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| CAFI > SEC Filings for CAFI > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
• Total loans declined reflecting a decrease in lending opportunities relating to the economic conditions in our market areas
• Additional foreclosed asset valuations resulted in increased operating expenses through additional valuation allowances and maintenance and property tax expense
• Additional expenses related to special assessment levied by the Federal Deposit Insurance Corporation ("FDIC") was paid in September
• Interest expense continues to decrease as current rates paid on deposits are lower than in prior periods as management has cautiously priced deposits. Balances of high-cost certificates of deposit and FHLB advances have been lower through the first nine months of fiscal 2009, and most of the advances that have matured during the first nine months of this fiscal year have been repaid with excess liquidity
• Net charge-offs totaled $3.6 million for the quarter and $5.1 million for the nine months ended September 30, 2009.
• Real estate owned increased $3.1 million during the current nine months, which is reflective of prior identified loans evolving through the collection cycle.
8. Subsequent Event
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 165,
Subsequent Events, we have evaluated subsequent events through the date of this
filing. We do not believe there are any material subsequent events which would
require further disclosure.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Forward Looking Statements
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which statements can be
identified by the use of forward-looking terminology, such as may, might, could,
would, believe, expect, intend, plan, seek, anticipate, estimate, project or
continue or the negative thereof or comparable terminology. All statements other
than statements of historical fact included in this document regarding our
outlook, financial position and results of operation, liquidity, capital
resources and interest rate sensitivity are forward-looking statements. The
Corporation undertakes no responsibility to update or revise any forward-looking
statements. These forward-looking statements also relate to, amount other
things:
• anticipated changes in industry conditions created by state and federal
legislation and regulations;
• anticipated changes in general interest rates and the impact of future interest rate changes on our profitability, capital adequacy and the fair value of our financial assets and liabilities;
• the development of new products and services and their success in the marketplace;
• the adequacy of the allowance for loan losses; and
• statements regarding our anticipated loan and deposit account growth, expense levels, liquidity and capital resources and projections of earnings.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results to be materially different
from any future results expressed or implied by such forward-looking statements.
Although we believe the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance such expectations will prove
to have been correct, and undue reliance should not be placed on such
statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements included herein include,
but are not limited to:
• competition in the industry and markets in which we operate;
• levels of non-performing assets;
• changes in general interest rates;
• loan demand;
• rapid changes in technology affecting the financial services industry;
• real estate values;
• changes in government regulation; and
• general economic and business conditions.
Since 2008, our loan quality has been negatively impacted by deteriorating conditions within the commercial real estate market and economy as a whole, which has caused declines in commercial real estate values and deterioration in financial condition of various commercial borrowers. Additionally, increases in delinquent real estate mortgage loans has occurred as a result of deteriorating economic conditions and a decline in the housing market across our geographic footprint that reflected declining home prices and increasing inventories of houses for sale. These conditions have led Camco to downgrade the loan quality ratings on various commercial real estate loans through its normal loan review process. In addition, several impaired loans have become under-collateralized due to reductions in the estimated net realizable fair value of the underlying collateral. As a result, Camco's provision for loans losses, net charge-offs and nonperforming loans in recent quarters have been higher than historical levels. The additional provisions for loan losses in this period were largely attributed to the aforementioned issues.
September 30, 2009 December 31, 2008
(In thousands)
90+ days 90+ days
30 - 89 days delinquent, 30 - 89 days delinquent,
delinquent accruing Nonaccrual delinquent accruing Nonaccrual
Residential $ 5,074 $ - $ 20,328 $ 6,419 $ 44 $ 17,203
Multifamily 1,126 - 2,874 30 - 3,139
Non Residential 2,291 375 13,351 306 18,057
Construction and development 637 - 6,945 253 - 8,603
Commercial 757 - 1,534 453 - 1,434
HELOC and second mortgage 1,598 - 6,750 2,434 - 4,962
Consumer and other 169 - 80 89 - 86
Total $ 11,652 $ 375 $ 51,862 $ 9,984 $ 44 $ 53,484
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Although we believe that the allowance for loan losses at September 30, 2009, is adequate to cover probable, incurred losses inherent in the loan portfolio at that date based upon the available facts and circumstances, there can be no assurance that additions to the allowance for loan losses will not be necessary in future periods, which could adversely affect our results of operations. Unemployment rates in our markets and Ohio in general, are higher than the national average, and bankruptcy and foreclosure filings in Ohio are very high compared to the rest of the nation. Additionally, Ohio is experiencing declining values of residential real estate. However, Ohio in general has not experienced significant increases in home values over the past five years like many regions in the U.S., which should comparatively mitigate losses on loans. Nonetheless, these factors, compounded by a very uncertain national economic outlook, may increase the level of future losses beyond our current expectations.
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine- and three-month periods ended September 30, 2009 and 2008
Discussion of Financial Condition Changes from December 31, 2008 to
September 30, 2009(continued)
The following table presents changes in Camco's allowance for loan losses:
Three Months Ended Nine Months Ended
(In Thousands) Sept 30, 2009 June 30, 2009 Sept 30, 2009 Sept 30, 2008
Average Loans 675,016 692,546 697,737 786,669
Allowance for Loan Losses:
Beginning Balance 15,466 15,860 15,747 6,623
Charge-Offs:
Commercial, Financial and Agricultural 903 135 1,079 814
Real Estate - Construction 323 10 333 -
Real Estate - Residential 1,719 1,680 3,940 2,309
Real Estate - Commercial 637 - 637 354
Consumer 6 1 16 16
Total Charge - Offs 3,588 1,826 6,005 3,493
Recoveries:
Commercial, Financial and Agricultural 1 - 1 51
Real Estate - Construction 0 - - 1
Real Estate - Residential 186 636 873 233
Real Estate - Commercial 0 - 2 243
Consumer 1 6 10 45
Total Recoveries 188 642 886 573
Net Charge - Offs 3,400 1,184 5,119 2,920
Provision for Loan Losses 439 790 1,877 3,762
Allowance for loan losses, end of period 12,505 15,466 12,505 7,465
Ratio of net charge offs to average loans: 2.01 % 0.68 % 0.98 % 0.49 %
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At September 30, 2009, the Company's real estate owned (REO) consisted of 119
repossessed properties with a net book value of $8.9 million. Initial loss is
recorded as a charge to the allowance for loan losses within 90 days of being
transferred to REO. Thereafter, if there is a further deterioration in value, a
specific valuation allowance is established and charged to operations. The
Company reflects costs to carry REO as period costs in operations when incurred.
When property is acquired through foreclosure or deed in lieu of foreclosure, it
is initially recorded at the fair value of the related assets at the date of
foreclosure, less estimated costs to sell the property.
The Company works with borrowers to avoid foreclosure if possible. Furthermore,
if it becomes inevitable that a borrower will not be able to retain ownership of
their property, the Company often seeks a deed in lieu of foreclosure in order
to gain control of the property earlier in the recovery process. As a result,
real estate owned grew $3.1 million during the nine months of 2009. The strategy
of pursuing deeds in lieu of foreclosure more aggressively should result in a
reduction in the holding period for nonperforming assets and ultimately reduce
economic losses.
Camco Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine- and three-month periods ended September 30, 2009 and 2008
Comparison of Results of Operations for the Nine Months Ended September 30, 2009
and 2008 (continued)
Deposits totaled $670.4 million at September 30, 2008, a decrease of
$53.6 million, or 7.4%, from the total at December 31, 2008. The following table
details our deposit portfolio balances and the average rate paid on our deposit
portfolio at September 30, 2009, and December 31, 2008:
September 30, 2009 December 31, 2008 Change
Balance Rate Balance Rate Balance Rate
Noninterest-bearing
demand $ 33,310 0.00 % $ 37,526 0.00 % (4,216 ) 0.00 %
Interest-bearing
demand 73,614 0.62 87,199 0.91 (13,585 ) (0.29 )
Money market 100,254 0.68 112,749 1.35 (12,495 ) (0.67 )
Savings 37,432 0.25 33,838 0.26 3,594 (0.01 )
Certificates of
deposit - retail 382,633 2.88 413,134 3.75 (30,501 ) (0.87 )
Certificates of
deposit - brokered 43,148 3.32 39,510 4.23 3,638 (0.91 )
Total deposits $ 670,391 2.04 % $ 723,956 2.71 % (53,565 ) (0.67 )%
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In early 2009, brokered deposits were used to reduce borrowings and improve the
Bank's liquidity position. However, we acknowledge that brokered deposits are
not core, franchise-enhancing deposits, and we plan to continue with our current
strategy of improving the long-term funding mix of the Bank's deposit portfolio
by aggregating small business, commercial and retail checking accounts. We
continue to allow brokered deposits to mature and have not purchased deposits in
the third quarter of 2009. We have implemented a number of organizational and
product development initiatives designed to increase commercial and small
business checking accounts and have added some new certificates of deposit to
maintain our "core" customers.
Competitive markets and our conservative pricing strategy have shrunk our higher
cost certificates of deposits. Money market accounts have also decreased
primarily due to our aggressive rate reduction during 2009 as customers continue
to look for better rates. This strategy has helped maintain our margin, and we
believe that if we are able to maintain most of the certificates of deposit
maturing in the remainder of 2009 the continuing decrease of rates will help to
slightly reduce our cost of funds during the latter portion of the year, based
on our current expectation for interest rates.
Federal Home Loan Bank (FHLB) advances and other borrowings totaled
$133.9 million at September 30, 2009, a decrease of $50.0 million, or 27.2%,
from the total at December 31, 2008. The decrease in borrowings was primarily
due to the decrease in loans receivable and our investment portfolios. See
"Liquidity and Capital Resources" for further discussion on our borrowings
position.
Stockholders' equity totaled $72.6 million at September 30, 2009, an increase of
$898,000, or 1.3%, from December 31, 2008. The majority of the increase resulted
from net earnings of $591,000, coupled with entries relating to FAS 123R stock
options and increased value of unrealized gains which were offset partially by
dividends of $143,000.
Comparison of Results of Operations for the Nine Months Ended September 30, 2009
and 2008
Camco's net earnings for the nine months ended September 30, 2009, totaled
$591,000, an increase of $152,000, or 34.6%, from the $439,000 of net earnings
reported in the comparable 2008 period. Earnings per share totaled $0.08 and
$0.06 in 2009 and 2008, respectively. The increase in earnings was primarily
attributable to a decrease in the provision for losses on loans of $1.9 million
and an increase in other income of $899,000. These were partially offset by a
decrease in net interest income of $1.7 million and an increase of $533,000 in
general administrative and other expenses.
2009 2008
Average Interest Average Average Interest Average
Nine Months Ended September 30, outstanding earned yield/ outstanding earned / yield/
(Dollars in thousands) balance / paid rate balance paid rate
Interest-earning assets:
Loans receivable (1) 676,494 30,560 6.02 % $ 776,096 38,694 6.65 %
Securities 82,405 2,481 4.01 % 96,543 3,239 4.25 %
FHLB stock 29,888 1,042 4.65 % 29,182 1,166 5.33 %
Other Interest-bearing accts 57,301 25 0.06 % 29,619 407 1.83 %
Total interest-earning assets 846,088 34,108 5.38 % 931,440 43,506 6.23 %
Noninterest-earning assets (2) 106,790 96,659
Total average assets $ 952,878 $ 1,028,099
. . .
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