UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

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

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 þ No o

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 o No o

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 o No þ

As of November 5, 2009, the latest practicable date, 7,155,595 shares of the registrant’s common stock, $1.00 par value, were outstanding.

 

 

Camco Financial Corporation

INDEX

				Page
PART I —		FINANCIAL INFORMATION
		Consolidated Statements of Financial Condition			3
		Consolidated Statements of Earnings			4
		Consolidated Statements of Comprehensive Income			5
		Consolidated Statements of Cash Flows			6
		Notes to Consolidated Financial Statements			7
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
		Quantitative and Qualitative Disclosures about Market Risk			34
		Controls and Procedures			35
PART II —		OTHER INFORMATION			35
SIGNATURES					38
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

		September 30,				December 31,
		2009				2008
		(unaudited)
ASSETS
Cash and due from banks		$	20,313			$	17,013
Interest-bearing deposits in other financial institutions			37,931				35,272
Cash and cash equivalents			58,244				52,285
Securities available for sale, at fair value			60,940				85,352
Securities held to maturity, at cost, approximate fair value of $2,222 and $13,530 as of September 30, 2009 and December 31, 2008, respectively			2,160				13,406
Loans held for sale — at lower of cost or fair value			2,186				2,185
Loans receivable — net			684,426				756,641
Office premises and equipment — net			11,121				11,868
Real estate acquired through foreclosure			8,937				5,841
Federal Home Loan Bank stock — at cost			29,888				29,888
Accrued interest receivable			4,206				4,118
Mortgage servicing rights — at lower of cost or fair value			3,813				3,731
Prepaid expenses and other assets			5,941				10,785
Cash surrender value of life insurance			18,658				22,532
Prepaid and refundable federal income taxes			902				1,814
Total assets		$	891,422			$	1,000,446
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits		$	670,391			$	723,956
Advances from the Federal Home Loan Bank and other borrowings			133,880				183,833
Advances by borrowers for taxes and insurance			620				2,458
Accounts payable and accrued liabilities			11,052				16,942
Deferred federal income taxes — net			2,880				1,557
Total liabilities			818,823				928,746
Commitments			—				—
Stockholders’ equity:
Preferred stock — $1 par value; authorized 100,000 shares; no shares outstanding			—				—
Common stock — $1 par value; authorized 14,900,000 shares; 8,884,509 shares issued at September 30, 2009 and 8,834,509 at December 31, 2008			8,885				8,835
Additional paid-in capital			60,124				59,896
Retained earnings			26,503				26,055
Accumulated other comprehensive income net of related tax effects			1,326				1,028
Unearned compensation; 50,000 shares			(125	)			—
Treasury stock — 1,678,913 shares at Sept. 30, 2009 and Dec. 31, 2008, at cost			(24,114	)			(24,114	)
Total stockholders’ equity			72,599				71,700
Total liabilities and stockholders’ equity		$	891,422			$	1,000,446

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

		Nine months ended								Three months ended
		September 30,								September 30,
		2009				2008				2009				2008
Interest income
Loans		$	30,560			$	38,694			$	9,948			$	12,503
Mortgage-backed securities			1,821				2,038				551				703
Investment securities			660				1,201				110				391
Interest-bearing deposits and other			1,067				1,573				378				510
Total interest income			34,108				43,506				10,987				14,107
Interest expense
Deposits			12,039				17,539				3,619				5,419
Borrowings			4,161				6,355				1,189				2,022
Total interest expense			16,200				23,894				4,808				7,441
Net interest income			17,908				19,612				6,179				6,666
Provision for losses on loans			1,877				3,762				440				590
Net interest income after provision for losses on loans			16,031				15,850				5,739				6,076
Other income
Rent and other			1,274				990				292				310
Loan servicing fees			948				984				316				332
Service charges and other fees on deposits			1,684				1,797				613				618
Gain on sale of loans			980				302				207				127
Increases (decreases) in mortgage servicing rights — net			84				115				(185	)			163
Gain (loss) on sale of fixed assets and investments			156				3				153				—
Income on cash surrender value life			710				746				216				254
Total other income			5,836				4,937				1,612				1,804
General, administrative and other expense
Employee compensation and benefits			9,587				9,990				3,047				3,150
Occupancy and equipment			2,423				2,546				880				827
Data processing			908				820				295				293
Advertising			415				719				118				229
Franchise taxes			803				905				221				285
Postage, supplies and office expenses			1,041				971				354				290
Travel, training and insurance			1,987				639				788				186
Professional services			1,310				1,011				453				323
Transaction processing			661				767				222				262
Real estate owned and other expenses			1,490				800				661				212
Loan expenses			516				979				210				332
Merger expenses			4				465				—				197
Total general, administrative and other expense			21,145				20,612				7,249				6,586
Earnings before federal income taxes			722				175				102				1,294
Total federal income taxes			131				(264	)			(253	)			225
NET EARNINGS		$	591			$	439			$	355			$	1,069
EARNINGS PER SHARE
Basic		$	0.08			$	0.06			$	0.05			$	0.15
Diluted		$	0.08			$	0.06			$	0.05			$	0.15
Dividends declared per share			0.020				0.225				0.000				0.075

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

		Nine months ended								Three months ended
		September 30,								September 30,
		2009				2008				2009				2008
Net earnings		$	591			$	439			$	355			$	1,069
Other comprehensive income, net of tax:
Unrealized holding gains (losses) during the period, net of taxes $154, $(58), $162 and $82 for the respective periods			298				(113	)			314				160
Reclassification adjustment for realized gains included in net in earnings, net of taxes of $0 and $1 for the respective nine month periods and $0 for each of the three month periods ended September 30, 2009 and 2008, respectively			—				2				—				—
Comprehensive income		$	889			$	328			$	669			$	1,229

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30,
(In thousands)

		2009				2008
Cash flows from operating activities:
Net earnings for the period
Adjustments to reconcile net earnings to net cash		$	591			$	439
provided by operating activities:
Amortization of deferred loan origination fees			337				233
Amortization of premiums and discounts on investment and mortgage-backed securities — net			(22	)			63
Amortization of mortgage servicing rights — net			888				370
Depreciation and amortization			1,007				1,020
Stock option expense			228				54
Deferred federal income taxes			1,170				(345	)
Restricted stock / unearned compensation			(75	)			—
Provision for losses on loans			1,877				3,762
Loss on sale of real estate acquired through foreclosure			469				213
(Gain) loss on sale of investments and fixed assets			(156	)			(3	)
Federal Home Loan Bank stock dividends			—				(1,166	)
Net increase in cash surrender value of life insurance			(586	)			(616	)
Gain on sale of loans			(980	)			(302	)
Loans originated for sale in the secondary market			(91,855	)			(36,442	)
Proceeds from sale of loans in the secondary market			92,834				37,085
Increase (decrease) in cash, due to changes in:
Accrued interest receivable			383				677
Prepaid expenses and other assets			4,291				(952	)
Accounts Payable and other liabilities			(5,890	)			(310	)
Federal income taxes:
Current			912				(359	)
Net cash provided by operating activities			5,423				3,421
Cash flows provided by (used in) investing activities:
Purchase of securities designated as available for sale			(24,019	)			(46,175	)
Purchase of securities designated as held to maturity			—				(19,154	)
Purchase of loans			(7,035	)			(249	)
Loan disbursements			(85,314	)			(158,237	)
Principal repayments on loans			154,727				179,362
Principal repayments, maturities on securities			60,150				52,177
Purchase of office premises and equipment			(284	)			(324	)
Proceeds from sale of securities designated as available for sale			—				4,254
Proceeds from sale of office premises and equipment			180				2
Proceeds from surrender of bank owned life insurance			4,460				—
Proceeds from sales of real estate acquired through foreclosure			3,170				3,184
Net cash provided by (used in) investing activities			106,035				14,840
Net cash provided by operating and investing activities (subtotal carried forward)			111,458				18,261

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the nine months ended September 30,
(In thousands)

		2009				2008
Net cash provided by operating and investing activities (subtotal carried forward)		$	111,458			$	18,261
Cash flows provided by financing activities:
Net increase(decrease) in deposits			(53,565	)			38,406
Proceeds from Federal Home Loan Bank advances			44,000				154,687
Repayment of Federal Home Loan Bank advances and other borrowings			(93,953	)			(185,802	)
Dividends paid on common stock			(143	)			(2,684	)
Decrease in advances by borrowers for taxes and insurance			(1,838	)			(1,665	)
Net cash provided by (used in) financing activities			(105,499	)			2,942
Net increase (decrease) in cash and cash equivalents			5,959				21,203
Cash and cash equivalents at beginning of period			52,285				23,004
Cash and cash equivalents at end of period		$	58,244			$	44,207
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings		$	16,343			$	23,656
Income Taxes		$	238			$	250
Dividends declared but unpaid		$	—			$	—
Supplemental disclosure of noncash investing activities:
Recognition of mortgage-servicing rights in accordance with SFAS No. 140		$	973			$	485
Transfer of loans to real estate acquired through foreclosure		$	7,453				5,709

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the nine- and three-month periods ended September 30, 2009 and 2008

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, 2008. 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 nine- and three-month periods ended September 30, 2009, are not necessarily indicative of the results which may be expected for the entire year.

Critical Accounting Policies (continued)

2.		Principles of Consolidation
		The accompanying consolidated financial statements include the accounts of Camco and its two wholly-owned subsidiaries: Advantage Bank (“Advantage” or the “Bank”) and Camco Title Agency, Inc.
3.		Critical Accounting Policies
		“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as disclosures found elsewhere in this quarterly report, are based upon Camco’s consolidated financial statements, which are prepared in accordance with US GAAP. The preparation of these financial statements requires Camco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. 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.
		Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of mortgage servicing rights. Actual results could differ from those estimates.

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 (FAS 114), 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 in specific industries 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 are used to estimate

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

3.

Critical Accounting Policies (continued)

Allowance for Loan Losses (continued)

		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, is applied for valuation purposes. 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 MSR’s.
		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 figures approximate the 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 MSR’s are marked to lower of amortized cost or fair value for the current quarter.

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation.

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 nine months ended September 30, 2009 and 2008:

		For the nine months ended								For the three months ended
		September 30,								September 30,
		2009				2008				2009				2008
		(In thousands, except per share information)
BASIC:
Net Earnings		$	591			$	439			$	355			$	1,069
Weighted average common shares outstanding			7,201				7,156				7,206				7,156
Basic earnings per share		$	0.08			$	0.06			$	0.05			$	0.15
DILUTED:
Net Earnings		$	591			$	439			$	355			$	1,069
Weighted average common shares outstanding			7,201				7,156				7,206				7,156
Dilutive effect of stock options			1				7				—				7
Total common shares and dilutive potential common shares			7,202				7,163				7,206				7,163
Diluted earnings per share		$	0.08			$	0.06			$	0.05			$	0.15

5.

Stock Option Plans

		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 grant is estimated on the date of grant using the modified Black-Scholes options-pricing model. The following table details the fair value and assumptions used to value stock options as of the grant date that were granted in 2009 and 2008:

		2009				2008
Fair value, calculated		$	1.43			$	0.74
Exercise Price		$	2.46			$	9.07
Risk-free interest rate			2.66	%			3.52	%
Expected stock price volatility			61.00	%			15.75	%
Expected dividend yield			1.63	%			6.00	%
Expected Life		10 years				10 years

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2009 and 2008

5.		Stock Option Plans (continued)
		A summary of the status of the Corporation’s stock option plans as of September 30, 2009 and December 31, 2008, and changes during the periods ending on those dates is presented below:

		Nine months ended								Year ended
		September 30,								December 31,
		2009								2008
						Weighted-								Weighted-
						average								average
						exercise								exercise
		Shares				price				Shares				price
Outstanding at beginning of period			260,703			$	14.11				318,238			$	15.10
Granted			80,000				2.46				47,167				9.07
Exercised			—				—				—				—
Expired			—				—				(39,429	)			14.88
Forfeited			(79,282	)			13.99				(65,273	)			14.82
Outstanding at end of period			261,421			$	10.58				260,703			$	14.11
Options exercisable at end of period			235,102			$	10.53				195,717			$	15.01
Weighted-average fair value of options granted during the period						$	1.43							$	0.74

The following information applies to options outstanding at September 30, 2009:

		Options outstanding												Options Exercisable
						Weighted-Average				Weighted-								Weighted-
						Remaining				Average								Average
Range of Exercise		Number				Contractual				Exercise				Number				Exercise
Prices		Outstanding				Life (Years)				Price				Exercisable				Price
$1.89 — $2.50			80,000				9.3				$   2.46				80,000				$   2.46
$8.92 — $9.75			25,263				7.9				9.00				11,588				9.10
$11.36 — $14.16			77,831				6.4				13.18				65,187				13.61
$14.55 — $17.17			78,327				4.5				16.80				78,327				16.43
			261,421				6.0				$ 10.58				235,102				$ 10.53

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2009 and 2008

6.		Fair Value
		SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation.
		The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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

Investment Securities: Fair values for investment securities are based on quoted market prices and dealer quotes.

Loans Held for Sale: Fair value for loans held for sale is the contracted sale price of loans committed for delivery, which is determined on the date of sale commitment.

Loans Receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential real estate, multi-family residential real estate, installment and other. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality.

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

Accrued Interest Receivable and Payable: The carrying value for accrued interest approximates fair value.

Deposits: The fair values of deposits with no stated maturity, such as money market demand deposits, savings and NOW accounts, are deemed to equal the amount payable on demand. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

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

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2009 and 2008

The fair value of repurchase agreements is based on the discounted value of contractual cash flows using rates currently offered for similar maturities.

Advances by Borrowers for Taxes and Insurance: The carrying amount of advances by borrowers for taxes and insurance is deemed to approximate fair value.

Commitments to Extend Credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At September 30, 2009 and December 31, 2008, the fair value of loan commitments was not material.

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

		September 30, 2009								December 31, 2008
		Carrying				Fair				Carrying				Fair
		value				value				value				value
		(In thousands)
Financial assets
Cash and cash equivalents			58,244				58,244			$	52,285			$	52,285
Investment securities available for sale			60,940				60,940				85,352				85,352
Investment securities held to maturity			2,160				2,222				13,406				13,530
Loans held for sale			2,186				2,225				2,185				2,205
Loans receivable			684,426				678,923				756,641				713,447
Federal Home Loan Bank stock			29,888				29,888				29,888				29,888
Accrued interest receivable			4,206				4,206				4,118				4,118
Financial liabilities
Deposits			670,391				647,790			$	723,956			$	733,322
Advances from the Federal Home Loan Bank			122,401				127,894				167,106				175,246
Repurchase agreements			6,479				6,479				11,727				11,727
Subordinated debentures			5,000				5,388				5,000				4,997
Advances by borrowers for taxes and insurance			620				620				2,458				2,458
Accrued interest payable			1,650				1,650				1,801				1,801

SFAS No. 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 describes 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: Level 1 inputs for 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.

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2009 and 2008

6. Fair Value of Financial Instruments (continued)Repurchase Agreements (continued)

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.

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

						Fair Value Measurements at Reporting Date Using
(in thousands)		Sept. 30, 2009				Level 1				Level 2				Level 3
Securities available for sale		$	60,940			$	—			$	60,940			$	—

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

						Fair Value Measurements at Reporting Date Using
(in thousands)		Sept. 30, 2009				Level 1				Level 2				Level 3
Impaired loans		$	31,550			$	—			$	—			$	31,550
Loans held for sale			2,186				—				—				2,186
Mortgage servicing rights			3,813				—				—				3,183
Real estate acquired through foreclosure			8,937				—				—				8,937

Impaired loans are measured and reported at fair value when management believes collection of contractual interest and principal payments is doubtful. Management’s determination of the fair value for these loans represents the estimated net proceeds to be received from the sale of the collateral based on observable market prices and market value provided by independent, licensed or certified appraisers. At September 30, 2009, impaired loans had a carrying amount of $39.0 million, with a valuation allowance of $7.4 million, resulting in an additional provision for loan losses of $1.8 million during the nine months ended September 2009.

Loans held for sale are originated on forward commitment contracts and are reported at the lower of cost or fair value. All loans held for sale at September 30, 2009, are secured by liens on 1-4 family residential properties.

Mortgage servicing rights are recognized as separate assets or liabilities when loans are sold with servicing retained. A pooling methodology to the servicing valuation, in which loans with similar characteristics are “pooled” together, is applied for valuation purposes. 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, interest earned on float, 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 servicing.

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2009 and 2008

6. Fair Value of Financial Instruments (continued)Repurchase Agreements (continued

Fair value for real estate acquired through foreclosure is determined by obtaining recent appraisals on the properties. 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 occurred and are not included in the fair value estimate.

We have included the additional 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:

	•		The percentage of impaired loans on which we relied on third party appraisals that had a date greater than 12 months was approximately 25%. The remaining 75% had appraisals with a date of less than or equal to 12 months.
	•		Based on policy, a loan is typically deemed impaired (nonperforming) once it has gone over 90 days delinquent. Our management of the trouble (d) credit will vary as will the timing of valuations, loan loss provision and chargeoffs 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 90 day period after determination of impairment. When a loan meets the definition of substandard, it is evaluated for impairment. If impaired, the collateral is then evaluated and an appraisal is most typically ordered. Upon receipt of a value, we complete a FAS114 analysis to determine if the impaired loan requires a specific reserve. The time frame may be as short as 30 days or as much as 180 days, when an appraisal is ordered. We have not had any significant time lapses.
	•		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 committees 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 chargeoff that is considered. When a loan is deemed impaired, the valuation is obtained to determine any existing loss that may present as of the valuation date consistent with FAS 114. 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 chargeoff). 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 chargeoff will remain in a nonperforming status until it is brought current. Typically, this occurs when a loan is paid current and completes a payment period necessary to show that the loan can perform. Camco monitors through various system reports any loan whose terms have been modified. These reports identify troubled debt restructures, modification, and renewals.
	•		When circumstances do not allow for updated values or Camco determines that an appraisal is not needed, the underlying collateral’s fair market value is estimated in the following ways:

	•		Camco personnel property inspections combined with original appraisal review
	•		Auditor values
	•		Various on-line fair market value estimations programs (i.e. Freddie Mac, Fannie Mae, Zillow, etc).

For these loans, the above processes are used to substantiate decisions for no specific valuation.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

For the nine- and three-month periods ended September 30, 2009 and 2008

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation (continued)

7. Recent Developments

     The following summarizes key activities of the Company during the quarter and year ended September 30, 2009

	•		The Company’s total assets declined and maturing borrowings were repaid with excess cash;
	•		Total loans declined reflecting a decrease in lending opportunities relating to the economic conditions in our market areas
	•		Additional foreclosed asset valuations resulted in increased operating expenses through additional valuation allowances and maintenance and property tax expense
	•		Additional expenses related to special assessment levied by the Federal Deposit Insurance Corporation (“FDIC”) was paid in September
	•		Interest expense continues to decrease as current rates paid on deposits are lower than in prior periods as management has cautiously priced deposits. Balances of high-cost certificates of deposit and FHLB advances have been lower through the first nine months of fiscal 2009, and most of the advances that have matured during the first nine months of this fiscal year have been repaid with excess liquidity
	•		Net charge-offs totaled $3.6 million for the quarter and $5.1 million for the nine months ended September 30, 2009.
	•		Real estate owned increased $3.1 million during the current nine months, which is reflective of prior identified loans evolving through the collection cycle.

8. Subsequent Event

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events, we have evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.

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

Forward Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements can be identified by the use of forward-looking terminology, such as may, might, could, would, believe, expect, intend, plan, seek, anticipate, estimate, project or continue or the negative thereof or comparable terminology. All statements other than statements of historical fact included in this document regarding our outlook, financial position and results of operation, liquidity, capital resources and interest rate sensitivity are forward-looking statements. The Corporation undertakes no responsibility to update or revise any forward-looking statements. These forward-looking statements also relate to, amount other things:

	•		anticipated changes in industry conditions created by state and federal legislation and regulations;
	•		anticipated changes in general interest rates and the impact of future interest rate changes on our profitability, capital adequacy and the fair value of our financial assets and liabilities;

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Discussion of Financial Condition Changes from December 31, 2008 to September 30, 2009 (continued)

Forward Looking Statements (continued)

	•		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, and undue reliance should not be placed on such statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to:

	•		competition in the industry and markets in which we operate;
	•		levels of non-performing assets;
	•		changes in general interest rates;
	•		loan demand;
	•		rapid changes in technology affecting the financial services industry;
	•		real estate values;
	•		changes in government regulation; and
	•		general economic and business conditions.

Since 2008, our loan quality has been negatively impacted by deteriorating conditions within the commercial real estate market and economy as a whole, which has caused declines in commercial real estate values and deterioration in financial condition of various commercial borrowers. Additionally, increases in delinquent real estate mortgage loans has occurred as a result of deteriorating economic conditions and a decline in the housing market across our geographic footprint that reflected declining home prices and increasing inventories of houses for sale. These conditions have led Camco to downgrade the loan quality ratings on various commercial real estate loans through its normal loan review process. In addition, several impaired loans have become under-collateralized due to reductions in the estimated net realizable fair value of the underlying collateral. As a result, Camco’s provision for loans losses, net charge-offs and nonperforming loans in recent quarters have been higher than historical levels. The additional provisions for loan losses in this period were largely attributed to the aforementioned issues.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Discussion of Financial Condition Changes from December 31, 2008 to September 30, 2009 (continued)

Overview:

Discussion of Financial Condition Changes from December 31, 2008 to September 30, 2009

Camco offers diversified financial products and services through 23 financial service locations in Ohio, West Virginia and Kentucky through its financial unit, Advantage Bank and a subsidiary, Camco Title Agency, Inc. Products and services include traditional banking products, such as deposit accounts and lending products through traditional offices, ATMs and telephone and internet-based banking. Additionally we offer title insurance which is provided Camco Title.

At September 30, 2009, Camco’s consolidated assets totaled $891.4 million, a decrease of $109.0 million, or 10.9% , from December 31, 2008. The decrease in total assets resulted primarily from decreases in loans receivable. We

anticipate total assets to begin stabilizing as our commercial loan department has increased the pipeline and new loans are being generated within our newly established policy standards. Other lending activity continues to be hindered by the economy which is negatively affecting loan demand. The continued decrease in residential lending has affected our profits relating to the sale of fixed rate loans. Continued pay down of loans will likely be used to further reduce outstanding borrowings and brokered deposits.

Cash and interest-bearing deposits in other financial institutions totaled $58.2 million at September 30, 2009, an increase of $6.0 million, or 11.4%, from December 31, 2008. As noted in our annual report for fiscal year 2008, we continue to improve our liquidity position by reducing borrowings and brokered deposits and will continue to utilize excess cash to reduce borrowings and deploy into loans and investment securities in the remainder of 2009. We also have seen a decrease of $53.6 million, or 7.4%, in deposits, primarily in higher yielding certificates of deposits and public funds. We continue to price certificates of deposit specials in a manner that retains “core” customers rather than attracting interest rate sensitive certificate of deposit customers. Additionally, we continue to focus our commercial efforts into core banking relationships by establishing depository accounts with our lending customers.

Securities totaled $63.1 million at September 30, 2009, a decrease of $35.7 million, or 36.1%, from December 31, 2008. The decrease was attributable to principal repayments totaling $60.2 million offset partially by the purchases of $24.0 million of securities and a $448,000 decrease in the fair market value of securities available for sale for the nine-month period ended September 30, 2009. The yield on agencies purchased during the nine month period was 1.49%. No purchases were made in the three months ended September 30, 2009.

Loans receivable net, including loans held for sale, totaled $686.6 million at September 30, 2009, a decrease of $72.2 million, or 9.5%, from December 31, 2008. The decrease resulted primarily from principal repayments of $154.7 million and loan sales of $91.9 million which were partially offset by loan disbursements and purchases totaling $184.2 million. The volume of loans originated and purchased during the nine months of 2009 decreased compared to the same 2008 period by $10.7 million, or 5.5%, while the volume of loan sales increased by $55.1 million, or 149.7%, period to period. The decrease in outstanding loans during the nine months ended September 30, 2009 occurred primarily in our retail residential mortgage loan portfolio. While we have seen slight increases in prepayments on residential mortgage loans, our ability to produce new portfolio residential mortgage loans has been significantly impaired by the housing market, with new and existing home sales declining coupled with customers preference toward fixed rate loans which we have historically sold and serviced.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Discussion of Financial Condition Changes from December 31, 2008 to September 30, 2009 (continued)

Loan originations during the nine-month period ended September 30, 2009, were comprised primarily of $58.5 million in commercial loans, $97.7 million of loans secured by one- to four-family residential real estate and $28.0 million in consumer and other loans. Our intent is to continue to service our communities with their residential needs while also expanding consumer and commercial real estate lending in future periods as a means of increasing the yield on our loan portfolio.

The allowance for loan losses totaled $12.5 million and $15.7 million at September 30, 2009 and December 31, 2008, respectively, representing 23.9% and 29.4% of nonperforming loans, respectively, at those dates. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $51.9 million and $53.5 million at September 30, 2009 and December 31, 2008, respectively, constituting 7.61% and 7.05% of total net loans, including loans held for sale, at those dates. Net charge-offs totaled $5.1 million during the first nine months of 2009.

The following table details nonperforming and delinquent loans at September 30, 2009 and December 31, 2008:

		September 30, 2009												December 31, 2008
		(In thousands)
						90+ days												90+ days
		30 - 89 days				delinquent,								30 - 89 days				delinquent,
		delinquent				accruing				Nonaccrual				delinquent				accruing				Nonaccrual
Residential		$	5,074			$	—			$	20,328			$	6,419			$	44			$	17,203
Multifamily			1,126				—				2,874				30				—				3,139
Non Residential			2,291				375				13,351				306								18,057
Construction and development			637				—				6,945				253				—				8,603
Commercial			757				—				1,534				453				—				1,434
HELOC and second mortgage			1,598				—				6,750				2,434				—				4,962
Consumer and other			169				—				80				89				—				86
Total		$	11,652			$	375			$	51,862			$	9,984			$	44			$	53,484

Although we believe that the allowance for loan losses at September 30, 2009, is adequate to cover probable, incurred losses inherent in the loan portfolio at that date based upon the available facts and circumstances, there can be no assurance that additions to the allowance for loan losses will not be necessary in future periods, which could adversely affect our results of operations. Unemployment rates in our markets and Ohio in general, are higher than the national average, and bankruptcy and foreclosure filings in Ohio are very high compared to the rest of the nation. Additionally, Ohio is experiencing declining values of residential real estate. However, Ohio in general has not experienced significant increases in home values over the past five years like many regions in the U.S., which should comparatively mitigate losses on loans. Nonetheless, these factors, compounded by a very uncertain national economic outlook, may increase the level of future losses beyond our current expectations.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Discussion of Financial Condition Changes from December 31, 2008 to September 30, 2009 (continued)

The following table presents changes in Camco’s allowance for loan losses:

		Three Months Ended								Nine Months Ended
(In Thousands)		Sept 30, 2009				June 30, 2009				Sept 30, 2009				Sept 30, 2008
Average Loans			675,016				692,546				697,737				786,669
Allowance for Loan Losses:
Beginning Balance			15,466				15,860				15,747				6,623
Charge-Offs:
Commercial, Financial and Agricultural			903				135				1,079				814
Real Estate — Construction			323				10				333				—
Real Estate — Residential			1,719				1,680				3,940				2,309
Real Estate — Commercial			637				—				637				354
Consumer			6				1				16				16
Total Charge — Offs			3,588				1,826				6,005				3,493
Recoveries:
Commercial, Financial and Agricultural			1				—				1				51
Real Estate — Construction			0				—				—				1
Real Estate — Residential			186				636				873				233
Real Estate — Commercial			0				—				2				243
Consumer			1				6				10				45
Total Recoveries			188				642				886				573
Net Charge — Offs			3,400				1,184				5,119				2,920
Provision for Loan Losses			439				790				1,877				3,762
Allowance for loan losses, end of period			12,505				15,466				12,505				7,465
Ratio of net charge offs to average loans:			2.01	%			0.68	%			0.98	%			0.49	%

At September 30, 2009, the Company’s real estate owned (REO) consisted of 119 repossessed properties with a net book value of $8.9 million. Initial loss is recorded as a charge to the allowance for loan losses within 90 days of being transferred to REO. Thereafter, if there is a further deterioration in value, a specific valuation allowance is established and charged to operations. The Company reflects costs to carry REO as period costs in operations when incurred. When property is acquired through foreclosure or deed in lieu of foreclosure, it is initially recorded at the fair value of the related assets at the date of foreclosure, less estimated costs to sell the property.

The Company works with borrowers to avoid foreclosure if possible. Furthermore, if it becomes inevitable that a borrower will not be able to retain ownership of their property, the Company often seeks a deed in lieu of foreclosure in order to gain control of the property earlier in the recovery process. As a result, real estate owned grew $3.1 million during the nine months of 2009. The strategy of pursuing deeds in lieu of foreclosure more aggressively should result in a reduction in the holding period for nonperforming assets and ultimately reduce economic losses.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Comparison of Results of Operations for the Nine Months Ended September 30, 2009 and 2008 (continued)

Deposits totaled $670.4 million at September 30, 2008, a decrease of $53.6 million, or 7.4%, from the total at December 31, 2008. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at September 30, 2009, and December 31, 2008:

		September 30, 2009								December 31, 2008								Change
		Balance				Rate				Balance				Rate				Balance				Rate
Noninterest-bearing demand		$	33,310				0.00	%		$	37,526				0.00	%			(4,216	)			0.00	%
Interest-bearing demand			73,614				0.62				87,199				0.91				(13,585	)			(0.29	)
Money market			100,254				0.68				112,749				1.35				(12,495	)			(0.67	)
Savings			37,432				0.25				33,838				0.26				3,594				(0.01	)
Certificates of deposit — retail			382,633				2.88				413,134				3.75				(30,501	)			(0.87	)
Certificates of deposit — brokered			43,148				3.32				39,510				4.23				3,638				(0.91	)
Total deposits		$	670,391				2.04	%		$	723,956				2.71	%			(53,565	)			(0.67	)%

In early 2009, brokered deposits were used to reduce borrowings and improve the Bank’s liquidity position. However, we acknowledge that brokered deposits are not core, franchise-enhancing deposits, and we plan to continue with our current strategy of improving the long-term funding mix of the Bank’s deposit portfolio by aggregating small business, commercial and retail checking accounts. We continue to allow brokered deposits to mature and have not purchased deposits in the third quarter of 2009. We have implemented a number of organizational and product development initiatives designed to increase commercial and small business checking accounts and have added some new certificates of deposit to maintain our “core” customers.

Competitive markets and our conservative pricing strategy have shrunk our higher cost certificates of deposits. Money market accounts have also decreased primarily due to our aggressive rate reduction during 2009 as customers continue to look for better rates. This strategy has helped maintain our margin, and we believe that if we are able to maintain most of the certificates of deposit maturing in the remainder of 2009 the continuing decrease of rates will help to slightly reduce our cost of funds during the latter portion of the year, based on our current expectation for interest rates.

Federal Home Loan Bank (FHLB) advances and other borrowings totaled $133.9 million at September 30, 2009, a decrease of $50.0 million, or 27.2%, from the total at December 31, 2008. The decrease in borrowings was primarily due to the decrease in loans receivable and our investment portfolios. See “Liquidity and Capital Resources” for further discussion on our borrowings position.

Stockholders’ equity totaled $72.6 million at September 30, 2009, an increase of $898,000, or 1.3%, from December 31, 2008. The majority of the increase resulted from net earnings of $591,000, coupled with entries relating to FAS 123R stock options and increased value of unrealized gains which were offset partially by dividends of $143,000.

Comparison of Results of Operations for the Nine Months Ended September 30, 2009 and 2008

Camco’s net earnings for the nine months ended September 30, 2009, totaled $591,000, an increase of $152,000, or 34.6%, from the $439,000 of net earnings reported in the comparable 2008 period. Earnings per share totaled $0.08 and $0.06 in 2009 and 2008, respectively. The increase in earnings was primarily attributable to a decrease in the provision for losses on loans of $1.9 million and an increase in other income of $899,000. These were partially offset by a decrease in net interest income of $1.7 million and an increase of $533,000 in general administrative and other expenses.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Comparison of Results of Operations for the Nine Months Ended September 30, 2009 and 2008 (continued)

Interest Income

Net interest income amounted to $17.9 million for the nine months ended September 30, 2009, a decrease of $1.7 million, or 8.7%, compared to the nine-month period ended September 30, 2008, generally reflecting the effects of a $85.4 million decrease in the average balance of interest earning assets. Net interest margin increased to 2.82% in the nine months ended September 30, 2009 compared to 2.81% for the comparable period in 2008.

Margin pressure continues to be a challenge due to the continued decline in yield on assets which normally occurs at a faster rate than cost of funds coupled with our volume of non performing loans. At the same time, the loan portfolio has not grown to offset the tighter spreads. But our management continues to work diligently on our classified and non performing assets to better position the portfolio. Portfolio lending had slowed in the first half of 2009 but we have begun to see additional lending possibilities arise in the commercial area and continue to work in our communities with real estate brokers and community contacts to strengthen our residential lending efforts.

Camco Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2009 and 2008

Comparison of Results of Operations for the Nine Months Ended September 30, 2009 and 2008 (continued)

AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA

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.

		2009												2008
		Average				Interest				Average				Average				Interest				Average
Nine Months Ended September 30,		outstanding				earned				yield/				outstanding				earned /				yield/
(Dollars in thousands)		balance				/ paid				rate				balance				paid				rate
Interest-earning assets:
Loans receivable (1)			676,494				30,560				6.02	%		$	776,096				38,694				6.65	%
Securities			82,405				2,481				4.01	%			96,543				3,239				4.25	%
FHLB stock			29,888				1,042				4.65	%			29,182				1,166				5.33	%
Other Interest-bearing accts			57,301				25				0.06	%			29,619				407				1.83	%
Total interest-earning assets			846,088				34,108				5.38	%			931,440				43,506				6.23	%
Noninterest-earning assets (2)			106,790												96,659
Total average assets		$	952,878											$	1,028,099
Interest-bearing liabilities:
Deposits			641,929				12,039				2.50	%			686,086				17,539				3.41	%
FHLB advances and other			157,968				4,161				3.51	%			196,817				6,355				4.31	%
Total interest-bearing liabilities			799,897				16,200				2.70	%			882,903				23,894				3.61	%
Noninterest-bearing deposits			37,183												37,707
Noninterest-bearing liabilities			43,681												20,688
Total average liabilities			880,761												941,298
Total average shareholders’ equity			72,117												86,801
Total liabilities and shareholders’ equity		$	952,878											$	1,028,099
Net interest income/Interest rate spread						$	17,908				2.67	%						$	19,612				2.62	%
Net interest margin (3)											2.82	%											2.81	%
Average interest-earning assets to average interest-bearing liabilities											105.8	%											105.5	%