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

For the quarterly period ended September 30, 2010

OR

o		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)

(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 Corporation. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting Corporation” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting Corporation þ

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

As of November 5, 2010, the latest practicable date, 7,205,595 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			8
Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Quantitative and Qualitative Disclosures about Market Risk			38
Controls and Procedures			40
PART II — OTHER INFORMATION			40
SIGNATURES			44
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

		September 30,				December 31,
		2010				2009
		(unaudited)
ASSETS
Cash and due from banks		$	12,500			$	20,490
Interest-bearing deposits in other financial institutions			22,828				17,663
Cash and cash equivalents			35,328				38,153
Securities available for sale, at fair value			35,588				55,950
Securities held to maturity, at cost, approximate fair value of $3,667 and $2,200 as of September 30, 2010 and December 31, 2009, respectively			3,486				2,113
Loans held for sale — at lower of cost or fair value			12,143				475
Loans receivable — net			676,533				659,022
Office premises and equipment — net			10,224				10,870
Real estate acquired through foreclosure			10,556				9,660
Federal Home Loan Bank stock — at cost			29,888				29,888
Accrued interest receivable			3,745				3,979
Mortgage servicing rights — at lower of cost or fair value			3,812				4,433
Prepaid expenses and other assets			4,879				5,712
Cash surrender value of life insurance			19,207				18,838
Refundable federal income taxes			3,861				3,562
Total assets		$	849,250			$	842,655
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits		$	647,937			$	659,902
Advances from the Federal Home Loan Bank and other borrowings			143,665				109,232
Advances by borrowers for taxes and insurance			1,279				1,909
Accounts payable and accrued liabilities			11,157				11,098
Total liabilities			804,038				782,141
Commitments			—				—
Stockholders’ equity:
Preferred stock — $1 par value; authorized 100,000 shares; no shares outstanding			—				—
Common stock — $1 par value; authorized 14,887,500 shares; 8,884,509 shares issued at September 30, 2010 and December 31, 2009			8,885				8,885
Additional paid-in capital			60,262				60,124
Retained earnings (accumulated deficit)			(873	)			14,695
Accumulated other comprehensive income net of related tax effects			1,146				1,049
Unearned compensation; 50,000 shares			(94	)			(125	)
Treasury stock — 1,678,913 shares at Sept. 30, 2010 and Dec. 31, 2009, at cost			(24,114	)			(24,114	)
Total stockholders’ equity			45,212				60,514
Total liabilities and stockholders’ equity		$	849,250			$	842,655

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

		Nine months ended								Three months ended
		September 30,								September 30,
(unaudited)		2010				2009				2010				2009
Interest income
Loans		$	28,074			$	30,560			$	9,513			$	9,948
Mortgage-backed securities			1,291				1,821				388				551
Investment securities			224				660				54				110
Interest-bearing deposits and other			1,010				1,067				337				378
Total interest income			30,599				34,108				10,292				10,987
Interest expense
Deposits			8,259				12,039				2,570				3,619
Borrowings			2,961				4,161				972				1,189
Total interest expense			11,220				16,200				3,542				4,808
Net interest income			19,379				17,908				6,750				6,179
Provision for losses on loans			17,524				1,877				11,407				440
Net interest income after provision for losses on loans			1,855				16,031				(4,657	)			5,739
Other income
Rent and other			1,234				1,274				497				292
Loan servicing fees			952				948				315				316
Service charges and other fees on deposits			1,719				1,684				603				613
Gain on sale of loans			822				980				332				207
Increases (decreases) in mortgage servicing rights — net			(622	)			84				(528	)			(185	)
Gain (loss) on sale of fixed assets and investments			1				156				2				153
Income on cash surrender value life			656				710				221				216
Total other income			4,762				5,836				1,442				1,612
General, administrative and other expense
Employee compensation and benefits			10,121				9,587				3,467				3,047
Occupancy and equipment			2,219				2,423				734				880
Federal deposit insurance premium			1,574				1,771				538				710
Data processing			842				908				276				295
Advertising			275				415				105				118
Franchise taxes			814				803				280				221
Postage, supplies and office expenses			829				1,041				262				354
Travel, training and insurance			282				216				106				78
Professional services			1,776				1,310				605				453
Transaction processing			572				661				194				222
Real estate owned and other expenses			1,653				1,494				822				661
Loan expenses			771				516				422				210
Total general, administrative and other expense			21,728				21,145				7,811				7,249
Earnings (loss) before federal income taxes (benefit)			(15,111	)			722				(11,026	)			102
Total federal income taxes (benefit)			457				131				572				(253	)
NET EARNINGS (LOSS)		$	(15,568	)		$	591			$	(11,598	)		$	355
EARNINGS (LOSS) PER SHARE
Basic		$	(2.16	)		$	0.08			$	(1.61	)		$	0.05
Diluted		$	(2.16	)		$	0.08			$	(1.61	)		$	0.05
Dividends declared per share			0.000				0.020				0.000				0.000

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

		Nine months ended								Three months ended
		September 30,								September 30,
(unaudited)		2010				2009				2010				2009
Net earnings (loss)		$	(15,568	)		$	591			$	(11,598	)		$	355
Other comprehensive income, net of tax:
Unrealized holding gains (losses) during the period, net of taxes $50, $154, $(49) and $162 for the respective periods			97				298				(96	)			314
Comprehensive income (loss)		$	(15,471	)		$	889			$	(11,502	)		$	669

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

		2010				2009
		(unaudited)
Cash flows from operating activities:
Net earnings (loss) for the period		$	(15,568	)		$	591
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Amortization of deferred loan origination fees			78				337
Amortization of premiums and discounts on investment and mortgage-backed securities — net			9				(22	)
Amortization of mortgage servicing rights — net			1,828				888
Depreciation and amortization			920				1,007
Provision for losses on loans			17,524				1,877
Stock option expense			138				228
Provision for losses on REO			617				458
(Gain) Loss on sale of real estate acquired through foreclosure			(2	)			11
Restricted stock / unearned compensation			31				(75	)
(Gain) loss on sale of investments and fixed assets			1				(156	)
Gain on sale of loans			(822	)			(980	)
Loans originated for sale in the secondary market			(60,326	)			(91,855	)
Proceeds from sale of loans in the secondary market			49,480				92,834
Net increase in cash surrender value of life insurance			(529	)			(586	)
Increase (decrease) in cash, due to changes in:
Accrued interest receivable			234				383
Prepaid expenses and other assets			483				5,461
Accounts payable and other liabilities			59				(4,978	)
Net cash provided by (used in) operating activities			(5,845	)			5,423
Cash flows provided by (used in) investing activities:
Principal repayments, maturities on securities held to maturity			246				11,287
Principal repayments, maturities on securities available for sale			20,505				48,863
Purchase of securities designated as available for sale			—				(24,019	)
Purchase of securities designated as held to maturity			(1,623	)			—
Loan disbursements and purchased loans			(134,825	)			(92,349	)
Principal repayments on loans			94,537				154,727
Purchase of office premises and equipment			(295	)			(284	)
Proceeds from sale of office premises and equipment			20				180
Proceeds from surrender of bank owned life insurance			160				4,460
Proceeds from sales of real estate acquired through foreclosure			2,457				3,170
Net cash provided by (used in) investing activities			(18,818	)			106,035
Net cash provided by (used in) operating and investing activities (subtotal carried forward)			(24,663	)			111,458

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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

		2010				2009
		(unaudited)
Net cash provided by (used in) operating and investing activities (subtotal carried forward)		$	(24,663	)		$	111,458
Cash flows provided by financing activities:
Net (decrease) in deposits			(11,965	)			(53,565	)
Proceeds from Federal Home Loan Bank advances and other borrowings			145,185				44,000
Repayment of Federal Home Loan Bank advances and other borrowings			(110,752	)			(93,953	)
Dividends paid on common stock			—				(143	)
Decrease in advances by borrowers for taxes and insurance			(630	)			(1,838	)
Net cash provided by (used in) financing activities			21,838				(105,499	)
Net increase (decrease) in cash and cash equivalents			(2,825	)			5,959
Cash and cash equivalents at beginning of period			38,153				52,285
Cash and cash equivalents at end of period		$	35,328			$	58,244
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings		$	11,955			$	16,343
Income Taxes		$	—			$	238
Supplemental disclosure of noncash investing activities:
Recognition of mortgage-servicing rights		$	585			$	973
Transfer of loans to real estate acquired through foreclosure		$	3,968				7,453

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the nine- and three-month periods ended September 30, 2010 and 2009

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, 2009. 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, 2010, 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 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, the valuation of mortgage servicing rights and the valuation of deferred tax assets. 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, 2) the allowance for classified loans not otherwise subject to individual analysis and 3) the allowance for non-classified loans (primarily homogenous).

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2010 and 2009

Critical Accounting Policies (continued)

Allowance for Loan Losses (continued)

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 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, 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.

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2010 and 2009

3.

Critical Accounting Policies (continued)

Mortgage Servicing Rights (continued)

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.

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 or credit 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.

Reclassifications

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

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2010 and 2009

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, 2010 and 2009:

		For the nine months ended								For the three months ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In thousands, except per share information)
BASIC:
Net Earnings (Loss)		$	(15,568	)		$	591			$	(11,598	)		$	355
Weighted average common shares outstanding			7,206				7,201				7,206				7,206
Basic earnings (loss) per share		$	(2.16	)		$	0.08			$	(1.61	)		$	0.05
DILUTED:
Net Earnings (Loss)		$	(15,568	)		$	591			$	(11,598	)		$	355
Weighted average common shares outstanding			7,206				7,201				7,206				7,206
Dilutive effect of stock options			—				1				—				—
Total common shares and dilutive potential common shares			7,206				7,202				7,206				7,206
Diluted earnings (loss) per share		$	(2.16	)		$	0.08			$	(1.61	)		$	0.05

Anti-dilutive options to purchase 467,054 and 256,421 shares of common stock with respective weighted-average exercise prices of $13.95 and $10.75 were outstanding at September 30, 2010 and 2009, respectively, but were excluded from the computation of common share equivalents for the nine months ended because the exercise prices were greater than average market price of the common shares.

Anti-dilutive options to purchase 467,054 and 286,421 shares of common stock with respective weighted-average exercise prices of $5.87 and $9.63 were outstanding at September 30, 2010 and 2009, respectively, but were excluded from the computation of common share equivalents for the three months ended because the exercise prices were greater than average market price of the common shares

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2010 and 2009

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 2010 and 2009:

		2010				2009
Fair value, calculated		$	1.65			$	1.43
Exercise Price		$	2.51			$	2.46
Risk-free interest rate			3.61	%			2.66	%
Expected stock price volatility			51.62	%			61.00	%
Expected dividend yield			—				1.63	%
Expected Life		10 years				10 years

A summary of the status of the Corporation’s stock option plans as of September 30, 2010 and December 31, 2009, and changes during the periods ending on those dates is presented below:

		Nine months ended								Year ended
		September 30,								December 31,
		2010								2009
						Weighted-								Weighted-
						average								average
						exercise								exercise
		Shares				price				Shares				price
Outstanding at beginning of period			260,833			$	10.59				260,703			$	14.11
Granted			260,729				2.51				80,000				2.46
Exercised			—				—				—				—
Forfeited or Expired			(54,508	)			12.72				(79,870	)			13.96
Outstanding at end of period			467,054				5.83				260,833			$	10.59
Options exercisable at end of period			257,037				8.23				235,451			$	10.54
Weighted-average fair value of options granted during the period							1.65							$	1.43

The following information applies to options outstanding at September 30, 2010:

		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 - $2.51			331,191				9.1			$	2.50				132,125			$	2.48
$8.92 - $9.75			21,514				7.3				8.92				12,894				8.92
$11.36 - $14.16			58,474				5.0				13.40				56,143				13.43
$14.55 - $17.17			55,875				3.6				16.45				55,875				16.45
			467,054				7.9				5.83				257,037			$	8.23

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2010 and 2009

6.

Fair Value

The Corporation’s 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.

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.

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2010 and 2009

6.

Fair Value (continued)

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.

Subordinated debentures: The fair value of subordinated debentures 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, 2010 and December 31, 2009, 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, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		value				value				value				value
		(In thousands)
Financial assets
Cash and cash equivalents		$	35,328			$	35,328			$	38,153			$	38,153
Investment securities available for sale			35,588				35,588				55,950				55,950
Investment securities held to maturity			3,486				3,667				2,113				2,200
Loans held for sale			12,143				12,423				475				485
Loans receivable			676,533				669,414				659,022				646,990
Federal Home Loan Bank stock			29,888				29,888				29,888				29,888
Accrued interest receivable			3,745				3,745				3,979				3,979
Financial liabilities
Deposits			647,937				641,941				659,902				647,149
Advances from the Federal Home Loan Bank			133,028				138,811				97,291				101,924
Repurchase agreements			5,637				5,637				6,941				6,941
Subordinated debentures			5,000				4,820				5,000				4,768
Advances by borrowers for taxes and insurance			1,279				1,279				1,909				1,909
Accrued interest payable			1,646				1,646				1,669				1,669

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2010 and 2009

6.

Fair Value (continued)

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: 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.

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:

		September 30,				Fair Value Measurements at Reporting Date Using
(in thousands)		2010				Level 1				Level 2				Level 3
Securities available for sale:
U.S. government sponsored enterprises		$	6,160			$	—			$	6,160			$	—
Corporate equity securities			95				52				43				—
Mortgage-backed securities			32,819				—				32,819				—

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

						Fair Value Measurements at Reporting Date Using
																		Change in fair
		Sept. 30,																value for the
(in thousands)		2010				Level 1				Level 2				Level 3				period ended
Impaired loans		$	19,989			$	—			$	—			$	19,989			$	10,700
Real estate acquired through foreclosure			10,556				—				—				10,556				460

						Fair Value Measurements at Reporting Date Using
																		Change in fair
		December 31,																value for the
(in thousands)		2009				Level 1				Level 2				Level 3				period ended
Impaired loans		$	25,982				—				—			$	25,982			$	13,081
Real estate acquired through foreclosure			9,660				—				—				9,660				945

Camco Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine and three-month periods ended September 30, 2010 and 2009

6.

Fair Value (continued)

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, 2010, impaired loans had a carrying amount of $20.0 million, with a valuation allowance of $725,000. During the nine months ended September 2010, a provision for loan losses of $10.7 million was recorded for impaired loans.

Fair value for real estate acquired through foreclosure is determined by obtaining recent appraisals or other valuations on the properties. The fair value under such valuations 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.

7.

Recent Accounting Pronouncements

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Loan Losses

In July 2010, FASB issued new guidance regarding the disclosures associated with credit quality and the allowance for loan losses. This standard requires additional disclosures related to the allowance for loan losses with the objective of providing financial statement users with greater transparency about an entity’s loan loss reserves and overall credit quality. Additional disclosures include showing on a disaggregated basis the aging of receivables, credit quality indicators, and troubled debt restructures with its effect on the allowance for loan losses. For public entities, the disclosures as of the end of a reporting period are effective for the first interim or annual reporting period ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for the first interim or annual reporting period beginning on or after December 15, 2010. The Corporation has evaluated the impact of the adoption of this standard and determined that it will not have a material impact on the Corporation’s financial position and results of operations. It, however, will increase the amount of disclosures in the notes to the consolidated financial statements.

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, 2010 and 2009

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. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. 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. Factors that might cause such a difference include, but are not limited to:

•

continued deterioration in the credit quality of the loan portfolio could occur due to a number of factors, such as adverse changes in economic conditions that impair the ability of borrowers to repay their loans, the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse than expected, which may adversely impact the provision for loan losses;

•

changes in prepayment speeds, loan originations, sale volumes and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated;

•

changes in accounting standards, policies, estimates or procedures may adversely affect reported financial condition or results of operations;

•

delayed or incomplete resolution of regulatory issues that could arise;

•

ability to receive dividends from its subsidiaries;

•

ability to maintain required capital levels and adequate sources of funding and liquidity;

•

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, capital resources and projections of earnings.

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, 2010 and 2009

Discussion of Financial Condition Changes from December 31, 2009 to September 30, 2010 (continued)

Forward Looking Statements (continued)

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.

Overview:

Management’s Discussion and Analysis 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 in the 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 subsidiaries, Advantage Bank and Camco Title Agency.

The deterioration in the economic conditions of the country that began in 2008 and continue today has created challenges for the Corporation, including the following:

•

Volatile equity markets that declined significantly

•

Stress on the banking industry with significant financial assistance to many financial institutions, extensive regulatory and congressional scrutiny and regulatory requirements

•

Low interest rate environment particularly given the government involvement in the financial markets, and

•

Continued high levels of unemployment nationally and in our local markets

The above factors resulted in the continued movement of loans to nonperforming status during the first nine months of 2010. In addition, many of these loans are collateral dependent real estate loans that the Bank is required to write down to fair value less estimated costs to sell, with the fair values determined primarily based on third party appraisals. During 2009 and continuing into 2010, appraised values have decreased significantly even in comparison to appraisals received within the past 12 months. As a result, the Bank’s evaluation of the loan portfolio and allowance for loan losses as of September 30, 2010 resulted in net charge-offs of $16.8 million and the need to record a provision for loan losses of $17.5 million.

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, 2010 and 2009

Discussion of Financial Condition Changes from December 31, 2009 to September 30, 2010 (continued)

Overview (continued)

We continue to deal with the economic challenges in our markets, through our loan charge-offs and provision for loan losses as we recognize the results of these current economic conditions and issues related to higher than normal unemployment. The real estate market continues to create a very challenging environment as bankruptcies, foreclosures and unemployment continues to be high in Ohio. Charged off loans during the nine month period ended September 30, 2010 were primarily due to borrowers experiencing continued financial difficulties as well as the write-down of collateral-dependent loans to current collateral values.

We believe that we are taking steps forward in managing our classified assets. We have devoted and will continue to devote substantial management resources toward the resolution of all delinquent and non-performing assets, but no assurance can be made that management’s efforts will be successful.

We have found that “core” deposit growth continues to be challenging but have continued to work with commercial borrowers to build banking relationships. The extended low rate environment and increased competition for deposits continues to put pressure on marginal funding costs, despite continued lower rates in 2010. During 2010, deposits decreased 1.8%, primarily due to our decrease in public funds and brokered deposits.

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, 2010 and 2009

Discussion of Financial Condition Changes from December 31, 2009 to September 30, 2010

At September 30, 2010, Camco’s consolidated assets totaled $849.3 million, an increase of $6.6 million, or .8%, from December 31, 2009. The increase in total assets resulted primarily from increases in loans receivable offset partially by decreases in securities available for sale.

Cash and interest-bearing deposits in other financial institutions totaled $35.3 million at September 30, 2010, a decrease of $2.8 million, or 7.4%, from December 31, 2009. Securities totaled $39.1 million at September 30, 2010, a decrease of $19.0 million, or 32.7%, from December 31, 2009. The decrease was attributable to principal repayments totaling $20.8 million offset partially by the purchases of $1.6 million of securities and a $148,000 decrease in the fair market value of securities available for sale for the nine-month period ended September 30, 2010. The yield on agencies purchased during the nine month period was 4.26%. The current lack of investment options and low rate environment have affected purchases. As a result, cash from repayments are currently being deployed into loans and paying down borrowings when possible.

Loans receivable net, including loans held for sale, totaled $688.7 million at September 30, 2010, an increase of $29.2 million, or 4.4%, from December 31, 2009. The increase resulted primarily from loan disbursements and purchases totaling $195.2 million offset partially by principal repayments of $94.5 million, loan sales of $48.7 million, provision of $17.5 million and transfers to real estate owned of $4.0 million. The volume of loans originated and purchased during the first nine months of 2010 increased compared to the same 2009 period by $10.9 million, or 5.9%, while the volume of loan sales decreased by $43.2 million, or 47.0%, period to period. The total loan portfolio mix has changed with a greater percentage representing commercial loans. While we have seen slight increases in prepayments on residential mortgage loans, we continue to produce new portfolio residential mortgage loans related to the low rate environment with customer’s preference toward fixed rate loans which we have historically sold and serviced.

Loan originations during the nine-month period ended September 30, 2010, were comprised primarily of $101.0 million in commercial loans, $75.6 million of loans secured by one- to four-family residential real estate and $18.5 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 $16.9 million and $16.1 million at September 30, 2010 and December 31, 2009, respectively, representing 49.6% and 44.2% of nonperforming loans, respectively, at those dates. Nonperforming loans (90 days or more delinquent plus nonaccrual loans) totaled $34.0 million and $36.4 million at September 30, 2010 and December 31, 2009, respectively, constituting 4.82% and 5.40% of total net loans, including loans held for sale, at those dates. Net charge-offs totaled $16.8 million during the nine months of 2010.

Deposits have decreased $12.0 million, or 1.8%, primarily in higher yielding brokered deposits and public funds. We continue to price certificate 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.

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, 2010 and 2009

Discussion of Financial Condition Changes from December 31, 2009 to September 30, 2010 (continued)

The third quarter results were significantly affected by sizeable loan charge offs that were taken which created a need to replenish the allowance for loan and lease losses through a provision of $16.9 million. Due to continued delinquencies, bankruptcies and stress on the economy, the Credit Administration unit ordered appraisals on several larger commercial credits that resulted in partial and full write downs based on impairment and collateral dependency. Additionally, we have continued to quantify and analyze our loan loss allowance by segmenting our portfolio into smaller groupings based on origination dates, collateral codes, loss history and trending of such portfolios. We believe that this will refine the Bank’s process for calculating the allowance based on comprehensive and consistently applied analysis of the loan portfolio.

The softening of the real estate market through 2009 and 2010 has and continues to adversely affect earnings as real estate lending (including commercial, land development, and residential) is a large portion of the Bank’s loan portfolio. These categories are generally affected by changes in economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers and changes in taxes. A downturn in the real estate markets in which the Corporation originates, purchases and services mortgage and other loans could continue to hurt our business because these loans are secured by real estate. Further declines in the values of such properties may adversely affect the Corporation’s future earnings.

The following table details 30 — 89 days delinquent loans at:

		September				December 31,
		30, 2010				2009
		30 - 89 days				30 - 89 days
		delinquent				delinquent
Residential		$	4,599			$	4,818
Multifamily			77				79
Non Residential			—				2,693
Construction / development			—				534
Commercial			737				92
HELOC and second mortgage			1,838				2,020
Consumer and other			70				77
Total		$	7,321			$	10,313

The decrease in delinquiencies is reflective of the substantial management resources devoted toward the resolution of all delinquent and non-performing assets. Although this is a positive trend there are no assurances that management’s efforts will be able to continue the trend with the same degree of effectiveness.

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, 2010 and 2009

Discussion of Financial Condition Changes from December 31, 2009 to September 30, 2010 (continued)

Although we believe that the allowance for loan losses at September 30, 2010, 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 residential real estate values.

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

		Sept 30,				December 31,
		2010				2009
		(Dollars in thousands)
Balance at beginning of year		$	16,099			$	15,747
Charge-offs:
1-4 family residential real estate (1)			6,731				8,267
Multifamily & nonresidential real estate			5,100				9,664
Other Construction and Land			2,614				2,484
Consumer			20				20
Commercial			3,410				2,052
Agriculture Loans			—				41
Overdraft Protection			7				18
Total charge-offs			17,882				22,546
Recoveries:
1-4 family residential real estate (1)			411				445
Multifamily & nonresidential real estate			258				621
Other Construction and Land			225				—
Commercial			204				22
Agriculture Loans			8				—
Consumer and Overdraft Protection			8				18
Total recoveries			1,114				1,106
Net (charge-offs) recoveries			16,768				21,440
Provision for losses on loans			17,524				21,792
Balance at end of period		$	16,855			$	16,099

At September 30, 2010, the Corporation’s real estate owned (REO) consisted of 152 repossessed properties with a net book value of $10.6 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 Corporation 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 lower of cost or 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. If it becomes inevitable that a borrower will not be able to retain ownership of their property, the Corporation 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 $896,000 during the nine months of 2010. The strategy of pursuing deeds in lieu of foreclosure 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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009 (continued)

Deposits totaled $647.9 million at September 30, 2010, a decrease of $12.0 million, or 1.8%, from the total at December 31, 2009. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at September 30, 2010, and December 31, 2009:

		September 30, 2010								December 31, 2009								Change
		Balance				Rate				Balance				Rate				Balance				Rate
Noninterest-bearing demand		$	43,236				0.00	%		$	38,911				0.00	%		$	4,325				0.00	%
Interest-bearing demand			63,845				0.33				70,564				0.43				(6,719	)			(0.10	)
Money market			93,854				0.67				96,172				0.68				(2,318	)			(0.01	)
Savings			38,634				0.25				36,638				0.25				1,997				0.00
Certificates of deposit — retail			393,342				2.07				385,622				2.70				7,720				(0.63	)
Certificates of deposit — brokered			15,026				3.71				31,995				3.19				(16,970	)			0.52
Total deposits		$	647,937				1.49	%		$	659,902				1.89	%		$	(11,965	)			(0.40	)%

In 2009, brokered deposits were used to reduce borrowings and improve the Bank’s liquidity position. However, we have discontinued utilizing brokered deposits as we know they 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 “core” small business, commercial and retail checking accounts. We have continued to allow brokered deposits to mature since February of 2010 and have not re-issued such deposits. 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. We have also begun accepting deposits through Qwick Rate which we use to generate additional certificates of deposits at or below our advertised rates.

Money market and interest-bearing demand accounts have also decreased primarily due to our rate reduction during 2010 as customers continue to look for better rates. The historically low interest rate environment coupled with our strategy to hold our core customers has helped us maintain our margin throughout 2010. Renewal of many of the certificates of deposit maturing in the remainder of 2010 may continue to slightly reduce our cost of funds, based on our current low rate environment and expectation for interest rates.

Federal Home Loan Bank (FHLB) advances and other borrowings totaled $143.7 million at September 30, 2010, an increase of $34.4 million, or 31.5%, from the total at December 31, 2009. The increase in borrowings was primarily due to the increases in loans receivable and loans held for sale. Loans for sale increased $11.7 million which will be funded in the near future and help reduce overnight borrowings as funding occurs. See “Liquidity and Capital Resources” for further discussion on our borrowings position.

Stockholders’ equity totaled $45.2 million at September 30, 2010, a decrease of $15.3 million, or 25.3%, from December 31, 2009.

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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009

Camco’s net loss for the nine months ended September 30, 2010, totaled $15.6 million, a decrease of $16.2 million, from the $591,000 of net earnings reported in the comparable 2009 period. The decrease in earnings was primarily attributable to an increase in the provision for losses on loans of $15.6 million, a $622.000 impairment in mortgage servicing rights and a $583,000 increase of expenses relating to higher loan production, operating expenses associated with real estate owned and legal expenses relating to the resolution of problem assets. The increases were offset partially by an increase in net interest income of $1.5 million.

Interest Income

Net interest income amounted to $19.4 million for the nine months ended September 30, 2010, an increase of $1.5 million, or 8.2%, compared to the nine-month period ended September 30, 2009, generally reflecting the effects of a $62.1 million decrease in the average balance of interest bearing liabilities and a 67 basis point decrease in cost of funds. Net interest margin increased to 3.41% in the nine months ended September 30, 2010 compared to 2.82% for the comparable period in 2009.

Margin pressure continues to be a challenge due to the yield on assets declining at a faster rate than the cost of funds. At the same time, the loan portfolio has not grown to offset the tighter spreads. We continue to work diligently on our classified and non performing assets to better position the portfolio and increase our interest income. Portfolio lending has slowed, 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. Additionally, due to the historically low interest rate environment we have been able to decrease our yield on cost of funds to absorb the tightening of assets and improve our margin.

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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009 (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.

		2010												2009
		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)		$	656,746				28,074				5.70	%		$	676,494				30,560				6.02	%
Securities			47,052				1,515				4.29	%			82,405				2,481				4.01	%
FHLB stock			29,888				1,006				4.49	%			29,888				1,042				4.65	%
Other Interest-bearing accts			24,694				4				0.02	%			57,301				25				0.06	%
Total interest-earning assets			758,380				30,599				5.38	%			846,088				34,108				5.38	%
Noninterest-earning assets (2)			92,463												106,790
Total average assets		$	850,843											$	952,878
Interest-bearing liabilities:
Deposits			610,673				8,259				1.80	%			641,929				12,039				2.50	%
FHLB advances and other			127,141				2,961				3.11	%			157,968				4,161				3.51	%
Total interest-bearing liabilities			737,814				11,220				2.03	%			799,897				16,200				2.70	%
Noninterest-bearing deposits			41,845												37,183
Noninterest-bearing liabilities			13,125												43,681
Total average liabilities			792,784												880,761
Total average shareholders’ equity			58,059												72,117
Total liabilities and shareholders’ equity		$	850,843											$	952,878
Net interest income/Interest rate spread						$	19,379				3.35	%						$	17,908				2.67	%
Net interest margin (3)											3.41	%											2.82	%
Average interest-earning assets to average interest-bearing liabilities											102.8	%											105.8	%

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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009 (continued)

Interest income on loans totaled $28.1 million for the nine months ended September 30, 2010, a decrease of $2.5 million or 8.1% from the comparable 2009 period. The decrease resulted primarily from a 32 basis point decrease in the average yield to 5.70% from 6.02% in 2009, coupled with a decrease in the average balance outstanding of $19.7 million or 2.9% from the 2009 period. The decrease is yield is due to several factors including the repricing of our adjustable rate loans at the current historical low interest rates. This and current tightening of spreads are key drivers for the decrease in the yield on loans in 2010. Further declines in the interest rate environment may continue to negatively affect the yield on loans.

Interest income on securities totaled $1.5 million for the nine months ended September 30, 2010, a decrease of $966,000, or 38.9%, from the same period of 2009. The decrease was due primarily to a $35.4 million, or 42.9%, decrease in the average balance outstanding in the nine months of 2010 from the same period of 2009, offset partially by a 28 basis point increase in the average yield period to period.

Dividend income on FHLB stock decreased by $36,000, or 3.5%, due primarily to a 16 basis point decrease in the average yield, to 4.49% in 2010. Interest income on other interest-bearing accounts decreased $21,000, or 84.0% primarily due to a 4 basis point decrease in the average yield, to .02%. This decrease was due to higher balances needed to compensate for charges at correspondent banks leaving less balance for interest calculation coupled with decreased rates.

Interest Expense

Interest expense on deposits totaled $8.3 million for the nine months ended September 30, 2010, a decrease of $3.8 million or 31.4% compared to the same period in 2009, due primarily to a 70 basis point decrease in the average cost of deposits to 1.80% in the current period coupled with a $31.3 million or 4.9% decrease in average deposits outstanding. Management expects the cost of deposits to begin stabilizing, as rates are extremely low and competition for deposits may limit management’s ability to reduce the cost of deposits proportionately to falling loan yields.

Interest expense on borrowings totaled $3.0 million for the nine months ended September 30, 2010, a decrease of $1.2 million or 28.8% from the same 2009 nine-month period. The decrease resulted primarily from a $30.8 million or 19.5% decrease in the average balance outstanding year to year, coupled with a 40 basis point decrease in the average cost of borrowings to 3.11%.

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. Key drivers of the provision are changes in commercial real estate values on existing impaired loans and the level of impaired loans. The higher allocation in recent quarters primarily reflects the impact of distressed commercial real estate values and general economic conditions on specific reserves for impaired loans, while the elevated level of charge-offs in recent periods resulted in higher loss factors for graded loans. The allowance allocated to the real estate and consumer loan categories is based upon Camco’s allowance methodology for homogeneous pools of loans. The methodology takes into consideration the housing price depreciation that we have experienced over the past 12 months and the loss of equity that homeowners are experiencing in our geographic areas. The fluctuations and changes in these allocations are consistent with

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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009 (continued)

Provision for Losses on Loans (continued)

the changes in loan quality, loss experience and economic factors in each of the loan categories. Nonperforming loans (three payments or more delinquent plus nonaccrual loans) totaled $34.0 million at September 30, 2010, a slight increase from $32.8 million from December 31, 2009. Additionally, net charge offs totaled $16.8 million at September 30, 2010 compared to $5.1 million, at September 30, 2009.

Based upon an analysis of these factors and the continued uncertain economic outlook, we recorded $17.5 million to the provision for losses on loans for the nine months ended September 30, 2010, compared to $1.9 million for the same period in 2009. We believe our loans are adequately reserved for probable, incurred losses inherent in our loan portfolio at September 30, 2010. However, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known classified assets or that the allowance will be adequate to cover losses in the future, understanding that all lending activity contains associated risks of loan losses. In addition, the historical loss factors, mix and composition of both portfolio loans and nonperforming loans change from period to period. As of September 30, 2010, the ratio of allowance for loan losses to nonperforming loans increased from the prior year and our allowance also increased, representing 2.43% of total net loans versus 2.38% at December 31, 2009.

Other Income

Other income totaled $4.8 million for the nine months ended September 30, 2010, a decrease of $1.1 million, or 18.4%, from the comparable 2009 period. The decrease in other income was primarily attributable to a $706,000, or 840.5%, decrease in the value of our mortgage servicing rights coupled with a $158,000 decrease in gain on sale of loans.

The decrease in mortgage servicing rights was due to increased volatility in the market, which in turn increased the prepayment speeds utilized to value the portfolio. At September 30, 2010, we serviced $476.6 million in one-to-four family residential mortgage loans for others, primarily Freddie Mac and Fannie Mae, which declined from $497.4 million at December 31, 2009. The decrease in gain on sale of loans was due to decreased loan sales of $43.2 million from the comparable period in 2009.

General, Administrative and Other Expense

General, administrative and other expense totaled $21.7 million for the nine months ended September 30, 2010, an increase of $583,000, or 2.8%, from 2009. The increase in general, administrative included an increases of employee compensation and benefits, real estate owned and other expenses and professional services. These increases were partially offset by decreases in occupancy & equipment and postage, supplies and office expenses.

Employee compensation and benefits increased primarily due to incentives related to increased commercial originations coupled with increased incentive accruals and salary continuation costs.

The increase in real estate owned and other expenses is reflective of falling real estate values that negatively impacted our portfolio value and caused a write down to fair market value coupled with additional properties taken into real estate owned due to foreclosures in 2010. Additionally, as noted earlier home values in Ohio have continued to decline from previous levels. These factors compounded by an uncertain economic outlook and increasing unemployment may result in continued expenses going into 2011.

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, 2010 and 2009

Comparison of Results of Operations for the Nine Months Ended September 30, 2010 and 2009

The increase in professional services relates to legal expenses incurred relating to classified commercial assets and the costs of foreclosure process and safeguarding of assets.

The decrease in occupancy and equipment was due to decreased depreciation and repairs. The decreases in postage, supplies and office expenses relates to 2009 including additional incurred expenses related to the termination of a merger and additional re-advertising of our branches and brand and re-ordering of pre-printed materials and supplies to regular inventory levels.

Federal Income Taxes

Federal income taxes totaled $457,000 for the nine months ended September 30, 2010; an increase of $326,000, compared to the nine months ended September 30, 2009. This increase reflects a 100% valuation allowance on the Corporation’s deferred tax asset. As the Corporation executes plans to return to profitability future earnings will benefit from operating loss carry-forwards.

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making such judgments, significant weight is given to evidence that can be objectively verified. As a result of the increased credit losses, the consequence to the Bank resulted in a carry-forward loss position as of December 31, 2009. A cumulative loss position is considered significant negative evidence in assessing the realization of a deferred tax asset, which is difficult to overcome. Reversal of the valuation allowance can be realized in future tax returns based on estimates of projected taxable income.

Asset Quality

Loan quality has been impacted by the sluggish economic recovery within our market areas which has caused declines in the underlying value of collateral both in commercial and residential real estate and deterioration in the financial condition of some of our borrowers. These factors have made it difficult to sustain a steady reduction in classified assets and non performing loans. The majority of the third quarter provision is driven by recent appraisal information on less than ten large collateral-dependent commercial credits and the write down of properties brought in through foreclosure.

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, 2010 and 2009

Comparison of Results of Operations for the Three Months Ended September 30, 2010 and 2009

Asset Quality (continued)

A summary of certain key factors follows:

(in thousands)		9/30/2010				6/30/2010				12/31/2009
Criticized Loans *			63,716				71,554				71,673
Non Performing Loans			34,009				42,643				36,449
Delinquent 60+ days			28,017				34,407				32,296
Loan Loss Reserve **			16,855				15,676				16,099
Loan Loss Reserve / Total Loans **			2.39	%			2.26	%			2.38	%