FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 0-25196
CAMCO FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0110823
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6901 Glenn Highway, Cambridge, Ohio 43725
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(Address of principal executive office)
Registrant's telephone number, including area code: (740) 435-2020
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of August 10, 2001, the latest practicable date, 6,983,388.1 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 19 pages
Camco Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Quantitative and Qualitative Disclosures about
Market Risk 17
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 2001 2000
Cash and due from banks $ 20,261 $ 19,153
Interest-bearing deposits in other financial institutions 39,014 4,916
--------- ---------
Cash and cash equivalents 59,275 24,069
Investment securities available for sale - at market 309 309
Investment securities held to maturity - at cost, approximate market value of $6,876
and $16,617 as of June 30, 2001 and December 31, 2000 6,938 16,672
Mortgage-backed securities available for sale - at market 8,552 9,850
Mortgage-backed securities held to maturity - at cost, approximate market value of
$6,999 and $5,247 as of June 30, 2001 and December 31, 2000 6,923 5,273
Loans held for sale - at lower of cost or market 9,479 4,235
Loans receivable - net 881,563 926,437
Office premises and equipment - net 13,360 13,845
Real estate acquired through foreclosure 1,115 583
Federal Home Loan Bank stock - at cost 20,143 19,339
Accrued interest receivable on loans 5,522 5,611
Accrued interest receivable on mortgage-backed securities 101 111
Accrued interest receivable on investment securities and interest-bearing deposits 163 256
Prepaid expenses and other assets 2,299 1,439
Cash surrender value of life insurance 6,141 5,999
Goodwill and other intangible assets 3,028 3,103
Prepaid federal income taxes 621 725
--------- ---------
Total assets $1,025,532 $1,037,856
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 661,185 $ 632,288
Advances from the Federal Home Loan Bank 271,696 313,471
Advances by borrowers for taxes and insurance 2,012 4,382
Accounts payable and accrued liabilities 5,920 5,328
Dividends payable 834 832
Deferred federal income taxes 2,895 2,805
--------- ---------
Total liabilities 944,542 959,106
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares, 7,080,908 and
7,057,917 shares issued at June 30, 2001 and December 31, 2000, respectively 7,081 7,058
Additional paid-in capital 41,733 41,551
Retained earnings - substantially restricted 33,553 31,553
Less 126,019 shares of treasury stock - at cost (1,416) (1,416)
Accumulated comprehensive income, unrealized gains on securities designated
as available for sale, net of related tax effects 39 4
--------- ---------
Total stockholders' equity 80,990 78,750
--------- ---------
Total liabilities and stockholders' equity $1,025,532 $1,037,856
========= =========
3
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
2001 2000 2001 2000
Interest income
Loans $36,188 $34,601 $17,772 $17,932
Mortgage-backed securities 483 577 228 288
Investment securities 443 570 201 295
Interest-bearing deposits and other 1,356 875 829 451
------ ------ ------ ------
Total interest income 38,470 36,623 19,030 18,966
Interest expense
Deposits 16,189 13,204 8,117 6,802
Borrowings 9,010 10,120 4,334 5,428
------ ------ ------ ------
Total interest expense 25,199 23,324 12,451 12,230
------ ------ ------ ------
Net interest income 13,271 13,299 6,579 6,736
Provision for losses on loans 306 292 150 156
------ ------ ------ ------
Net interest income after provision
for losses on loans 12,965 13,007 6,429 6,580
Other income
Late charges, rent and other 1,345 996 766 527
Loan servicing fees (costs) (465) 406 (445) 112
Service charges and other fees on deposits 423 343 210 180
Gain on sale of loans 1,555 626 930 469
Gain on sale of real estate acquired through foreclosure 42 36 31 4
Gain on sale of investment and mortgage-backed securities
designated as available for sale - 5 - 5
Gain on sale of office equipment 3 9 4 4
------ ------ ------ ------
Total other income 2,903 2,421 1,496 1,301
General, administrative and other expense
Employee compensation and benefits 4,554 4,727 2,432 2,271
Occupancy and equipment 1,736 1,510 957 778
Federal deposit insurance premiums 60 58 30 29
Data processing 754 686 404 403
Advertising 447 401 273 212
Franchise taxes 566 553 288 262
Amortization of goodwill 75 75 38 35
Other operating 2,323 2,014 1,376 1,103
------ ------ ------ ------
Total general, administrative and other expense 10,515 10,024 5,798 5,093
------ ------ ------- -------
Earnings before federal income taxes 5,353 5,404 2,127 2,788
Federal income taxes
Current 1,614 1,794 533 1,224
Deferred 69 51 60 (261)
------ ------ ------ ------
Total federal income taxes 1,683 1,845 593 963
------ ------ ------ ------
NET EARNINGS $ 3,670 $ 3,559 $ 1,534 $ 1,825
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.53 $.52 $.22 $.26
=== === === ===
Diluted $.52 $.51 $.22 $.26
=== === === ===
4
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Six months ended Three months ended
June 30, June 30,
2001 2000 2001 2000
Net earnings $3,670 $3,559 $1,534 $1,825
Other comprehensive income, net of tax:
Unrealized holding gains during the period,
net of tax of $18, $3, $12 and $3 35 7 24 7
Reclassification adjustment for realized gains included
in net earnings, net of tax of $2 for each of the six and
three months ended June 30, 2000 - (3) - (3)
----- ----- ----- -----
Comprehensive income $3,705 $3,563 $1,558 $1,829
===== ===== ===== =====
Accumulated comprehensive income (loss) $ 39 $ (120) $ 39 $ (120)
===== ===== ===== =====
5
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 3,670 $ 3,559
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (564) (169)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 31 13
Amortization of goodwill 75 75
Amortization of purchase accounting adjustments - net 258 (272)
Depreciation and amortization 733 598
Provision for losses on loans 306 292
Gain on sale of real estate acquired through foreclosure (42) (36)
Federal Home Loan Bank stock dividends (704) (612)
Gain on sale of loans (703) (227)
Gain on sale of office equipment (3) (9)
Gain on sale of investment and mortgage-backed securities designated
as available for sale - (5)
Loans originated for sale in the secondary market (77,788) (38,675)
Proceeds from sale of loans in the secondary market 73,247 37,338
Increase (decrease) in cash, net of acquisition of Westwood Homestead Financial
Corporation, due to changes in:
Accrued interest receivable 192 (636)
Prepaid expenses and other assets (860) (611)
Accrued interest and other liabilities 594 1,548
Federal income taxes:
Current 104 (305)
Deferred 72 51
------- -------
Net cash provided by (used in) operating activities (1,382) 1,917
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities and interest-bearing deposits 14,730 185
Purchase of investment securities designated as held to maturity (4,995) (750)
Purchase of mortgage-backed securities designated as held to maturity (2,017) -
Principal repayments on mortgage-backed securities 1,686 1,331
Loan principal repayments 137,899 74,158
Loan disbursements (88,615) (136,989)
Purchases of loans (5,839) (1,791)
Additions to office premises and equipment (248) (1,049)
Additions to real estate acquired through foreclosure (108) (37)
Proceeds from sale of office premises and equipment 3 -
Proceeds from sale of real estate acquired through foreclosure 1,095 794
Purchase of Federal Home Loan Bank stock (100) (2,054)
Proceeds from sale of Federal Home Loan Bank stock - 504
Net increase in cash surrender value of life insurance (142) (128)
Purchase of life insurance - (80)
Purchase of Westwood Homestead Financial Corporation - (1,879)
------- -------
Net cash provided by (used in) investing activities 53,349 (67,785)
------- -------
Net cash provided by (used in) operating and investing activities
(balance carried forward) 51,967 (65,868)
------- -------
6
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
2001 2000
Net cash provided by (used in) operating and investing activities
(balance brought forward) $51,967 $(65,868)
Cash flows provided by (used in) financing activities:
Net increase in deposits 28,897 27,568
Proceeds from Federal Home Loan Bank advances and other borrowings 38,250 164,000
Repayment of Federal Home Loan Bank advances and other borrowings (80,073) (120,488)
Dividends paid on common stock (1,670) (1,664)
Proceeds from exercise of stock options 205 8
Decrease in advances by borrowers for taxes and insurance (2,370) (2,635)
------- -------
Net cash provided by (used in) financing activities (16,761) 66,789
------- -------
Increase in cash and cash equivalents 35,206 921
Cash and cash equivalents at beginning of period 24,069 16,954
------- -------
Cash and cash equivalents at end of period $59,275 $ 17,875
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $25,366 $ 23,366
====== =======
Income taxes $ 1,603 $ 1,804
====== =======
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 35 $ 4
====== =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 852 $ 399
====== =======
Transfers from loans to real estate acquired through foreclosure $ 1,477 $ 479
====== =======
Liabilities assumed, stock and cash paid in acquisition of Westwood
Homestead Financial Corporation $ - $159,698
Less: fair value of assets received - 159,698
------ -------
Amount assigned to goodwill $ - $ -
====== =======
7
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with accounting principles generally accepted in
the United States of America. Accordingly, these financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto of Camco Financial Corporation ("Camco" or
the "Corporation") included in Camco's Annual Report on Form 10-K for
the year ended December 31, 2000. However, all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the consolidated financial
statements, have been included. The results of operations for the six
and three month periods ended June 30, 2001, are not necessarily
indicative of the results which may be expected for the entire year.
In January 2000, the Corporation acquired Westwood Homestead Financial
Corporation ("Westwood Financial") utilizing the purchase method of
accounting (the "Merger"). Westwood Financial was dissolved upon
consummation of the Merger and Westwood Financial's banking subsidiary,
Westwood Homestead Savings Bank, continued operations as a wholly-owned
subsidiary of the Corporation. Camco paid $11.1 million in cash and
issued 1,304,875 of its common shares in connection with the Merger.
On June 1, 2001, Camco's five wholly-owned community bank subsidiaries,
Cambridge Savings Bank, Marietta Savings Bank, First Federal Savings
Bank of Washington Court House, First Federal Bank for Savings and
Westwood Homestead Savings Bank, merged under the Cambridge Savings
Bank charter. At the effective time of the merger, Cambridge Savings
Bank was re-named Advantage Bank ("Advantage" or the "Bank"). Advantage
is headquartered in Cambridge, Ohio and each of the former banks are
operating as separate divisions of Advantage Bank.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Camco and its two wholly-owned subsidiaries: Advantage Bank and
Camco Title Insurance Agency, Inc., as well as two second tier
subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company.
All significant intercompany balances and transactions have been
eliminated.
3. Earnings Per Share
Basic earnings per share for the six and three month periods ended June
30, 2001, is computed based on 6,947,792 and 6,953,509 weighted-average
shares outstanding during the respective periods.
Basic earnings per share for the six and three month periods ended June
30, 2000, is computed based on 6,898,226 and 6,931,898 weighted-average
shares outstanding during the respective periods.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued
under the Corporation's stock option plans. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings
per share totaled 7,034,435 and 7,050,312 for the six and three month
periods ended June 30, 2001, respectively, and 6,935,820 and 6,960,455
for the six and three month periods ended June 30, 2000, respectively.
8
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Earnings Per Share (continued)
Incremental shares related to the assumed exercise of stock options
included in the computation of diluted earnings per share for the six
and three month periods ended June 30, 2001, totaled 86,643 and 96,803,
respectively, and totaled 37,594 and 28,557 for the six and three month
periods ended June 30, 2000, respectively.
Options to purchase 322,152 shares of common stock with a
weighted-average exercise price of $12.97 were outstanding at June 30,
2001, but were excluded from the computation of common share
equivalents for the six and three months ended June 30, 2001, because
the exercise prices were greater than the average market price of the
common shares.
Options to purchase 432,795 shares of common stock with a
weighted-average exercise price of $12.16 were outstanding at June 30,
2000, but were excluded from the computation of common share
equivalents for the six months ended June 30, 2000, because the
exercise prices were greater than the average market price of the
common shares.
Options to purchase 485,331 shares of common stock with a
weighted-average exercise price of $11.81 were outstanding at June 30,
2000, but were excluded from the computation of common share
equivalents for the three months ended June 30, 2000, because the
exercise prices were greater than the average market price of the
common shares.
4. Effects of Recent Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which revises the standards for
accounting for securitizations and other transfers of financial assets
and collateral and requires certain disclosures, but carries over most
of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000.
Management adopted SFAS No. 140 effective April 1, 2001, as required,
without material effect on the Corporation's financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations,"
which requires that all business combinations initiated after June 30,
2001 be accounted for using the purchase method. The
pooling-of-interests method of accounting is prohibited except for
combinations initiated before June 30, 2001. The remaining provisions
of SFAS No. 141 relating to business combinations accounted for by the
purchase method, including identification of intangible assets,
accounting for negative goodwill, financial statement presentation and
disclosure, are effective for combinations completed after June 30,
2001. Management adopted SFAS No. 141 effective July 1, 2001, as
required, without material effect on the Corporation's financial
position or results of operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which prescribes accounting for all purchased goodwill and
intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not
amortized, but is tested for impairment at the reporting unit level
annually and whenever an impairment indicator arises. All goodwill
should be assigned to reporting units that are
9
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
expected to benefit from the goodwill. When an entity reorganizes its
reporting structure, goodwill should be reallocated to reporting units
based on the relative fair values of the units. Goodwill impairment
should be tested with a two-step approach. First, the fair value of the
reporting unit should be compared to its carrying value, including
goodwill. If the reporting unit's carrying value exceeds its fair
value, then any goodwill impairment should be measured as the excess of
the goodwill's carrying value over its implied fair value. The implied
fair value of goodwill should be calculated in the same manner as
goodwill is calculated for a business combination, using the reporting
units' fair value as the "purchase price." Therefore, the goodwill's
implied fair value will be the excess of the "purchase price" over the
amounts allocated to assets, including unrecognized intangible assets,
and liabilities of the reporting unit. Goodwill impairment losses
should be reported in the income statement as a separate line item
within operations, except for such losses included in the calculation
of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized
over its useful economic life. The useful life of an intangible asset
is indefinite if it extends beyond the foreseeable horizon. If an
asset's life is indefinite, the asset should not be amortized until the
life is determined to be finite. Intangible assets being amortized
should be tested for impairment in accordance with SFAS No. 121.
Intangible assets not being amortized should be tested for impairment,
annually and whenever there are indicators of impairment, by comparing
the asset's fair value to its carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Early adoption is permitted for companies with fiscal years
beginning after March 15, 2001, but only if the first quarter financial
statements have not previously been issued. Calendar year end companies
may not adopt early. Until adoption of SFAS No. 142, existing goodwill
continues to be amortized and tested for impairment under previously
existing standards. As of the date SFAS No. 142 is adopted and based on
the company's current reporting structure, reporting units should be
established; net assets should be assigned to reporting units, unless
they do not relate to a reporting unit; and goodwill should be assigned
to one or more reporting units.
Within six months of adopting SFAS No. 142, a company must have
completed the first step of the goodwill transitional impairment test:
a comparison, as of the beginning of the fiscal year, of each reporting
unit's fair value with its carrying value. If the carrying value
exceeds fair value, the second step - calculating the amount of
goodwill impairment as of the beginning of the fiscal year - would be
required as soon as possible, but no later than the end of the fiscal
year. Any transitional impairment loss would be reported as a change in
accounting principle in the first interim period financial statements
of the implementation year, regardless of when the loss measurement is
completed. After completion of the first step of the transitional test,
a company should disclose which segments might have to recognize an
impairment loss and when the potential loss would be measured.
If an impairment indicator arises before the completion of the
transition testing, a full impairment test would be required as soon as
possible. Any goodwill impairment resulting from this test should be
reported as an impairment loss, not as a change in accounting
principle. SFAS No. 142 is not expected to have a material effect on
the Corporation's financial position or results of operations.
10
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the six and three month periods ended June 30, 2001 and 2000
Discussion of Financial Condition Changes from December 31, 2000 to June 30,
2001
At June 30, 2001, Camco's consolidated assets totaled $1.0 billion, a decrease
of $12.3 million, or 1.2%, from the December 31, 2000 total. This decrease
consisted primarily of a decrease in loans receivable and investment securities,
partially offset by an increase in interest-bearing deposits.
Cash and interest-bearing deposits in other financial institutions totaled $59.3
million at June 30, 2001, an increase of $35.2 million, or 146.3%, over December
31, 2000 levels. Investment securities totaled $7.2 million at June 30, 2001, a
decrease of $9.7 million, or 57.3%, from the total at December 31, 2000.
Purchases of investment securities totaled $5.0 million, while maturities
amounted to $14.7 million during the six-month period ended June 30, 2001.
Mortgage-backed securities totaled $15.5 million at June 30, 2001, an increase
of $352,000, or 2.3%, over December 31, 2000. Mortgage-backed securities
purchases totaled $2.0 million, while principal repayments totaled $1.7 million.
Loans receivable, including loans held for sale, decreased by $39.6 million, or
4.3%, during the six months ended June 30, 2001, to a total of $891.0 million.
The decrease resulted primarily from principal repayments of $137.9 million and
loan sales of $72.5 million, which were substantially offset by loan
disbursements, including purchased loans, which totaled $172.2 million. The
volume of loans originated and purchased during the 2001 six-month period was
less than that of the 2000 period by $5.2 million, or 2.9%, while the volume of
loan sales increased by $35.4 million year to year.
As interest rates in the economy have declined over the first half of 2001,
consumer preference has shifted to long-term fixed-rate mortgage loans to fund
home purchases and to refinance current loans. Camco's loan production in this
lower interest rate environment has clearly shifted to fixed-rate mortgage loans
and Camco will continue its asset/liability management strategy of selling
low-yielding, long-term, fixed-rate loans.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$5.9 million and $4.7 million at June 30, 2001 and December 31, 2000,
respectively, constituting .66% and .51% of total net loans, including loans
held for sale, at those dates. At June 30, 2001, nonperforming loans consisted
primarily of one- to four-family residential properties which management
believes are adequately collateralized. The consolidated allowance for loan
losses totaled $3.2 million and $2.9 million at June 30, 2001 and December 31,
2000, respectively, representing 54.2% and 61.5% of nonperforming loans,
respectively, at those dates. Although management believes that its allowance
for loan losses is adequate based upon the available facts and circumstances at
June 30, 2001, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect Camco's results
of operations.
11
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Discussion of Financial Condition Changes from December 31, 2000 to June 30,
2001 (continued)
Deposits totaled $661.2 million at June 30, 2001, an increase of $28.9 million,
or 4.6%, over December 31, 2000 levels. The increase resulted primarily from
management's continuing efforts to achieve growth in deposits through marketing
and pricing strategies. Advances from the Federal Home Loan Bank ("FHLB")
decreased by $41.8 million, or 13.3%, to a total of $271.7 million at June 30,
2001. The proceeds from deposit growth, coupled with repayments on loans
receivable, were used to repay FHLB borrowings during the period.
Advantage is required to maintain minimum regulatory capital pursuant to federal
regulations. At June 30, 2001, the Bank's regulatory capital exceeded all
regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 2001 and
2000
General
Camco's profitability depends primarily on the level of its net interest income,
which is the difference between interest income on interest-earning assets,
principally loans, mortgage-backed securities and investment securities, and
interest expense on deposit accounts and borrowings. In recent years, Camco's
net earnings have been heavily influenced by the level of other income,
including gains on sale of loans, loan servicing fees, and other fees. Camco's
operations are also influenced by the level of general, administrative and other
expenses, including employee compensation and benefits, occupancy and equipment
and data processing, as well as various other operating expense categories,
including federal income tax expense.
Camco's net earnings for the six months ended June 30, 2001 totaled $3.7
million, an increase of $111,000, or 3.1%, over the $3.6 million of net earnings
reported in the comparable 2000 period. Camco's results for the six months ended
June 30, 2001, included a $1.1 million pre-tax restructuring charge related to
the consolidation of Camco's five bank subsidiaries. The restructuring charge
was primarily comprised of one-time compensation charges and professional fees
associated with the consolidation. Camco anticipates that the approximate
pre-tax savings from the restructuring, coupled with other personnel reductions,
may amount to $1.7 million in 2002. Excluding the restructuring charge, the
Corporation's net earnings for the six months ended June 30, 2001, would have
totaled $4.4 million, representing an increase of $829,000, or 23.3%, over the
reported net earnings for the six months ended June 30, 2000.
The $111,000 increase in net earnings for the six months ended June 30, 2001,
was primarily attributable to a $482,000 increase in other income and a $162,000
decrease in the provision for federal income taxes, which were partially offset
by a $491,000 increase in general, administrative and other expense and a
$28,000 decrease in net interest income.
12
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Comparison of Results of Operations for the Six Months Ended June 30, 2001 and
2000 (continued)
Net Interest Income
Total interest income for the six months ended June 30, 2001, amounted to $38.5
million, an increase of $1.8 million, or 5.0%, over the six-month period ended
June 30, 2000, generally reflecting the growth in average interest-earning
assets outstanding of approximately $54.1 million, or 5.8%.
Interest income on loans and mortgage-backed securities totaled $36.7 million
for the six months ended June 30, 2001, an increase of $1.5 million, or 4.2%,
over the comparable 2000 period. The increase resulted primarily from a $36.3
million, or 4.1%, increase in the average balance outstanding year to year.
Interest income on investment securities and other interest-earning assets
increased by $354,000, or 24.5%, due primarily to a $17.7 million, or 42.5%,
increase in the average balance outstanding year to year, which was partially
offset by an 87 basis point decline in average yield, to 6.06% in the 2001
period.
Interest expense on deposits increased by $3.0 million, or 22.6%, to a total of
$16.2 million for the six months ended June 30, 2001, due primarily to a $76.8
million, or 13.6%, increase in average deposits outstanding over the prior year
and a 37 basis point increase in the average cost of deposits, to 5.03% for the
2001 period. Interest expense on borrowings totaled $9.0 million for the six
months ended June 30, 2001, a decrease of $1.1 million, or 11.0%, from the 2000
six-month period. The decrease resulted primarily from a $28.8 million, or 8.9%,
decrease in the average balance outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $28,000, or 0.2%, to a total of $13.3 million
for the six months ended June 30, 2001. The interest rate spread decreased to
approximately 2.41% for the six months ended June 30, 2001, from 2.59% for the
2000 period, while the net interest margin decreased to approximately 2.68% in
2001, compared to 2.84% in 2000.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Bank,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market areas
and other factors related to the collectibility of the Bank's loan portfolio.
Management elected to record a provision for losses on loans totaling $306,000
for the six months ended June 30, 2001, an increase of $14,000, or 4.8%, over
the comparable period in 2000. The current period provision generally reflects
the increase in the level of nonperforming loans during 2001. There can be no
assurance that the allowance for loan losses will be adequate to cover losses on
nonperforming loans in the future.
13
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Comparison of Results of Operations for the Six Months Ended June 30, 2001 and
2000 (continued)
Other Income
Other income totaled $2.9 million for the six months ended June 30, 2001, an
increase of $482,000, or 19.9%, over the comparable 2000 period. The increase in
other income was primarily attributable to a $929,000, or 148.4%, increase in
gain on sale of loans, an increase of $349,000, or 35.0%, in late charges, rent
and other and an $80,000, or 23.3%, increase in service charges and fees on
deposits, which were substantially offset by a decrease of $871,000 in loan
servicing fees. The increase in gain on sale of loans was due to the 95.5%
increase in sales volume, as a result of the demand for fixed-rate loans in the
declining interest rate environment. The increase in late charges, rent and
other was due primarily to an increase in fees at Camco's title insurance agency
subsidiary, as well as increases in insurance and other transaction fees year to
year. The decrease in loan servicing fees was primarily due to a $935,000 charge
related to the mortgage servicing rights asset. This charge was based upon the
Corporation's ongoing fair value analysis of the mortgage servicing rights
asset.
General, Administrative and Other Expense
General, administrative and other expense totaled $10.5 million for the six
months ended June 30, 2001, an increase of $491,000, or 4.9%, over the
comparable period in 2000. Exclusive of a $1.1 million restructuring charge,
general, administrative and other expense would have totaled $9.4 million, a
decrease of $597,000, or 6.0%, for the six months ended June 30, 2001, compared
to the six months ended June 30, 2000. Exclusive of the restructuring charge,
employee compensation and benefits decreased by $768,000, or 16.2%, and
advertising decreased by $29,000, or 7.2%, which were partially offset by an
increase in occupancy and equipment of $76,000, or 5.0%, an increase in data
processing of $68,000, or 9.9%, and an increase in other operating expenses of
$41,000, or 2.0%. The decrease in employee compensation and benefits was
primarily attributable to a decrease in staffing levels due to employee
retirements, attrition, and the closing of unprofitable loan production offices.
The increase in occupancy and equipment expense was due to an increase in
depreciation expense period to period. Data processing expense increased over
the comparable 2000 period due to costs relating to implementation of an
internal wide area network and continued growth.
Federal Income Taxes
The provision for federal income taxes totaled $1.7 million for the six months
ended June 30, 2001, a decrease of $162,000, or 8.8%, from the six months ended
June 30, 2000. The Corporation's effective tax rate amounted to 31.4% and 34.1%
for the six-month periods ended June 30, 2001 and 2000, respectively. The
decrease in the provision for federal income taxes was primarily attributable to
refunds claimed for prior years' tax liabilities.
14
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended June 30, 2001 and
2000
General
Camco's net earnings for the three months ended June 30, 2001 totaled $1.5
million, a decrease of $291,000, or 15.9%, from the $1.8 million of net earnings
reported in the comparable 2000 period. The decrease in earnings was primarily
attributable to a $1.1 million pre-tax restructuring charge which is reflected
in general, administrative and other expense, which was partially offset by a
$195,000 increase in other income and a $370,000 decrease in the provision for
federal income taxes. Excluding the restructuring charge, net earnings for the
three months ended June 30, 2001, would have totaled $2.3 million, an increase
of $427,000, or 23.4%, over the comparable period in 2000.
Net Interest Income
Total interest income for the three months ended June 30, 2001, amounted to
$19.0 million, an increase of $64,000, or 0.3%, over the three-month period
ended June 30, 2000, generally reflecting the effects of growth in average
interest-earning assets of approximately $16.3 million, or 1.7%.
Interest income on loans and mortgage-backed securities totaled $18.0 million
for the three months ended June 30, 2001, a decrease of $220,000, or 1.2%, from
the comparable 2000 period. The decrease resulted primarily from a $10.8
million, or 1.2%, decrease in the average balance outstanding year to year.
Interest income on investment securities and other interest-earning assets
increased by $284,000, or 38.1%, due primarily to a $27.1 million, or 62.5%,
increase in the average balance outstanding year to year, partially offset by a
decrease in the yield of 104 basis points from 6.88% to 5.84% for the
three-month periods ended June 30, 2001 and 2000, respectively.
Interest expense on deposits increased by $1.3 million, or 19.3%, to a total of
$8.1 million for the three months ended June 30, 2001, due primarily to a $67.6
million, or 11.5%, increase in average deposits outstanding and a 33 basis point
increase in the average cost of deposits, to 4.95% in the current quarter.
Interest expense on borrowings totaled $4.3 million for the three months ended
June 30, 2001, a decrease of $1.1 million, or 20.2%, from the 2000 three-month
period. The decrease resulted primarily from a $54.3 million, or 16.0%, decrease
in the average balance outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $157,000, or 2.3%, to a total of $6.6 million
for the three months ended June 30, 2001. The interest rate spread decreased to
approximately 2.39% for the three months ended June 30, 2001, from 2.51% for the
2000 period, while the net interest margin decreased to approximately 2.66% in
2001, compared to 2.77% in 2000.
15
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended June 30, 2001 and
2000 (continued)
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Bank, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions relate to
the Bank's market areas and other factors related to the collectibility of the
Bank's loan portfolio, management elected to record a provision for losses on
loans totaling $150,000 for the three months ended June 30, 2001, a decrease of
$6,000, or 3.8%, from the comparable period in 2000. The current period
provision was predicated primarily on the increase in the level of nonperforming
loans. There can be no assurance that the allowance for loan losses will be
adequate to cover losses on nonperforming assets in the future.
Other Income
Other income totaled $1.5 million for the three months ended June 30, 2001, an
increase of $195,000, or 15.0%, over the comparable 2000 period. The increase in
other income was primarily attributable to a $461,000, or 98.3%, increase in
gain on sale of loans, an increase of $239,000, or 45.4%, in late charges, rent
and other and a $30,000, or 16.7%, increase in service charges and fees on
deposits, which were partially offset by a decrease of $557,000 in loan
servicing fees. The increase in gain on sale of loans was due to the increase in
sales volume, as a result of the demand for fixed-rate loans in the declining
interest rate environment. The increase in late charges, rent and other was due
primarily to an increase in fees from Camco's title agency subsidiary, as well
as increases in insurance fees and other fees on loans and deposits
transactions. The decrease in loan servicing fees was primarily due to a
$784,000 charge related to the mortgage servicing rights asset. This charge was
based upon the Corporation's ongoing fair value analysis of the mortgage
servicing rights asset.
General, Administrative and Other Expense
General, administrative and other expense totaled $5.8 million for the three
months ended June 30, 2001, an increase of $705,000, or 13.8%, over the
comparable period in 2000. Exclusive of a $1.1 million restructuring charge,
general, administrative, and other expense would have totaled $4.7 million, a
decrease of $383,000, or 7.5%, for the three months ended June 30, 2001,
compared to the three months ended June 30, 2000. Exclusive of the restructuring
charge, employee compensation and benefits decreased by $434,000, or 19.1%,
partially offset by an increase of $29,000, or 3.7%, in occupancy and equipment,
and a $26,000, or 9.9%, increase in franchise taxes. The decrease in employee
compensation and benefits was primarily attributable to a decrease in staffing
levels due to employee retirements, attrition, and the closing of unprofitable
loan production offices. The increase in occupancy expense was due to an
increase in depreciation expense period-to-period. Data processing expense
increased over the comparable 2000 period due to costs relating to
implementation of an internal wide area network and continued growth.
16
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 2001 and 2000
Comparison of Results of Operations for the Three Months Ended June 30, 2001 and
2000 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $593,000 for the three months
ended June 30, 2001, a decrease of $370,000, or 38.4%, compared to the three
months ended June 30, 2000. This decrease was primarily attributable to a
$661,000, or 23.7%, decrease in pre-tax earnings, coupled with refunds claimed
of prior years' tax liabilities. The Corporation's effective tax rate amounted
to 27.9% and 34.5% for the three-month periods ended June 30, 2001 and 2000,
respectively.
Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in the Corporation's market risk since the
Corporation's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2000.
Business Combination
In June 2001, Camco and Columbia Financial of Kentucky, Inc. ("Columbia
Financial") announced the signing of a definitive agreement for Camco to acquire
Columbia Financial. Columbia Financial's community bank subsidiary, Columbia
Federal Savings Bank, will merge into Camco's Advantage Bank subsidiary and
operate as a division under the name Columbia Savings Bank.
The agreement provides for Columbia Financial shareholders to receive .3681
share of Camco common stock and $6.90 cash for each Columbia Financial share,
subject to adjustment under certain circumstances and subject to various closing
conditions. The initial transaction value was approximately $30.2 million on a
fully-diluted basis.
The merger, which will be accounted for as a purchase, is expected to be
consummated before year-end 2001, subject to approval of Camco's and Columbia
Financial's shareholders, regulators and other customary conditions of closing.
At March 31, 2001, Columbia Financial reported assets of $108.4 million,
deposits of $78.5 million and tangible equity of $29.1 million. Columbia
Financial is headquartered in Fort Mitchell, Kentucky and Columbia Federal
Savings Bank has community banking offices in Fort Mitchell, Covington, Crescent
Springs, Erlanger and Florence, Kentucky.
17
Camco Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 22, 2001, Camco held its Annual Meeting of Stockholders.
One matter was submitted to stockholders for which the following
votes were cast:
Three directors were elected to terms expiring in 2004, as
follows:
For Withheld
Terry A. Feick 5,779,869 35,901
Anthony J. Popp 5,781,557 34,213
Eric G. Spann 5,776,898 38,872
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15 Independent Accountants' Report
(b) Reports on Form 8-K: Camco filed a Form 8-K on June
5, 2001 to report Camco signing
a definitive agreement to
acquire Columbia Financial of
Kentucky, Inc. and its wholly-
owned subsidiary, Columbia
Federal Savings Bank.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2001 By: /s/Richard C. Baylor
---------------------- -----------------------------
Richard C. Baylor
Chief Executive Officer
Date: August 13, 2001 By: /s/Kristina K. Tipton
---------------------- -----------------------------
Kristina K. Tipton
Assistant Controller
19