in
the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance. The FHLBs have established the
"Affordable Housing Program" to subsidize the interest rate on advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. Cambridge Savings, First Federal and Marietta Savings have participated
in this program.
Federal Taxation
Camco and its subsidiaries are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, Camco and its subsidiaries may be subject to the alternative minimum
tax which is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemptions. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Camco's average gross receipts for the three tax years ending on
December 31, 2000, is approximately $63.1 million and as a result, Camco does
not qualify as a small corporation exempt from the alternative minimum tax.
Certain thrift institutions, such as the Banks, are allowed deductions
for bad debts under methods more favorable than those granted to other
taxpayers. Qualified thrift institutions may compute deductions for bad debts
using either the specific charge-off method of Section 166 of the Code or the
experience method of Section 593 of the Code. The "experience" method is also
-29-
available to small banks. Under the "experience" method, a thrift institution is
generally allowed a deduction for an addition to its bad debt reserve equal to
the greater of (i) an amount based on its actual average experience for losses
in the current and five preceding taxable years, or (ii) an amount necessary to
restore the reserve to its balance as of the close of the base year.
Thrift institutions that are treated as small banks are allowed to
utilize the experience method applicable to such institutions, while thrift
institutions that are treated as large banks are required to use only the
specific charge-off method.
A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property. Camco has provided deferred
taxes of approximately $635,000 and began to amortize the recapture of the bad
debt reserve over a six year period, which commenced in 1998.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by any of the Banks to Camco is deemed paid out of
its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced
and the gross income of Camco for tax purposes would be increased by the amount
which, when reduced by the income tax, if any, attributable to the inclusion of
such amount in its gross income, equals the amount deemed paid out of the
pre-1988 reserves. As of December 31, 2000, the pre-1988 reserves for the Banks
for tax purposes totaled approximately $9.0 million. Camco believes the Banks
-30-
had approximately $27.0 million of accumulated earnings and profits for tax
purposes as of December 31, 2000, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met. No representation can be made as to whether the Banks will
have current or accumulated earnings and profits in subsequent years.
The tax returns of Camco have been audited or closed without audit
through calendar year 1996. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of Camco.
Ohio Taxation. Camco and Camco Title are subject to the Ohio
corporation franchise tax, which, as applied to them, is a tax measured by both
net earnings and net worth. For tax years beginning after December 31, 2000, the
rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or
(ii) .400% times taxable net worth.
A special litter tax is also applicable to all corporations, including
Camco, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
The Banks are "financial institutions" for State of Ohio tax purposes.
As such, they are subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.4% of their book net
worth determined in accordance with generally accepted accounting principles.
For tax year 2001 and years thereafter the tax will be 1.3% of the book net
worth. As "financial institutions," the Banks are not subject to any tax based
upon net income or net profits imposed by the State of Ohio.
CMC and WestMar are subject to the Ohio Dealers in Intangibles property
tax but currently incur no liability because they are owned by Ohio financial
institutions.
Delaware Taxation. As a Delaware corporation, Camco is subject to an
annual franchise tax based on the quantity and par value of its authorized
capital stock and its gross assets. As a savings and loan holding company, Camco
is exempt from Delaware corporate income tax.
Kentucky Taxation. The Commonwealth of Kentucky imposes no income or
franchise taxes on savings institutions. First Savings is subject to an annual
ad valoreum tax which is .1% of First Savings' deposit accounts, common stock
and retained income, with certain deductions for amounts borrowed by depositors
and securities guaranteed by the U.S. Government or certain of its agencies.
West Virginia Taxation. Marietta Savings, First Savings, Camco Title
and WestMar are subject to a West Virginia tax on apportioned adjusted net
income and a West Virginia franchise tax on apportioned adjusted capital. The
adjusted net income of each is taxed at a rate of 9.08%. The franchise tax rate
is 0.75% of adjusted capital. The apportionment is based solely on the ratio of
gross receipts derived from West Virginia as compared to gross receipts
everywhere.
-31-
Item 2. Properties.
The following table provides the location of, and certain other
information pertaining to, Camco's office premises as of December 31, 2000:
Year facility Leased
commenced or Net book
Office Location operations owned value (1)
- --------------- ---------- ------- ---------
First Federal
134 E. Court Street
Washington Court House, Ohio 1963 Owned (2) $601,549
45 West Second Street
Chillicothe, Ohio 1994 Leased (3)
135 North South Street
Wilmington, Ohio 1992 Owned 92,226
1050 Washington Ave.
Washington Court House, Ohio 1996 Owned 552,933
1 N. Plum Street
Germantown, Ohio 1998 Owned 575,123
687 West Main Street
New Lebanon, Ohio 1998 Owned 80,448
218 W. Olentangy Street
Powell, Ohio 1998 Leased (4) 14,317
1342 Cherry Bottom Road
Gahanna, Ohio 1999 Leased (5) 35,404
Westwood
3002 Harrison Avenue
Cincinnati, Ohio 1833 Owned 1,705,237
1101 St. Gregory Street
Cincinnati, Ohio 1996 Leased (6)
5071 Glencrossing Way
Cincinnati, Ohio 2000 Leased (7)
-32-
Year facility Leased
commenced or Net book
Office Location operations owned value (1)
- --------------- ---------- ------- ---------
Camco Title
290 1/2Front St.
Marietta, Ohio 1996 Leased (8)
126 S. 9th Street
Cambridge, Ohio 1998 Owned $102,030
Marietta Savings
226 Third Street
Marietta, Ohio 1976 Owned 562,412
1925 Washington Boulevard
Belpre, Ohio 1979 Owned 138,113
478 Pike Street
Marietta, Ohio 1998 Leased (9) 646,406
Cambridge Savings
814 Wheeling Avenue (10)
Cambridge, Ohio 1963 Owned 987,000
327 E. 3rd Street
Uhrichsville, Ohio 1975 Owned 86,000
175 N. 11th Street
Cambridge, Ohio 1981 Owned 487,000
209 Seneca Avenue
Byesville, Ohio 1978 Leased (11)
-33-
Year facility Leased
commenced or Net book
Office Location operations owned value (1)
- --------------- ---------- ------- ---------
First Savings
1640 Carter Avenue
Ashland, Kentucky 1961 Owned $781,488
U.S. 60 - Summit
Ashland, Kentucky 1992 Owned 680,938
Greenup Mall
Russell, Kentucky 1980 Owned 98,400
191 Eastern Heights
Shopping Center
Huntington, West Virginia 1997 Leased (12) 5,907
CFC
6901 Glenn Highway
Cambridge, Ohio 1999 Owned 1,384,027
CMC (13)
1320 4th Street, N.W. (14)
New Philadelphia, Ohio 1985 Owned 215,000
6269 Frank Road N.W.
N. Canton, Ohio 1992 Leased (15)
2359 Maple Avenue
Zanesville, Ohio 1993 Leased (16)
343 W. Milltown Road
Wooster, Ohio 2000 Leased (17)
WestMar
510 Grand Central Avenue
Vienna, West Virginia 1991 Leased (18)
- --------------------------
(1) Net book value amounts are for land, buildings and improvements.
(2) The 134 E. Court Street facility also serves as the Camco Title - WCH
office.
(3) The lease expires in September 2004.
-34-
(4) The lease expires in 2006.
(5) The lease expires in 2004 and First Federal has the option to review for a
five year term.
(6) The lease expires in May 2001.
(7) The lease expires in April 2001. Westwood has the option to renew for 2
five-year terms.
(8) The lease expires in May 2001.
(9) The lease expires in 2017. Marietta Savings has the option to renew for 2
five-year terms. The lease is for land.
(10) The Wheeling Avenue facility also serves as the Camco Title - Cambridge
office.
(11) The lease expires in 2005. Cambridge Savings has the option to renew the
lease for two five-year terms.
(12) The lease expires in April 2001.
(13) CMC also has an origination location at the ReMax office located in Dover.
(14) The 4th Street facility also serves as the Camco Title - New Philadelphia
office.
(15) The lease expires in June 2001, with an option to renew for a two-year
term. This facility also serves Camco Title - Canton office.
(16) The lease is currently on a month-to-month basis.
(17) The lease expires in March 2003 with an option to renew for two three-year
terms.
(18) The lease expires in August 2001.
Camco also owns furniture, fixtures and equipment. The net book value
of Camco's investment in office premises and equipment totaled $13.8 million at
December 31, 2000. See Note E of Notes to Consolidated Financial Statements for
additional information.
Item 3. Legal Proceedings.
Neither Camco nor any of the Banks is presently engaged in any legal
proceedings of a material nature. From time to time, Camco is involved in legal
proceedings to enforce its security interest in collateral taken as security for
its loans.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
-35-
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.
Market Price Of and Dividends Paid on Camco's Stock
and Related Shareholder Matters
At December 31, 2000, Camco had 6,931,898 shares of common stock
outstanding and held of record by approximately 1,199 stockholders. Price
information for Camco's common stock is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "CAFI." The table below sets forth the high and low
trade information for the common stock of Camco, together with the dividends
declared per share of common stock, for each quarter of 1998, 1999 and 2000.
Cash
dividends
Year ended December 31, 1998 (1) High Low declared
-------------------------------- ------ ----- --------
First Quarter $17.50 $15.84 $0.0889
Second Quarter 19.64 17.41 0.0921
Third Quarter 18.45 14.85 0.0976
Fourth Quarter 15.68 13.66 0.1024
Cash
dividends
Year ended December 31, 1999(1) High Low declared
---------------------------- ------ ----- --------
First Quarter $14.88 $13.10 $0.1071
Second Quarter 13.33 12.43 0.1143
Third Quarter 13.50 10.31 0.1200
Fourth Quarter 12.38 9.56 0.1200
Cash
dividends
Year ended December 31, 2000 High Low declared
---------------------------- ------ ----- --------
First Quarter $ 9.51 $ 7.67 $0.1200
Second Quarter 9.64 8.31 0.1200
Third Quarter 10.38 8.18 0.1200
Fourth Quarter 10.62 8.52 0.1200
1. Amounts have been restated to give effect to the three-for-two stock split
in 1998 and the 5% stock dividend which was effected in July of 1999.
In addition to certain federal income tax considerations, regulations
of the OTS impose limitations on the payment of dividends and other capital
distributions by savings associations.
-36-
Item 6. Selected Consolidated Financial Data.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of Camco for the
periods indicated. This selected financial data should be read in conjunction
with the consolidated financial statements appearing elsewhere in this document.
SELECTED CONSOLIDATED FINANCIAL DATA:(1) At December 31,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Total amount of:
Assets $1,037,856 $813,482 $637,135 $570,170 $517,488
Interest-bearing deposits in other financial
institutions 4,916 247 22,609 10,473 10,875
Investment securities available for sale - at market 309 273 1,292 3,572 7,177
Investment securities held to maturity 16,672 16,864 10,962 17,489 21,844
Mortgage-backed securities available for sale - at market 9,850 6,475 3,476 8,447 10,148
Mortgage-backed securities held to maturity 5,273 5,944 5,019 8,207 10,700
Loans receivable - net (2) 930,672 726,225 548,669 481,501 420,818
Deposits 632,288 461,787 443,227 422,368 398,161
FHLB advances and other borrowings 313,471 279,125 125,483 82,319 58,354
Stockholders' equity - substantially restricted 78,750 62,609 60,139 55,331 51,391
SELECTED CONSOLIDATED OPERATING DATA: (1) Year ended December 31,
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Total interest income $75,671 $51,093 $44,283 $41,217 $32,812
Total interest expense 49,609 29,907 24,852 22,778 17,811
------ ------ ------ ------ ------
Net interest income 26,062 21,186 19,431 18,439 15,001
Provision for losses on loans 568 247 250 385 141
------ ------ ------ ------ ------
Net interest income after provision for losses on loans 25,494 20,939 19,181 18,054 14,860
Other income 5,536 5,190 7,552 3,945 3,700
General, administrative and other expense 19,530 17,113 16,319 13,733 13,762
------ ------ ------ ------ ------
Earnings before federal income taxes 11,500 9,016 10,414 8,266 4,798
Federal income taxes 3,848 3,076 3,410 2,922 1,588
------ ------ ------ ------ ------
Net earnings $ 7,652 $ 5,940 $ 7,004 $ 5,344 $ 3,210
====== ====== ====== ====== ======
Earnings per share: (3)
Basic $1.11 $1.04 $1.22 $0.93 $0.71
==== ==== ==== ==== ====
Diluted $1.10 $1.02 $1.19 $0.91 $0.70
==== ==== ==== ==== ====
For the year ended December 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------
Return on average assets (4) 0.83% 0.82% 1.16% 0.98% 0.70%
Return on average equity (4) 10.83 9.68 12.13 10.01 7.52
Average equity to average assets (4) 7.64 8.46 9.56 9.81 9.36
Dividend payout ratio (5) 43.24 44.37 31.23 51.34 56.47
- ------------------------------------
(footnotes on following page)
-37-
1. The information as of and for the years ended December 31, 1996 and 1997,
has previously been restated to reflect the effects of the merger with GF
Bancorp, Inc. which was completed in January 1998.
2. Includes loans held for sale.
3. Earnings per share has been adjusted to give effect to the merger with GF
Bancorp, Inc. and a three-for-two stock split, which were effected during
1998, and the 5% stock dividends which were effected during each of the
years ended December 31, 1999 and 1997.
4. Ratios are based upon the mathematical average of the balances at the
beginning and the end of the year. 5. Represents dividends per share
divided by basic earnings per share.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Since its incorporation in 1970, Camco has evolved into a full-service
provider of financial products to the communities served by its Banks. Utilizing
a common marketing theme based on Camco's commitment to personalized customer
service, Camco and its affiliates have grown from $22.4 million of consolidated
assets in 1970 to $1.038 billion of consolidated assets at December 31, 2000.
Camco's rate of growth is largely attributable to its acquisitions of Marietta
Savings, First Federal, First Savings, GF Bancorp and Westwood Homestead and its
continued expansion of product lines from the limited deposit and loan offerings
which the Banks could offer in the heavily regulated environment of the 1970s to
the wider array of financial service products that commercial banks
traditionally offered. Additionally, Camco has enhanced its operational growth
by integrating its residential lending function through establishing mortgage
banking operations in the Banks' primary market areas and, to a lesser extent,
by chartering a title insurance agency.
Management believes that continued success in the financial services
industry will be achieved by those institutions with a rigorous dedication to
building value-added customer-oriented organizations. Toward this end, each of
the Banks' are operationally decentralized, with a management team focusing on
consumer preferences for financial products in the respective communities
served. Based on consumer preferences, Camco's management designs financial
service products with a view towards differentiating each of the constituent
Banks from its competition. Management believes that the Banks' abilities to
rapidly adapt to consumer needs and preferences is essential to them as
community-based financial institutions competing against the larger regional and
money-center bank holding companies.
Camco's profitability depends primarily on its level of net interest
income, which is the difference between interest income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on deposit accounts and borrowings. In recent years,
Camco's net earnings have also been heavily influenced by its level of other
income, including gains on sale of loans, loan servicing fees and other fees.
Camco's operations are also influenced by general, administrative and other
expenses, including employee compensation and benefits, occupancy expense,
federal deposit insurance premiums, data processing, franchise taxes,
advertising, other operating expenses and federal income tax expense.
Asset and Liability Management
Net interest income, the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities, is the
principal component of Camco's net earnings. The ability to maximize net
interest income is largely dependent upon the achievement of a positive interest
rate spread that can be sustained during fluctuations in prevailing interest
rate levels. Interest rate sensitivity is a measure of the difference between
amounts of interest-earning assets and interest-bearing liabilities which either
-38-
reprice or mature within a given period of time. The difference, or the interest
rate repricing "gap", provides an indication of the extent to which a financial
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-rate sensitive liabilities and is
considered negative when the amount of interest-rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a period
of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap within shorter
maturities would result in an increase in net interest income, while a positive
gap within shorter maturities would have the opposite effect.
In recognition of the foregoing factors, the Board of Directors of each
of the Banks has implemented an asset and liability management strategy directed
toward improving each Bank's interest rate sensitivity. The principal common
elements of such strategies include (1) meeting the consumer preference for
fixed-rate loans over the past several years by selling such loans in the
secondary market, (2) originating adjustable-rate mortgage loans ("ARMs") as
demand increases coincident with an overall rise in interest rates in the
economy, (3) maintaining higher levels of liquid assets, such as cash,
short-term interest-earning deposits and short-term investment securities as a
hedge against rising interest rates in a lower interest rate environment, and
(4) utilizing FHLB advances and longer term certificates of deposit as funding
sources when available.
The following table contains information regarding the amounts of
various categories of assets and liabilities repricing within the periods
indicated:
December 31, 2000
-------------------------------------------------------------
Within 1 year 1-5 years Over 5 years Total
--------------- --------- ------------ -----
(In thousands)
Interest-earning assets: (1)
Interest-bearing deposits in other banks $ 4,916 $ - $ - $ 4,916
Investment securities (2) 1,000 15,582 90 16,672
Mortgage-backed securities 37 159 14,927 15,123
Loans receivable (3) 214,972 433,316 301,884 950,172
-------- -------- ------- -------
Total 220,925 449,057 316,901 986,883
-------- -------- ------- -------
Interest-bearing liabilities: (1)
Deposits 461,786 162,478 8,024 632,288
FHLB advances 130,840 96,503 86,128 313,471
-------- -------- ------- -------
Total 592,626 258,981 94,152 945,759
-------- -------- ------- -------
Excess (deficiency) of interest sensitive assets over
interest sensitive liabilities $(371,701) $ 190,076 $222,749 $ 41,124
======== ======== ======= =======
Cumulative excess (deficiency) of interest sensitive
assets over interest sensitive liabilities $(371,701) $(181,625) $ 41,124 $ 41,124
======== ======== ======= ========
Cumulative interest rate sensitivity gap to total assets (35.8)% (17.5)% 4.0% 4.0%
- -----------------------------
(1) Interest-earning assets and interest-bearing liabilities are shown as
repricing based on contractual terms to repricing, without consideration of
loan prepayments or deposit decay assumptions.
(2) Does not include corporate equity securities or FHLB stock.
(3) Represents loans receivable totals before consideration of net items and
excluding loans held for sale.
-39-
Discussion of Financial Condition Changes from December 31, 1999 to December 31,
2000
At December 31, 2000, Camco's consolidated assets totaled $1.0 billion,
an increase of $224.4 million, or 27.6%, over the December 31, 1999 total. The
increase was primarily due to the acquisition of Westwood Homestead in January
2000, which resulted in net asset growth of approximately $159.7 million,
deposit growth of $100.5 million and increased advances from the Federal Home
Loan Bank of $35.2 million. The additional growth in assets was primarily funded
by an increase in deposits of $70.0 million and an increase in stockholders'
equity of $4.4 million.
Cash and interest-bearing deposits in other financial institutions
totaled $24.1 million at December 31, 2000, an increase of $7.1 million, or
42.0%, over December 31, 1999 levels. Investment securities totaled $17.0
million at December 31, 2000, a decrease of $156,000, or .9%, from the total at
December 31, 1999. During 2000, investment securities totaling $857,000 were
purchased, while maturities amounted to $1.0 million. Mortgage-backed securities
totaled $15.1 million at December 31, 2000, an increase of $2.7 million, or
21.8%, over December 31, 1999, due primarily to the $5.2 million of
mortgage-backed securities acquired through the Acquisition and purchases of
$5.1 million, which were partially offset by principal repayments totaling $2.6
million and sales of $5.0 million during the year.
Loans receivable and loans held for sale totaled $930.7 million at
December 31, 2000, an increase of $204.4 million, or 28.2%, over the total at
December 31, 1999. The increase resulted primarily from loans acquired through
the Acquisition totaling $142.0 million and loan disbursements, including loan
purchases and loans originated for sale, totaling $362.0 million, which were
partially offset by principal repayments of $176.1 million and loan sales of
$119.5 million. Loan origination volume, including the purchases of loans,
during 2000 was less than the record 1999 volume by $87.6 million, or 19.5%,
while the volume of loan sales increased by $22.6 million year to year. The
decrease in loan volume was primarily attributable to a decrease in refinancing
activity due to the increase in interest rates during the year.
The consolidated allowance for loan losses totaled $2.9 million and
$1.9 million at December 31, 2000 and 1999, respectively, representing 61.5% and
46.9% of nonperforming loans at those dates. The allowance for loan losses was
increased as a result of the Acquisition by $641,000, which represented the
allowance maintained by Westwood Homestead prior to the Acquisition.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans), totaled
$4.7 million and $4.0 million at December 31, 2000 and 1999, respectively,
constituting .51% and .55% of total net loans, including loans held for sale at
those dates. Although management believes that its allowance for loan losses at
December 31, 2000, is adequate based upon the available facts and circumstances,
there can be no assurance that additions to such allowance will not be necessary
in future periods, which could adversely affect Camco's results of operations.
Deposits totaled $632.3 million at December 31, 2000, an increase of
$170.5 million, or 36.9%, over December 31, 1999 levels. The increase resulted
primarily from deposits of $100.5 million acquired in the Acquisition coupled
with deposit portfolio growth of $70.0 million, or 15.2%, which resulted
primarily from management's continuing efforts to increase deposits through
marketing and pricing strategies. Advances from the FHLB increased by $34.3
million, or 12.3%, to a total of $313.5 million at December 31, 2000. The
increase was due primarily to advances of $35.2 million acquired through the
Acquisition. The proceeds from deposit growth and FHLB advances were primarily
used to fund new loan originations and purchase investments and mortgage-backed
securities during 2000.
Stockholders' equity totaled $78.8 million at December 31, 2000, an
increase of $16.1 million, or 25.8%, over December 31, 1999. The increase was
due primarily to the purchase of Westwood Homestead, which resulted in an $11.7
million increase, coupled with net earnings of $7.7 million, which were
partially offset by dividends declared of $3.3 million.
-40-
The Banks are required to maintain minimum regulatory capital pursuant
to federal regulations. At December 31, 2000, each of the Banks' regulatory
capital exceeded all regulatory capital requirements.
Comparison of Results of Operations for the Years Ended December 31, 2000 and
December 31, 1999
General. Increases in the level of income and expenses during the year
ended December 31, 2000, compared to 1999, are significantly influenced by the
inclusion of the accounts of Westwood Homestead, which was acquired by Camco in
January 2000 in a transaction accounted for using the purchase method of
accounting. Accordingly, the statement of earnings for the year ended December
31, 1999, was not restated for the Acquisition.
Camco's net earnings for the year ended December 31, 2000, totaled $7.7
million, an increase of $1.7 million, or 28.8%, over the $5.9 million of net
earnings reported in 1999. The increase in earnings was primarily attributable
to a $4.9 million increase in net interest income and an increase in other
income of $346,000, which were partially offset by a $321,000 increase in the
provision for losses on loans, an increase in general, administrative and other
expense of $2.4 million and a $772,000 increase in the provision for federal
income taxes.
Net Interest Income. Total interest income for the year ended December
31, 2000, amounted to $75.7 million, an increase of $24.6 million, or 48.1%,
over 1999, generally reflecting the effects of the $272.0 million, or 39.4%, of
growth in weighted-average interest-earning assets outstanding year to year, and
the increase of 46 basis points in the average yield, from 7.40% in 1999 to
7.86% in 2000. The acquisition of Westwood Homestead accounted for approximately
$12.3 million of interest income during the year ended December 31, 2000.
Interest income on loans and mortgage-backed securities totaled $72.6
million for the year ended December 31, 2000, an increase of $24.0 million, or
49.3%, over the comparable 1999 period. The increase resulted primarily from a
$270.2 million, or 41.6%, increase in the weighted-average balance outstanding
year to year. Interest income on investments and interest-bearing deposits
increased by $597,000, or 24.6%, due primarily to an increase in the
weighted-average outstanding balances of $1.8 million, or 4.3%, and an increase
in the average yield.
Interest expense on deposits amounted to $28.9 million for the year
ended December 31, 2000, an increase of $9.8 million, or 51.0%, over the 1999
total. The increase was due to an increase in the weighted-average balance of
deposits outstanding of $137.5 million, or 30.4% year to year, and a 67 basis
point increase in the average rate paid from 4.22% in 1999 to 4.89% in 2000. The
acquisition of Westwood Homestead accounted for approximately $5.3 million of
the overall increase in the 2000 period. Interest expense on borrowings totaled
$20.7 million for the year ended December 31, 2000, an increase of $10.0
million, or 92.3%, over 1999. The increase resulted primarily from a $125.5
million increase in the weighted-average balance of borrowings outstanding year
to year and an increase of 98 basis points in the weighted-average cost of
borrowings.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $4.9 million, or 23.0%, to a total of
$26.1 million for the year ended December 31, 2000, compared to $21.2 million in
1999. The interest rate spread decreased to approximately 2.45% for the year
ended December 31, 2000, from 2.82% for 1999, while the net interest margin
decreased to approximately 2.71% in 2000, compared to 3.07% in 1999.
-41-
Provision for Losses on Loans. A provision for losses on loans is
charged to earnings to bring the total allowance for loan losses to a level
considered appropriate by management based on historical experience, the volume
and type of lending conducted by the Banks, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to the Banks' market areas, and other factors related to the
collectibility of the Banks' loan portfolios. The provision for losses on loans
totaled $568,000 for the year ended December 31, 2000, an increase of $321,000,
or 130.0%, over the provision recorded in 1999. The 2000 provision generally
reflects the effects of loan portfolio growth, coupled with an increase of
$751,000 in the level of nonperforming loans year to year. In the period
subsequent to December 31, 2000, approximately $661,000 of the nonperforming
loans have been paid off or paid to current status. Management believes all
nonperforming loans are adequately collateralized and anticipates no loss on
these loans. While management uses the most current information available in
determining the provision for losses on loans, there can be no assurance that
the loan loss allowance will be adequate to cover losses on nonperforming assets
in the future.
Other Income. Other income totaled $5.5 million for the year ended
December 31, 2000, an increase of $346,000, or 6.7%, compared to 1999. The
increase in other income was primarily attributable to a $297,000, or 16.9%,
increase in gains on sale of loans and an increase of $159,000, or 27.7%, in
service charges and other fees on deposits, which were partially offset by
$41,000, or 5.8%, decrease in loan servicing fees and an $87,000, or 4.1%,
decrease in late charges, rent and other. The increase in gains on sale of loans
primarily reflects an increase in sales volume year to year.
General, Administrative and Other Expense. General, administrative and
other expense totaled $19.5 million for the year ended December 31, 2000, an
increase of $2.4 million, or 14.1%, compared to 1999. The acquisition of
Westwood Homestead accounted for $2.7 million of the increase in general,
administrative and other expenses. Exclusive of the effects of the Acquisition,
office occupancy and equipment expense increased by $172,000, or 7.0%, which was
due to increased depreciation and increased building maintenance costs, and data
processing expense increased by $354,000, or 42.4%, due to costs related to a
conversion to an internal wide area network. These increases were partially
offset by a decrease in employee compensation and benefits of $323,000, or 4.1%,
resulting primarily from a decline in staffing levels, and a decrease of
$166,000, or 63.1%, in federal deposit insurance premiums, due to a decrease in
FDIC premium rates. Other operating expenses increased primarily as a result of
the Corporation's overall growth year to year.
Federal Income Taxes. The provision for federal income taxes totaled
$3.8 million for the year ended December 31, 2000, an increase of $772,000 or
25.1%, compared to the provision recorded in 1999. This increase was primarily
attributable to a $2.5 million, or 27.6%, increase in pre-tax earnings
year-to-year. The effective tax rate amounted to 33.5% and 34.1% for the years
ended December 31, 2000 and 1999, respectively.
Comparison of Results of Operations for the Years Ended December 31, 1999 and
December 31, 1998
General. Camco's net earnings for the year ended December 31, 1999,
totaled $5.9 million, a decrease of $1.1 million, or 15.2%, from the $7.0
million of net earnings reported in 1998. While net interest income increased by
$1.8 million, the overall decrease in earnings was primarily attributable to a
decrease in other income of $2.4 million and an increase in general,
administrative and other expense of $794,000, which were partially offset by a
decrease in the provision for federal income taxes of $334,000 and a decrease in
the provision for losses on loans of $3,000.
Net Interest Income. Total interest income for the year ended December
31, 1999, amounted to $51.1 million, an increase of $6.8 million, or 15.4%, over
-42-
1998, generally reflecting the effects of the $132.7 million, or 23.8%, of
growth in weighted-average interest-earning assets outstanding year to year,
partially offset by a decrease of 53 basis points in the average yield, from
7.93% in 1998 to 7.40% in 1999.
Interest income on loans and mortgage-backed securities totaled $48.7
million for the year ended December 31, 1999, an increase of $7.4 million, or
18.0%, over the comparable 1998 period. The increase resulted primarily from a
$139.0 million, or 27.3%, increase in the weighted-average balance outstanding
year to year. Interest income on investments and interest-bearing deposits
decreased by $596,000, or 19.7%, due to a decrease in the weighted-average
outstanding balances of $6.3 million, or 13.1%.
Interest expense on deposits decreased by $419,000, or 2.1%, to a total
of $19.1 million for the year ended December 31, 1999, due primarily to a
decline in the average cost of deposits of 33 basis points to 4.22%, which was
partially offset by an increase in the weighted-average balance of deposits
outstanding of $24.0 million, or 5.6%. Interest expense on borrowings totaled
$10.8 million for the year ended December 31, 1999, an increase of $5.5 million,
or 103.0%, over 1998. The increase resulted primarily from a $105.0 million
increase in the weighted-average balance of borrowings outstanding year to year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $1.8 million, or 9.0%, to a total of
$21.2 million for the year ended December 31, 1999, compared to 1998. The
interest rate spread decreased to approximately 2.82% for the year ended
December 31, 1999, from 3.19% for 1998, while the net interest margin decreased
to approximately 3.07% in 1999, compared to 3.48% in 1998.
Provision for Losses on Loans. Based on an analysis of historical
experience, the volume and type of lending conducted by the Banks, the status of
past due principal and interest payments, general economic conditions,
particularly as such conditions relate to the Banks' market areas, and other
factors related to the collectibility of the Banks' loan portfolios, management
recorded a provision for losses on loans totaling $247,000 for the year ended
December 31, 1999, a decrease of $3,000, or 1.2%, from the provision recorded in
1998. The 1999 provision generally reflected the effects of loan portfolio
growth coupled with a decrease of $321,000 in the level of nonperforming loans
year to year.
Other Income. Other income totaled $5.2 million for the year ended
December 31, 1999, a decrease of $2.4 million, or 31.3%, compared to 1998. The
decrease in other income was primarily attributable to a $2.2 million, or 55.5%,
decrease in gains on sale of loans and a decrease of $410,000, or 16.1%, in late
charges, rent and other, which were partially offset by a $358,000, or 102.9%,
increase in loan servicing fees. The decrease in gains on sale of loans
primarily reflects a decrease in sales volume year to year. The decrease in late
charges, rent and other was primarily attributable to a $171,000 decrease in
title service fees at the Corporation's title agency subsidiary, as a result of
the decrease in loan origination volume, and a $99,000 gain on settlement of
life insurance policies recognized in 1998.
General, Administrative and Other Expense. General, administrative and
other expense totaled $17.1 million for the year ended December 31, 1999, an
increase of $794,000, or 4.9%, compared to 1998. The increase was due primarily
to a $628,000, or 8.6%, increase in employee compensation and benefits, a
$426,000 or 20.9%, increase in occupancy and equipment, a $180,000, or 27.1%,
increase in franchise taxes, a $25,000 or 4.0%, increase in advertising and a
$227,000, or 6.0%, increase in other operating costs, which were partially
offset by a $664,000, or 44.3%, decrease in data processing expense. The
increase in employee compensation and benefits resulted primarily from an
increase in staffing levels and normal merit increases year to year. The
-43-
increase in occupancy and equipment was primarily attributable to an increase in
both depreciation expense on office equipment and building maintenance costs.
The increase in other operating expenses included an increase of $72,000 in
other loan expense, reflecting overall loan growth, and an increase of $82,000
in ATM processing fees, which were incurred to convert all of Camco's ATM's to a
common processor, allowing for potential lower future processing fees due to
larger volumes of transactions being processed. The decrease in data processing
costs was due primarily to the one-time prior year expenditures incurred to
modernize the Corporation's data processing systems and to address the Year 2000
issue. Advertising, franchise taxes and other operating expenses increased
primarily as a result of the Corporation's overall growth year to year.
Federal Income Taxes. The provision for federal income taxes totaled
$3.1 million for the year ended December 31, 1999, a decrease of $334,000 or
9.8%, compared to the provision recorded in 1998. This decrease was primarily
attributable to a $1.4 million, or 13.4%, decrease in pre-tax earnings year to
year. The effective tax rates amounted to 34.1% and 32.7% for the years ended
December 31, 1999 and 1998, respectively. The Corporation's change in effective
tax rate year to year was primarily attributable to the Corporation's receipt of
nontaxable life insurance proceeds in 1998.
Effect of Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an interest
rate or foreign exchange rate, that is applied to a notional amount, such as an
amount of currency, to determine the settlement amount(s). It generally requires
no significant initial investment and can be settled net or by delivery of an
asset that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. Camco adopted SFAS No. 133 effective January 1, 2001, as
required, without material effect on Camco's financial position or results of
operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but carries over most of the provisions of SFAS No. 125 without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001, and is effective
for recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. SFAS No. 140 is not expected to have a material effect on
Camco's financial position or results of operations.
The foregoing discussion of the effects of recent accounting
pronouncements contains forward-looking statements that involve risks and
uncertainties. Changes in economic circumstances or interest rates could cause
the effects of the accounting pronouncements to differ from management's
foregoing assessment.
-44-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Net interest income, the difference between asset yields and the cost
of interest-bearing liabilities, is the principal component of Camco's net
earnings. The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rate levels. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap", provides
an indication of the extent to which a financial institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities and is considered negative when the amount
of interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets repricing during a specified interval. Generally, during a
period of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap within shorter
maturities would result in an increase in net interest income, while a positive
gap within shorter maturities would have the opposite effect.
In recognition of the foregoing factors, the Board of Directors of each
of the Banks has implemented an asset and liability management strategy directed
toward improving each Bank's interest rate sensitivity. The principal common
elements of such strategies include (1) meeting the consumer preference for
fixed-rate loans over the past several years by selling such loans in the
secondary market, (2) originating adjustable-rate mortgage loans ("ARMs") as
demand increases coincident with the overall rise in interest rates in the
economy, (3) maintaining higher levels of liquid assets, such as cash,
short-term interest bearing deposits and short-term investment securities as a
hedge against rising interest rates in a lower interest rate environment, and
(4) utilizing FHLB advances and longer term certificates of deposit as funding
sources when available.
The following table contains information regarding the amounts of
various categories of assets and liabilities repricing within the periods
indicated:
December 31, 2000
----------------------------------------------------------------
Within 1 year 1-5 years Over 5 years Total
--------------- ---------- ------------- -----
(In thousands)
Interest-earning assets: (1)
Interest-bearing deposits in other banks $ 4,916 $ - $ - $ 4,916
Investment securities (2) 1,000 15,582 90 16,672
Mortgage-backed securities 37 159 14,927 15,123
Loans receivable (3) 214,972 433,316 301,884 950,172
-------- -------- ------- -------
Total 220,925 449,057 316,901 986,883
-------- -------- ------- -------
Interest-bearing liabilities: (1)
Deposits 461,786 162,478 8,024 632,288
FHLB advances 130,840 96,503 86,128 313,471
-------- -------- ------- -------
Total 592,626 258,981 94,152 945,759
-------- -------- ------- -------
Excess (deficiency) of interest sensitive assets over
interest sensitive liabilities $(371,701) $ 190,076 $222,749 $ 41,124
======== ======== ======= =======
Cumulative excess (deficiency) of interest sensitive
assets over interest sensitive liabilities $(371,701) $(181,625) $ 41,124 $ 41,124
======== ======== ======= =======
Cumulative interest rate sensitivity gap to total assets
(35.8)% (17.5)% 4.0% 4.0%
- ---------------------------
(Footnotes on next page)
-45-
(1) Interest-earning assets and interest-bearing liabilities are shown as
repricing based on contractual terms to repricing, without consideration of
loan prepayments or deposit decay assumptions.
(2) Does not include corporate equity securities or FHLB stock.
(3) Represents loans receivable totals before consideration of net items and
excluding loans held for sale.
-46-
Item 8. Financial Statements and Supplementary Data.
Report of Independent Certified Public Accountants
Board of Directors
Camco Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Camco Financial Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, comprehensive income, stockholders' equity
and cash flows for each of the years in the three year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camco Financial
Corporation as of December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the years in the three year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Cincinnati, Ohio
February 12, 2001
-47-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
ASSETS 2000 1999
Cash and due from banks $ 19,153 $ 16,707
Interest-bearing deposits in other financial institutions 4,916 247
--------- -------
Cash and cash equivalents 24,069 16,954
Investment securities available for sale - at market 309 273
Investment securities held to maturity - at cost, approximate market
value of $16,617 and $16,452 as of December 31, 2000 and 1999 16,672 16,864
Mortgage-backed securities available for sale - at market 9,850 6,475
Mortgage-backed securities held to maturity - at cost, approximate market
value of $5,247 and $5,818 as of December 31, 2000 and 1999 5,273 5,944
Loans held for sale - at lower of cost or market 4,235 3,183
Loans receivable - net 926,437 723,042
Office premises and equipment - net 13,845 11,706
Real estate acquired through foreclosure 583 419
Federal Home Loan Bank stock - at cost 19,339 14,605
Accrued interest receivable on loans 5,611 3,890
Accrued interest receivable on mortgage-backed securities 111 78
Accrued interest receivable on investment securities and interest-bearing deposits 256 252
Prepaid expenses and other assets 1,439 888
Cash surrender value of life insurance 5,999 5,657
Goodwill - net of accumulated amortization 3,103 3,252
Prepaid federal income taxes 725 -
--------- -------
Total assets $1,037,856 $813,482
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 632,288 $461,787
Advances from the Federal Home Loan Bank 313,471 279,125
Advances by borrowers for taxes and insurance 4,382 3,360
Accounts payable and accrued liabilities 5,328 3,006
Dividends payable 832 832
Accrued federal income taxes - 133
Deferred federal income taxes 2,805 2,630
--------- -------
Total liabilities 959,106 750,873
Commitments - -
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares; 7,057,917 and
5,752,310 shares issued at December 31, 2000 and 1999, respectively 7,058 5,752
Additional paid-in capital 41,551 30,351
Retained earnings - substantially restricted 31,553 27,205
Accumulated comprehensive income (loss) - unrealized gains (losses) on
securities designated as available for sale, net of related tax effects 4 (124)
Less 126,019 and 41,888 shares, respectively, of treasury stock - at cost (1,416) (575)
--------- -------
Total stockholders' equity 78,750 62,609
--------- -------
Total liabilities and stockholders' equity $1,037,856 $813,482
========= =======
The accompanying notes are an integral part of these statements.
-48-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended December 31,
(In thousands, except per share data)
2000 1999 1998
Interest income
Loans $71,524 $47,904 $40,478
Mortgage-backed securities 1,120 759 779
Investment securities 1,141 896 1,037
Interest-bearing deposits and other 1,886 1,534 1,989
------ ------ ------
Total interest income 75,671 51,093 44,283
Interest expense
Deposits 28,869 19,119 19,538
Borrowings 20,740 10,788 5,314
------ ------ ------
Total interest expense 49,609 29,907 24,852
------ ------ ------
Net interest income 26,062 21,186 19,431
Provision for losses on loans 568 247 250
------ ------ ------
Net interest income after provision for losses on loans 25,494 20,939 19,181
Other income
Late charges, rent and other 2,046 2,133 2,543
Loan servicing fees 665 706 348
Service charges and other fees on deposits 733 574 667
Gain on sale of loans 2,058 1,761 3,955
Gain (loss) on sale of investment and mortgage-backed securities (37) - 12
Gain on sale of real estate acquired through foreclosure 56 20 68
Gain (loss) on sale of premises and equipment 15 (4) (41)
------ ------ ------
Total other income 5,536 5,190 7,552
General, administrative and other expense
Employee compensation and benefits 8,948 7,926 7,298
Occupancy and equipment 3,064 2,464 2,038
Federal deposit insurance premiums 117 263 291
Data processing 1,337 835 1,499
Advertising 720 645 620
Franchise taxes 1,059 844 664
Amortization of goodwill 150 150 150
Other operating 4,135 3,986 3,759
------ ------ ------
Total general, administrative and other expense 19,530 17,113 16,319
------ ------ ------
Earnings before federal income taxes 11,500 9,016 10,414
Federal income taxes
Current 2,102 2,518 2,930
Deferred 1,746 558 480
------ ------ ------
Total federal income taxes 3,848 3,076 3,410
------ ------ ------
NET EARNINGS $ 7,652 $ 5,940 $ 7,004
====== ====== ======
BASIC EARNINGS PER SHARE $1.11 $1.04 $1.22
==== ==== ====
DILUTED EARNINGS PER SHARE $1.10 $1.02 $1.19
==== ==== ====
The accompanying notes are an integral part of these statements.
-49-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the year ended December 31,
(In thousands)
2000 1999 1998
Net earnings $7,652 $5,940 $7,004
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during the period, net of
taxes (benefits) of $51, $(113) and $(14) in 2000, 1999
and 1998, respectively 100 (220) (27)
Reclassification adjustment for realized (gains) losses included in earnings,
net of taxes (benefits) of $(14) and $4 for the years
ended December 31, 2000 and 1998, respectively 28 - (8)
----- ----- -----
Comprehensive income $7,780 $5,720 $6,969
===== ===== =====
Accumulated comprehensive income (loss) $ 4 $ (124) $ 96
===== ===== =====
The accompanying notes are an integral part of these statements.
-50-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
Unrealized
gains (losses)
on securities
Additional designated Total
Common paid-in Retained as available Treasury stockholders'
stock capital earnings for sale stock equity
Balance at January 1, 1998 $3,640 $26,915 $24,645 $131 $ - $55,331
Stock options exercised 14 138 - - (42) 110
Cash dividends declared - $0.3810 per share - - (2,195) - - (2,195)
Three-for-two stock split 1,826 - (1,826) - - -
Net earnings for the year ended December 31, 1998 - - 7,004 - - 7,004
Purchase of treasury shares - - - - (76) (76)
Unrealized losses on securities designated as
available for sale, net of related tax effects - - - (35) - (35)
----- ------ ------ --- ------ ------
Balance at December 31, 1998 5,480 27,053 27,628 96 (118) 60,139
Cash dividends declared - $0.4614 per share - - (2,770) - - (2,770)
Stock dividend (5%) including cash in lieu of
fractional shares 272 3,298 (3,593) - - (23)
Net earnings for the year ended December 31, 1999 - - 5,940 - - 5,940
Purchase of treasury shares - - - - (457) (457)
Unrealized losses on securities designated as available
for sale, net of related tax effects - - - (220) - (220)
----- ------ ------ --- ------ ------
Balance at December 31, 1999 5,752 30,351 27,205 (124) (575) 62,609
Stock options exercised 1 7 - - - 8
Cash dividends declared - $0.48 per share - - (3,327) - - (3,327)
Purchase of Westwood Homestead Financial Corporation 1,305 11,193 23 - (841) 11,680
Net earnings for the year ended December 31, 2000 - - 7,652 - - 7,652
Unrealized gains on securities designated as available
for sale, net of related tax effects - - - 128 - 128
----- ------ ------ --- ------ ------
Balance at December 31, 2000 $7,058 $41,551 $31,553 $ 4 $(1,416) $78,750
===== ====== ====== === ====== ======
The accompanying notes are an integral part of these statements.
-51-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(In thousands)
2000 1999 1998
Cash flows from operating activities:
Net earnings for the year $ 7,652 $ 5,940 $ 7,004
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of goodwill 150 150 150
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 19 (5) (25)
Depreciation and amortization 1,610 983 849
Amortization of purchase accounting adjustments 13 88 (11)
Provision for losses on loans 568 247 250
Amortization of deferred loan origination fees (374) (361) (769)
Gain on sale of real estate acquired through foreclosure (56) (20) (68)
(Gain) loss on sale of investments and mortgage-backed securities
designated as available for sale 37 - (12)
(Gain) loss on sale of office premises and equipment (15) 4 41
Federal Home Loan Bank stock dividends (1,320) (754) (461)
Gain on sale of loans (905) (461) (1,490)
Loans originated for sale in the secondary market (120,503) (89,956) (211,883)
Proceeds from sale of mortgage loans in the secondary market 120,356 97,353 207,389
Increase (decrease) in cash, net of acquisition of Westwood Homestead
Financial Corporation, due to changes in:
Accrued interest receivable on loans (981) (314) (604)
Accrued interest receivable on mortgage-backed securities 13 (17) 51
Accrued interest receivable on investments (4) (23) 120
Prepaid expenses and other assets (437) (480) 437
Accounts payable and other liabilities 2,230 327 (780)
Federal income taxes
Current (1,009) (221) 453
Deferred 1,746 558 480
------- ------- -------
Net cash provided by operating activities 8,790 13,038 1,121
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 1,040 6,008 20,994
Proceeds from sale of investment securities designated as
available for sale - - 900
Proceeds from sale of mortgage-backed securities designated as
available for sale 5,045 - 4,636
Purchase of investment securities designated as available for sale (17) (22) (150)
Purchase of investment securities designated as held to maturity (840) (10,896) (12,932)
Purchase of mortgage-backed securities designated as available for sale (5,087) (5,080) -
Purchase of mortgage-backed securities designated as held to maturity - (1,992) -
Principal repayments on mortgage-backed securities 2,608 2,844 3,489
Loan disbursements (237,956) (335,287) (232,558)
Purchases of loans (3,552) (24,358) (18,982)
Principal repayments on loans 176,055 173,960 191,105
Purchase of office premises and equipment - net (1,675) (2,095) (3,098)
Proceeds from sale of office premises and equipment 35 - 30
Proceeds from sale of real estate acquired through foreclosure 505 1,191 426
Purchase of Federal Home Loan Bank stock (2,077) (5,601) (2,297)
Proceeds from redemption of Federal Home Loan Bank stock 504 - -
Additions to real estate acquired through foreclosure (25) (153) (58)
Purchase of life insurance (80) (250) (40)
Net increase in cash surrender value of life insurance (262) (246) (238)
Proceeds from redemption of life insurance - - 599
Purchase of Westwood Homestead Financial Corporation (1,879) - -
------- ------- -------
Net cash used in investing activities (67,658) (201,977) (48,174)
------- ------- -------
Net cash used in operating and investing activities
(balance carried forward) (58,868) (188,939) (47,053)
------- ------- -------
-52-
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended December 31,
(In thousands)
2000 1999 1998
Net cash used in operating and investing activities
(balance brought forward) $(58,868) $(188,939) $(47,053)
Cash flows provided by (used in) financing activities:
Net increase in deposits 70,185 18,560 20,859
Proceeds from Federal Home Loan Bank advances 243,178 229,466 104,089
Repayment of Federal Home Loan Bank advances (244,123) (75,823) (60,926)
Dividends paid on common stock (3,327) (2,550) (2,097)
Proceeds from exercise of stock options 8 - 110
Purchase of treasury shares - (457) (76)
Increase (decrease) in advances by borrowers for taxes and insurance 62 882 (2,000)
------- -------- -------
Net cash provided by financing activities 65,983 170,078 59,959
------- -------- -------
Net increase (decrease) in cash and cash equivalents 7,115 (18,861) 12,906
Cash and cash equivalents at beginning of year 16,954 35,815 22,909
------- -------- -------
Cash and cash equivalents at end of year $ 24,069 $ 16,954 $ 35,815
======= ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 48,952 $ 29,457 $ 24,746
======= ======== =======
Income taxes $ 3,430 $ 2,927 $ 2,433
======= ======== =======
Supplemental disclosure of noncash investing activities:
Transfers from mortgage loans to real estate acquired
through foreclosure $ 1,432 $ 1,220 $ 477
======= ======== =======
Issuance of mortgage loans upon sale of real
estate acquired through foreclosure $ 703 $ 761 $ 697
======= ======== =======
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 128 $ (220) $ (35)
======= ======== =======
Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 1,153 $ 1,300 $ 2,465
======= ======== =======
Transfer of mortgage-backed securities from a held to
maturity classification to available for sale $ - $ - $ 1,344
======= ======== =======
Supplemental disclosure of noncash financing activities:
Acquisition of treasury stock in exchange for
exercise of stock options $ - $ - $ 42
======= ======== =======
Dividends declared but unpaid $ 832 $ 832 $ 589
======= ======== =======
Liabilities assumed, stock and cash paid in acquisition of
Westwood Homestead Financial Corporation $159,698 $ - $ -
Less: fair value of assets received 159,698 - -
------- -------- -------
Amount assigned to goodwill $ - $ - $ -
======= ======== =======
The accompanying notes are an integral part of these statements.
-53-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The business activities of Camco Financial Corporation ("Camco" or the
"Corporation") have been limited primarily to holding the common shares of
its wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge Savings"),
Marietta Savings Bank ("Marietta Savings"), First Federal Savings Bank of
Washington Court House ("First Federal"), First Federal Bank for Savings
("First Savings") and Westwood Homestead Savings Bank ("Westwood Homestead")
(collectively hereinafter the "Banks") and Camco Title Insurance Agency
("Camco Title") and two second tier subsidiaries, Camco Mortgage Corporation
and WestMar Mortgage Company. Accordingly, the Corporation's results of
operations are economically dependent upon the results of the Banks'
operations. The Banks conduct a general banking business within Ohio,
northern West Virginia and northeastern Kentucky which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and nonresidential purposes.
The Banks' profitability is significantly dependent on net interest income,
which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e. customer deposits and
borrowed funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or
received by the Banks can be significantly influenced by a number of
factors, such as governmental monetary policy, that are outside of
management's control.
The consolidated financial information presented herein has been prepared in
accordance with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and general accounting practices within the
financial services industry. In preparing financial statements in accordance
with U.S. GAAP, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from such estimates.
During 1999, the Board of Directors of Camco approved a business
combination, which was approved by regulatory authorities in 1999, and was
completed in January 2000, whereby Westwood Homestead Financial Corporation
("WHFC"), the parent of Westwood Homestead, was acquired and dissolved upon
consummation, and Westwood Homestead became a wholly-owned subsidiary of the
Corporation. The business combination was accounted for using the purchase
method of accounting. Accordingly, the consolidated financial statements
herein include the accounts of Westwood Homestead from the January 6, 2000
acquisition date through December 31, 2000.
-54-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following is a summary of the Corporation's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned and second tier subsidiaries. All
significant intercompany balances and transactions have been eliminated.
2. Interest Rate Risk
The earnings of the Corporation are primarily dependent upon net interest
income, which is determined by 1) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
(interest rate spread) and 2) the relative amounts of interest-earning
assets and interest-bearing liabilities outstanding. The Corporation's
interest rate spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit flows. The
Corporation is vulnerable to an increase in interest rates to the extent
that interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. At December 31, 2000, 1999 and 1998, the
Corporation had net interest-earning assets of approximately $993.0 million,
$776.3 million and $605.4 million, with weighted-average effective yields of
7.92%, 7.39% and 7.63%, respectively, and net interest-bearing liabilities
of approximately $945.8 million, $740.9 million and $568.7 million, with
weighted-average effective interest rates of 5.53%, 4.81% and 4.69%,
respectively. To minimize the effect of adverse changes in interest rates on
its results of operations, the Corporation has implemented an asset and
liability management plan that emphasizes increasing the interest rate
sensitivity and shortening the maturities of its interest-earning assets and
extending the maturities of its interest-bearing liabilities. Although the
Corporation has undertaken a variety of strategies to minimize its exposure
to interest rate risk, its primary emphasis has been on the origination and
purchase of adjustable rate loans.
3. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried
at cost only if the Corporation has the positive intent and ability to hold
these securities to maturity. Trading securities and securities available
for sale are carried at fair value with resulting unrealized gains or losses
recorded to operations or stockholders' equity, respectively. Investment and
mortgage-backed securities are classified as held-to-maturity or available
for sale upon acquisition. At December 31, 2000 and 1999, the Corporation's
stockholders' equity reflected a net unrealized gain of $4,000 and a net
unrealized loss of $124,000, respectively. Realized gains and losses on
sales of securities are recognized using the specific identification method.
-55-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for unamortized yield adjustments, including deferred loan
origination fees and costs, capitalized mortgage servicing rights and the
allowance for loan losses. The yield adjustments are amortized and accreted
to operations using the interest method over the average life of the
underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
Loans held for sale are carried at the lower of cost (less principal
payments received) or fair value (market value), calculated on an aggregate
basis. At December 31, 2000, loans held for sale were carried at cost. At
December 31, 1999, the Corporation recorded a $34,000 charge to earnings
related to a market value decline on loans held for sale.
The Corporation accounts for mortgage servicing rights in accordance with
SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which requires that the Corporation
recognize, as separate assets, rights to service mortgage loans for others,
regardless of how those servicing rights are acquired. An institution that
acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained must allocate some of the cost of the loans to the mortgage
servicing rights.
SFAS No. 125 requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables be assessed for impairment.
Impairment is measured based on fair value. The mortgage servicing rights
recorded by the Banks, calculated in accordance with the provisions of SFAS
No. 125, were segregated into pools for valuation purposes, using as pooling
criteria the loan term and coupon rate. Once pooled, each grouping of loans
was evaluated on a discounted earnings basis to determine the present value
of future earnings that a purchaser could expect to realize from each
portfolio. Earnings were projected from a variety of sources including loan
servicing fees, interest earned on float, net interest earned on escrows,
miscellaneous income, and costs to service the loans. The present value of
future earnings is the "economic" value for the pool, i.e., the net
realizable present value to an acquirer of the acquired servicing.
-56-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loans Receivable (continued)
The Corporation recorded amortization related to mortgage servicing rights
totaling approximately $602,000, $516,000 and $704,000, for the years ended
December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and
1999, the carrying value and the fair value of the Corporation's mortgage
servicing rights totaled approximately $5.2 million and $4.5 million,
respectively.
At December 31, 2000 and 1999, the Banks were servicing mortgage loans of
approximately $475.6 million and $421.3 million, respectively, that have
been sold to the Federal Home Loan Mortgage Corporation and other investors.
5. Loan Origination and Commitment Fees
The Corporation accounts for loan origination fees and costs in accordance
with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases."
Pursuant to the provisions of SFAS No. 91, all loan origination fees
received, net of certain direct origination costs, are deferred on a
loan-by-loan basis and amortized to interest income using the interest
method, giving effect to actual loan prepayments. Additionally, SFAS No. 91
generally limits the definition of loan origination costs to the direct
costs attributable to originating a loan, i.e., principally actual personnel
costs.
Fees received for loan commitments are deferred and amortized over the life
of the related loan using the interest method.
6. Allowance for Loan Losses
It is the Corporation's policy to provide valuation allowances for estimated
losses on loans based upon past loss experience, current trends in the level
of delinquent and problem loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in the Banks'
primary market areas. When the collection of a loan becomes doubtful, or
otherwise troubled, the Corporation records a charge-off equal to the
difference between the fair value of the property securing the loan and the
loan's carrying value. Such provision is based on management's estimate of
the fair value of the underlying collateral, taking into consideration the
current and currently anticipated future operating or sales conditions. As a
result, such estimates are particularly susceptible to changes that could
result in a material adjustment to results of operations in the near term.
Recovery of the carrying value of such loans is dependent to a great extent
on economic, operating, and other conditions that may be beyond the
Corporation's control.
-57-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Allowance for Loan Losses (continued)
The Corporation accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Corporation
considers its investment in one- to four-family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Corporation's investment in multi-family and nonresidential loans, and its
evaluation of any impairment thereon, such loans are generally
collateral-dependent and as a result are carried as a practical expedient at
the lower of cost or fair value.
It is the Corporation's policy to charge off unsecured credits that are more
than ninety days delinquent. Similarly, collateral-dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No.
114 at that time.
At December 31, 2000 and 1999, the Corporation had no loans that would be
defined as impaired under SFAS No. 114.
7. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the fair value of the property subsequently declines below the
amount determined at the recording date. In determining the lower of cost or
fair value at acquisition, costs relating to development and improvement of
property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
8. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line method over
the useful lives of the assets, estimated to be ten to fifty years for
buildings and improvements and three to twenty-five years for furniture,
fixtures and equipment. An accelerated depreciation method is used for tax
reporting purposes.
-58-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9. Goodwill
Goodwill resulting from the acquisition of First Savings totaled
approximately $3.7 million, and is being amortized over a twenty-five year
period using the straight-line method. Management periodically evaluates the
carrying value of intangible assets in relation to the continuing earnings
capacity of the acquired assets and assumed liabilities.
10. Federal Income Taxes
The Corporation accounts for federal income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, a
deferred tax liability or deferred tax asset is computed by applying the
current statutory tax rates to net taxable or deductible temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets are recorded only to the
extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of income taxes results primarily from different methods of
accounting for deferred loan origination fees and costs, mortgage servicing
rights, Federal Home Loan Bank stock dividends, the general loan loss
allowance and the percentage of earnings bad debt deductions. A temporary
difference is also recognized for depreciation expense computed using
accelerated methods for federal income tax purposes.
11. Earnings Per Share
Basic earnings per share is calculated based on 6,915,154, 5,730,829 and
5,751,918 weighted-average common shares outstanding for the years ended
December 31, 2000, 1999 and 1998, respectively.
-59-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Earnings Per Share (continued)
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
6,957,431, 5,834,391 and 5,903,073 for the years ended December 31, 2000,
1999 and 1998, respectively. There were 42,277, 103,562 and 151,155
incremental shares related to the assumed exercise of stock options included
in the computation of diluted earnings per share for the years ended
December 31, 2000, 1999 and 1998, respectively. Options to purchase 435,295
and 65,416 shares of common stock at weighted-average exercise prices of
$12.15 and $14.94 were outstanding at December 31, 2000 and 1999,
respectively, but were excluded from the computation of diluted earnings per
share for those years because the exercise price was greater than the
average market price of the common shares.
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated statement of financial
condition, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and Cash Equivalents: The carrying amount reported in the
consolidated statements of financial condition for cash and
cash equivalents is deemed to approximate fair value.
Investment Securities and Mortgage-backed Securities: Fair
values for investment securities and mortgage-backed
securities are based on quoted market prices and dealer
quotes.
-60-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential real estate, multi-family residential
real estate, installment and other. These loan categories were
further delineated into fixed-rate and adjustable-rate loans.
The fair values for the resultant loan categories were
computed via discounted cash flow analysis, using current
interest rates offered for loans with similar terms to
borrowers of similar credit quality.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair values of deposits with no stated maturity,
such as money market demand deposits, savings and NOW
accounts, are deemed to equal the amount payable on demand as
of December 31, 2000 and 1999. The fair value of fixed-rate
certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining
maturities.
Advances from the Federal Home Loan Bank: The fair value of
these advances is estimated using the rates currently offered
for similar advances of similar remaining maturities or, when
available, quoted market prices.
Advances by Borrowers for Taxes and Insurance: The carrying
amount of advances by borrowers for taxes and insurance is
deemed to approximate fair value.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. At December 31, 2000 and 1999, the
difference between the fair value and notional amount of loan
commitments was not material.
-61-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows:
December 31,
2000 1999
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and cash equivalents $ 24,069 $ 24,069 $ 16,954 $ 16,954
Investment securities 16,981 16,926 17,137 16,725
Mortgage-backed securities 15,123 15,097 12,419 12,293
Loans receivable 930,672 934,055 726,225 714,573
Federal Home Loan Bank stock 19,339 19,339 14,605 14,605
--------- --------- ------- -------
$1,006,184 $1,009,486 $787,340 $775,150
========= ========= ======= =======
Financial liabilities
Deposits $ 632,288 $ 639,892 $461,787 $461,826
Advances from the Federal Home Loan Bank 313,471 307,013 279,125 275,541
Advances by borrowers for taxes and insurance 4,382 4,382 3,360 3,360
--------- --------- ------- -------
$ 950,141 $ 951,287 $744,272 $740,727
========= ========= ======= =======
13. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks and
interest-bearing deposits in other financial institutions with original
maturities of three months or less.
14. Advertising
Advertising costs are expensed when incurred.
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
consolidated financial statement presentation.
-62-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities at December 31, 2000 and 1999
are as follows:
2000
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
U.S. Government agency obligations $16,482 $ 16 $ 71 $16,427
Municipal bonds 190 - - 190
------ --- --- ------
Total investment securities held to maturity 16,672 16 71 16,617
Available for sale:
Corporate equity securities 245 104 40 309
------ --- --- ------
Total investment securities $16,917 $120 $111 $16,926
====== === === ======
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
U.S. Government agency obligations $16,584 $ - $418 $16,166
Municipal bonds 280 7 1 286
------ --- --- ------
Total investment securities held to maturity 16,864 7 419 16,452
Available for sale:
Corporate equity securities 228 75 30 273
------ --- --- ------
Total investment securities $17,092 $ 82 $449 $16,725
====== === === ======
-63-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
(continued)
The amortized cost and estimated fair value of investment securities at
December 31, 2000 (including securities designated as available for sale) by
contractual term to maturity are shown below.
Estimated
Amortized fair
cost value
(In thousands)
Due in one year or less $ 1,000 $ 996
Due after one year through five years 15,582 15,531
Due after five years 90 90
------ ------
Total investment securities 16,672 16,617
Corporate equity securities 245 309
------ ------
Total $16,917 $16,926
====== ======
During the year ended December 31, 1998, the Corporation sold securities
designated as available for sale with a carrying value of $5.5 million. Such
sales resulted in approximately $12,000 in net realized gains, comprised of
approximately $35,000 in gross realized gains and $23,000 in gross realized
losses.
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at December 31, 2000 and
1999, are as follows:
2000
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
FNMA $ 3,633 $ 27 $ 31 $ 3,629
FHLMC 1,537 15 49 1,503
CMOs 9 - - 9
GNMA 83 6 - 89
Other 11 6 - 17
------ --- --- ------
Total mortgage-backed securities
held to maturity 5,273 54 80 5,247
Available for sale:
FHLMC 3,898 20 15 3,903
FNMA 1,695 - 18 1,677
GNMA 4,315 9 54 4,270
------ --- --- ------
Total mortgage-backed securities
available for sale 9,908 29 87 9,850
------ --- --- ------
Total mortgage-backed securities $15,181 $ 83 $167 $15,097
====== === === ======
-64-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
(continued)
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
FNMA $ 4,070 $ 28 $ 59 $ 4,039
FHLMC 1,757 15 123 1,649
CMOs 12 - - 12
GNMA 91 9 - 100
Other 14 4 - 18
------ ---- --- ------
Total mortgage-backed securities
held to maturity 5,944 56 182 5,818
Available for sale:
FHLMC 1,934 25 4 1,955
FNMA 103 - 4 99
GNMA 4,667 - 246 4,421
------ ---- --- ------
Total mortgage-backed securities
available for sale 6,704 25 254 6,475
------ ---- --- ------
Total mortgage-backed securities $12,648 $ 81 $436 $12,293
====== === === ======
The amortized cost of mortgage-backed securities, including those designated
as available for sale at December 31, 2000, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
Amortized cost
(In thousands)
Due within one year or less $ 37
Due after one year through five years 223
Due after five years through ten years 816
Due after ten years 14,105
------
$15,181
======
During the year ended December 31, 2000, the Corporation sold
mortgage-backed securities designated as available for sale with a carrying
value of $5.1 million, which resulted in a gross realized loss of $42,000.
Additionally, U.S. Government agency securities totaling $180,000 were
called, resulting in a gross realized gain of $5,000.
-65-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE C - LOANS RECEIVABLE
Loans receivable at December 31 consist of the following:
2000 1999
(In thousands)
Conventional real estate loans:
Existing residential properties $760,593 $616,438
Nonresidential real estate 54,722 20,831
Construction 56,039 60,565
Developed building lots 5,640 4,649
Education loans 1,459 1,847
Consumer and other loans 71,719 49,232
------- -------
Total 950,172 753,562
Less:
Undisbursed portion of loans in process 19,911 27,569
Unamortized yield adjustments 918 1,088
Allowance for loan losses 2,906 1,863
------- -------
Loans receivable - net $926,437 $723,042
======= =======
As depicted above, the Corporation's lending efforts have historically
focused on loans secured by existing residential properties, which comprise
approximately $760.6 million, or 82%, of the total loan portfolio at
December 31, 2000 and approximately $616.4 million, or 85%, of the total
loan portfolio at December 31, 1999. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Corporation with adequate collateral coverage
in the event of default. Nevertheless, the Corporation, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending areas within Ohio, northern West
Virginia, and northeastern Kentucky, thereby impairing collateral values.
However, management believes that residential real estate values in the
Corporation's primary lending areas are presently stable.
The Banks, in the ordinary course of business, have granted loans to certain
of their directors, executive officers, and their associates. Such loans are
made on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility. The aggregate
dollar amount of these loans totaled approximately $3.3 million and $2.8
million at December 31, 2000 and 1999, respectively.
-66-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE D - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:
2000 1999 1998
(In thousands)
Balance at beginning of year $1,863 $1,783 $1,596
Provision for losses on loans 568 247 250
Charge-offs, net of immaterial recoveries (166) (167) (63)
Allowance resulting from acquisition 641 - -
----- ----- -----
Balance at end of year $2,906 $1,863 $1,783
===== ===== =====
Nonaccrual and nonperforming loans totaled approximately $4.7 million, $4.0
million and $4.3 million at December 31, 2000, 1999 and 1998, respectively.
Interest income that would have been recognized had such nonaccrual loans
performed pursuant to contractual terms totaled approximately $188,000,
$171,000 and $167,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at December 31 is summarized as follows:
2000 1999
(In thousands)
Land $ 1,862 $ 1,593
Buildings and improvements 11,190 8,939
Furniture, fixtures and equipment 9,054 6,790
------ ------
22,106 17,322
Less accumulated depreciation and amortization 8,261 5,616
------ ------
$13,845 $11,706
====== ======
-67-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE F - DEPOSITS
Deposit balances by type and weighted-average interest rate at December 31,
2000 and 1999, are summarized as follows:
2000 1999
Amount Rate Amount Rate
(Dollars in thousands)
NOW accounts $ 90,830 1.60% $ 71,582 1.55%
Money market demand accounts 45,047 5.39 26,898 4.66
Passbook and statement savings accounts 69,706 2.90 71,128 2.79
------- ---- ------- ----
Total withdrawable accounts 205,583 2.87 169,608 2.56
Certificates of deposit
Original maturities of:
Seven days to one year 64,693 6.49 41,093 4.69
One to two years 139,103 6.42 108,118 5.22
Two to eight years 117,146 6.31 83,299 5.82
Negotiated rate certificates 56,552 6.90 28,618 5.59
Individual retirement accounts 49,211 6.26 31,051 5.55
------- ---- ------- ----
Total certificate accounts 426,705 6.45 292,179 5.39
------- ---- ------- ----
Total deposits $632,288 5.28% $461,787 4.39%
======= ==== ======= ====
At December 31, 2000 and 1999, the Corporation had certificate of deposit
accounts with balances in excess of $100,000 totaling $109.6 million and
$50.5 million, respectively.
Interest expense on deposits is summarized as follows for the years ended
December 31:
2000 1999 1998
(In thousands)
Certificate of deposit accounts $23,249 $14,906 $15,256
NOW accounts and money
market demand accounts 3,265 2,077 2,023
Passbook and statement savings
accounts 2,355 2,136 2,259
------ ------ ------
$28,869 $19,119 $19,538
====== ====== ======
The contractual maturities of outstanding certificates of deposit are
summarized as follows at December 31:
2000 1999
Year ending December 31: (In thousands)
2000 $ - $192,965
2001 256,201 58,316
2002 108,825 23,735
2003 37,189 17,163
After 2003 24,490 -
------- -------
Total certificate of deposit accounts $426,705 $292,179
======= =======
-68-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE F - DEPOSITS (continued)
At December 31, 2000 and 1999, certain savings deposits were collateralized
by a pledge of investment securities, interest-bearing deposits in other
banks and letters of credit with the Federal Home Loan Bank totaling $26.6
million and $15.1 million, respectively.
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
2000 and 1999, by pledges of certain residential mortgage loans totaling
$516.0 million and $435.8 million, respectively, as well as the Federal Home
Loan Bank stock of each of the respective Banks, are summarized as follows:
Maturing year
Interest rate ending December 31, 2000 1999
(Dollars in thousands)
5.41% - 6.40% 2000 $ - $149,772
5.20% - 7.02% 2001 61,210 9,056
5.59% - 7.31% 2002 26,513 37,101
5.50% - 7.38% 2003 21,610 6,108
3.25% - 8.17% Thereafter 204,138 77,088
------- -------
$313,471 $279,125
======= =======
Weighted-average interest rate 6.20% 5.71%
==== ====
NOTE H - FEDERAL INCOME TAXES
A reconciliation of the effective tax rate for the years ended December 31,
2000, 1999 and 1998, and the federal statutory rate in each of these years,
computed by applying the statutory federal corporate tax rate to income
before taxes, is summarized as follows:
2000 1999 1998
(In thousands)
Federal income taxes computed at the
expected statutory rate $3,925 $3,065 $3,545
Increase (decrease) in taxes resulting from:
Amortization of goodwill 51 51 51
Nontaxable interest income (106) (103) (87)
Nontaxable life insurance proceeds - - (100)
Nondeductible merger related expenses - - 58
Other (22) 63 (57)
----- ----- -----
Federal income tax provision per consolidated
financial statements $3,848 $3,076 $3,410
===== ===== =====
-69-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE H - FEDERAL INCOME TAXES (continued)
The components of the Corporation's net deferred tax liability at December
31 are as follows:
Taxes (payable) refundable on temporary
differences at statutory rate: 2000 1999
(In thousands)
Deferred tax liabilities:
Original issue discount $ (46) $ -
FHLB stock dividends (1,780) (1,113)
Percentage of earnings bad debt deduction (340) (454)
Book versus tax depreciation (463) (396)
Mortgage servicing rights (1,766) (1,513)
Other liabilities, net (22) (233)
Unrealized gains on securities designated as
available for sale (2) -
------ ------
Total deferred tax liabilities (4,419) (3,709)
Deferred tax assets:
General loan loss allowance 988 634
Deferred income - 168
Deferred compensation 390 217
Purchase accounting adjustments 236 -
Unrealized losses on securities designated as
available for sale - 60
------ ------
Total deferred tax assets 1,614 1,079
------ ------
Net deferred tax liability $(2,805) $(2,630)
====== ======
For years prior to 1996, the Banks were allowed a special bad debt deduction
generally limited to 8% of otherwise taxable income, subject to certain
limitations based on aggregate loans and savings account balances at the end
of the year. If the amounts that qualified as deductions for federal income
taxes are later used for purposes other than for bad debt losses, including
distributions in liquidation, such distributions will be subject to federal
income taxes at the then current corporate income tax rate. The percentage
of earnings bad debt deduction had accumulated to approximately $10.0
million as of December 31, 2000. The amount of the unrecognized deferred tax
liability relating to the cumulative bad debt deduction was approximately
$3.1 million at December 31, 2000.
The Banks are required to recapture as taxable income approximately $1.9
million of the bad debt reserves, which represents post-1987 additions to
the reserve, and are unable to utilize the percentage of earnings method to
compute the reserve in the future. The Banks have provided deferred taxes
for this amount and are amortizing the recapture of the bad debt reserve
into taxable income over a six year period which commenced in 1998.
-70-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE I - COMMITMENTS
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers, including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Banks' involvement in such financial instruments.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Banks use the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 2000 and 1999, the Banks had outstanding commitments to
originate and purchase fixed-rate loans of approximately $1.9 million and
$1.1 million, respectively, and adjustable-rate loans of approximately $2.2
million and $10.0 million, respectively. Additionally, the Banks had unused
lines of credit under home equity and other loans of $36.7 million at
December 31, 2000. Management believes that all loan commitments are able to
be funded through cash flow from operations and existing liquidity. Fees
received in connection with these commitments have not been recognized in
earnings. At December 31, 2000, the Corporation had a commitment to sell
loans to the Federal Home Loan Mortgage Corporation ("FHLMC") totaling $30.0
million which expires in November 2001.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral on loans may vary but the preponderance of loans granted
generally include a mortgage interest in real estate as security.
The Corporation has entered into lease agreements for office premises and
equipment under operating leases which expire at various dates through 2010.
The following table summarizes minimum payments due under lease agreements
by year:
Year ending
December 31, (Dollars in thousands)
2001 $136
2002 104
2003 93
2004 62
2005 and thereafter 217
---
$612
===
-71-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE I - COMMITMENTS (continued)
Total rental expense under operating leases was approximately $260,000,
$278,000 and $211,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
NOTE J - REGULATORY CAPITAL
Cambridge Savings, Marietta Savings and Westwood Homestead are subject to
the regulatory capital requirements of the Federal Deposit Insurance
Corporation (the "FDIC"). First Federal and First Savings are subject to
regulatory capital standards promulgated by the Office of Thrift Supervision
(the "OTS"). Failure to meet minimum capital requirements can initiate
certain mandatory -- and possibly additional discretionary -- actions by
regulators that, if undertaken, could have a direct material effect on each
of the Banks' financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Banks must meet
specific capital guidelines that involve quantitative measures of the Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
During the calendar year, each of the Banks were notified from their
respective regulators that the Banks were categorized as "well-capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well-capitalized" the Banks' must maintain minimum capital
ratios as set forth in the tables that follow.
The FDIC has adopted risk-based capital ratio guidelines to which Cambridge
Savings, Marietta Savings and Westwood Homestead are subject. The guidelines
establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations. Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet commitments to four risk-weighting
categories, with higher levels of capital being required for the categories
perceived as representing greater risk.
These guidelines divide the capital into two tiers. The first tier ("Tier
1") includes common equity, certain non-cumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other intangible assets
(except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary ("Tier II") capital includes,
among other items, cumulative perpetual and long-term limited-life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debt and the allowance for loan losses, subject to certain
limitations, less required deductions. Savings banks are required to
maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1
capital. The FDIC may, however, set higher capital requirements when
particular circumstances warrant. Savings banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including
tangible capital positions, well above the minimum levels.
-72-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
As of December 31, 2000 and 1999, management believes that Cambridge
Savings, Marietta Savings and Westwood Homestead met all capital adequacy
requirements to which the Banks were subject.
Cambridge Savings As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $22,805 12.1% =>$15,052 =>8.0% =>$18,815 =>10.0%
Tier I capital
(to risk-weighted assets) $21,975 11.7% =>$ 7,526 =>4.0% =>$11,289 => 6.0%
Tier I leverage $21,975 6.6% =>$13,388 =>4.0% =>$16,736 => 5.0%
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $20,556 12.2% =>$13,459 =>8.0% =>$16,823 =>10.0%
Tier I capital
(to risk-weighted assets) $19,906 11.8% =>$ 6,729 =>4.0% =>$10,094 => 6.0%
Tier I leverage $19,906 6.4% =>$12,435 =>4.0% =>$15,544 => 5.0%
Marietta Savings As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $14,594 11.7% =>$9,975 =>8.0% =>$12,469 =>10.0%
Tier I capital
(to risk-weighted assets) $13,943 11.2% =>$4,987 =>4.0% =>$ 7,481 => 6.0%
Tier I leverage $13,943 7.3% =>$7,606 =>4.0% =>$ 9,507 => 5.0%
-73-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $13,595 12.4% =>$8,758 =>8.0% =>$10,948 =>10.0%
Tier I capital
(to risk-weighted assets) $13,034 11.9% =>$4,379 =>4.0% =>$ 6,569 => 6.0%
Tier I leverage $13,034 7.5% =>$6,929 =>4.0% =>$ 8,662 => 5.0%
Westwood Homestead As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $13,381 14.0% =>$7,644 =>8.0% =>$9,555 =>10.0%
Tier I capital
(to risk-weighted assets) $12,710 13.3% =>$3,822 =>4.0% =>$5,733 => 6.0%
Tier I leverage $12,710 8.1% =>$6,288 =>4.0% =>$7,861 => 5.0%
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital
(to risk-weighted assets) $18,567 20.1% =>$7,569 =>8.0% =>$9,419 =>10.0%
Tier I capital
(to risk-weighted assets) $17,926 19.4% =>$3,700 =>4.0% =>$5,551 => 6.0%
Tier I leverage $17,926 11.6% =>$6,202 =>4.0% =>$7,752 => 5.0%
-74-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as stockholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) generally equal to 4.0% of adjusted total assets, except for those
associations with the highest examination rating and acceptable levels of
risk. The risk-based capital requirement generally provides for the
maintenance of core capital plus general loan loss allowances equal to 8.0%
of risk-weighted assets. In computing risk-weighted assets, the Banks'
multiply the value of each asset on their respective statement of financial
condition by a defined risk-weighting factor, e.g., one- to four-family
residential loans carry a risk-weighted factor of 50%.
As of December 31, 2000 and 1999, management believes that First Federal and
First Savings met all capital adequacy requirements to which the Banks were
subject.
First Federal As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $11,918 5.7% =>$3,136 =>1.5% =>$10,452 => 5.0%
Core capital $11,918 5.7% =>$8,362 =>4.0% =>$12,543 => 6.0%
Risk-based capital $12,366 10.6% =>$9,335 =>8.0% =>$11,669 =>10.0%
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $11,651 6.2% =>$2,833 =>1.5% =>$ 9,444 => 5.0%
Core capital $11,651 6.2% =>$7,556 =>4.0% =>$11,333 => 6.0%
Risk-based capital $12,094 11.2% =>$8,679 =>8.0% =>$10,849 =>10.0%
-75-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
First Savings As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $10,332 7.5% =>$2,076 =>1.5% =>$6,919 => 5.0%
Core capital $10,332 7.5% =>$5,535 =>4.0% =>$8,302 => 6.0%
Risk-based capital $10,638 11.9% =>$7,153 =>8.0% =>$8,941 =>10.0%
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $11,105 8.3% =>$2,016 =>1.5% =>$6,720 => 5.0%
Core capital $11,105 8.3% =>$5,376 =>4.0% =>$8,064 => 6.0%
Risk-based capital $11,314 14.5% =>$6,266 =>8.0% =>$7,832 =>10.0%
The Corporation's management believes that, under the current regulatory
capital regulations, the Banks will continue to meet their minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Corporation, such as increased interest rates or a downturn in the
economy in the Banks' market areas, could adversely affect future earnings
and, consequently, the ability to meet future minimum regulatory capital
requirements.
First Federal and First Savings are subject to regulations imposed by the
OTS regarding the amount of capital distributions payable to the
Corporation. Generally, First Federal and First Savings' payment of
dividends is limited, without prior OTS approval, to net earnings for the
current calendar year plus the two preceding years, less capital
distributions paid over the comparable time period. Insured institutions are
required to file an application with the OTS for capital distributions in
excess of this limitation.
-76-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE K - BENEFIT PLANS
The Corporation has a non-contributory retirement plan which provides
benefits to certain key officers. The Corporation's obligations under the
plan have been provided for via the purchase of single premium key man life
insurance of which the Corporation is the beneficiary. The Corporation
recorded expense related to the plan totaling approximately $51,000, $45,000
and $42,000 during the years ended December 31, 2000, 1999 and 1998,
respectively.
The Corporation also has a 401(k) Salary Savings Plan covering substantially
all employees. Total expense under this plan was $334,000, $181,000 and
$783,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE L - STOCK OPTION PLANS
Stockholders of the Corporation have approved three stock option plans.
Under the 1972 Plan, 254,230 common shares were reserved for issuance to
officers, directors, and key employees of the Corporation and its
subsidiaries. The 1982 Plan reserved 115,824 common shares for issuance to
employees of the Corporation and its subsidiaries. All of the stock options
under the 1972 and 1982 Plans have been granted and are subject to exercise
at the discretion of the grantees through 2002. Under the 1995 Plan, 161,488
shares were reserved for issuance. Additionally, in connection with the
acquisition of First Savings, the stock options of First Savings were
converted into options to purchase 174,421 shares of the Corporation's stock
at an exercise price of $7.38 per share. The foregoing number of shares
under option reflect the three-for-two stock split effected during 1998 and
the 5% stock dividend effected during 1999.
Additionally, in connection with the acquisition of WHFC, the stock options
of WHFC were converted into options to purchase 309,272 shares of the
Corporation's stock at a weighted-average exercise price of $11.89 per share
which expire in 2008.
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, which 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.
-77-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE L - STOCK OPTION PLANS (continued)
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 would have been reported as the pro forma amounts indicated below:
2000 1999 1998
` (In thousands, except per share data)
Net earnings As reported $7,652 $5,940 $7,004
===== ===== =====
Pro-forma $7,640 $5,940 $6,853
===== ===== =====
Earnings per share
Basic As reported $1.11 $1.04 $1.22
==== ==== ====
Pro-forma $1.10 $1.04 $1.19
==== ==== ====
Diluted As reported $1.10 $1.02 $1.19
==== ==== ====
Pro-forma $1.10 $1.02 $1.16
==== ==== ====
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 2000 and 1998: dividend yield of 2.51%
and 2.04%, respectively; expected volatility of 10.0% for each year; a
risk-free interest rate of 5.0% and 5.5%, respectively, and an expected life
of ten years and seven years, respectively.
-78-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE L - STOCK OPTION PLANS (continued)
A summary of the status of the Corporation's stock option plans as of
December 31, 2000, 1999 and 1998, and changes during the years ending on
those dates is presented below:
2000 1999 1998
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year 369,523 $ 9.43 369,523 $9.43 383,182 $ 8.25
Granted 10,700 9.07 - - 65,415 14.84
WHFC options 309,272 11.89 - - - -
Exercised (840) 9.79 - - (23,074) 7.74
Forfeited - - - - (56,000) 8.38
------- ----- ------- ---- ------- -----
Outstanding at end of year 688,655 $10.53 369,523 $9.43 369,523 $ 9.43
======= ===== ======= ==== ======= =====
Options exercisable at year-end 688,655 $10.53 369,523 $9.43 369,523 $ 9.43
======= ===== ======= ==== ======= =====
Weighted-average fair value of
options granted during the year $ 1.75 N/A $ 3.67
===== === =====
The following information applies to options outstanding at December 31,
2000:
Number outstanding 688,655
Range of exercise prices $7.40 - $16.59
Weighted-average exercise price $10.53
Weighted-average remaining contractual life 6.22 years
-79-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial
position of the Corporation as of December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the years ended
December 31, 2000, 1999 and 1998:
Camco Financial Corporation
STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
2000 1999
ASSETS
Cash in subsidiary Banks $ 562 $ 245
Interest-bearing deposits in other financial institutions 1,375 617
Investment securities designated as available for sale 309 270
Investment in Bank subsidiaries utilizing
the equity method 74,477 59,242
Investment in title agency subsidiary 694 581
Office premises and equipment - net 1,777 1,490
Cash surrender value of life insurance 1,005 957
Prepaid expenses and other assets 236 470
Deferred federal income taxes 35 -
------ ------
Total assets $80,470 $63,872
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $ 511 $ 160
Dividends payable 832 832
Accrued federal income taxes 377 190
Deferred federal income taxes - 81
------ ------
Total liabilities 1,720 1,263
Stockholders' equity
Common stock 7,058 5,752
Additional paid-in capital 41,551 30,351
Retained earnings - substantially restricted 31,553 27,205
Unrealized losses on securities designated as available for sale,
net of related tax effects 4 (124)
Treasury stock, at cost (1,416) (575)
------ ------
Total stockholders' equity 78,750 62,609
------ ------
Total liabilities and stockholders' equity $80,470 $63,872
====== ======
-80-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued)
Camco Financial Corporation
STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands)
2000 1999 1998
Income
Dividends from Bank subsidiaries $6,950 $4,350 $3,700
Dividends from title agency subsidiary - 300 -
Interest and other income 159 121 305
Equity in undistributed net earnings
of the Bank subsidiaries 1,836 2,320 3,641
(Excess distribution from) undistributed earnings
of the title agency subsidiary 113 (102) 331
----- ----- -----
Total income 9,058 6,989 7,977
General, administrative and other
expense 2,092 1,520 1,300
----- ----- -----
Earnings before federal income tax
credits 6,966 5,469 6,677
Federal income tax credits (686) (471) (327)
----- ----- -----
Net earnings $7,652 $5,940 $7,004
===== ===== =====
-81-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued)
Camco Financial Corporation
STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands)
2000 1999 1998
Cash flows from operating activities:
Net earnings for the year $7,652 $5,940 $7,004
Adjustments to reconcile net earnings to net cash
flows provided by (used in) operating activities:
Undistributed net earnings of Bank subsidiaries (1,836) (2,320) (3,641)
Excess distribution from (undistributed net earnings of)
title agency subsidiary (113) 102 (331)
Depreciation and amortization 87 11 -
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 421 (388) (69)
Accounts payable and other liabilities 351 (3) (317)
Accrued federal income taxes 187 421 228
Deferred federal income taxes (15) (165) -
Other - net (22) 8 (297)
----- ----- -----
Net cash provided by operating activities 6,712 3,606 2,577
Cash flows from investing activities:
Purchase of investment securities (17) (22) (150)
Purchase of cash surrender value of life insurance - (135) -
Net increase in cash surrender value of life insurance (48) (36) (37)
Purchase of office equipment and premises (374) (1,297) -
(Increase) decrease in interest-bearing deposits in other
financial institutions (758) 351 (885)
Purchase of Westwood Homestead Financial Corporation - net (1,879) - -
----- ----- -----
Net cash used in investing activities (3,076) (1,139) (1,072)
Cash flows from financing activities:
Stock options exercised 8 - 110
Dividends paid (3,327) (2,550) (2,097)
Purchase of treasury shares - (457) (76)
----- ----- -----
Net cash used in financing activities (3,319) (3,007) (2,063)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 317 (540) (558)
Cash and cash equivalents at beginning of year 245 785 1,343
----- ----- -----
Cash and cash equivalents at end of year $ 562 $ 245 $ 785
===== ===== =====
-82-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE N - BUSINESS COMBINATION
During 1999, the Corporation agreed to acquire WHFC utilizing the purchase
method of accounting. WHFC was dissolved upon consummation in January 2000
and its banking subsidiary, Westwood Homestead, continued operations as a
wholly-owned subsidiary of the Corporation. Camco paid $11.1 million in cash
and issued 1,304,875 of its common shares in connection with the
acquisition.
The acquisition of WHFC was consummated on January 6, 2000. The consolidated
statement of earnings for the year ended December 31, 2000 would not differ
materially from that presented, if prepared assuming the transaction had
occurred as of January 1, 2000.
Presented below is Camco's pro-forma condensed consolidated statement of
earnings and earnings per share which has been prepared as if the
acquisition had been consummated as of the beginning of the year ended
December 31, 1999.
1999
(In thousands)
(unaudited)
Total interest income $62,007
Total interest expense 36,014
------
Net interest income 25,993
Provision for losses on loans (588)
Other income 5,558
General, administrative and other expense (19,238)
------
Earnings before income taxes 11,725
Federal income taxes 3,988
------
Net earnings $ 7,737
======
Basic earnings per share $1.10
====
Diluted earnings per share $1.08
====
-83-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE O - CONSOLIDATION OF BANKING SUBSIDIARIES
During January 2001, the Board of Directors of Camco and the Boards of
Directors of the Banks approved an agreement of merger whereby Marietta
Savings, First Federal, First Savings and Westwood Homestead will merge with
and into Cambridge Savings. The consolidation will be accounted for in a
manner similar to a pooling-of-interests. The transaction requires
regulatory approval and is expected to be completed during the second
quarter of 2001.
Coincident with the consolidation, the Corporation has announced that Camco
will record a restructuring charge related to the reorganization and
consolidation totaling $1.4 million.
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the
years ended December 31, 2000 and 1999.
Three Months Ended
March 31, June 30, September 30, December 31,
2000: (In thousands, except per share data)
Total interest income $17,658 $18,966 $19,545 $19,502
Total interest expense 11,094 12,230 13,204 13,081
------ ------ ------ ------
Net interest income 6,564 6,736 6,341 6,421
Provision for losses on loans 137 156 138 137
Other income 1,120 1,301 1,773 1,342
General, administrative and other expense 4,931 5,093 4,768 4,738
------ ------ ------ ------
Earnings before income taxes 2,616 2,788 3,208 2,888
Federal income taxes 882 963 1,061 942
------ ------ ------ ------
Net earnings $ 1,734 $ 1,825 $ 2,147 $ 1,946
====== ====== ====== ======
Earnings per share:
Basic $.25 $.26 $.31 $.29
=== === === ===
Diluted $.25 $.26 $.31 $.28
=== === === ===
-84-
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000, 1999 and 1998
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
Three Months Ended
March 31, June 30, September 30, December 31,
1999: (In thousands, except per share data)
Total interest income $11,406 $12,145 $13,307 $14,235
Total interest expense 6,500 6,939 7,836 8,632
------ ------ ------ ------
Net interest income 4,906 5,206 5,471 5,603
Provision for losses on loans 54 69 45 79
Other income 1,565 1,415 1,118 1,092
General, administrative and other expense 4,048 4,406 4,322 4,337
------ ------ ------ ------
Earnings before income taxes 2,369 2,146 2,222 2,279
Federal income taxes 799 730 752 795
------ ------ ------ ------
Net earnings $ 1,570 $1,416 $1,470 $1,484
====== ===== ===== =====
Earnings per share:
Basic $.27 $.25 $.26 $.26
=== === === ===
Diluted $.27 $.24 $.25 $.26
=== === === ===
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information contained under the captions "Board of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement
for the 2001 Annual Meeting of Stockholders to be filed by Camco no later than
120 days after the end of the fiscal year (the "Proxy Statement") is
incorporated herein by reference.
Item 11. Executive Compensation.
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers and Directors" is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained in the Proxy Statement under the caption
"Voting Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
-85-
Item 13. Certain Relationships and Related Transactions.
The information contained in the Proxy Statement under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Exhibits.
(3)(i) Certificate of Incorporation
(3)(ii) Bylaws
(10)(ii)-1 Employment Agreement between Camco and
Larry A. Caldwell
(10)(ii)-2 Employment Agreement between Camco and
Anthony J. Popp
(10)(ii)-3 Employment Agreement between Marietta Savings and
Anthony J. Popp
(10)(ii)-4 Employment Agreement between Camco and
Richard C. Baylor
(21) Subsidiaries of Camco
(23)(i) Consent of Grant Thornton LLP regarding Camco's
Consolidated Financial Statements and Form S-8
(23)(ii) Consent of Crowe, Chizek and Company LLP regarding
Camco Financial and Subsidiaries Salary Savings
Plan Financial Statements and Form S-8
(99) 2000 Financial Statements of the Camco Financial
and Subsidiaries Salary Savings Plan
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
2000.
-86-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Camco Financial Corporation
By /s/ Richard C. Baylor
------------------------------------------------
Richard C. Baylor,
President, Chief Operating Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Anthony J. Popp By /s/ Larry A. Caldwell
--------------------------------- ---------------------------------
Anthony J. Popp, Larry A. Caldwell
Senior Vice President, Secretary and Director Chairman, Chief Executive Officer and Director
Date: March 23, 2001 Date: March 23, 2001
By /s/ Samuel W. Speck By
--------------------------------- ---------------------------------
Samuel W. Speck, Robert C. Dix. Jr.,
Director Director
Date: March 23, 2001 Date: March 23, 2001
By /s/ Jeffrey T. Tucker By /s/ Paul D. Leake
--------------------------------- ---------------------------------
Jeffrey T. Tucker, Paul D. Leake,
Director Director
Date: March 23, 2001 Date: March 23, 2001
By /s/ Eric Spann By /s/ Kristina K. Tipton
--------------------------------- ---------------------------------
Eric Spann, Kristina K. Tipton,
Director Assistant Controller
(Principal Financial Officer)
Date: March 23, 2001 Date: March 23, 2001
By /s/ Kenneth R. Elshoff By /s/Terry A. Feick
--------------------------------- ---------------------------------
Kenneth R. Elshoff, Terry A. Feick,
Director Director
Date: March 23, 2001 Date: March 23, 2001
By /s/ John B. Bennet, Sr.
---------------------------------
John B. Bennet, Sr.,
Director
Date: March 23, 2001
-87-
INDEX TO EXHIBITS
ITEM DESCRIPTION
Exhibit (3)(i) Third Restated Certificate of Incorporated by reference to Camco's Annual
Incorporation of Camco Financial Report on Form 10-K for the fiscal year ended
Corporation, as amended December 31, 1999
Exhibit (3)(ii) 1987 Amended and Restated By-Laws of Incorporated by reference to Camco's Annual
Camco Financial Corporation Report on Form 10-KSB for the fiscal year ended
December 31, 1995, filed with the Securities
and Exchange Commission on April 1, 1996 (the
"1995 Form 10-KSB"), Exhibit 3(iii).
Exhibit (10)(ii) -1 Employment Agreement dated January 22, Incorporated by reference to the 1995 Form
1996, by and between Camco and Larry A. 10-KSB, Exhibit 10(ii)-1
Caldwell
Exhibit (10)(ii) -2 Employment Agreement dated January 28, Incorporated by reference to Camco's Annual
1994, by and between Camco and Anthony Report on Form 10-KSB for the fiscal year ended
J. Popp December 31, 1993, filed with the SEC on
March 31, 1994 (the "1994 Form 10-KSB"), Exhibit
10(ii)-1.
Exhibit (10)(ii) -3 Employment Agreement dated January 28, Incorporated by reference to the 1994 Form
1994, by and between Marietta Savings 10-KSB, Exhibit 10(ii)-2.
Bank and Anthony J. Popp
Exhibit (10)(ii) -4 Employment Agreement dated January 1,
2001, by and between Camco Financial
Corporation and Richard C. Baylor
Exhibit 21 Subsidiaries of Camco Incorporated by reference to the 1999 Form 10-K,
Exhibit 21
Exhibit 23(i) Consent of Grant Thornton LLP regarding
Camco's Consolidated Financial
Statements and Form S-8
Exhibit 23(ii) Consent of Crowe, Chizek and Company LLP
regarding Camco Financial & Subsidiaries
Salary Savings Plan Financial Statements
and Form S-8
Exhibit 99 2000 Financial Statements of the Camco
Financial & Subsidiaries Salary Savings
Plan