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, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 0-25196
CAMCO FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0110823
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6901 Glenn Highway, Cambridge, Ohio 43725-9757
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (740) 435-2020
Indicate by check mark whether the 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 9, 2002, the latest practicable date, 7,888,511 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 19
Camco Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 2002 2001
Cash and due from banks $ 16,969 $ 15,665
Interest-bearing deposits in other financial institutions 43,605 89,299
--------- ---------
Cash and cash equivalents 60,574 104,964
Investment securities available for sale - at market 20,983 305
Investment securities held to maturity - at cost, approximate market value of
$10,344 and $19,083 as of June 30, 2002 and December 31, 2001, respectively 10,151 18,872
Mortgage-backed securities available for sale - at market 92,493 6,975
Mortgage-backed securities held to maturity - at cost, approximate market value of
$28,838 and $30,744 as of June 30, 2002 and December 31, 2001, respectively 28,647 30,765
Loans held for sale - at lower of cost or market 32,737 21,445
Loans receivable - net 766,613 850,001
Office premises and equipment - net 14,864 14,849
Real estate acquired through foreclosure 1,790 2,151
Federal Home Loan Bank stock - at cost 23,000 22,481
Accrued interest receivable 5,531 5,769
Prepaid expenses and other assets 2,687 4,779
Cash surrender value of life insurance 16,150 15,751
Goodwill and other intangible assets 2,953 2,953
Prepaid federal income taxes - 592
--------- ---------
Total assets $1,079,173 $1,102,652
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 703,345 $ 730,075
Advances from the Federal Home Loan Bank 265,600 258,850
Advances by borrowers for taxes and insurance 2,311 3,860
Accounts payable and accrued liabilities 5,620 10,975
Dividends payable 1,039 962
Accrued federal income taxes 345 -
Deferred federal income taxes 2,736 2,759
--------- ---------
Total liabilities 980,996 1,007,481
Stockholders' equity
Preferred stock - $1 par value; authorized 100,000 shares;
no shares outstanding - -
Common stock - $1 par value; authorized 14,900,000 shares, 8,252,623 and
8,137,039 shares issued at June 30, 2002 and December 31, 2001, respectively 8,253 8,137
Additional paid-in capital 53,391 51,722
Retained earnings - substantially restricted 39,430 36,621
Accumulated comprehensive income, unrealized gains on securities designated
as available for sale, net of related tax effects 920 107
Less 298,785 and 126,019 shares of treasury stock at June 30, 2002 and
December 31, 2001, respectively - at cost (3,817) (1,416)
--------- ---------
Total stockholders' equity 98,177 95,171
--------- ---------
Total liabilities and stockholders' equity $1,079,173 $1,102,652
========= =========
3
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
2002 2001 2002 2001
Interest income
Loans $30,179 $36,188 $14,835 $17,772
Mortgage-backed securities 1,806 483 1,237 228
Investment securities 491 443 273 201
Interest-bearing deposits and other 1,452 1,356 704 829
------ ------ ------ ------
Total interest income 33,928 38,470 17,049 19,030
Interest expense
Deposits 12,464 16,189 5,927 8,117
Borrowings 7,527 9,010 3,798 4,334
------ ------ ------ ------
Total interest expense 19,991 25,199 9,725 12,451
------ ------ ------- ------
Net interest income 13,937 13,271 7,324 6,579
Provision for losses on loans 414 306 207 150
------ ------ ------ ------
Net interest income after provision
for losses on loans 13,523 12,965 7,117 6,429
Other income
Late charges, rent and other 1,467 1,348 773 770
Loan servicing fees (costs) 463 (465) 234 (445)
Service charges and other fees on deposits 442 423 234 210
Gain on sale of loans 1,853 1,555 789 930
Gain on sale of real estate acquired through foreclosure 105 42 47 31
Gain on investment securities transactions 27 - 27 -
------ ------ ------ ------
Total other income 4,357 2,903 2,104 1,496
General, administrative and other expense
Employee compensation and benefits 5,151 3,959 2,454 1,837
Occupancy and equipment 1,698 1,586 886 807
Federal deposit insurance premiums 65 60 32 30
Data processing 559 754 240 404
Advertising 482 372 297 198
Franchise taxes 286 566 309 288
Amortization of goodwill - 75 - 38
Other operating 2,583 2,055 1,371 1,108
Restructuring charges (credits) (112) 1,088 (16) 1,088
------ ------ ------ ------
Total general, administrative and other expense 10,712 10,515 5,573 5,798
------ ------ ------ ------
Earnings before federal income taxes 7,168 5,353 3,648 2,127
Federal income taxes
Current 2,765 1,614 1,319 533
Deferred (442) 69 (141) 60
------ ------ ------ ------
Total federal income taxes 2,323 1,683 1,178 593
------ ------ ------ ------
NET EARNINGS $ 4,845 $ 3,670 $ 2,470 $ 1,534
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.61 $.53 $.31 $.22
=== === === ===
Diluted $.60 $.52 $.31 $.22
=== === === ===
4
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Six months ended Three months ended
June 30, June 30,
2002 2001 2002 2001
Net earnings $4,845 $3,670 $2,470 $1,534
Other comprehensive income, net of tax:
Unrealized holding gains during the period,
net of tax of $428, $18, $480 and $12 for the
respective periods 831 35 931 24
Reclassification adjustment for realized gains included
in earnings, net of tax of $(9) for each of the six and
three month periods ended June 30, 2002 (18) - (18) -
----- ----- ----- -----
Comprehensive income $5,658 $3,705 $3,383 $1,558
===== ===== ===== =====
Accumulated comprehensive income $ 920 $ 39 $ 920 $ 39
===== ===== ===== =====
5
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 4,845 $ 3,670
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (270) (564)
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 30 31
Amortization of goodwill - 75
Amortization of purchase accounting adjustments - net 137 258
Depreciation and amortization 652 733
Provision for losses on loans 414 306
Federal Home Loan Bank stock dividends (519) (704)
Gain on sale of real estate acquired through foreclosure (105) (42)
Gain on investment securities transactions (27) -
Gain on sale of loans (820) (703)
Loans originated for sale in the secondary market (97,869) (77,788)
Proceeds from sale of loans in the secondary market 87,397 73,247
Increase (decrease) in cash due to changes in:
Accrued interest receivable 238 192
Prepaid expenses and other assets 2,092 (860)
Accrued interest and other liabilities (5,278) 594
Federal income taxes:
Current 937 104
Deferred (442) 72
------- -------
Net cash used in operating activities (8,588) (1,382)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities and interest-bearing deposits 9,769 14,730
Proceeds from disposition of investment securities 44 -
Purchase of investment securities designated as held to maturity (1,048) (4,995)
Purchase of investment securities designated as available for sale (20,607) -
Purchase of mortgage-backed securities designated as held to maturity (2,065) (2,017)
Purchase of mortgage-backed securities designated as available for sale (87,558) -
Principal repayments on mortgage-backed securities 7,335 1,686
Loan principal repayments 184,753 137,899
Loan disbursements (100,582) (88,615)
Purchase of loans (2,125) (5,839)
Additions to office premises and equipment (667) (248)
Additions to real estate acquired through foreclosure (18) (108)
Proceeds from sale of real estate acquired through foreclosure 1,599 1,095
Purchase of Federal Home Loan Bank stock - (100)
Net increase in cash surrender value of life insurance (399) (142)
------- -------
Net cash provided by (used in) investing activities (11,569) 53,349
------- -------
Net cash provided by (used in) operating and investing activities
(balance carried forward) (20,157) 51,967
------- -------
6
Camco Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
2002 2001
Net cash provided by (used in) operating and investing activities
(balance brought forward) $(20,157) $51,967
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits (26,730) 28,897
Proceeds from Federal Home Loan Bank advances and other borrowings 43,500 38,250
Repayment of Federal Home Loan Bank advances and other borrowings (36,803) (80,073)
Dividends paid on common stock (2,036) (1,670)
Purchase of treasury stock (1,969) -
Proceeds from exercise of stock options 1,354 205
Decrease in advances by borrowers for taxes and insurance (1,549) (2,370)
------- ------
Net cash used in financing activities (24,233) (16,761)
------- ------
Increase (decrease) in cash and cash equivalents (44,390) 35,206
Cash and cash equivalents at beginning of period 104,964 24,069
------- ------
Cash and cash equivalents at end of period $ 60,574 $59,275
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 20,029 $25,366
======= ======
Income taxes $ 1,903 $ 1,603
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 813 $ 35
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 1,033 $ 852
======= ======
Transfers from loans to real estate acquired through foreclosure $ 1,116 $ 1,477
======= ======
Issuance of loans upon sale of real estate acquired through foreclosure $ 312 $ 445
======= ======
Supplemental disclosure of noncash financing activities:
Treasury shares received from settlement of Columbia Financial's
Employee Stock Ownership Plan $ 639 $ -
======= ======
7
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six- and three-month periods ended June 30, 2002 and 2001
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with accounting principles generally accepted in
the United States of America. Accordingly, these financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto of Camco Financial Corporation ("Camco" or
the "Corporation") included in Camco's Annual Report on Form 10-K for
the year ended December 31, 2001. However, all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the consolidated financial
statements, have been included. The results of operations for the six
and three month periods ended June 30, 2002, are not necessarily
indicative of the results which may be expected for the entire year.
On June 1, 2001, Camco's five wholly-owned community bank subsidiaries,
Cambridge Savings Bank, Marietta Savings Bank, First Federal Savings
Bank of Washington Court House, First Federal Bank for Savings and
Westwood Homestead Savings Bank, merged under the Cambridge Savings
Bank charter. At the effective time of the merger, Cambridge Savings
Bank was re-named Advantage Bank ("Advantage" or the "Bank"). Advantage
is headquartered in Cambridge, Ohio and each of the former banks
operates as a separate division of Advantage Bank.
In November 2001, the Corporation acquired Columbia Financial of
Kentucky, Inc. ("Columbia Financial") utilizing the purchase method of
accounting (the "Merger"). Columbia Financial was merged into the
Corporation upon consummation of the Merger and Columbia Financial's
banking subsidiary, Columbia Federal Savings Bank, merged into, and
operates as a division of, Advantage. Hereinafter, the terms
"Advantage" or the "Bank" are used to describe all the pre-existing
individual financial institutions owned by the Corporation.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Camco and its two wholly-owned subsidiaries: Advantage Bank and
Camco Title Insurance Agency, Inc., as well as two second tier
subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company.
All significant intercompany balances and transactions have been
eliminated.
3. Earnings Per Share
Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the period.
Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under the Corporation's
stock option plan. The computations are as follows:
8
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended June 30, 2002 and 2001
3. Earnings Per Share (continued)
For the six months ended For the three months ended
June 30, June 30,
2002 2001 2002 2001
Weighted-average common shares
outstanding (basic) 7,972,857 6,947,792 7,978,880 6,953,509
Dilutive effect of assumed exercise
of stock options 121,281 86,643 134,300 96,803
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 8,094,138 7,034,435 8,113,180 7,050,312
========= ========= ========= =========
Options to purchase 69,116 and 322,152 shares of common stock with
respective weighted-average exercise prices of $14.82 and $12.97 were
outstanding at June 30, 2002 and 2001, respectively, but were excluded
from the computation of common share equivalents for the six and three
month periods then ended, because the exercise prices were greater than
the average market price of the common shares.
4. Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill
and Intangible Assets," which prescribes accounting for all purchased
goodwill and intangible assets. Pursuant to SFAS No. 142, acquired
goodwill is not amortized, but is tested for impairment at the
reporting unit level annually and whenever an impairment indicator
arises. All goodwill should be assigned to reporting units that are
expected to benefit from the goodwill. When an entity reorganizes its
reporting structure, goodwill should be reallocated to reporting units
based on the relative fair values of the units. Goodwill impairment
should be tested with a two-step approach. First, the fair value of the
reporting unit should be compared to its carrying value, including
goodwill. If the reporting unit's carrying value exceeds its fair
value, then any goodwill impairment should be measured as the excess of
the goodwill's carrying value over its implied fair value. The implied
fair value of goodwill should be calculated in the same manner as
goodwill is calculated for a business combination, using the reporting
units' fair value as the "purchase price." Therefore, the goodwill's
implied fair value will be the excess of the "purchase price" over the
amounts allocated to assets, including unrecognized intangible assets,
and liabilities of the reporting unit. Goodwill impairment losses
should be reported in the income statement as a separate line item
within operations, except for such losses included in the calculation
of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized
over its useful economic life. The useful life of an intangible asset
is indefinite if it extends beyond the foreseeable horizon. If an
asset's life is indefinite, the asset should not be amortized until the
life is determined to be finite. Intangible assets being amortized
should be tested for impairment in accordance with SFAS No. 144.
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. Prior to adoption of SFAS No. 142, existing goodwill
continued to be amortized and tested for impairment under previously
existing standards. Upon adoption of SFAS No. 142, Camco designated
Advantage as a reporting unit. All of Camco's goodwill relates to
Advantage.
9
Camco Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended June 30, 2002 and 2001
4. Effects of Recent Accounting Pronouncements (continued)
Management adopted SFAS No. 142 effective January 1, 2002, as required.
The adoption of SFAS No. 142 will result in the elimination of annual
goodwill amortization charges of approximately $150,000. Camco recorded
goodwill amortization totaling $75,000 and $38,000 for the six- and
three-month periods ended June 30, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries over
the recognition and measurement provisions in SFAS No. 121.
Accordingly, an entity must recognize an impairment loss if the
carrying value of a long-lived asset or asset group (a) is not
recoverable and (b) exceeds its fair value. Similar to SFAS No. 121,
SFAS No. 144 requires an entity to test an asset or asset group for
impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. SFAS No. 144 differs from
SFAS No. 121 in that it provides guidance on estimating future cash
flows to test recoverability. An entity may use either a
probability-weighted approach or best-estimate approach in developing
estimates of cash flows to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
Management adopted SFAS No. 144 effective January 1, 2002, without
material effect on the Corporation's financial condition or results of
operations.
10
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the six- and three-month periods ended June 30, 2002 and 2001
Discussion of Financial Condition Changes from December 31, 2001 to June 30,
2002
At June 30, 2002, Camco's consolidated assets totaled $1.1 billion, a decrease
of $23.5 million, or 2.1%, from the December 31, 2001 total. This decrease
consisted primarily of a decrease in loans receivable due to high levels of
refinance activity. This decrease was accompanied by a corresponding decrease in
deposits. Excess cash was used to increase the investment and mortgage-backed
securities portfolios.
Cash and interest-bearing deposits in other financial institutions totaled $60.6
million at June 30, 2002, a decrease of $44.4 million, or 42.3%, from December
31, 2001 levels. Investment securities totaled $31.1 million at June 30, 2002,
an increase of $12.0 million, or 62.4%, over the total at December 31, 2001.
Investment securities purchases, which were comprised primarily of $19.7 million
of intermediate-term callable U.S. Government agency obligations with an average
yield of 4.26% and $2.1 million in municipal securities, were partially offset
by $9.8 million of maturities.
Mortgage-backed securities totaled $121.1 million at June 30, 2002, an increase
of $83.4 million, or 221.0%, over December 31, 2001. Mortgage-backed securities
purchases totaled $89.6 million, while principal repayments totaled $7.3 million
during the six-month period ended June 30, 2002. Purchases of mortgage-backed
securities during the period were comprised primarily of balloon and ten-year
amortizing U.S. Government agency securities yielding 5.29%, which were
classified as available for sale.
Loans receivable, including loans held for sale, totaled $799.4 million at June
30, 2002, a decrease of $72.1 million, or 8.3%, from December 31, 2001. The
decrease resulted primarily from principal repayments of $184.8 million and loan
sales of $86.6 million, which were partially offset by loan disbursements and
purchases totaling $200.6 million. The volume of loans originated and purchased
during the 2002 six-month period was greater than that of the comparable 2001
period by $28.3 million, or 16.5%, while the volume of loan sales increased by
$14.0 million year to year. As interest rates in the economy have remained low,
consumer preference continues to favor long-term fixed-rate mortgage loans to
fund home purchases and to refinance current loans. Camco will continue its
interest-rate risk management strategy of selling low-yielding, long-term,
fixed-rate loans. Loan originations for portfolio during the six month period
ended June 30, 2002, were comprised primarily of $36.0 million of loans secured
by one- to four-family residential real estate, $45.8 million in consumer and
other loans and $20.9 million in loans secured by commercial real estate.
Management intends to expand its commercial real estate lending in future
periods as a means of increasing the yield on its loan portfolio.
Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled
$10.1 million and $7.9 million at June 30, 2002 and December 31, 2001,
respectively, constituting 1.26% and .90% of total net loans, including loans
held for sale, at those dates. At June 30, 2002, nonperforming loans were
comprised of $8.2 million in loans secured by one- to four-family residential
real estate, $538,000 in loans secured by multi-family residential real estate,
$1.1 million in loans secured by commercial real estate and $207,000 of consumer
loans. Management believes all nonperforming loans are adequately collateralized
and no loss is expected over and above allocated reserves on such loans. Loans
delinquent greater than 30 days but less than 90 days totaled $7.8 million at
June 30, 2002, compared to $14.2 million at December 31, 2001, a decrease of
$6.4 million, or 45.1%. The allowance for loan losses totaled $4.6 million and
$4.3 million at June 30, 2002 and December 31, 2001, respectively, representing
45.6% and 54.0% of nonperforming loans, respectively, at those dates. Although
management believes that its allowance for loan losses is adequate based upon
the available facts and circumstances at June 30, 2002, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect Camco's results of operations.
11
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2002 and 2001
Discussion of Financial Condition Changes from December 31, 2001 to June 30,
2002 (continued)
Deposits totaled $703.3 million at June 30, 2002, a decrease of $26.7 million,
or 3.7%, from the total at December 31, 2001. The decrease resulted primarily
from management's decision not to aggressively bid on certificates of deposit
which matured during the six month period, due to the current low interest rate
environment. While management has generally pursued a strategy of moderate
growth in the deposit portfolio, Advantage has not historically engaged in
sporadic increases or decreases in interest rates offered, nor has it offered
the highest interest rates available in its market areas. Advances from the
Federal Home Loan Bank ("FHLB") increased by $6.8 million, or 2.6%, to a total
of $265.6 million at June 30, 2002.
Stockholders' equity totaled $98.2 million at June 30, 2002, a $3.0 million, or
3.2%, increase over December 31, 2001. The increase resulted primarily from net
earnings of $4.8 million, proceeds from exercise of stock options of $1.4
million and an $813,000 increase in the unrealized gains on available for sale
securities, which were partially offset by dividends of $2.0 million and an
increase in treasury shares totaling $2.4 million. The increase in treasury
shares represented the receipt of shares in settlement of the employee stock
ownership plan from the Columbia Financial acquisition coupled with purchases
under the 5% stock repurchase plan that was announced in April 2002.
Advantage is required to maintain minimum regulatory capital pursuant to federal
regulations. At June 30, 2002, the Bank's regulatory capital exceeded all
regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 2002 and
2001
General
The acquisition of Columbia Financial, which was completed in November 2001 in a
transaction accounted for using the purchase method, provided increases in the
level of income and expenses during the six month period ended June 30, 2002,
compared to 2001.
Camco's net earnings for the six months ended June 30, 2002 totaled $4.8
million, an increase of $1.2 million, or 32.0%, over the net earnings reported
in the comparable 2001 period. The increase in earnings was primarily
attributable to a one-time charge of $1.1 million in pre-tax expense related to
the consolidation of the bank charters in 2001 and the recognition of a $112,000
reversal of this restructuring charge during the 2002 period. Additionally, net
interest income increased by $666,000 and other income increased by $1.5
million, while the provision for losses on loans increased by $108,000, general,
administrative and other expense increased by $1.4 million and the provision for
federal income taxes increased by $640,000.
Net Interest Income
Total interest income for the six months ended June 30, 2002, amounted to $33.9
million, a decrease of $4.5 million, or 11.8%, compared to the six-month period
ended June 30, 2001, generally reflecting the effects of a decrease in the yield
on total interest-earning assets of 115 basis points, from 7.77% in the 2001
period to 6.62% in the 2002 period, which was partially offset by a $34.9
million, or 3.5%, increase in the average balance outstanding year to year.
12
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2002 and 2001
Comparison of Results of Operations for the Six Months Ended June 30, 2002 and
2001 (continued)
Net Interest Income (continued)
Interest income on loans totaled $30.2 million for the six months ended June 30,
2002, a decrease of $6.0 million, or 16.6%, from the comparable 2001 period. The
decrease resulted primarily from an $86.4 million, or 9.4%, decrease in the
average balance outstanding and a 63 basis point decrease in the average yield,
to 7.27% in the 2002 period. Interest income on mortgage-backed securities
totaled $1.8 million for the six months ended June 30, 2002, a $1.3 million, or
273.9%, increase over the 2001 period. The increase was due primarily to a $61.9
million, or 417.4%, increase in the average balance outstanding, which was
partially offset by a 181 basis point decrease in the average yield, to 4.71% in
the 2002 period. Interest income on investment securities increased by $48,000,
or 10.8%, due primarily to a $10.3 million increase in the average balance
outstanding year to year, which was partially offset by a 335 basis point
decline in the average yield, to 4.57% in the 2002 period. Interest income on
other interest-earning assets increased by $96,000, or 7.1%, due primarily to a
$49.2 million, or 102.0%, increase in the average balance outstanding year to
year, partially offset by a decrease in the yield of 264 basis points, to 2.98%
from 5.62% for the six-month periods ended June 30, 2002 and 2001, respectively.
Interest expense on deposits totaled $12.5 million for the six months ended June
30, 2002, a decrease of $3.7 million, or 23.0%, compared to the six months ended
June 30, 2001, due primarily to a 150 basis point decrease in the average cost
of deposits, to 3.53% for the 2002 period, which was partially offset by a $62.8
million, or 9.8%, increase in average balance of deposits outstanding year to
year. Interest expense on borrowings totaled $7.5 million for the six months
ended June 30, 2002, a decrease of $1.5 million, or 16.5%, from the 2001
six-month period. The decrease resulted primarily from a $42.0 million, or
14.2%, decrease in the average balance outstanding year to year. Decreases in
the level of average yields on interest-earning assets and average cost of
interest-bearing liabilities were due primarily to the overall decrease in
interest rates in the economy during 2001. This low interest rate environment
continued through the first six months of 2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $666,000, or 5.0%, to a total of $13.9 million
for the six months ended June 30, 2002. The interest rate spread increased to
approximately 2.46% at June 30, 2002, from 2.41% at June 30, 2001, while the net
interest margin increased to approximately 2.72% for the six months ended June
30, 2002, compared to 2.68% for the 2001 period.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Bank,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market areas
and other factors related to the collectibility of the Bank's loan portfolio.
Based on an analysis of these factors, management elected to record a provision
for losses on loans totaling $414,000 for the six months ended June 30, 2002, an
increase of $108,000, or 35.3%, over the comparable period in 2001. The current
period provision was predicated primarily on the increase in the level of
nonperforming loans and the increased percentage of loans secured by commercial
real estate within the loan portfolio. There can be no assurance that the
allowance for loan losses will be adequate to cover losses on nonperforming
assets in the future.
13
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six- and three-month periods ended June 30, 2002 and 2001
Comparison of Results of Operations for the Six Months Ended June 30, 2002 and
2001 (continued)
Other Income
Other income totaled $4.4 million for the six months ended June 30, 2002, an
increase of $1.5 million, or 50.1%, over the comparable 2001 period. The
increase in other income was primarily attributable to a $928,000 increase in
loan servicing fees, a $298,000, or 19.2%, increase in gain on sale of loans and
a $119,000, or 8.8%, increase in late charges, rent and other. The increase in
loan servicing fees was due primarily to a decrease in the level of amortization
of mortgage servicing rights and due to the effects of an impairment charge
related to mortgage servicing rights recorded in the 2001 period, which was
partially recovered in the current period, based upon the Corporation's ongoing
fair value analysis of the mortgage servicing rights asset. The increase in gain
on sale of loans was due to the increase in sales volume, as Advantage continued
to sell fixed-rate loans originated in this low interest rate environment. The
increase in late charges, rent and other was due primarily to an increase in
insurance fees and other fees on loans and deposit transactions.
General, Administrative and Other Expense
General, administrative and other expense totaled $10.7 million for the six
months ended June 30, 2002, an increase of $197,000, or 1.9%, over the
comparable period in 2001. The acquisition of Columbia Financial in November
2001 resulted in a $1.2 million increase in general, administrative and other
expense during the 2002 period, as compared to the 2001 period. Excluding the
operating costs of the Columbia division, general, administrative and other
expense decreased year to year by $964,000, or 9.2%. The overall increase in
general, administrative and other expense was due primarily to an increase of
$1.2 million, or 30.1%, in employee compensation and benefits and an increase of
$528,000, or 25.7%, in other operating costs, which were partially offset by the
effects of a nonrecurring restructuring charge totaling $1.1 million recorded in
the 2001 period and the $112,000 restructuring credit recognized in the 2002
period, as well as a $280,000, or 49.5%, decrease in franchise taxes, a
$195,000, or 25.9%, decrease in data processing and a $75,000 decrease in
goodwill amortization. The increase in employee compensation and benefits was
comprised of $645,000 in expense from the Columbia division and a $659,000, or
16.6%, increase which resulted primarily from an increase in management staffing
levels and normal merit compensation increases. Camco increased its management
staffing complement year to year as it continues to implement its corporate
strategy following the 2001 restructuring plan. The increase in other operating
expense was due primarily to costs incurred at the Columbia division totaling
$205,000 and a $323,000, or 15.7%, increase resulting primarily from increases
in legal expense, costs associated with real estate acquired through
foreclosure, office supplies and costs associated with the increase in lending
volume year to year. The decrease in franchise tax expense reflects the effects
of refund claims on prior year tax filings. The decrease in data processing was
due primarily to efficiencies related to the consolidation of the Bank charters.
The decrease in goodwill amortization was due to the adoption of SFAS No. 142, a
new accounting standard which eliminates goodwill amortization. The
restructuring credit resulted from severance charges recorded as part of the
2001 restructuring charge that were not utilized due primarily to early
terminations.
Federal Income Taxes
The provision for federal income taxes totaled $2.3 million for the six months
ended June 30, 2002, an increase of $640,000, or 38.0%, compared to the six
months ended June 30, 2001. This increase was primarily attributable to a $1.8
million, or 33.9%, increase in pre-tax earnings. The Corporation's effective tax
rate amounted to 32.4% and 31.4% for the six-month periods ended June 30, 2002
and 2001, respectively.
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, 2002 and 2001
Comparison of Results of Operations for the Three Months Ended June 30, 2002 and
2001
General
The acquisition of Columbia Financial, which was completed in November 2001 in a
transaction accounted for using the purchase method, provided increases in the
level of income and expenses during the three month period ended June 30, 2002,
compared to 2001.
Camco's net earnings for the three months ended June 30, 2002 totaled $2.5
million, an increase of $936,000, or 61.0%, over the $1.5 million of net
earnings reported in the comparable 2001 period. The increase in earnings was
primarily attributable to a one time charge of $1.1 million in pre-tax expense
related to the consolidation of the bank charters in 2001. Additionally, other
income increased by $608,000 coupled with an increase of $745,000 in net
interest income, which were partially offset by an increase in general,
administrative and other expense of $879,000, an increase in the provision for
losses on loans of $57,000 and an increase in federal income tax expense of
$585,000.
Net Interest Income
Total interest income amounted to $17.0 million for the three months ended June
30, 2002, a decrease of $2.0 million, or 10.4%, compared to the three-month
period ended June 30, 2001, generally reflecting the effects of a decrease in
yield on total interest-earning assets of 103 basis points, from 7.69% in the
2001 period to 6.66% in the 2002 period, which was partially offset by a $34.4
million, or 3.5%, increase in the average balance of interest-earning assets
outstanding year to year.
Interest income on loans totaled $14.8 million for the three months ended June
30, 2002, a decrease of $2.9 million, or 16.5%, from the comparable 2001 period.
The decrease resulted primarily from a $94.3 million, or 10.4%, decrease in the
average balance outstanding and a 54 basis point decrease in the average yield,
to 7.32% in the 2002 period. Interest income on mortgage-backed securities
totaled $1.2 million for the three months ended June 30, 2002, a $1.0 million,
or 442.5%, increase over the 2001 quarter. The increase was due primarily to an
$87.4 million, or 591.8%, increase in the average balance outstanding, which was
partially offset by a 134 basis point decrease in the average yield, to 4.84% in
the 2002 period. Interest income on investment securities increased by $72,000,
or 35.8%, due primarily to a $16.1 million increase in the average balance
outstanding, which was partially offset by a decline in the average yield year
to year. Interest income on other interest-earning assets decreased by $125,000,
or 15.1%, due primarily to a decrease in the average yield, to 3.22% in the 2002
period, partially offset by an increase of $25.2 million, or 40.4%, in the
average balance outstanding year to year.
Interest expense on deposits totaled of $5.9 million for the three months ended
June 30, 2002, a decrease of $2.2 million, or 27.0%, compared to the same
quarter in 2001, due primarily to a 157 basis point decrease in the average cost
of deposits, to 3.38% in the current quarter, which was partially offset by a
$45.2 million, or 6.9%, increase in average deposits outstanding. Interest
expense on borrowings totaled $3.8 million for the three months ended June 30,
2002, a decrease of $536,000, or 12.4%, from the 2001 three-month period. The
decrease resulted primarily from a $26.3 million, or 9.2%, decrease in the
average balance outstanding year to year, coupled with a 21 basis point decrease
in the average cost to 5.88%. Decreases in the level of average yields on
interest-earning assets and average cost of interest-bearing liabilities were
due primarily to the overall decrease in interest rates in the economy during
2001. This low interest rate environment continued through the first six months
of 2002.
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, 2002 and 2001
Comparison of Results of Operations for the Three Months Ended June 30, 2002 and
2001 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $745,000, or 11.3%, to a total of $7.3 million
for the three months ended June 30, 2002. The interest rate spread increased to
approximately 2.60% at June 30, 2002, from 2.39% at June 30, 2001, while the net
interest margin increased to approximately 2.86% for the three months ended June
30, 2002, compared to 2.66% for the 2001 period.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Bank,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market areas
and other factors related to the collectibility of the Bank's loan portfolio.
Based on an analysis of these factors, management elected to record a provision
for losses on loans totaling $207,000 for the three months ended June 30, 2002,
an increase of $57,000, or 38.0%, over the comparable period in 2001. The
current period provision was predicated primarily on the increase in the level
of nonperforming loans and the increased percentage of loans secured by
commercial real estate within the loan portfolio. 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 $2.1 million for the three months ended June 30, 2002, an
increase of $608,000, or 40.6%, over the comparable 2001 period. The increase in
other income was primarily attributable to a $679,000 increase in loan servicing
fees, due primarily to a decrease in the level of amortization of mortgage
servicing rights and the effects of an impairment charge on mortgage servicing
rights recorded in the 2001 period, which was partially recovered in the 2002
quarter, 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 $5.6 million for the three
months ended June 30, 2002, a decrease of $225,000, or 3.9%, from the comparable
period in 2001. The acquisition of Columbia Financial in November 2001 resulted
in a $583,000 increase in general, administrative and other expense during the
2002 quarter, as compared to the 2001 quarter. Excluding the operating costs of
the Columbia division and the effects of the restructuring charges, general,
administrative and other expense increased year to year by $296,000, or 6.3%.
Contributing to an increase in general, administrative and other expense were an
increase of $617,000, or 33.6%, in employee compensation and benefits and an
increase of $99,000, or 50.0%, in advertising costs, which were partially offset
by a $164,000, or 40.6%, decrease in data processing expense and a $38,000
decrease in goodwill amortization. The increase in employee compensation and
benefits was comprised of $317,000 in expense from the Columbia division and a
$300,000, or 16.3%, increase which resulted primarily from an increase in
management staffing levels and normal merit compensation increases. Camco
increased its management staffing complement year to year as it
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, 2002 and 2001
Comparison of Results of Operations for the Three Months Ended June 30, 2002 and
2001 (continued)
General, Administrative and Other Expense (continued)
continues to implement its corporate strategy following the 2001 restructuring
plan. The increase in advertising was due primarily to advertising in newer
market areas to enhance name and brand recognition. The decrease in data
processing was due primarily to the effects of efficiencies gained in
consolidating the Bank charters. The decrease in franchise tax expense reflects
the effects of refund claims on prior year tax filings. The decrease in goodwill
amortization was due to the adoption of SFAS No. 142, a new accounting standard
which eliminates goodwill amortization. The restructuring credit resulted from
severance charges recorded as part of the 2001 restructuring charge that were
not utilized due primarily to early terminations.
Federal Income Taxes
The provision for federal income taxes totaled $1.2 million for the three months
ended June 30, 2002, an increase of $585,000, or 98.7%, compared to the three
months ended June 30, 2001. This increase was primarily attributable to a $1.5
million, or 71.5%, increase in pre-tax earnings. The Corporation's effective tax
rates amounted to 32.3% and 27.9% for the three-month periods ended June 30,
2002 and 2001, respectively.
Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in the Corporation's market risk since the
Corporation's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2001.
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 28, 2002, Camco held its Annual Meeting of Stockholders. Two
matters were submitted to stockholders for which the following votes
were cast:
Four directors were elected with terms expiring in 2005, as follows:
For Withheld
Larry A. Caldwell 6,251,059 319,827
Carson K. Miller 6,237,110 333,775
Samuel W. Speck 6,250,250 320,636
Jeffrey T. Tucker 6,251,372 319,514
Approval of the Camco Financial Corporation 2002 Equity Incentive
Plan:
For: 3,958,749 Against: 569,918 Abstain: 96,351 Broker Non-Vote: 1,945,868
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K: None.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2002 By: /s/Richard C. Baylor
---------------------------- -----------------------------
Richard C. Baylor
Chief Executive Officer
Date: August 14, 2002 By: /s/Mark A. Severson
---------------------------- -----------------------------
Mark A. Severson
Chief Financial Officer
19