Edgar Filing: CAMCO FINANCIAL CORP

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

¨	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

(Exact name of registrant as specified in its charter)


Delaware		51-0110823
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

814 Wheeling Avenue, Cambridge, Ohio		43725-9757
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (740) 435-2020

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 6, 2013, the latest practicable date, 13,547,607shares of the registrant’s common stock, $1.00 par value, were outstanding.

Camco Financial Corporation

INDEX


		Page
PART I -	FINANCIAL INFORMATION

Item 1.	Consolidated Statements of Financial Condition		3

	Consolidated Statements of Earnings		4

	Consolidated Statements of Comprehensive Income		5

	Consolidated Statements of Cash Flows		6

	Consolidated Statements of Stockholders’ Equity		8

	Notes to Consolidated Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37

Item 4.	Controls and Procedures		37

PART II -	OTHER INFORMATION		37

Item 1.	Legal Proceedings		37

Item 1A.	Risk Factors		38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38

Item 3.	Defaults Upon Senior Securities		38

Item 4.	Mine Safety Disclosures		38

Item 5.	Other Information		38

Item 6.	Exhibits		38

SIGNATURES			40

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)


	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Cash and due from banks	$	13,982		$	13,815
Federal Reserve		98,620			39,199
Interest-bearing deposits in other financial institutions		5,610			5,365

Cash and cash equivalents		118,212			58,379
Securities available for sale, at market		38,590			85,298
Securities held to maturity, at cost		842			903
Loans held for sale—at lower of cost or market		3,824			6,544
Loans receivable – net		543,648			554,575
Office premises and equipment – net		8,177			8,105
Real estate acquired through foreclosure		9,146			10,581
Federal Home Loan Bank stock—at cost		9,888			9,888
Accrued interest receivable		2,449			2,631
Mortgage servicing rights – at lower of cost or market		3,350			3,245
Prepaid expenses and other assets		4,492			3,525
Cash surrender value of life insurance		20,744			20,585

Total assets	$	763,362		$	764,259

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	626,741		$	627,224
Other Borrowings		10,763			10,923
Advances from the Federal Home Loan Bank		53,218			53,297
Advances by borrowers for taxes and insurance		1,848			2,635
Accounts payable and accrued liabilities		10,081			10,453

Total liabilities		702,651			704,532
Commitments		0			0
Stockholders’ equity:
Preferred stock—$1 par value; authorized 100,000 shares; no shares outstanding		0			0
Common stock—$1 par value; authorized 29,900,000 shares; 15,208,201 and 14,911,949 shares issued at March 31, 2013 and December 31, 2012 respectively		15,208			14,912
Additional paid-in capital		63,913			63,310
Warrants—2,676,570 at March 31, 2013 and 2,857,107 at December 31, 2012		1,321			1,411
Retained earnings		5,012			4,513
Accumulated other comprehensive income (loss)		(6	)		100
Unearned compensation		(623	)		(405	)
Treasury stock—1,678,913 shares at March 31, 2013 and December 31, 2012, at cost		(24,114	)		(24,114	)

Total stockholders’ equity		60,711			59,727

Total liabilities and stockholders’ equity	$	763,362		$	764,259

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF EARNINGS

For the three months ended March 31,

(In thousands, except per share data)


	2013		2012
	(unaudited)
Interest and dividend income
Loans	$	6,590	$	8,213
Investment securities		119		87
Other interest-earning accounts		149		113

Total interest and dividend income		6,858		8,413
Interest Expense
Deposits		1,033		1,551
Borrowings		426		673

Total interest expense		1,459		2,224

Net interest income		5,399		6,189
Provision for losses on loans		100		1,005

Net interest income after provision for losses on loans		5,299		5,184
Other income
Late charges, rent and other		301		328
Loan servicing fees		276		281
Service charges and other fees on deposits		462		490
Gain on sale of loans		689		564
Mortgage servicing rights – net		105		102
Gain on sale of investments		61		0
Loss on sale of fixed assets		0		(3	)
Income on cash surrender value of life insurance		208		218

Total other income		2,102		1,980
General, administrative and other expenses
Employee compensation and benefits		3,509		3,147
Occupancy and equipment		745		711
Federal deposit insurance premiums		441		454
Data and transaction processing		471		478
Advertising		144		87
Franchise taxes		230		183
Postage, supplies and office expenses		241		256
Travel, training and insurance		61		50
Professional services		329		538
Real estate owned and other expenses		539		647
Loan expenses		137		163

Total general, administrative and other expense		6,847		6,714

Earnings before federal income taxes		554		450
Federal income taxes		55		37

NET EARNINGS	$	499	$	413

EARNINGS PER SHARE
Basic	$	0.04	$	0.06

Diluted	$	0.03	$	0.06

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the three months ended March 31,

(In thousands)


	2013			2012
	(unaudited)
Net earnings	$	499		$	413
Other comprehensive income, net of tax:
Unrealized holding losses on securities during the period, net of tax effects of $(34) and $(37) in 2013 and 2012, respectively		(66	)		(73	)
Reclassification adjustment for realized gains included in net earnings, net of taxes of $(21) in 2013		(40	)		0

Comprehensive income	$	393		$	340

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31,

(In thousands)


	2013			2012
	(unaudited)
Cash flows from operating activities:
Net earnings for the period	$	499		$	413
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Amortization of deferred loan origination fees		(38	)		(70	)
Amortization of premiums and discounts on investment and mortgage-backed securities – net		(13	)		10
Amortization of mortgage servicing rights – net		125			70
Depreciation and amortization		334			327
Provision for losses on loans		100			1,005
Stock based compensation expense		218			164
Provisions for losses on REO		228			100
Gain on sale of real estate acquired through foreclosure		(82	)		0
Gain on sale of investments		(61	)		0
Gain on sale of loans		(689	)		(564	)
Loss on sale of assets		0			3
Loans originated for sale in the secondary market		(27,302	)		(23,711	)
Proceeds from sale of loans in the secondary market		30,711			26,782
Net increase in cash surrender value of life insurance		(159	)		(174	)
Increase (decrease) in cash due to changes in:
Accrued interest receivable		182			136
Prepaid expenses and other assets		(917	)		82
Accrued interest and other liabilities		(372	)		126

Net cash provided by operating activities		2,764			4,699

Cash flows provided by (used in) investing activities:
Principal repayments, maturities on securities held to maturity		61			76
Principal repayments, maturities on securities available for sale		24,089			2,858
Purchases of investment securities designated as available for sale		(1,499	)		(44,961	)
Proceeds from sale of investments		24,031			0
Redemption of FHLB Stock		0			0
Loan principal repayments		75,750			68,498
Loan disbursements		(65,848	)		(47,721	)
Proceeds from sale of office premises and equipment		0			19
Additions to office premises and equipment		(406	)		(233	)
Proceeds from sale of real estate acquired through foreclosure		2,022			303

Net cash provided by (used in) investing activities		58,200			(21,161	)

Net cash provided by (used in) operating and investing activities balance carried forward		60,964			(16,462	)

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the three months ended March 31,

(In thousands)


	2013			2012
	(unaudited)
Net cash provided by (used in) operating and investing activities (balance brought forward)	$	60,964		$	(16,462	)
Cash flows used in financing activities:
Net increase (decrease) in deposits		(483	)		21,594
Proceeds from Federal Home Loan Bank advances and other borrowings		19,223			26,537
Repayment of Federal Home Loan Bank advances and other borrowings		(19,462	)		(28,893	)
Net proceeds from exercised warrants		378			0
Decrease in advances by borrowers for taxes and insurance		(787	)		(719	)

Net cash provided by (used in) financing activities		(1,131	)		18,519

Increase in cash and cash equivalents		59,833			2,057
Cash and cash equivalents at beginning of period		58,379			38,374

Cash and cash equivalents at end of period	$	118,212		$	40,431

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings	$	1,305		$	2,187
Income taxes paid		0			0
Transfers from loans to real estate acquired through foreclosure		1,043			2,123

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)


	Shares outstanding		Common stock		Additional paid-in capital		Warrants fair value			Retained earnings		Accumulated other comprehensive income (loss)			Unearned compensation			Treasury stock			Total stockholders’ equity
Balance at December 31, 2011		7,205,595	$	8,885	$	60,528	$	0		$	350	$	(13	)	$	(31	)	$	(24,114	)	$	45,605

Stock Option Expense		0		0		32		0			0		0			(3	)		0			29
Net earnings for the three months ended March 31, 2012		0		0		0		0			413		0			0			0			413
Restricted shares granted		262,492		262		362		0			0		0			(625	)		0			(1	)
Restricted shares expense		0		0				0			0		0			136			0			136
Other comprehensive income (loss)		0		0		0		0			0		(73	)		0			0			(73	)

Balance at March 31, 2012		7,468,087	$	9,147	$	60,922	$	0		$	763	$	(86	)	$	(523	)	$	(24,114	)	$	46,109


Balance at December 31, 2012		13,233,036	$	14,912	$	63,310	$	1,411		$	4,513	$	100		$	(405	)	$	(24,114	)	$	59,727

Stock Option Expense		0		0		31		0			0		0			0			0			31
Stock issued related to exercise of warrants		180,537		180		288		(90	)		0		0			0			0			378
Net earnings for the three months ended March 31, 2013		0		0		0		0			499		0			0			0			499
Restricted shares granted		115,714		116		284		0			0		0			(361	)		0			39
Restricted shares expense		0		0		0		0			0		0			143			0			143
Other comprehensive income (loss)		0		0		0		0			0		(106	)		0			0			(106	)

Balance at March 31, 2013		13,529,287	$	15,208	$	63,913	$	1,321		$	5,012	$	(6	)	$	(623	)	$	(24,114	)	$	60,711

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 (“US GAAP”). 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, 2012. 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 three-month period ended March 2013, are not necessarily indicative of the results which may be expected for the entire year.

2.	Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Camco and its wholly-owned subsidiary, Advantage Bank (“Advantage” or the “Bank”). All significant intercompany balances and transactions have been eliminated.

3.	Critical Accounting Policies

The preparation of these financial statements requires Camco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of mortgage servicing rights, the valuation of deferred tax assets and other real estate owned.

Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under US GAAP.

We believe the accounting estimates related to the allowance for loan losses, the capitalization, amortization, and valuation of mortgage servicing rights, deferred income taxes and other real estate owned are “critical accounting estimates” because: (1) the estimates are highly susceptible to change from period to period because they require us to make assumptions concerning the changes in the types and volumes of the portfolios, rates of future prepayments, and anticipated economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on Camco’s assets reported on the balance sheet as well as its net earnings.

Allowance for Loan Losses

The procedures for assessing the adequacy of the allowance for loan losses reflect management’s evaluation of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses.

Each quarter, management analyzes the adequacy of the allowance for loan losses based on review of the loans in the portfolio along with an analysis of external factors (including current housing price depreciation, homeowners’ loss of equity, etc.) and historical delinquency and loss trends. The allowance is developed through specific components: 1) the specific allowance for loans subject to individual analysis, 2) the allowance for classified loans not otherwise subject to individual analysis and 3) the allowance for non-classified loans (primarily homogenous).

Classified loans with indication or acknowledgment of deterioration are subject to individual analysis. Loan classifications are those used by regulators consisting of Special Mention, Substandard, Doubtful and Loss. In evaluating these loans for impairment, the measure of expected loss is based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All other classified assets and non-classified assets are combined with the homogenous loan pools and segregated into loan segments. The segmentation is based on grouping loans with similar risk characteristics (one-to-four family, home equity, etc.). Loss rate factors are developed for each loan segment which is used to estimate losses and determine an allowance. The loss factors for each segment are derived from historical delinquency, classification, and charge-off rates and adjusted for economic factors and an estimated loss scenario.

The allowance is reviewed by management to determine whether the amount is considered adequate to absorb probable, incurred losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on management’s current judgment about the credit quality of the loan portfolio. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss experience, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions. Also considered as part of that judgment is a review of the Bank’s trends in delinquencies and loan losses, as well as trends in delinquencies and losses for the region and nationally, and economic factors. While the Corporation strives to reflect all known risk factors in its evaluations, judgment errors may occur.

Mortgage Servicing Rights

To determine the fair value of its mortgage servicing rights (“MSRs”) each reporting quarter, the Corporation provides information to a third party valuation firm, representing loan information in each pooling period accompanied by escrow amounts. The third party then evaluates the possible impairment of MSRs as described below.

MSRs are recognized as separate assets or liabilities when loans are sold with servicing retained. A pooling methodology, in which loans with similar characteristics are “pooled” together. Once pooled, each grouping of loans is evaluated on a discounted earnings basis to determine the present value of future earnings that the Bank could expect to realize from the portfolio. Earnings are projected from a variety of sources including loan service fees, net interest earned on escrow balances, miscellaneous income and costs to service the loans. The present value of future earnings is the estimated fair value for the pool, calculated using consensus assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the MSRs.

Events that may significantly affect the estimates used are changes in interest rates and the related impact on mortgage loan prepayment speeds and the payment performance of the underlying loans. The interest rate for net interest earned on escrow balances, which is supplied by management, takes into consideration the investment portfolio average yield as well as current short duration investment yields. Management believes this methodology provides a reasonable estimate. Mortgage loan prepayment speeds are calculated by the third party provider utilizing the Economic Outlook as published by the Office of Chief Economist of Freddie Mac in estimating prepayment speeds and provides a specific scenario with each evaluation. Based on the assumptions discussed, pre-tax projections are prepared for each pool of loans serviced. These earnings are used to calculate the approximate cash flow that could be received from the servicing portfolio. Valuation results are presented quarterly to management. At that time, management reviews the information and MSRs are marked to lower of amortized cost or fair value for the current quarter.

Deferred Income Taxes

Camco recognizes expense for federal income taxes currently payable as well as for deferred federal taxes for estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets. Realization of a deferred tax asset is dependent upon generating sufficient taxable income in either the carry forward or carry back periods to cover net operating losses generated by the reversal of temporary differences. A valuation allowance is provided by way of a charge to income tax expense if it is determined that it is more likely than not that some or all of the deferred tax asset will not be realized. If different assumptions and conditions were to prevail, the valuation allowance may not be adequate to absorb unrealized deferred taxes and the amount of income taxes payable may need to be adjusted by way of a charge to expense. Furthermore, income tax returns are subject to audit by the IRS. Income tax expense for current and prior periods is subject to adjustment based upon the outcome of such audits. Camco believes it has adequately accrued for all probable income taxes payable. Accrual of income taxes payable and valuation allowances against deferred tax assets are estimates subject to change based upon the outcome of future events.

Income tax returns are subject to audit by the IRS. Income tax expense for current and prior periods is subject to adjustment based upon the outcome of such audits. During 2011, the IRS began an examination of the Corporation’s tax returns for the year ended December 31, 2009. The IRS has taken the position the Corporation took bad debt deductions prematurely. The Corporation disagrees. The matter was not resolved at the examination level, therefore, the Corporation contested the matter to the IRS Office of Appeals. Management believes it is more likely than not that the Corporation will be successful in the appeals process. If the IRS prevails, the Corporation may be required to repay approximately $1.57 million of tax refunds it had received as a result of a carryback of a net operating loss and the Corporation will increase its net operating loss tax carry forward by the same amount as the disallowed deduction. The Corporation has a 100% valuation allowance against its deferred tax asset. In the event that the Corporation does not prevail on appeals and the deferred tax asset has a 100% valuation allowance, the Corporation will be required to take a charge of income tax expense in the amount of $1.57 million plus assessed statutory interest.

Other Real Estate

Assets acquired through or instead of foreclosure, primarily other real estate owned, are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. New real estate appraisals are generally obtained at the time of foreclosure and are used to establish fair value. If fair value declines, a valuation allowance is recorded through expense. Estimating the initial and ongoing fair value of these properties involves a number of factors and judgments including holding time, costs to complete, holding costs, discount rate, absorption and other factors.

4.	Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the year. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares issuable under outstanding stock options. Diluted earnings per share is not computed for periods in which an operating loss is sustained. The computations were as follows for the periods ended March 31:


	For the three months ended March 31,
	2013		2012
	(In thousands)
BASIC:
Net Earnings	$	499	$	413
Weighted average common shares outstanding		13,387		7,220

Basic earnings per share	$	0.04	$	0.06

DILUTED:
Net Earnings	$	499	$	413
Weighted average common shares outstanding		13,387		7,220
Dilutive effect of warrants		891		0
Dilutive effect of stock options		114		0

Total common shares and dilutive potential common shares		14,392		7,220
Diluted earnings per share	$	0.03	$	0.06

Anti-dilutive options to purchase 94,633 and 581,666 shares of common stock with respective weighted-average exercise prices of $13.73 and $4.71 were outstanding at March 31, 2013 and 2012, respectively, but were excluded from the computation of common share equivalents for each of the three month periods, because the exercise prices were greater than the average market price of the common shares.

5.	Stock Based Compensation

The Corporation follows a fair-value based method for valuing stock-based compensation that measures compensation cost at the grant date based on the fair value of the award.

The fair value of each option granted was estimated on the date of grant using the modified Black-Scholes options-pricing model.

In 2012 and 2013, no options were granted as the Corporation awarded restricted shares in lieu of options related to goals achieved within the 2011 and 2012 officer incentive plan.

A summary of the status of the Corporation’s stock option plans as of March 31, 2013 and December 31, 2012, and changes during the periods ending on those dates is presented below:


	Three Months ended March 31, 2013					Year ended December 31, 2012
	Shares			Weighted- average exercise price		Shares			Weighted- average exercise price
Outstanding at beginning of period		581,888		$	4.62		587,342		$	4.68
Granted		0			0		0			0
Exercised		0			0		0			0
Forfeited		(316	)		2.51		(5,454	)		10.63
Expired		(16,518	)		16.13		0			0

Outstanding at end of period		565,054		$	4.29		581,888		$	4.62

Options exercisable at period end		456,473		$	4.76		395,233		$	5.70

Weighted-average fair value of options granted during the period				$	N/A				$	N/A

The following information applies to options outstanding at March 31, 2013:


	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value⁽¹⁾		Weighted- Average Exercise Price		Number Exercisable		Aggregate Intrinsic Value⁽¹⁾		Weighted- Average Exercise Price
$1.90 – $2.51		470,371		7.0			$	2.39		361,790			$	2.41
$8.92		18,877		4.8				8.92		18,877				8.92
$11.36 – $14.16		43,473		3.1				13.69		43,473				13.69
$16.16 – $17.17		32,333		1.7				16.60		32,333				16.60

		565,054		6.4	$	463,186	$	4.29		456,473	$	347,856	$	4.76

(1)	The intrinsic value is based on the difference of Camco Financial’s stock price on grant date and the stock price at March 31, 2013.

A summary of unvested options as of, and changes during the period ended, March 31, 2013, were as follows:


	Number			Intrinsic Value
Unvested options:
Beginning of period		186,655		$	193,447
Granted		0			0
Forfeited		0			0
Vested during the period		(78,074	)		(78,118	)

Unvested options at March 31, 2013		108,581		$	158,329

The total intrinsic value of options exercised during the three months ended March, 2013 and for the year ended December 31, 2012, was $0 as no options were exercised.

As of March 31, 2013, there was $140,000 of total unrecognized compensation cost related to non-vested stock options. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.8 years.

In 2009, Camco granted 50,000 restricted shares of stock out of the current authorized common stock related to an employment agreement. The issuance of restricted stock vested in four equal annual increments beginning in 2010.

In March 2012, Camco granted 262,492 shares of restricted stock with an impact to unearned/deferred compensation of $625,000. The stock was granted under the Camco Financial Corporation 2010 Equity Plan to officers based on 2011 performance. The issuance of the restricted stock vests over three years, 20% on the date of the award, 20% on the date that the Compensation Committee certifies Camco’s 2012 financial results and 60% on the date that the Compensation Committee certifies Camco’s 2013 financial results (such results are expected to be certified in the first quarter of 2014). However, if Camco’s pre-tax earnings for the fiscal year ended December 31, 2013 are not equal to or greater than the pre-tax earnings for the fiscal year ended December 31, 2011; the participant will forfeit 25% of the equity award that is to vest on such date. The fair value per share of restricted stock is the stock price at close on the grant date, which value is expensed on a straight-line basis during the vesting period.

In October 2012, Camco granted 53,187 shares of restricted stock with an impact to unearned/deferred compensation of $94,150. The stock was granted under the Camco Financial Corporation 2010 Equity Plan based on achievement of a 2012 performance goal. The restricted stock vested immediately.

In February 2013, Camco granted 90,428 shares of restricted stock with an impact to unearned/deferred compensation of $313,785 of which $62,760 was expensed in the prior year related to shares which immediately vested. The stock was granted under the Camco Financial Corporation 2010 Equity Plan to officers based on 2012 performance of which 7,378 shares of the 90,428 shares granted were withheld for tax purposes related to shares which immediately vested. The issuance of the restricted stock vests over three years, 20%, which equated to 10,700 shares, on the date of the award, 20% on the date that the Compensation Committee certifies Camco’s 2013 financial results and 60% on the date that the Compensation Committee certifies Camco’s 2014 financial results (such results are expected to be certified in the first quarter of 2014 and 2015, respectively). However, if Camco’s pre-tax earnings for the fiscal year ending December 31, 2013 or 2014 are not equal to or greater than the budgeted pre-tax earnings for the fiscal year ended December 31, 2012; the participant will forfeit 25% of the equity award that is to vest on such date. Additionally, the shares may not be transferred for one year after vesting except for settlement of taxes. The fair value per share of restricted stock is the stock price at close on the grant date, which value is expensed on a straight-line basis during the vesting period.

In February 2013, Camco granted 81,391 shares of restricted stock awards with an impact to unearned/deferred compensation of $282,427 of which $141,212 was expensed in the prior year related to shares which immediately vested. The stock was granted under the Camco Financial Corporation 2010 Equity Plan based on 2012 performance of which 29,331 shares of the 81,391 shares granted were withheld for tax purposes related to an 83B election. The issuance of the restricted stock vests 50% which equated to 11,364 shares, on the date of the award and 50% on the date that the Compensation Committee certifies Camco’s 2013 financial results.

The shares represented by restricted stock awards are considered outstanding at the grant date, as the recipients are entitled to voting rights and dividends if declared. A summary of restricted stock award activity for the period is presented below:


	Non-vested Number of Shares			Weighted Average Grant Date Fair Value
Non-vested balance at December 31, 2012		219,989		$	2.39
Granted		171,819		$	3.47
Vested		(123,134	)	$	2.91

Non-vested balance at March 31, 2013		268,674		$	2.84

At March 31, 2013, there was approximately $620,000 of compensation cost that had not been recognized related to restricted stock awards. That cost is expected to be recognized over the next 21 months.

6.	Fair Value

The fair value framework as disclosed in the Fair Value Measurements and Disclosure Topic of FASB ASC Topic 825, Financial Instruments (Fair Value Topic) includes a hierarchy which focuses on prioritizing the inputs used in valuation techniques. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), a lower priority to observable inputs other than quoted prices in active markets for identical assets and liabilities (Level 2), and the lowest priority to unobservable inputs (Level 3). When determining the fair value measurements for assets and liabilities, the Corporation looks to active markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are not traded in active markets, the Corporation looks to observable market data for similar assets and liabilities and classifies such items as Level 2. Certain assets and liabilities are not actively traded in observable markets and the Corporation must use alternative techniques, based on unobservable inputs, to determine the fair value and classifies such items as Level 3. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

As a financial services corporation, the carrying value of certain financial assets and liabilities is impacted by the application of fair value measurements, either directly or indirectly. In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as available-for-sale investment securities. In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established. Given the inherent volatility, the use of fair value measurements may have a significant impact on the carrying value of assets or liabilities, or result in material changes to the financial statements, from period to period.

Listed below are three levels of inputs that Camco uses to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Quoted prices on identical assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” used to value debt securities absent the exclusive use of quoted prices.

Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting, etc.

The following methods, assumptions, and valuation techniques were used by the Corporation to measure different financial assets and liabilities at fair value and in estimating its fair value disclosures for financial instruments.

Cash and Cash Equivalents: The carrying amount reported in the consolidated statements of financial condition for cash and cash equivalents is deemed to approximate fair value and are classified as Level 1 of the fair value hierarchy.

Investment Securities: Fair values for investment securities are determined by quoted market prices if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using matrix pricing, which is a mathematical technique widely used in the industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities (Level 2). Any investment securities not valued based upon the methods above is considered Level 3.

The Corporation utilizes information provided by a third-party investment securities portfolio manager in analyzing the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic. The portfolio manager’s evaluation of investment security portfolio pricing is performed using a combination of prices and data from other sources, along with internally developed matrix pricing models. The third-party’s month-end pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, previous evaluation prices, and between the various pricing services. These processes produce a series of quality assurance reports on which price exceptions are identified, reviewed and where appropriate, securities are re-priced. In the event of a materially different price, the third party will report the variance and review the pricing methodology in detail. The results of the quality assurance process are incorporated into the selection of pricing providers by the third party.

Loans Held for Sale: Mortgage loans held for sale are classified as Level 2 and are estimated using fair value which is determined using quoted prices and if available the contracted sales price of loans committed for delivery, which is determined on the date of sale commitment. Gains and losses on the sale of loans are recorded as net gains from sales of loans within noninterest income in the Consolidated Statements of Operations.

Loans Receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential real estate, multi-family residential real estate, installment and other. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and due to the significant judgment involved in evaluating credit quality, loans are classified within Level 3 classification.

Federal Home Loan Bank Stock: The carrying amount presented in the consolidated statements of financial condition is deemed to approximate fair value.

Accrued Interest Receivable and Payable: The fair value for accrued interest approximates its carrying amounts due to the short duration before collection. The valuation is a Level 3 classification that is consistent with its underlying asset or liability.

Deposits: The fair values of deposits with no stated maturity, such as money market demand deposits, savings and NOW accounts have been analyzed by management and assigned estimated maturities and cash flows which are then discounted to derive a value. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The Corporation classifies the estimated fair value of deposit liabilities as Level 2 in the fair value hierarchy.

Advances from the Federal Home Loan Bank: The fair value of these advances is estimated using the rates currently offered for similar advances of similar remaining maturities or, when available, quoted market prices.

Repurchase Agreements: The fair value of repurchase agreements is based on the discounted value of contractual cash flows using rates currently offered for similar maturities. The Corporation classifies the estimated fair value of short-term borrowings as Level 2 of the fair value hierarchy.

Subordinated Debentures: The fair value of subordinated debentures is based on the discounted value of contractual cash flows using rates currently offered for smaller maturities.

Advances by Borrowers for Taxes and Insurance: The fair value of advances by borrowers for taxes and insurance approximates its carrying amounts due to the short duration before collection. The valuation is a Level 3 classification which is consistent with its underlying asset.

Commitments to Extend Credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At March 31, 2013 and December 31, 2012, the fair value of loan commitments was not material.

Fair value is defined as the price that would be received to sell an asset or transfer a liability between market participants at the balance sheet date. When possible, the Corporation looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Corporation looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Camco must use other valuation methods to develop a fair value. The fair value of impaired loans is based on the fair value of the underlying collateral, which is estimated through third party appraisals or internal estimates of collateral values.

Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation’s financial instruments are as follows:


	Carrying value		Fair value		Level 1		Level 2		Level 3
	(In thousands)
March 31, 2013
Financial assets
Cash and cash equivalents	$	118,212	$	118,212	$	118,212	$	0	$	0
Investment securities available for sale		38,590		38,590		0		38,546		44
Investment securities held to maturity		842		893		0		893		0
Loans held for sale		3,824		3,951		0		3,951		0
Loans receivable		543,648		527,976		0		0		527,976
Federal Home Loan Bank stock		9,888		9,888		0		0		9,888
Accrued interest receivable		2,449		2,449		0		0		2,449
Financial liabilities
Deposits	$	626,741	$	612,601	$	0	$	612,601	$	0
Advances from the Federal Home Loan Bank		53,218		56,054		0		56,054		0
Repurchase agreements		5,763		5,763		0		5,763		0
Subordinated debentures		5,000		4,830		0		0		4,830
Advances by borrowers for taxes and insurance		1,848		1,848		0		0		1,848
Accrued interest payable		1,847		1,847		0		0		1,847


	Carrying value		Fair value		Level 1		Level 2		Level 3
	(In thousands)
December 31, 2012
Financial assets
Cash and cash equivalents	$	58,379	$	58,379	$	58,379	$	0	$	0
Investment securities available for sale		85,298		85,298		0		85,254		44
Investment securities held to maturity		903		957		0		957		0
Loans held for sale		6,544		6,759		0		6,759		0
Loans receivable		554,575		544,655		0		0		544,655
Federal Home Loan Bank stock		9,888		9,888		0		0		9,888
Accrued interest receivable		2,631		2,631		0		0		2,631
Financial liabilities
Deposits	$	627,224	$	622,186	$	0	$	622,186	$	0
Advances from the Federal Home Loan Bank		53,297		56,310		0		56,310		0
Repurchase agreements		5,923		5,923		0		5,923		0
Subordinated debentures		5,000		4,976		0		0		4,976
Advances by borrowers for taxes and insurance		2,635		2,635		0		0		2,635
Accrued interest payable		1,692		1,692		0		0		1,692

The following table presents financial assets and liabilities measured on a recurring basis:


			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance		Level 1		Level 2		Level 3
March 31, 2013
Securities available for sale:
U.S. government sponsored enterprises		$38,471		$ 0		$38,471		$ 0
Corporate equity securities		44		0		0		44
Mortgage-backed securities		75		0		75		0
December 31, 2012
Securities available for sale
U.S. government sponsored enterprises		$84,071		$ 0		$84,071		$ 0
Corporate equity securities		44		0		0		44
Mortgage-backed securities		1,183		0		1,183		0

The following table presents financial assets and liabilities measured on a non-recurring basis:


			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance		Level 1		Level 2		Level 3
March 31, 2013
Impaired loans		$23,043		0		0		$23,043
Real estate acquired through foreclosure		9,146		0		0		9,146
December 31, 2012
Impaired loans		$22,727		0		0		$22,727
Real estate acquired through foreclosure		10,581		0		0		10,581

A loan is considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the original loan agreement. Loan impairment is measured using the present value of the loan’s expected cash flows discounted at the loan’s effective interest rate, using the loan’s observable market value, or using the fair value of the collateral less costs to sell if the loan is collateral-dependent. Collateral may be in the form of real estate and/or business assets such as accounts receivable, inventory or business equipment. The majority of collateral is real estate. The value of real estate is based on observable market prices and market values provided by independent, licensed or certified appraisers. Collateral values may be discounted based on management’s historical knowledge of the property and/or changes in market conditions from the time of valuation.

Fair value for real estate acquired through foreclosure is generally determined by obtaining recent appraisals on the properties. Other types of valuing include broker price opinions and valuations pertaining to the current and anticipated deterioration in the regional economy and real estate market, as evidenced by, among other things, a net out migration of the local population, unemployment rates, increasing vacancy rates, borrower delinquencies, declining property values and rental prices, differences between foreclosure appraisals and real estate owned sales prices, and an increase in concessions and other forms of discounting or other items approved by our asset classification committee. The fair value under such appraisals is determined by using one of the following valuation techniques: income, cost or comparable sales. The fair value is then reduced by management’s estimate for the direct costs expected to be incurred in order to sell the property. Holding costs or maintenance expenses are recorded as period costs when incurred and are not included in the fair value estimate.

7.	Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision which is charged to expense and represents management’s best estimate of probable losses that could be incurred within the existing portfolio of loans. The allowance is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Corporation’s allowance for possible loan loss methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The provision for possible loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The amount of the provision reflects not only the necessary allowance for possible loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Corporation’s control, including, among other things, changes in market interest rates and other factors in the local economies that we serve, such as unemployment rates and real estate market values.

The current level of the allowance is directionally consistent with classified assets, non-accrual and delinquency. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Corporation’s control, including, among other things, the performance of the Corporation’s loan portfolio, the economy, changes in interest rates and comments of the regulatory authorities toward loan classifications.

The Corporation’s allowance for possible loan losses consists of three elements: (i) specific valuation allowances on probable losses on specific loans; (ii) historical valuation allowances based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) general valuation allowances based on general economic conditions and other qualitative risk factors both internal and external to the Corporation.

Although we believe that the allowance for loan losses at March 31, 2013 is adequate to cover 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. Ohio in general has experienced higher unemployment and some decreases 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 continue to increase the level of future losses beyond our current expectations.

Loans identified as losses by management are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements.

Allowance for loan losses as of March 31, 2013 and 2012 are summarized as follows:


(in thousands)	Construction		Land, Farm & Ag Loans		Residential			Commercial & Non- Residential Real Estate			Consumer			C&I		Multi- Family			Total
Allowance for credit losses:
Beginning balance December 31, 2012	$	115	$	373	$	6,980		$	2,011		$	162		$	1,075	$	1,431		$	12,147

Charge-offs		0		0		(633	)		(105	)		(115	)		0		(5	)		(858	)
Recoveries		0		1		120			1			21			0		0			143
Provision		7		44		213			(230	)		162			117		(213	)		100

Ending balance March 31, 2013	$	122	$	418	$	6,680		$	1,677		$	230		$	1,192	$	1,213		$	11,532

Ending balance
Individually evaluated for impairment	$	0	$	65	$	612		$	178		$	68		$	21	$	347		$	1,291
Collectively evaluated for impairment		122		353		6,068			1,499			162			1,171		866			10,241
Portfolio balances:
Individually evaluated for impairment
With no related allowance	$	13	$	458	$	635		$	990		$	0		$	65	$	0		$	2,161
With related allowance		0		225		11,268			2,709			487			98		6,095			20,882
Collectively evaluated for impairment		13,792		10,331		254,010			129,255			3,571			46,926		74,252			532,137

Ending balance March 31, 2013	$	13,805	$	11,014	$	265,913		$	132,954		$	4,058		$	47,089	$	80,347		$	555,180


(in thousands)	Construction		Land, Farm & Ag Loans		Residential			Commercial & Non- Residential		Consumer			C&I			Multi- Family			Total
Allowance for credit losses:
Beginning balance December 31, 2011	$	35	$	554	$	8,277		$	2,565	$	80		$	537		$	2,484		$	14,532
Charge-offs		0		0		(634	)		0		0			(46	)		(11	)		(691	)
Recoveries		0		1		50			10		0			39			8			108
Provision		393		488		(727	)		1,781		(32	)		35			(933	)		1,005

Ending balance March 31, 2012	$	428	$	1,043	$	6,966		$	4,356	$	48		$	565		$	1,548		$	14,954

Ending balance
Individually evaluated for impairment	$	4	$	373	$	424		$	395	$	12		$	27		$	412		$	1,647
Collectively evaluated for impairment	$	424	$	670	$	6,542		$	3,961	$	36		$	538		$	1,136		$	13,307
Portfolio balances:
Individually evaluated for impairment
With no related allowance		0		0		788			887		0			107			0			1,782
With related allowance		18		1,197		9,012			6,538		123			380			4,611			21,879

Collectively evaluated for impairment	$	23,155	$	12,686	$	297,467		$	157,537	$	3,410		$	37,208		$	77,000		$	608,463

Ending balance March 31, 2012	$	23,173	$	13,883	$	306,267		$	163,962	$	3,533		$	37,695		$	81,611		$	630,124

Non-accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when the loan is more than three payments past due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is recognized when the loan is returned to accrual status and all the principal and interest amounts contractually due are brought current (minimum of six months), or future payments are reasonably assured. Future payments interest income will be recognized while the previous payments of interest (during non-accrual status) will be recognized over the life of the loan.

The following table details non-accrual loans at March 31, 2013 and December 31, 2012:


(in thousands)	2013		2012
Construction	$	13	$	14
Land, Farmland, Agriculture		673		709
Residential / prime		7,063		7,152
Residential / subprime		9,028		9,195
Commercial / Non-residential		1,292		1,967
Consumer		513		491
Commercial and industrial		65		66
Multi Family		0		0

Total	$	18,647	$	19,594

An age analysis of past due loans, segregated by class of loans were as follows:


March 31, 2013	Loans 30-59 Days Past Due		Loans 60 - 89 Days Past Due		Loans 90+ Days Past Due		Total Past Due		Current		Total Loans		Accruing Loans 90 Days Past Due
(in thousands)
Construction	$	0	$	0	$	0	$	0	$	13,805	$	13,805	$	0
Land, Farmland, Ag Loans		64		32		119		215		10,799		11,014		0
Residential / prime		1,555		229		4,950		6,734		202,429		209,163		0
Residential / subprime		1,635		428		5,380		7,443		49,307		56,750		0
Commercial		516		0		990		1,506		131,448		132,954		0
Consumer		2		2		124		128		3,930		4,058		0
Commercial and industrial		0		0		65		65		47,024		47,089		0
Multi Family		0		0		0		0		80,347		80,347		0

Total	$	3,772	$	691	$	11,628	$	16,091	$	539,089	$	555,180	$	0


December 31, 2012	Loans 30-59 Days Past Due		Loans 60 - 89 Days Past Due		Loans 90+ Days Past Due		Total Past Due		Current		Total Loans		Accruing Loans 90 Days Past Due
(in thousands)
Construction	$	0	$	0	$	0	$	0	$	13,815	$	13,815	$	0
Land, Farmland, Ag Loans		65		32		119		216		13,786		14,002		0
Residential / prime		2,316		906		5,212		8,434		210,217		218,651		0
Residential / subprime		2,509		1,181		4,562		8,252		48,993		57,245		0
Commercial		0		0		1,095		1,095		135,784		136,879		0
Consumer		100		1		28		129		3,919		4,048		0
Commercial and industrial		0		0		66		66		42,028		42,094		0
Multi Family		227		0		0		227		79,761		79,988		0

Total	$	5,217	$	2,120	$	11,082	$	18,419	$	548,303	$	566,722	$	0

Impaired loans. Loans are considered impaired when, based on current information and events, it is probable Advantage will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other larger commercial credits. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, of collateral if payment is expected solely from the collateral or at the present value of estimated future cash flows using the loan’s existing rate or at the loan’s fair sale value. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured in which case interest is recognized on an accrual basis. Impaired loans or portions of loans are charged off when deemed uncollectible.

We have included the following information with respect to impairment measurements relating to collateral-dependent loans for better understanding of our process and procedures relating to fair value of financial instruments:

•

Based on policy, a loan is typically deemed impaired (non-performing) once it has gone over three payments or 90 days delinquent or is considered a Troubled Debt Restructuring (“TDR”) See the Modifications section below. Our management of the troubled credit will vary as will the timing of valuations, loan loss provision and charge offs based on a multitude of factors such as, cash flow of the business/borrower, responsiveness of the borrower, communication with the commercial banker, property inspections, property deterioration, and delinquency. Typically, a nonperforming, non-homogeneous collateral dependent loan will be valued and adjusted (if needed) within a time frame as short as 30 days or as many as 180 days after determination of impairment. If impaired, the collateral is then evaluated and an updated appraisal is most typically ordered. Upon receipt of an appraisal or other valuation, we complete an analysis to determine if the impaired loan requires a specific reserve or to be charged down to estimated net realizable value. The time frame may be as short as 30 days or as much as 180 days, when an appraisal is ordered.

•

Camco’s credit risk management process consistently monitors key performance metrics across both the performing and non-performing assets to identify any further degradation of credit quality. Additionally, impaired credits are monitored in weekly loan committee asset quality discussions, monthly Asset Classification Committee meetings and quarterly loan loss reserve reviews. Strategy documents and exposure projections are completed on a monthly basis to ensure that the current status of the troubled asset is clearly understood and reported.

•

The Asset Classification Committee oversees the management of all impaired loans and any subsequent loss provision or charge off that is considered. When a loan is deemed impaired, the valuation is obtained to determine any existing loss that may be present as of the valuation date. Policy dictates that any differences from fair market value, less costs to sell, are to be recognized as loss during the current period (loan loss provision or charge off). Any deviations from this policy will be identified by amount and contributing reasons for the policy departure during our quarterly reporting process.

•

Camco’s policies dictate that an impaired loan subject to partial charge off will remain in a nonperforming status until it is paid current and completes a period of on-time payments that demonstrate that the loan can perform and/or there is some certainty payments will continue. Camco monitors through various system reports any loan whose terms have been modified. These reports identify troubled debt restructures, modifications, and renewals.

•

When circumstances do not allow for an updated appraisal or Camco determines that an appraisal is not needed, the underlying collateral’s fair market value is estimated in the following ways:

•

Camco’s personnel property inspections combined with original appraisal review

•

County Auditor values

•

Broker price opinions

•

Various on-line fair market value estimation programs (i.e. Freddie Mac, Fannie Mae, etc).

Impaired loans are set forth in the following table:


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
(in thousands)	March 31, 2013						December 31, 2012
With no related allowance recorded:
Construction	$	13	$	13	$	0	$	14	$	14	$	0
Land, Farmland, Ag Loans		458		873		0		558		972		0
Residential		635		802		0		639		804		15
Commercial		990		1,115		0		1,095		1,121		0
Consumer		0		0		0		0		0		0
Commercial and industrial		65		65		0		66		65		0
Multi Family		0		0		0		0		0		0

Total	$	2,161	$	2,868	$	0	$	2,372	$	2,976	$	15

With a related specific allowance recorded:
Construction	$	0	$	0	$	0	$	0	$	0	$	0
Land, Farmland, Ag Loans		225		225		65		230		230		68
Residential		11,268		11,381		612		11,377		11,462		433
Commercial		2,709		2,709		178		2,735		2,735		295
Consumer		487		513		68		496		529		40
Commercial and industrial		98		98		21		107		107		25
Multi Family		6,095		6,095		347		6,120		6,120		416

Total	$	20,882	$	21,021	$	1,291	$	21,065	$	21,183	$	1,277


	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Investment Income Recognized
(in thousands)	3 Months Ended March 31, 2013				3 Months Ended March 31, 2012
With no related allowance recorded:
Construction	$	14	$	1	$	18	$	0
Land, Farmland, Ag Loans		508		22		0		0
Residential		637		0		831		0
Commercial		1,043		12		888		0
Consumer		0		0		0		0
Commercial and industrial		65		0		107		0
Multi Family		0		0		0		0

Total	$	2,267	$	35	$	1,844	$	0

With a related specific allowance recorded:
Construction	$	0	$	0	$	0	$	0
Land, Farmland, Ag Loans		228		18		1,200		4
Residential		11,323		428		9,049		83
Commercial		2,722		153		6,575		95
Consumer		491		17		125		2
Commercial and industrial		102		7		389		5
Multi Family		6,107		315		4,622		53

Total	$	20,973	$	938	$	21,960	$	242

The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans and leases individually by classifying the loans and leases as to credit risk. The loans monitored utilizing the risk categories listed below refer to commercial, commercial and industrial, construction, land, farmland and agriculture loans. All non-homogeneous loans are monitored through delinquency reporting. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

•

Pass (Grade 1-3)

Uncriticized assets exhibit no material problems, credit deficiencies or payment problems. These assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Such credits are graded as follows: Excellent (1), Good (2) or Satisfactory (3).

•

Watch (Grade 4)

Watch rated credits are of acceptable credit quality, but exhibit one or more characteristics which merit closer monitoring or enhanced structure. Such characteristics include higher leverage, lower debt service coverage, industry issues or a construction loan without preleasing commitments (generally multifamily projects).

•

Special Mention Assets (Grade 5)

Special Mention Assets have potential weaknesses or pose financial risk that deserves management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special Mention Assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

•

Substandard Assets (Grade 6)

An asset classified Substandard is protected inadequately by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Assets so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The possibility that liquidation would not be timely requires a substandard classification even if there is little likelihood of total loss.

Assets classified as Substandard may exhibit one or more of the following weaknesses:

•

The primary source of repayment is gone or severely impaired and the Bank may have to rely upon a secondary source.

•

Loss does not seem likely but sufficient problems have arisen to cause the Bank to go to abnormal lengths to protect its position in order to maintain a high probability of repayment.

•

Obligors are unable to generate enough cash flow for debt reduction.

•

Collateral has deteriorated.

•

The collateral is not subject to adequate inspection and verification of value (if the collateral is expected to be the source of repayment).

•

Flaws in documentation leave the Bank in a subordinated or unsecured position if the collateral is needed for the repayment of the loan.

•

For assets secured by real estate, the appraisal does not conform to FDIC appraisal standards or the assumptions underlying the appraisal are demonstrably incorrect.

•

Doubtful Assets (Grade 7)

An asset classified Doubtful has all the weaknesses inherent in one classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

•

Loss Assets (Grade 8)

An asset, or portion thereof, classified loss is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value; rather, it is not practical or desirable to defer writing off an essentially worthless asset (or portion thereof), even though partial recovery may occur in the future.

Loans and leases not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

Based on the most recent analysis performed, the risk category of non-homogenous loans and leases is as follows:


	(In Thousands)
March 31, 2013	Pass		Watch		Special Mention		Substandard		Total⁽¹⁾
Construction	$	9,293	$	4,499	$	0	$	13	$	13,805
Land, Farmland, Ag Loans		9,599		581		0		834		11,014
Commercial		106,812		14,699		6,086		5,357		132,954
Commercial and industrial		46,309		617		0		163		47,089
Multi Family		70,406		3,121		3,386		3,434		80,347

Total	$	242,419	$	23,517	$	9,472	$	9,801	$	285,209


December 31, 2012	Pass		Watch		Special Mention		Substandard		Total⁽¹⁾
Construction	$	10,586	$	3,215	$	0	$	14	$	13,815
Land, Farmland, Ag Loans		13,063		0		0		939		14,002
Commercial		107,065		17,137		6,479		6,198		136,879
Commercial and industrial		39,666		2,256		0		172		42,094
Multi Family		65,142		7,762		3,409		3,675		79,988

Total	$	235,522	$	30,370	$	9,888	$	10,998	$	286,778

⁽¹⁾	There were no doubtful loans as of March 31, 2013 or December 31, 2012.

Homogeneous loans are monitored at 60+ days delinquent. See the above schedule on page 19 related to change in allowance for loans which includes all classes of loans, including the loans related to residential and consumer.

Modifications.

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral and/or guarantors may be requested.

Commercial mortgage and construction loans modified in a TDR often involve a temporary or permanent interest rate reduction, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, and/or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers’ financial needs. This is accomplished by temporary interest only payment periods, temporarily lowering the interest rate, extending the maturity date or a combination of these strategies. The accrual status of modified residential mortgages is dependent on the delinquency status before, during and after the modification process. Home equity modifications are uniquely designed to meet the specific needs of each borrower. Modified terms for home equity loans include renewal of an interest only payment stream, extending the maturity date, converting to a principal and interest payment, amortizing the balance due, or a combination of these strategies. Automobile loans are typically not modified.

Loans modified in a TDR may be in accrual status, non-accrual status, partial charge-offs, not delinquent, delinquent or any combination of these criteria. As a result, loans modified in a TDR for the Corporation may have the financial effect of increasing the specific allowance associated with individual loans. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based either on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

The following presents by class, information related to loans modified in a TDR during the three months ended March 31, 2013.


	Loans Modified as a TDR for the
	Three Months Ended March 31, 2013
			Recorded
Troubled Debt Restructurings ⁽¹⁾	Number of		Investment
(dollars in thousands)	Contracts		(as of period end)⁽¹⁾
Residential—prime		3	$	774
Residential—subprime		2		348
Multi-Family		2		3,406
Consumer Other		1		3

Total		8	$	4,531

⁽¹⁾

The period end balances are inclusive of all partial pay downs and charge-offs since the modification date. Loans modified in a TDR that were fully paid down, charged-off, or foreclosed upon by period end are not reported. In 2013, Advantage did not provide any debt forgiveness or charge-off related to modifications.

The following presents by class, information related to loans modified in a TDR during the three months ended March 31, 2012.


	Loans Modified as a TDR for the
	Three Months Ended March 31, 2012
			Recorded
Troubled Debt Restructurings⁽¹⁾	Number of		Investment
(dollars in thousands)	Contracts		(as of period end)⁽¹⁾
Residential—prime		5	$	247
Residential—subprime		1		22
Commercial		1		300
Consumer Other		1		8

Total		8	$	577

⁽¹⁾	The period end balances are inclusive of all partial pay downs and charge-offs since the modification date. Loans modified in a TDR that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

The following presents by class, loans modified in a TDR from April 1, 2012 through March 31, 2013 that subsequently defaulted (i.e., 60 days or more past due following a modification) during the three months ended March 31, 2013.


	Loans Modified as a TDR
	Within the Previous Twelve Months
	That Subsequently Defaulted During the
	Twelve Months Ended March 31, 2013
			Recorded
Troubled Debt Restructurings ⁽¹⁾	Number of		Investment
(dollars in thousands)	Contracts		(as of period end) ⁽¹⁾
Land, farm & Ag loans		1	$	64
Residential—prime		2		135
Residential—subprime		5		397

Total		8	$	596

⁽¹⁾	The period end balances are inclusive of all partial pay downs and charge-offs since the modification date. Loans modified in a TDR that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

The following presents by class, loans modified in a TDR from April 1, 2011 through March 31, 2012 that subsequently defaulted (i.e., 60 days or more past due following a modification) during the three months ended March 31, 2012.


	Loans Modified as a TDR
	Within the Previous Twelve Months
	That Subsequently Defaulted During the
	Twelve Months Ended March 31, 2012
			Recorded
Troubled Debt Restructurings ⁽¹⁾	Number of		Investment
(dollars in thousands)	Contracts		(as of period end) ⁽¹⁾
Residential—subprime		1	$	102
Commercial and Industrial		1		52

Total		2	$	154

⁽¹⁾	The period end balances are inclusive of all partial pay downs and charge-offs since the modification date. Loans modified in a TDR that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and this Form 10-Q include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (Exchange Act), as amended, which 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. These forward-looking statements also include, but are not limited to:

•

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;

•

retention of our existing customer base and our ability to attract new customers;

•

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. Important factors that could cause actual results to differ materially from those in the forward-looking statements also include, but are not limited to:

•

competition in the industry and markets in which we operate;

•

changes in general interest rates;

•

rapid changes in technology affecting the financial services industry;

•

changes in government regulation; and

•

general economic and business conditions

This MD&A is intended to give stockholders a more comprehensive review of the issues facing management than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data elsewhere in this annual report. As used herein and except as the context may otherwise require, references to “Camco,” “the Corporation”, “we,” “us,” or “our” means, collectively, Camco Financial Corporation and its wholly owned subsidiary, Advantage Bank, and through March 31, 2011, its formerly wholly-owned subsidiary, Camco Title Agency.

Overview

During 2012, the economic environment for financial services companies improved slightly, but continued to be challenging. Bankruptcies, foreclosures and prolonged unemployment have continued and the oversupply of housing has limited appreciation of property values.

We will continue to execute our long-term strategic plan to diversify the balance sheet, and improve delinquency, loan quality and our funding mix by reducing borrowings, if possible, and continue to build relationships by increasing transaction-based deposits.

In 2012 and into 2013, we continued our goal of decreasing higher yielding certificates of deposits while increasing “core” deposit growth related to a number of organizational and product development initiatives, which included our suite of commercial and small business checking accounts, online business cash management system, and remote deposit capture solutions. Competition for deposits continues to put pressure on marginal funding costs, despite continued low rates in 2012 and 2013, but our goal is to continue our strategy and build core customer accounts that are normally a lower cost of funding.

Camco has experienced improving trends in asset quality metrics over the past few years. Nonperforming loans continue to decrease, which demonstrates our continued diligence in managing our delinquencies and working with our loan customers in order to reduce losses for them as well as our Corporation. Additionally, the amount of classified loans has decreased not only due to charge offs and sales of various assets, but also due to upgrading the loan quality ratings of various commercial loans related to improved borrower financial performance combined, in some cases, with restructured credit facilities, which has resulted in lower provisions for loan losses.

On November 8, 2012, Camco announced the successful closing of a $10.0 million rights and private offering. Net proceeds of $9.4 million, net of offering costs of $619,000, were invested in Advantage to improve its regulatory capital position in November of 2012 and an additional $345,000 was invested related to the exercise of warrants in first quarter of 2013. Camco plans to continue to build Advantage’s capital levels through earnings in 2013. Additionally, the Corporation has been profitable in the past two years and as we continue to have core profits generating taxable income, our ability to realize our deferred tax assets is being analyzed for possible reversal of some or all of the valuation allowance which in turn would credit income tax expense. This action will occur when circumstances warrant and the likelihood that our net operating loss carry forward and deferred tax assets will more likely than not be realized from future taxable income.

Advantage will be implementing an interest rate protection program for commercial loan customers, which should begin in the second quarter of 2013. Under this program, Advantage will provide its customer with a fixed-rate loan while creating a variable-rate asset for Advantage when the customer enters into an interest rate swap with Advantage on terms that match the loan. Advantage will offset its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty. These interest rate swaps do not qualify as designated hedges, therefore, each swap will be accounted for as a standalone derivative.

Discussion of Financial Condition Changes from December 31, 2012 to March 31, 2013

At March 31, 2013, Camco’s consolidated assets totaled $763.3 million, a decrease of $897,000, or 0.1%, from December 31, 2012. The decrease in total assets resulted primarily from decreases in investment securities and loans receivable, offset partially by increases in federal reserve balances. Loans receivable decreased in the first quarter of 2013, primarily due to the continued pay-downs on loans which have been higher than new production levels.

Residential loan production increased slightly in the first quarter of 2013 due primarily to additional residential lenders hired in the Columbus market area. The continued low interest rate environment resulted in some new residential home loan purchases and additional refinancing in the first quarter of 2013.

Management’s continued focus at the Bank has been on managing credit, reducing risk and concentrations within the loan portfolio and maintaining sufficient liquidity and capital in a challenging economic environment. Continuous progress is being made on addressing these issues, but we expect the economic environment to continue throughout 2013.

Cash and interest-bearing deposits in other financial institutions totaled $118.2 million at March 31, 2013, an increase of $59.8 million, or 102.5%, from December 31, 2012. Cash is currently at higher levels as we continue to review balance sheet structure and ways to improve our capital position in conjunction with ensuring that liquidity is adequate. With this in mind, a significant amount of liquid assets from called and sold securities in the first Quarter were placed in the Federal Reserve account because it is a safer, yet liquid, earning asset.

As of March 31, 2013, securities totaled $39.4 million, a decrease of $46.8 million, or 54.3%, from December 31, 2012, due to the sale of $24.0 million in securities coupled with principal repayments and maturities of $24.1 million. This decrease was offset partially by the purchase of $1.5 million in securities. The sold securities locked in $61,000 of gains, and the cash related to this sale was transferred to the Federal Reserve account which is currently earning 25 basis points. In April 2013, the Bank reinvested the majority of liquid funds in securities, once again to obtain higher yields while maintaining adequate liquidity.

Loans receivable, including loans held for sale, totaled $547.5 million at March 31, 2013, a decrease of $13.6 million, or 2.4%, from December 31, 2012. The decrease resulted primarily from principal repayments of $75.8 million, loan sales of $30.0 million and $1.0 million of loans transferred to real estate owned offset partially by loan disbursements totaling $93.2 million. Principal repayments and payoffs are higher than 2012 as a few large commercial loans were paid off in the first quarter of 2013. The reduction in residential real estate loan balances continues to be affected by the secondary market offering low long-term fixed rates during the first quarter of 2013. Most new purchase customers are currently choosing fixed rate loans and due to the fact that Advantage normally sells fixed rate loans and does not hold them, the portfolio balance of residential loans continues to decrease. As previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, Advantage is continuing to hold approximately $500,000 of new originations per month of 15 year fixed-rate residential loans to reduce run-off of the portfolio and stabilize margin.

Loan originations during the three-month period ended March 31, 2013 included $55.4 million of commercial loans, $34.2 million in loans secured by one- to four-family residential real estate and $3.6 million in consumer and other loans. Our intent is to continue to service our communities in one- to four-family residential, consumer and commercial real estate lending in the future and continue with our strategic plan of generating additional lending opportunities and core relationships.

During the first three months of 2013, the average yield on loans was 4.85% a decrease of 43 basis points as compared to 5.28% for the same period in 2012. The decrease in yield is due to lower effective rates in the loan portfolio during 2013 in connection with the low interest rate environment. As we continue to have payoffs and adjustable rate loans re-price and originate new loans in the current lower rate environment we expect the yield on loans to continue to decrease slightly throughout 2013.

The allowance for loan losses totaled $11.5 million and $12.1 million at March 31, 2013, and December 31, 2012, representing 61.8% and 62.0% of nonperforming loans, respectively, at those dates. Nonperforming loans (loans with three payments delinquent plus nonaccrual loans) totaled $18.6 million and $19.6 million at March 31, 2013 and December 31, 2012, respectively, constituting 3.3% and 3.4% of total net loans, including loans held for sale. See Note 7. Allowance for Loan Losses above for additional information related to change in allowance and delinquency. Net charge-offs totaled $715,000 and $583,000 for the three months ended March 31, 2013 and March 31, 2012, respectively.

Nonaccrual status denotes loans greater than three payments past due, loans for which, in the opinion of management, the collection of additional interest is unlikely, or loans that meet nonaccrual criteria as established by regulatory authorities. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as an asset which holds the interest income, depending on management’s assessment of the collectability of the loan.

At March 31, 2013, the Corporation’s other real estate owned (REO) consisted of 135 repossessed properties with a net book value of $9.1 million, a decrease of $1.4 million, compared to December 31, 2012, due to increased sales, including one large sale of $770,000. Initial loss is recorded as a charge to the allowance for loan losses. Thereafter, if there is a further deterioration in value, a specific valuation allowance is established and charged to operations. The Corporation reflects costs to carry REO as period costs. 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 Corporation works with borrowers to avoid foreclosure if possible. Furthermore, if it becomes inevitable that a borrower will not be able to retain ownership of the property, the Corporation often seeks a deed in lieu of foreclosure in order to gain control of the property earlier in the recovery process. 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.

Deposits totaled $626.7 million at March 31, 2013, a decrease of $483,000, or 0.1%, from the total at December 31, 2012. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at March 31, 2013 and December 31, 2012:


	March 31, 2013					December 31, 2012					Change
(Dollars in thousands)	Balance		Rate			Balance		Rate			Balance			Rate
Noninterest-bearing demand	$	75,269		0.00	%	$	76,490		0.00	%	$	(1,221	)		0.00	%
Interest-bearing demand		75,483		0.14			70,472		0.13			5,011			0.01
Money market demand accounts		124,322		0.25			121,437		0.24			2,885			0.01
Savings accounts		56,765		0.05			54,726		0.05			2,039			0.00
Total certificate accounts		294,902		1.25			304,099		1.28			(9,197	)		(0.03	)

Total deposits	$	626,741		0.66	%	$	627,224		0.69	%	$	(483	)		(0.03	)%

The decrease in certificates of deposit was primarily due to decreases in non-core customers (customers who only have a certificate of deposit account with the Bank). We continue to focus and implement our strategy of improving the long-term funding mix of the Bank’s deposit portfolio by developing “core relationships” with customers within our communities, and adding commercial and retail checking accounts. The Corporation is focused on its collection of core deposits. Core deposit balances, generated from customers throughout the Bank’s branch network, are generally a stable source of funds similar to long-term funding, but core deposits such as checking and savings accounts are typically less costly than alternative fixed-rate funding. The Corporation believes that this cost advantage makes core deposits a superior funding source, in addition to providing cross-selling opportunities and fee income possibilities.

Advances from the FHLB and other borrowings totaled $64.0 million at March 31, 2013, a decrease of $238,000, or 0.4%, from the total at December 31, 2012. The decrease in borrowings was primarily due to balances in repurchase agreements which we believe is related to the timing of customer needs.

Stockholders’ equity totaled $60.7 million at March 31, 2013, an increase of $984,000, or 1.6%, from December 31, 2012. The increase resulted primarily from net earnings of $499,000 and $379,000 of additional capital related to the exercise of warrants, $213,000 related to restricted stock awards and net changes related to the unearned compensation offset partially by other comprehensive income related to the fair value of our investment securities in the amount of $106,000.

Comparison of Results of Operations for the Three Months Ended March 31, 2013 and 2012

Camco’s net earnings for the three months ended March 31, 2013, totaled $499,000, an increase of $86,000, from the net earnings of $413,000 reported in the comparable 2012 period. On a diluted per share basis, net earnings for the three months ended March 31, 2013 were $0.03, compared to $0.06 in the three months ended March 31, 2012. The increase in earnings was primarily attributable to increased gain on sale of loans and investments, decreased expense related to provision for losses on loans offset partially by decreased net interest income and increased employee compensation and benefits.

Net Interest Income

Net interest income totaled $5.4 million for the three months ended March 31, 2013, a decrease of $790,000 or 12.8%, compared to the three month period ended March 31, 2012, generally reflecting the effects of the balance sheet movement in the different types of earning assets, their respective average balances and the average yield. Due to these changes the yield on earning assets decreased 80 basis points for the three months ended March 31, 2013 compared to March 31, 2012. This decrease was partially offset by a 41 basis point decrease in interest bearing liabilities. The decrease was primarily related to decreased certificates of deposit average balances which have higher costs than core deposits coupled with the maturity and payoff of advances in 2012.

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, and the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. Balances are based on the average of month-end balances which, in the opinion of management, do not differ materially from daily balances.


	2013							2012
Three Months Ended March 31, (Dollars in thousands)	Average outstanding balance		Interest earned / paid		Average yield/ rate			Average outstanding balance		Interest earned / paid		Average yield/ Rate
Interest-earning assets:
Loans receivable ⁽¹⁾	$	543,218	$	6,590		4.85	%	$	622,459	$	8,213		5.28	%
Securities		68,341		119		0.70	%		41,303		87		0.84	%
FHLB stock		9,888		106		4.29	%		9,888		112		4.53	%
Other interest-bearing accounts		70,539		43		0.24	%		32,969		1		.01	%

Total interest-earning assets		691,986		6,858		3.96	%		706,619		8,413		4.76	%
Noninterest-earning assets ⁽²⁾		70,853							68,022

Total average assets	$	762,839						$	774,641

Interest-bearing liabilities:
Deposits	$	552,626	$	1,033		0.75	%	$	573,826	$	1,551		1.08	%
FHLB advances and other		63,759		426		2.67	%		78,691		673		3.42	%

Total interest-bearing liabilities		616,385		1,459		0.95	%		652,517		2,224		1.36	%
Noninterest-bearing deposits		74,394							64,970
Noninterest-bearing liabilities		11,893							11,381

Total average liabilities		702,672							728,868
Total average stockholders’ equity		60,167							45,773

Total liabilities and stockholders’ equity	$	762,839						$	774,641

Net interest income/Interest rate spread			$	5,399		3.01	%			$	6,189		3.40	%

Net interest margin ⁽³⁾						3.12	%						3.50	%
Average interest-earning assets to average interest-bearing liabilities						112.3	%						108.3	%

⁽¹⁾	Includes loans held for sale. Loan fees are immaterial.

⁽²⁾	Includes nonaccrual loans, mortgage servicing rights and allowance for loan losses.

⁽³⁾	Net interest income as a percent of average interest-earning assets.

Interest income on loans totaled $6.6 million for the three months ended March 31, 2013, a decrease of $1.6 million, or 19.8%, from the comparable 2012 period. The decrease resulted primarily from a decrease in the average balance outstanding of $79.2 million, or 12.7%, from the comparable 2012 period. This is primarily related to slower commercial production in 2012 coupled with large payoffs that outpaced the rates of the new production. The decrease in average loans is causing part of the decreased yield due to the new loans being generated in our current lower interest rate environment. This created a 43 basis point decrease in the average yield on loans.

Interest income on securities totaled $119,000 for the three months ended March 31, 2013, an increase of $32,000, or 36.8%, from the first three months of 2012. The increase was due primarily to a $27.0 million, or 65.5%, increase in the average balance from the comparable 2012 period which was offset partially by a 14 basis point decrease in the average yield to 0.70% for the 2013 period. In March, 2013 we sold $24.0 million of investments for a gain on sale of $61,000 and are planning to purchase new investments with additional cash on hand. These investments will be somewhat longer in term to help support the margin.

Dividend income on FHLB stock is paid a quarter in arrears and decreased 24 basis points from the first three months of 2012. Interest income on other interest bearing accounts increased as excess cash was moved to the Federal Reserve, which paid 25 basis points on the balance through March 31, 2013. We will continue to deploy cash when available by paying down advances and borrowings in order to generate additional income.

Interest expense on deposits totaled $1.0 million for the three months ended March 31, 2013, a decrease of $518,000, or 33.4%, compared to the same period in 2012 due primarily to a 33 basis point decrease in the average cost of interest bearing deposits to 0.75% in the current period, coupled with a $21.2 million, or 3.7%, decrease in average interest bearing deposits outstanding. While the cost of deposits was lower in 2013 compared to 2012, the cost of funds in 2013 is expected to stabilize as rates have been at low levels for the past few years. However, we will continue to re-price certificates of deposit in the current lower interest rate environment in 2013, which should decrease costs slightly if rates continue to be at the current low levels. Although, competitive pressures may limit our ability to reduce interest rates paid on deposits.

Interest expense on borrowings totaled $426,000 for the three months ended March 31, 2013, a decrease of $247,000, or 36.7%, from the same three month period of 2012. The decrease resulted primarily from a $14.9 million, or 19.0%, decrease in the average borrowings outstanding, coupled by a 41 basis point decrease in the average cost of borrowings to 2.67%. This decrease is due to the restructure of some of our FHLB advances in 2012. Due to the high pre-payment penalties we have not made the decision to restructure or pay-down any additional advances at this time but will continue to review for possible decreased interest expense.

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 collectability of the Bank’s loan portfolio.

During 2012 and the first quarter of 2013, Camco experienced improving trends in asset quality metrics. Nonperforming loans decreased $5.3 million, or 21.4% from December 31, 2011 to December 31, 2012 balances, and an additional $947,000, or 4.8% to $18.6 million from December 31, 2012 to March 31, 2013. Additionally, the amount of classified loans has decreased not only due to charge offs and sales of various assets, but also due to upgrading the loan quality ratings of various commercial loans related to improved borrower financial performance combined, in some cases, with restructured credit facilities, which has resulted in lower provisions for loan losses. See Note 7. Allowance Loan Losses and related tables above in the notes to consolidated financial statements.

Camco’s net loan charge-offs and provision for loan losses in recent years has been impacted by ongoing workout efforts on existing impaired loans. The efforts have included negotiating reduced payoffs and the sale of underlying collateral–or short sales coupled with charging down values to net realizable or fair value of the underlying collateral. Management believes these actions continue to be prudent during the current economic environment.

Based upon an analysis of these factors, the continued economic outlook and new production, we recorded a provision for losses on loans of $100,000 for the three months ended March 31, 2013. We believe our loans are adequately reserved for probable losses inherent in our loan portfolio at March 31, 2013. However, there can be no assurance that the loan loss allowance will be adequate to absorb actual losses. See Note 7. Allowance for Loan Losses above in the notes to consolidated financial statements for additional information.

Other Income

Other income totaled $2.1 million for the three months ended March 31, 2013, an increase of $122,000, or 6.2%, from the comparable 2012 period. The increase in other income was primarily attributable to a $125,000, or 22.2%, increase in gain on sale of loans. The increase in the gain on sale of loans was primarily due to an additional $3.8 million of sales in the first quarter of 2013 compared to the first quarter of 2012 and higher margins on the 2013 quarter sales.

General, Administrative and Other Expense

General, administrative and other expense totaled $6.8 million for the three months ended March 31, 2013, an increase of $133,000 or 2.0%, from the comparable period in 2012. The increase in general, administrative and other expense was primarily due to employee compensation and benefit expenses, which were offset partially by decreases in real estate owned and other expense and professional services.

The increase in employee compensation and benefits was primarily due to increased equity compensation related to restricted stock granted, normal merit increases and commissions related to increased production levels.

The decrease in real estate owned and other expense of $108,000 is primarily due to higher gain on sale of real estate owned and lower expense related to management of properties, taxes and insurance due to decreased number of properties year to year and quicker sales as the economy beings to stabilize. The decrease in professional services was related to 2012 expenses including legal expenses related to our exploration of capital raising alternatives.

Federal Income Taxes

Federal income taxes totaled $55,000 for the three months ended March 31, 2013, an increase of $18,000 compared to the three months ended March 31, 2012. This increase relates to the sale of investments that were no longer carrying a deferred tax position and recorded tax expense related to such transactions.

Income taxes are provided based on the liability method of accounting, which includes the recognition of deferred tax assets and liabilities for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. In general, the Corporation records deferred tax assets when the event giving rise to the tax benefit has been recognized in the consolidated financial statements.

A valuation allowance is recognized to reduce any deferred tax assets that, based upon available information, it is more-likely-than-not all, or any portion, of the deferred tax asset will not be realized. Assessing the need for, and amount of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence regarding realization of the deferred tax assets. In most cases, the realization of deferred tax assets is dependent upon the Corporation generating a sufficient level of taxable income in future periods, which can be difficult to predict.

In 2010, the Corporation recognized a 100% valuation allowance against our net deferred tax assets. The Corporation has been profitable in the past two years and as we continue to have core profits generating taxable income, our ability to realize our deferred tax assets will become clearer, at which time the Corporation would reverse some or all of the valuation allowance and credit income tax expense. This action will occur when circumstances warrant and the likelihood that our net operating loss carry forward and deferred tax assets will more likely than not be realized from future taxable income.

The Corporation had a net operating loss carry forward for tax purposes of approximately $3.9 million at March 31, 2013 and December 31, 2012. The net operating loss carry forward is expected to decline during 2013 as the Corporation generates taxable income.

Capital Requirements

Camco is subject to the regulatory capital requirements of the Federal Reserve Board (the “FRB”) and Advantage is subject to the requirements of the FDIC. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The FRB and FDIC have adopted risk-based capital ratio guidelines to which the Corporation is subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk-weighting categories, with higher levels of capital being required for the categories perceived as representing greater risk.

These guidelines divide the capital into two tiers. The first tier (“Tier I”) includes common equity, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and purchased credit card relationships, subject to certain limitations). Supplementary (“Tier II”) capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses, subject to certain limitations, less required deductions. Banks and bank holding companies are required to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier I capital. The regulatory agencies may, however, set higher capital requirements when particular circumstances warrant. Banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

The FDIC and Ohio Division of Financial Institutions (the “Division”) issued a consent order to Advantage on February 9, 2012 (the “Consent Order”). The Consent Order requires Advantage to, among other things, (i) increase its Tier I leverage capital to 9% by March 31, 2012; and (ii) seek regulatory approval prior to declaring or paying any cash dividend. Therefore, Advantage must maintain 9% Tier I Capital to be deemed “adequately capitalized”. As a result of the 2012 Consent Order, Advantage remains disqualified as a public depository under Ohio law and will incur higher premiums for FDIC insurance of its accounts. Currently, Advantage is not in compliance with the Tier I capital requirement of the 2012 Consent Order and will need to increase its capital levels.

On September 24, 2012, Camco announced a rights offering of shares of common stock of up to $10.0 million to existing stockholders followed by a public offering of any remaining shares. Under the terms of the rights offering all record holders of the Corporation’s common stock as of July 29, 2012 received, at no charge, one subscription right for each share of common stock held as of the record date. Each subscription right entitled the holder of the right to purchase one share of Camco common stock at a subscription price of $1.75 per share. In addition, for every two shares purchased in the rights or public offerings, investors received one warrant to purchase Camco common stock within five years at $2.10 per share. Rights holders were provided the opportunity to purchase shares in excess of their basic subscription rights, subject to availability and certain limitations.

On November 8, 2012, Camco announced the successful closing of its $10.0 million offerings. Our current stockholders, along with unsolicited commitments from directors and officers allowed us to fully subscribe this $10.0 million offering without the need to solicit shares externally in the public offering phase. Camco issued 5,714,286 shares of common stock and 2,857,143 warrants at an exercise price of $2.10, which will expire on November 6, 2017. The total proceeds of the common stock offering were $9.4 million, net of offering costs of $619,000. Net proceeds of $9.4 million were invested in Advantage to improve its regulatory capital position.

Federal law prohibits a financial institution from making a capital distribution to anyone or paying management fees to any person having control of the institution if, after such distribution or payment, the institution would be undercapitalized. Additionally, the payment of dividends by Advantage Bank to its parent and by Camco to stockholders is subject to restriction by regulatory agencies. These restrictions normally limit dividends from the Bank to the sum of the Bank’s current and prior two years’ earnings, as defined by the agencies.

On April 30, 2009, Camco was notified by the FRB that it had conducted a “surveillance review” as of December 31, 2008. Based on that review, the FRB notified Camco that it must (i) eliminate stockholder dividends and (ii) defer interest payments on its 30-year junior subordinated deferrable interest notes that were issued to its wholly-owned subsidiary, Camco Statutory Trust I, in its trust preferred financing that was completed in July 2007. Camco and Camco Statutory Trust I are permitted to defer interest and dividend payments, respectively, for up to five consecutive years without resulting in a default. Camco may not resume these dividend or interest payments until it receives approval from the FRB.

These prohibitions imposed by the FRB were memorialized in a written agreement (the “Camco Agreement”) with the FRB on August 5, 2009. The Camco Agreement memorializes the requirements imposed on April 30, 2009 and requires Camco to obtain FRB approval prior to: (i) declaring or paying any dividends; (ii) receiving dividends or any other form of payment representing a reduction in capital from Advantage; (iii) making any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities; (iv) incurring, increasing or guaranteeing any debt; or (v) repurchasing any Camco stock.

A material failure to comply with the provisions of any of the Corporation’s agreements could result in additional enforcement actions by the FDIC, the Division or the Federal Reserve.

Liquidity and Capital Resources

Liquidity is the Corporation’s ability to generate adequate cash flows to meet the demands of its customers and provide adequate flexibility for the Corporation to take advantage of market opportunities. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and at times to fund deposit outflows and operating activities. The Corporation’s principal sources of funds are deposits; amortization, prepayments and sales of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Managing liquidity entails balancing the need for cash or the ability to borrow against the objectives of maximizing profitability and minimizing interest rate risk. The most liquid types of assets typically carry the lowest yields.

Camco is a single bank holding company and its primary ongoing source of liquidity is dividends received from the Bank. Currently, the 2012 Consent Order prohibits the Bank from paying a dividend to Camco without prior approval of the FDIC and Division. Further, as a result of entering into the Camco Agreement with the FRB, we are prohibited from paying dividends to our stockholders without first obtaining the approval of the FRB. Camco currently has $5.0 million outstanding trust preferred securities with a maturity date of 2037. Camco’s agreement regarding these securities provides for a deferment of interest payment for up to 20 consecutive quarters without default. Based on notification received from the FRB on April 30, 2009, Camco was required to exercise this provision to defer interest payments and has deferred a total of 16 quarters as of March 31, 2013. If the Corporation desires to raise funds in the future, it may consider engaging in further offerings of preferred securities, debentures or other borrowings as well as issuance of capital stock, but any such strategic decisions would require regulatory approval. Our ability to pay dividends to stockholders is dependent on our net earnings.

We monitor and assess liquidity needs daily in order to meet deposit withdrawals, loan commitments and expenses. Camco’s liquidity contingency funding plan identifies liquidity thresholds and red flags that may evidence liquidity concerns or future crises. The contingency plan details specific actions to be taken by management and the Board of Directors. It also identifies sources of emergency liquidity, both asset and liability-based, should we encounter a liquidity crisis. In conjunction with the Corporation’s asset/liability and interest rate risk management activities, we actively monitor liquidity risk and analyze various scenarios that could impact or impair Camco’s ability to access emergency funding during a liquidity crisis.

Liquid assets consist of cash and interest-bearing deposits in other financial institutions, investments and mortgage-backed securities. Approximately $2.0 million, or 5.1%, of our investment portfolio is expected to mature, prepay or be called during 2013. These maturities could provide an additional source of liquidity.

Additional sources of liquidity include deposits, borrowings and principal and interest repayments on loans. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan and security prepayments are more influenced by interest rates, general economic conditions, and competition and are difficult to predict.

Diversified and reliable sources of wholesale funds are utilized to augment core deposit funding. Borrowings may be used to compensate for reduction in other sources of funds or to support lending activities. The Bank utilizes certain loans and FHLB stock to provide collateral to support its borrowing needs. However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions. One source of wholesale funding is brokered deposits. Consistent with its risk management policy and in response to the general tightening of credit and liquidity conditions in the financial markets at large, in the past, the Bank has utilized brokered deposits. However, at March 31, 2013, Camco did not have any such deposits.

Approximately $141.5 million of the Corporation’s certificate of deposit portfolio is scheduled to mature during 2013. Depositors continue a preference toward short-term certificates or other issuances with maturities of less than 18 months. This places additional liquidity pressure on the Corporation as competition for deposits is very strong in Ohio, Kentucky and West Virginia. A material loss of these short-term deposits could force us to seek funding through contingency sources, which may negatively impact earnings.

FHLB advances are another funding source. In the past, Camco has depended heavily on borrowings to fund balance sheet growth. While significant strategic and tactical focus is currently being placed on deposit growth, borrowings and additional borrowing capacity at the FHLB are vital sources of liquidity. We have approximately $126.4 million of additional borrowing capacity available as of March 31, 2013. However, our total borrowing capacity at the FHLB is dependent on the level of eligible collateral assets held by the Bank and the Bank’s credit rating with the FHLB. Our total borrowing capacity with the FHLB has increased to $179.6 million at March 31, 2013, from $170.9 million at December 31, 2012. This capacity is based on the pledging of our one- to four- family, multi-family mortgage, commercial real estate and home equity lines of credit.

We plan to continue to monitor our funding sources, but recognize that our current credit risk profile may restrict these sources. Our Funds Management Group, an internal committee, will monitor deposit rates in our markets to allow for competitive pricing to raise funds while also monitoring loan activity to provide for the liquidity needs of the Bank.

The following table sets forth information regarding the Bank’s obligations and commitments to make future payments under contract as March 31, 2013.


	Payments due by period
	Less than 1 year		1 – 3 Years		3 – 5 years		More than 5 years		Total
	(In thousands)
Contractual obligations:
Operating lease obligations	$	370	$	593	$	388	$	0	$	1,351
Advances from the FHLB		5,065		42,234		5,000		919		53,218
Repurchase agreements		5,763		0		0		0		5,763
Certificates of deposit		141,577		122,829		30,496		0		294,902
Subordinated debentures ⁽¹⁾		0		1,402		0		5,000		6,402
Ohio equity funds for housing		96		196		246		6		544
Deferred Compensation		223		443		430		1,033		2,129
Amount of commitments expiring per period:
Commitments to originate loans:
Revolving open-end lines secured by 1-4 residential properties	$	37,527	$	0	$	0	$	0	$	37,527
Commercial and industrial loans		23,241		0		0		0		23,241
One- to four-family construction loan		2,242		0		0		0		2,242
Commercial real estate, other construction loan and land development		46,175		0		0		0		46,175
All other unused commitments		10,588		0		0		0		10,588
Letters of credit		299		0		0		0		299

Total contractual obligations	$	273,166	$	167,697	$	36,560	$	6,958	$	484,381

(1)	The subordinated debentures are redeemable, at Camco’s option. The debentures mature on September 15, 2037.

We anticipate that we will have sufficient funds available to meet our current loan commitments. Based upon historical deposit flow data, the Bank’s competitive pricing in its market and management’s experience, we believe that a significant portion of our “core” maturing certificates of deposit in 2013 will remain with the Bank, but recognize the significance of the risks discussed above. Additionally, as of March 31, 2013, the Bank had approximately $148.6 million of liquid assets which is 19.5% of total assets. Our current policy requires 5% of liquid assets to total assets, which calculated to excess liquidity of $110.5 million or 14.5% at March 31, 2013.

Liquidity management is both a daily and long-term management process. In the event that we should require funds beyond our ability to generate them internally, additional funds are available through the use of FHLB advances, internet deposits, and through the sales of loans or securities.

As a result of the Camco Agreement with the FRB, Camco has deferred further interest payments on the subordinated debt securities relating to the trust preferred securities of Camco Financial Corporation Trust 1. The Company has the right under the indenture for the subordinated debt securities to defer interest payments for up to 20 consecutive calendar quarters. The deferral provisions for the securities were intended to provide the Corporation with a measure of financial flexibility during times of financial stress due to market conditions, such as the current state of the financial and real estate markets.

As a result of the Corporation’s exercise of its contractual right to defer interest payments on its subordinated debt securities, it is likely that the Corporation will not have access to the trust preferred securities market until the Corporation becomes current on those obligations. This may also adversely affect the Corporation’s ability in the market to obtain debt financing. Therefore, the Corporation will have fewer sources to enhance its capital and liquidity position. In addition, the Corporation will be unable to pay dividends on its common stock until such time as the Corporation is current on interest payments on its subordinated debt securities. Currently, there is no market for trust preferred securities.

Camco and Advantage are required to maintain minimum regulatory capital pursuant to federal regulations and the 2012 Consent Order. The following tables present certain information regarding compliance by Camco and Advantage with applicable regulatory capital requirements at March 31, 2013:


	Actual					For capital Adequacy purposes					To be “well- capitalized” under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Camco Financial Corporation	$	72,001		13.72	%	>$	41,993		>8.0	%	>$	52,492		10	%
Advantage Bank	$	69,988		13.34	%	>$	41,964		>8.0	%	>$	52,455		10	%
Tier I capital to risk-weighted assets:
Camco Financial Corporation	$	65,383		12.46	%	>$	20,997		>4.0	%	>$	31,495		6.0	%
Advantage Bank	$	63,370		12.08	%	>$	20,982		>4.0	%	>$	31,473		6.0	%
Tier I leverage to average assets:
Camco Financial Corporation	$	65,383		8.55	%	>$	30,606		>4.0	%	>$	38,258		5.0	%
Advantage Bank	$	63,370		8.30	%	>$	30,534		>4.0	%	>$	38,167		5.0	%

The availability of many sources of capital (principally to financial service companies) has become significantly restricted or has become increasingly costly as compared to the prevailing market rates. Management cannot predict when or if the capital markets will return to more favorable conditions.

We believe that the minimum regulatory capital requirements set forth in federal regulations and the 2012 Consent Order may be realized and maintained through multiple sources, including net earnings in the normal course of business, proceeds from the exercise of warrants and external sources of capital.

The availability of some forms of external capital (principally to financial service companies) has become significantly restricted or has become increasingly costly as compared to the prevailing market rates. Management cannot predict when or if the capital markets will return to more favorable conditions. An equity financing transaction would result in substantial dilution to the Corporation’s current stockholders and could adversely affect the market price of the Corporation’s common stock. Further, there can be no assurance that any such efforts would be successful, either on a short-term or long-term basis. However, a material failure to comply with the provisions of the Camco Agreement or 2012 Consent Order could result in additional enforcement actions by the FDIC, the Ohio Division or the FRB.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable.

ITEM 4. Controls and Procedures

Camco’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Camco’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2013. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Camco’s disclosure controls and procedures were effective as of March 31, 2013. During the quarter ended March 31, 2013, there were no changes in Camco’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect Camco’s internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of their respective businesses or operations, Camco or its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Camco cannot state what the eventual outcome of any such matters will be; however, based on current knowledge and after consultation with legal counsel, management believes that these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Camco.

ITEM 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in the Corporation’s Form 10-K for the year ended December 31, 2012. The risk factors described in the Annual Report on Form 10-K are not the only risks facing the Corporation. Additional risks and uncertainties not currently known to the Corporation or that management currently deems to be immaterial also may materially adversely affect the Corporation’s business, financial condition or operating results. Moreover, the Corporation undertakes no obligation and disclaims any intention to publish revised information or updates to forward looking statements contained in such risk factors or in any other statement made at any time by the Corporation or any of its directors, officers, employees or other representatives, unless and until any such revisions or updates are expressly required to be disclosed by securities laws or regulations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Not applicable

(b)

Not applicable

(c)

The following table provides information about purchases of common stock by the Company during the quarter ended March 31, 2013:


Period of Repurchase	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
January 1 – January 31, 2013		0	$	0		0		0
February 1 – February 28, 2013		36,710		3.47		0		0
March 1 – March 31, 2013		19,374		3.59		0		0

The Company’s repurchases occurred when restricted stock award recipients forfeited a portion of their awards for tax purposes upon the vesting of the award.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

None

ITEM 6. Exhibits



Exhibit 3(i)	Restated Certificate of Incorporation of Camco Financial Corporation, as amended	Incorporated by reference to Camco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, Film no. 04668873, Exhibit 3(i)

Exhibit 3(ii)	2003 Amended and Restated By-Laws of Camco Financial Corporation	Incorporated by reference to Camco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, Film no. 07695291, Exhibit 3(ii)



Exhibit 3(iii)	Certificate of Amendment of Certificate of Incorporation	Incorporated by reference to Camco’s Annual Report on Form 10-K for the Year ended December 31, 2012, Film no. 13702221, Exhibit 3(iii).

Exhibit 31(i)	Section 302 certification by Chief Executive Officer

Exhibit 31(ii)	Section 302 certification by Chief Financial Officer

Exhibit 32(i)	Section 1350 certification by Chief Executive Officer

Exhibit 32(ii)	Section 1350 certification by Chief Financial Officer

Exhibit 101.INS	XBRL Instance Document

Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Link base Document

Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB	XBRL Taxonomy Extension Label Link base Document

Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Link base Document

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: May 10, 2013	By:	/s/ James E. Huston
		James E. Huston
		Chief Executive Officer

Date: May 10, 2013	By:	/s/ John E. Kirksey
		John E. Kirksey
		Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company