Edgar Filing: CAMCO FINANCIAL CORP

e10vq

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, 2011


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		(I.R.S. Employer Identification Number)
incorporation or organization)

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 þ 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 company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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 10, 2011, 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

Item 1. Consolidated Statements of Financial Condition		3

Consolidated Statements of Earnings		4

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Cash Flows		6

Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3. Quantitative and Qualitative Disclosures about Market Risk		37

Item 4. Controls and Procedures		37

PART II — OTHER INFORMATION		38

SIGNATURES		40

EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT


Item 1.		Financial Statements

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)


	September 30,			December 31,
	2011			2010
	(unaudited)
ASSETS

Cash and due from banks	$	14,764		$	13,143
Interest-bearing deposits in other financial institutions		54,943			15,971

Cash and cash equivalents		69,707			29,114
Securities available for sale, at market		10,996			30,768
Securities held to maturity, at cost		3,493			3,948
Loans held for sale — at lower of cost or fair value		10,445			2,208
Loans receivable — net		636,388			667,840
Office premises and equipment — net		8,786			9,928
Real estate acquired through foreclosure		12,592			10,096
Federal Home Loan Bank stock — at cost		9,888			29,888
Accrued interest receivable		3,030			3,521
Mortgage servicing rights — at lower of cost or market		3,628			3,841
Prepaid expenses and other assets		4,935			4,426
Cash surrender value of life insurance		19,718			19,388


Total assets	$	793,606		$	814,966


LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	624,327		$	651,816
Other Borrowings		10,672			11,530
Advances from the Federal Home Loan Bank		101,186			92,934
Advances by borrowers for taxes and insurance		1,393			2,413
Accounts payable and accrued liabilities		9,724			10,170


Total liabilities		747,302			768,863

Commitments		—			—

Stockholders’ equity:
Preferred stock — $1 par value; authorized 100,000 shares; no shares outstanding		—			—
Common stock — $1 par value; authorized 29,900,000 shares; 8,884,508 shares issued at September 30, 2011 and December 31, 2010		8,885			8,885
Unearned compensation		(39	)		(94	)
Additional paid-in capital		60,494			60,260
Retained earnings		1,088			136
Accumulated other comprehensive income (loss) net of related tax effects		(10	)		1,030
Treasury stock 1,678,913 shares at September 30, 2011 and December 31, 2010, at cost		(24,114	)		(24,114	)

Total stockholders’ equity		46,304			46,103


Total liabilities and stockholders’ equity	$	793,606		$	814,966

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)


	Nine months ended						Three months ended
	September 30,						September 30,
(unaudited)	2011			2010			2011			2010
Interest and dividend income
Loans	$	26,455		$	28,074		$	8,715		$	9,513
Mortgage-backed securities		359			1,291			19			388
Investment securities		152			224			53			54
Other interest-earning accounts		602			1,010			99			337

Total interest and dividend income		27,568			30,599			8,886			10,292
Interest Expense
Deposits		5,841			8,259			1,734			2,570
Borrowings		2,215			2,961			686			972

Total interest expense		8,056			11,220			2,420			3,542

Net interest income		19,512			19,379			6,466			6,750
Provision for losses on loans		1,438			17,524			228			11,407


Net interest income (loss) after provision for losses on loans		18,074			1,855			6,238			(4,657	)

Other income
Late charges, rent and other		901			1,234			336			497
Loan servicing fees		905			952			300			315
Service charges and other fees on deposits		1,580			1,719			548			603
Gain on sale of loans		129			822			129			332
Mortgage servicing rights — net		(213	)		(622	)		(352	)		(528	)
Gain (loss) on sale of fixed assets		15			1			11			2
Gain (loss) on sale of investments		1,267			—			(9	)		—
Income on cash surrender value of life insurance		659			656			222			221

Total other income		5,243			4,762			1,185			1,442

General, administrative and other expenses
Employee compensation and benefits		9,565			10,121			3,034			3,467
Occupancy and equipment		2,219			2,219			767			734
Federal deposit insurance premiums and other insurance		1,541			1,673			444			538
Data processing		834			842			273			276
Advertising		277			275			95			105
Franchise taxes		514			814			166			280
Postage, supplies and office expenses		709			829			238			262
Travel and training		185			183			65			106
Professional services		1,093			1,075			391			292
Deposit and transaction processing expenses		559			572			191			194
Real estate owned and other expenses		3,020			1,653			1,365			822
Loan expenses		1,307			1,472			226			735

Total general, administrative and other expense		21,823			21,728			7,255			7,811


Earnings (loss) before federal income taxes		1,494			(15,111	)		168			(11,026	)

Federal income taxes (benefit)		542			457			5			572


NET EARNINGS (LOSS)	$	952		$	(15,568	)	$	163		$	(11,598	)


EARNINGS (LOSS) PER SHARE
Basic	$	0.13		$	(2.16	)	$	0.02		$	(1.61	)

Diluted	$	0.13		$	(2.16	)	$	0.02		$	(1.61	)

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)


	Nine months ended						Three months ended
	September 30,						September 30,
(unaudited)	2011			2010			2011			2010

Net earnings (loss)	$	952			(15,568	)	$	163		$	(11,598	)

Other comprehensive income, net of tax:
Unrealized holding gains on securities during the period, net of tax effects of $(105) and $50, $2 and $(49) for the respective periods		(1,040	)		97			3			96

Reclassification adjustment for realized gains included in net earnings, net of taxes of $(431) and $0, $3 and $0 for the respective periods		1,267			—			(9	)		—


Comprehensive income (loss)	$	1,179			(15,471	)	$	157		$	(11,502	)

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

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


	2011			2010
	(unaudited)
Cash flows from operating activities:
Net earnings (loss) for the period	$	952		$	(15,568	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Amortization of deferred loan origination fees		(256	)		78
Amortization of premiums and discounts on investment and mortgage-backed securities — net		(56	)		9
Amortization of mortgage servicing rights — net		879			1,828
Depreciation and amortization		922			920
Provision for losses on loans		1,438			17,524
Stock option expense		234			138
Provisions for losses on REO		627			617
(Gain) loss on sale of real estate acquired through foreclosure		423			(2	)
Restricted stock / unearned compensation		55			31
Gain on sale of investments		(1,267	)		—
Gain on sale of loans		(129	)		(822	)
(Gain) loss on sale of assets		(14	)		1
Loans originated for sale in the secondary market		(51,557	)		(60,326	)
Proceeds from sale of loans in the secondary market		43,449			49,480
Net increase in cash surrender value of life insurance		(529	)		(529	)
Increase (decrease) in cash due to changes in:
Accrued interest receivable		491			234
Prepaid expenses and other assets		(509	)		483
Accrued interest and other liabilities		(446	)		59

Net cash (used in) operating activities		(5,293	)		(5,845	)


Cash flows provided by (used in) investing activities:
Principal repayments, maturities on securities held to maturity		452			246
Principal repayments, maturities on securities available for sale		7,602			20,505
Purchases of investment securities designated as available for sale		(15,395	)		—
Purchases of investment securities designated as held to maturity		—			(1,623	)
Proceeds from sale of investments		27,205			—
Redemption of FHLB Stock		20,000			—
Loan principal repayments		153,194			94,537
Loan disbursements and purchased loans		(132,695	)		(134,825	)
Proceeds from sale of office premises and equipment		1,081			20
Proceeds from surrender of life insurance		199			160
Additions to office premises and equipment		(847	)		(295	)
Proceeds from sale of real estate acquired through foreclosure		6,205			2,457
Net cash provided by (used in) investing activities		67,001			(18,818	)


Net cash provided by (used in) operating and investing activities balance carried forward		61,708			(24,663	)

Camco Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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


	2011			2010

Net cash provided by (used in) operating and investing activities (balance brought forward)	$	61,708		$	(24,663	)


Cash flows used in financing activities:
Net decrease in deposits		(27,489	)		(11,965	)
Proceeds from Federal Home Loan Bank advances and other borrowings		149,659			145,185
Repayment of Federal Home Loan Bank advances and other borrowings		(142,265	)		(110,752	)
Decrease in advances by borrowers for taxes and insurance		(1,020	)		(630	)

Net cash provided by (used in) financing activities		(21,115	)		21,838


Increase (decrease) in cash and cash equivalents		40,593			(2,825	)

Cash and cash equivalents at beginning of period		29,114			38,153


Cash and cash equivalents at end of period	$	69,707		$	35,328


Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings	$	8,074		$	11,955
Income taxes paid		475			—
Recognition of mortgage-servicing rights		453			585
Transfers from loans to real estate acquired through foreclosure		9,751			3,968

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, 2010. 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, 2011, are not necessarily indicative of the results which may be expected for the entire year.

Principles of Consolidation

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

On March 31, 2011, Camco Financial Corporation dissolved Camco Title Agency, Inc. and sold certain of its assets to a third party. The balance sheet and results of operations of Camco Title are not material to the Corporation’s consolidated financial statements. For the three months ended March 31, 2011, Camco Title’s operations resulted in net income of $15,000.

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, federal income taxes, the valuation of deferred tax assets and other real estate. Actual results could differ from those estimates.

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

Allowance for Loan Losses

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

Each quarter, management analyzes the adequacy of the allowance for loan losses based on review of the loans in the portfolio along with an analysis of external factors (including current economy, unemployment rates, housing price depreciation, 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 specific allowance for modified loans related to troubled debt restructuring, 3) the allowance for classified loans not otherwise subject to individual analysis and 4) the allowance for non-classified loans (primarily homogenous).

Classified loans with indication or acknowledgment of deterioration are subject to individual analysis. Loan classifications are those used by regulators consisting of Special Mention, Substandard, Doubtful and Loss. In evaluating these loans for impairment, the measure of expected loss is based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Additionally, modifications and troubled debt restructures (“TDR”) are classified when a borrower has financial difficulties and the bank grants concessions it would not ordinarily make, such as reducing either the interest rate or the principal amount owned, reducing payments or lengthening amortization. Once a loan has been classified as TDR it continues in this classification until it is paid in full or until such time as its terms are substantially equivalent to terms on new loans with comparable risks. TDR’s are considered impaired and if needed a specific reserve is calculated. The specific reserve is calculated on the present value of cash flow method or based on 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 collateral codes. Loss rate factors are developed for each collateral code which is used to estimate losses and determine an allowance. The loss factors for each code incorporate historical delinquency, classification, and charge-off rates and adjusted for economic factors and an estimated loss scenario. While the Corporation strives to reflect all known risk factors in its evaluations, these evaluations are by their nature imprecise and based in part on factors beyond the Bank’s control.

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 collateral codes 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, these evaluations are by their nature imprecise and based in part on factors beyond the Bank’s control.

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 MSRs.

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

Federal 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 the carry forward 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.

Income tax returns are subject to audit by the IRS. Income tax expense for current and prior periods is subject to adjustment based upon the outcome of such audits. During 2011, the IRS began an examination of the Corporation’s tax returns for the year ended December 31, 2009. Accrual of income taxes payable and valuation allowances against deferred tax assets are estimates subject to change based upon the outcome of future events.

Other Real Estate

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

Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares issuable under outstanding stock options. The computations were as follows for the period ended September 30, 2011:


	For the nine months					For the three months
	ended September 30,					ended September 30,
	2011		2010			2011		2010
	(In thousands)
BASIC:
Net Earnings (Loss)	$	952	$	(15,568	)	$	163	$	(11,598	)

Weighted average common shares outstanding		7,206		7,206			7,206		7,206


Basic earnings (loss) per share	$	0.13	$	(2.16	)	$	0.02	$	(1.61	)


DILUTED:
Net Earnings (Loss)	$	952	$	(15,568	)	$	163	$	(11,598	)

Weighted average common shares outstanding		7,206		7,206			7,206		7,206
Dilutive effect of stock options		—		—			—		—

Total common shares and dilutive potential common shares		7,206		7,206			7,206		7,206
Diluted earnings (loss) per share	$	0.13	$	(2.16	)	$	0.02	$	(1.61	)

Anti-dilutive options to purchase 599,078 and 467,054 shares of common stock with respective weighted-average exercise prices of $4.85 and $13.95 were outstanding at September 30, 2011 and 2010, respectively, but were excluded from the computation of common share equivalents for each of the nine months ended, because the exercise prices were greater than the average market price of the common shares.

Anti-dilutive options to purchase 599,078 and 467,054 shares of common stock with respective weighted-average exercise prices of $4.85 and $5.87 were outstanding at September 30, 2011 and 2010, respectively, but were excluded from the computation of common share equivalents for each of the three month periods, because the exercise prices were greater than the average market price of the common shares.

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 during the nine months ended September 30, 2011 and 2010:


	2011			2010

Fair value, calculated	$	1.49		$	1.65
Exercise Price	$	2.14		$	2.51
Risk-free interest rate		3.58	%		3.61	%
Expected stock price volatility		57.30	%		51.62	%
Expected dividend yield		—			—
Expected Life	10 years			10 years

A summary of the status of the Corporation’s stock option plans as of September 30, 2011 and December 31, 2010, and changes during the periods ending on those dates is presented below:


	Nine Months ended					Year ended
	September 30, 2011					December 31, 2010
				Weighted-					Weighted-
				average					average
				exercise					exercise
	Shares			price		Shares			price
Outstanding at beginning of period		463,642		$	5.84		260,833		$	10.59
Granted		161,538			2.14		260,729			2.51
Exercised		—			—		—
Forfeited		(23,102	)		5.78		(57,920	)		12.21
Expired		(3,000	)		—		—			—

Outstanding at end of period		599,078			4.85		463,642		$	5.84


Options exercisable at period end		329,203			6.82		257,037		$	8.24

Weighted-average fair value of options granted during the period				$	1.49				$	1.65

The following information applies to options outstanding at September 30, 2011:


	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
$1.90 – $2.51		472,822		8.6	$	2.39		206,813	$	2.44
$8.92		19,260		6.3		8.92		15,394		8.92
$11.36 – $14.16		52,121		4.1		13.46		52,121		13.46
$16.13 – $17.17		54,875		2.6		16.45		54,875		16.45

		599,078		7.6	$	4.85		329,203	$	6.82

Fair Value

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

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 value for investment securities is based on quoted market prices and dealer quotes. When quoted market prices are not available, fair value is estimated using prices for similar assets or other observable inputs.

Loans Held for Sale: Fair value for loans held for sale is the contracted sales 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 have been analyzed by management and assigned estimated maturities and cash flows which are then discounted to derive a value. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

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 smaller 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.

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


	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	value		value		value		value
	(In thousands)
Financial assets
Cash and cash equivalents	$	69,707	$	69,707	$	29,114	$	29,114
Investment securities available for sale		10,996		10,996		30,768		30,768
Investment securities held to maturity		3,493		3.547		3,948		3,993
Loans held for sale		10,445		10,635		2,208		2,254
Loans receivable		636,388		637,212		667,840		643,646
Federal Home Loan Bank stock		9,888		9,888		29,888		29,888
Accrued interest receivable		3,030		3,030		3,521		3,521

Financial liabilities
Deposits	$	624,327	$	617,378	$	651,816	$	642,893
Advances from the Federal Home Loan Bank		101,186		106,010		92,934		97,711
Repurchase agreements		5,672		5,672		6,530		6,530
Subordinated debentures		5,000		4,906		5,000		4,839
Advances by borrowers for taxes and insurance		1,393		1,393		2,413		2,413
Accrued interest payable		1,627		1,627		1,646		1,646

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:


			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance		Level 1		Level 2		Level 3
September 30, 2011
Securities available for sale:
U.S. government sponsored enterprises	$	9,312	$	—	$	9,312	$	—
Corporate equity securities		51		—		8		43
Mortgage-backed securities		1,633		—		1,633		—
December 31, 2010
Securities available for sale:
U.S. government sponsored enterprises	$	2,065	$	—	$	2,065	$	—
Corporate equity securities		98		—		55		43
Mortgage-backed securities		28,605		—		28,605		—

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


			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance		Level 1		Level 2		Level 3
September 30, 2011

Impaired loans	$	23,695		—		—	$	23,695
Real estate acquired through foreclosure		12,592		—		—		12,592

December 31, 2010
Impaired loans	$	20,518		—		—	$	20,518
Real estate acquired through foreclosure		10,096		—		—		10,096

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.

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

Allowance for Loan Losses

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

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

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

Loan balances and change in the allowance for loan losses as of September 30, 2011 are summarized as follows:


																Commercial &			Commercial
							Multi-			Land, Farm						Non-			and
(in thousands)	Construction			Consumer			Family			& Ag Loans			Residential			Residential			Industrial			Total

Allowance for credit losses:
Beginning balance December 31, 2010	$	166		$	246		$	2,860		$	849		$	8,050		$	3,638		$	1,061		$	16,870
Charge-offs		—			(60	)		(85	)		(107	)		(2,000	)		(1,066	)		(48	)		(3,366	)
Recoveries		—			3			156			210			488			118			98			1,073
Provision (1)		(145	)		(80	)		(132	)		(248	)		1,530			1,081			(568	)		1,438

Ending balance September 30, 2011	$	21		$	109		$	2,799		$	704		$	8,068		$	3,771		$	543		$	16,015

Ending balance
Individually evaluated for impairment	$	—		$	—		$	868		$	194		$	1,045		$	1,301		$	—			3,408

Collectively evaluated for impairment	$	21		$	109		$	1,931		$	510		$	7,023		$	2,470		$	543		$	12,607

Portfolio balances:
Collectively evaluated for impairment	$	34,381		$	3,545		$	70,278		$	14,799		$	316,986		$	150,153		$	38,566		$	628,708
Individually evaluated for impairment
With no related allowance		—			—			100			—			396			902			624			2,022
With related allowance		—			—			5,236			1,216			9,059			5,857			305			21,673

Ending balance	$	34,381		$	3,545		$	75,614		$	16,015		$	326,441		$	156,912		$	39,495		$	652,403


(1)		Reclassifications of portfolio balance between Commercial and Industrial and Commercial & Non-Residential created a portion of the change in provision for the current period.

Change in the allowance for loan losses for the year ended December 31, 2010 and loan balances as of December 31, 2010 are summarized as follows:


																Commercial &			Commercial
							Multi-			Land, Farm						Non-			and
(in thousands)	Construction			Consumer			Family			& Ag Loans			Residential			Residential			Industrial			Total

Allowance for credit losses:
Beginning balance January 1, 2010	$	338		$	98		$	731		$	628		$	10,519		$	3,148		$	637		$	16,099
Charge-offs		(482	)		(28	)		(1,535	)		(2,283	)		(7,530	)		(3,688	)		(3,399	)		(18,945	)
Recoveries		39			9			103			247			490			157			211			1,256
Provision		271			167			3,561			2,257			4,571			4,021			3,612			18,460

Ending balance December 31, 2010	$	166		$	246		$	2,860		$	849		$	8,050		$	3,638		$	1,061		$	16,870

Ending balance
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	256		$	1,171		$	170		$	1,597

Collectively evaluated for impairment	$	166		$	246		$	2,860		$	849		$	7,794		$	2,467		$	891		$	15,273

Portfolio balances:
Collectively evaluated for impairment	$	26,530		$	3,828		$	71,162		$	10,905		$	369,755		$	155,326		$	27,607		$	665,113
Individually evaluated for impairment
With no related allowance		—			—			3,180			1,549			3,122			4,122			706			12,679
With related allowance		—			—			—			—			2,706			4,503			630			7,839

Ending balance	$	26,530		$	3,828		$	74,342		$	12,454		$	375,583		$	163,951		$	28,943		$	685,631

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

The following table details non-accrual loans at September 30, 2011 and December 31, 2010:


	Non-Accrual		Non-Accrual
(in thousands)	September 30, 2011		December 31, 2010
Construction	$	20	$	1,791
Land, Farmland, Ag Loans		375		—
Residential		21,884		21,498
Commercial		2,703		7,717
Consumer		119		39
Commercial and industrial		169		706
Multi Family		442		2,028

Total	$	25,712	$	33,779

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


			Loans 60
			- 89 or										Accruing
	Loans 30-59		More		Loans 90+								Loans 90
	Days Past		Days Past		Days Past		Total Past				Total		Days Past
September 30, 2011	Due		Due		Due		Due		Current		Loans		Due
(in thousands)
Construction	$	—	$	—	$	—	$	—	$	34,381	$	34,381	$	—
Land, Farmland, Ag Loans		105		—		161		266		15,749		16,015		—
Residential / prime		634		260		4,801		5,695		242,942		248,637		—
Residential / subprime		4,355		1,961		9,377		15,693		62,111		77,804		—
Commercial		—		—		1,510		1,510		155,402		156,912		—
Consumer		17		1		18		36		3,509		3,545
Commercial and industrial		—		69		45		114		39,381		39,495		—
Multi Family		—		—		680		680		74,934		75,614		238

Total	$	5,111	$	2,291	$	16,592	$	23,994	$	628,409	$	652,403	$	238


			Loans 60 -
			89 or										Accruing
	Loans 30-		More		Loans 90+								Loans 90
	59 Days		Days Past		Days Past		Total Past				Total		Days Past
December 31, 2010	Past Due		Due		Due		Due		Current		Loans		Due
(in thousands)
Construction	$	75	$	—	$	1,057	$	1,132	$	25,398	$	26,530	$	—
Land, Farmland, Ag Loans		—		—		—		—		12,454		12,454		—
Residential / prime		624		343		5,366		6,333		280,266		286,599		—
Residential / subprime		5,077		1,451		11,119		17,647		71,337		88,984		—
Commercial		—		2,766		3,301		6,067		157,884		163,951		—
Consumer		36		3		18		57		3,771		3,828
Commercial and industrial		85		—		706		791		28,152		28,943		—
Multi Family		85		—		1,685		1,770		72,572		74,342		—

Total	$	5,982	$	4,563	$	23,252	$	33,797	$	651,834	$	685,631	$	—

Although we believe that the allowance for loan losses at September 30, 2011 is adequate to cover losses inherent in the loan portfolio at that date based upon the available facts and circumstances, there can be no assurance that additions to the allowance for loan losses will not be necessary in future periods, which could adversely affect our results of operations. Unemployment rates in our markets and Ohio in general, are close to the National average, but we are still experiencing some decline in values of residential real estate. 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 continue to increase the level of future losses beyond our current expectations.

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

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

•

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

•

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

•

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

•

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

•

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

•

Camco’s personnel property inspections combined with original appraisal review

•

Broker price opinions

•

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

Impaired loans are set forth in the following table:


			Unpaid				Average		Interest
September 30, 2011	Recorded		Principal		Related		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Construction	$	0	$	0	$	0	$	0	$	0
Land, Farmland, Ag Loans		0		0		0		0		0
Residential		396		613		0		402		3
Commercial		902		1,427		0		919		38
Consumer		0		0		0		0		0
Commercial and industrial		624		662		0		669		29
Multi Family		100		416		0		167		0

Total	$	2,022	$	3,118	$	0	$	2,157	$	70


With a related specific allowance recorded:
Construction	$	0	$	0	$	0	$	0	$	0
Land, Farmland, Ag Loans		1,216		1,216		194		1,258		53
Residential		9,059		9,825		1,045		9,446		289
Commercial		5,857		5,857		1,300		5,905		219
Consumer		0		0		0		0		0
Commercial and industrial		305		305		1		318		13
Multi Family		5,236		5,925		868		5,267		209

Total	$	21,673	$	23,128	$	3,408	$	22,194	$	783


			Unpaid				Average		Interest
December 31, 2010	Recorded		Principal		Related		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Construction	$	1,549	$	5,558	$	—	$	3,389	$	—
Land, Farmland, Ag Loans		—		—		—		—		—
Residential		3,122		4,854		—		3,866		19
Commercial		4,122		8,239		—		5,765		6
Consumer		—		—		—		—		—
Commercial and industrial		706		1,208		—		1,035		11
Multi Family		3,180		5,166		—		3,786		3

Total	$	12,679	$	25,025	$	—	$	17,841	$	39


With a related specific allowance recorded:
Construction	$	—	$	—	$	—	$	—	$	—
Land, Farmland, Ag Loans		—		—		—		—		—
Residential		2,706		3,306		256		3,078		—
Commercial		4,503		4,521		1,171		4,589		131
Consumer		—		—		—		—		—
Commercial and industrial		630		630		170		383		—
Multi Family		—		—		—		—		—

Total	$	7,839	$	8,457	$	1,597	$	8,050	$	131

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

•

Uncriticized Assets (Grade 1-3)

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

•

Watch (Grade 4)

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

•

Special Mention Assets (Grade 5)

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

•

Substandard Assets (Grade 6)

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

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

•

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

•

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

•

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

•

Collateral has deteriorated.

•

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

•

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

•

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

•

Doubtful Assets (Grade 7)

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

•

Loss Assets (Grade 8)

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

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

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


	(Dollars in Thousands)
					Special
September 30, 2011	Pass		Watch		Mention		Substandard		Total (1)
Construction	$	27,298	$	7,063	$	—	$	20	$	34,381
Land, Farmland, Ag Loans		14,058		178		297		1,482		16,015
Commercial		118,613		19,321		3,093		15,885		156,912
Commercial and industrial		33,452		5,388		116		539		39,495
Multi Family*		52,200		16,792		2,126		4,496		75,614

Total	$	245,621	$	48,742	$	5,632	$	22,422	$	322,417


					Special
December 31, 2010	Pass		Watch		Mention		Substandard		Total
Construction	$	12,743	$	10,514	$	329	$	2,944	$	26,530
Land, Farmland, Ag Loans		11,822		632		—		—		12,454
Commercial		124,478		11,982		6,158		21,333		163,951
Commercial and industrial		22,488		4,416		165		1,874		28,943
Multi Family (2)		66,074		1,861		3,227		3,180		74,342

Total	$	237,605	$	29,405	$	9,879	$	29,331	$	306,220

Homogeneous loans are monitored at 60+ days delinquent. See the above schedule on page 15 related to change in allowance for loans which includes all class of loans including the loans related to residential and consumer.


(1)		There are no doubtful loans as of September 30, 2011.


(2)		The increase in Multi Family watch loans is principally due to multi-family construction loans that have not yet stabilized.

Modifications.

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

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

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

The following presents by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2011.


	Loans Modified as a TDR for the				Loans Modified as a TDR for the
	Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011
Troubled Debt			Recorded				Recorded
Restructurings 1	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end)		Contracts		(as of period end)

Land, Farmland, Ag loans		1	$	1,035		5	$	1,580
Residential — prime		31		1,611		82		4,436
Residential — subprime		13		698		65		2,526
Commercial		0		0		3		676
Consumer Other		2		39		4		82
Commercial and Industrial		1		55		3		200

Total		48		3,438		162		9,500


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

The following presents by class, loans modified in a TDR from October 1, 2010 through September 30, 2011 that subsequently defaulted (i.e., 60 days or more past due following a modification) during the three and nine months ended September 30, 2011.


	Loans Modified as a TDR				Loans Modified as a TDR
	Within the Previous Twelve Months				Within the Previous Twelve Months
	That Subsequently Defaulted During the				That Subsequently Defaulted During the
	Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011
			Recorded				Recorded
	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end) 1		Contracts		(as of period end) 1

Residential — subprime		5	$	256		6	$	273
Consumer		0		0		1		375
Commercial and Industrial		1		69		1		69

Total		6	$	325		8	$	717


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

Recent Accounting Pronouncements

FASB ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. In April 2011, the FASB issued ASU 2011-02, which provides additional guidance to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this update are effective for the Corporation beginning in the quarter ended September 30, 2011 and are to be applied retrospectively to January 1, 2011. In addition, the modification disclosures described in ASU 2010-20, which were subsequently deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings, began in the quarter ended September 30, 2011. As of September 30, 2011, the Corporation identified $7,1 million in loans that were newly considered troubled debt restructurings under the provisions of ASU No. 2011-02, and the allowance for credit losses associated with those loans, on the basis of a current evaluation of loss, was $28,000.

The FASB has issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the Codification in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The impact of adoption of this ASU is not expected to be material.

FASB ASU 2011-05, Presentation of Comprehensive Income. In June 2011, the FASB issued ASU 2011-05, which provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This update should be applied retrospectively effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We anticipate this statement will be adopted with our 2012 annual financial statements.


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

Forward Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and this Form 10-Q include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (Exchange Act), as amended, which can be identified by the use of forward-looking terminology, such as may, might, could, would, believe, expect, intend, plan, seek, anticipate, estimate, project or continue or the negative thereof or comparable terminology. All statements other than statements of historical fact included in this document regarding our outlook, financial position and results of operation, liquidity, capital resources and interest rate sensitivity are forward-looking statements. These forward-looking statements also include, but are not limited to:

•

anticipated changes in industry conditions created by state and federal legislation and regulations;

•

anticipated changes in general interest rates and the impact of future interest rate changes on our profitability, capital adequacy and the fair value of our financial assets and liabilities;

•

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

•

the development of new products and services and their success in the marketplace;

•

the adequacy of the allowance for loan losses; and

•

statements regarding our anticipated loan and deposit account growth, expense levels, liquidity and capital resources and projections of earnings.

These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to be materially different from any future results expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to:

•

competition in the industry and markets in which we operate;

•

changes in general interest rates;

•

rapid changes in technology affecting the financial services industry;

•

changes in government regulation; and

•

general economic and business conditions

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

Overview

Camco is a full-service provider of financial products through its subsidiary, Advantage Bank. Products and services include traditional banking products, such as deposit accounts and lending products within Ohio, Kentucky and West Virginia. Services are provided through 22 financial offices, 20 ATMSs and telephone and internet-based banking. Brokerage services are offered exclusively through an unaffiliated registered broker-dealer at certain locations.

Summary of Recent Transactions and Events

The following is a summary of recent transactions or events that have impacted or are expected to impact Camco’s results of operations or financial condition:

Since early 2009, Camco’s loan quality has been negatively impacted by adverse conditions within the commercial real estate market and economy as a whole, the deterioration in the economic conditions of the country 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 past few years. 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. Beginning in 2009 and continuing through 2011 appraised values have decreased significantly. As a result, in the past few years, the Bank’s evaluation of the loan portfolio and allowance for loan losses resulted in higher than normal net charge-offs and the need to record higher provision for loan losses over the past few years. The company has made noted improvement in 2011 see item 7. Allowance Loan Losses and related tables above.

In 2011, the Corporation took steps to improve capital ratios through the reduction of assets and borrowings. Assets were reduced through the sale of $27.2 million in investments that created a gain of $1.2 million. The Bank used the proceeds of the sale to pay $21.0 million in FHLB borrowings including a prepayment penalty of $216,000. Additionally, Camco filed a Form S-1 on July 11, 2011 for a potential rights offering with a proposed maximum aggregate offering price of $22.5 million.

The Corporation is addressing credit quality issues by directing the efforts of experienced workout specialists solely to manage the resolution of nonperforming assets. We continue to deal with the economic challenges in our markets, through our loan charge-offs and provision for loan losses as we continue to recognize the results of 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 continue to be high in Ohio.

It is the Corporation’s goal to remove the majority of the nonperforming assets from its balance sheet while still obtaining reasonable value for these assets. Given the current conditions in the real estate market, accomplishing this goal is a significant undertaking, requiring both time and considerable effort of staff. We believe that we are taking the appropriate 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.

Net interest income, the amount by which interest income exceeds interest expense is affected by various factors, including changes in market interest rates due to the Federal Reserve Board’s monetary policy, the level and degree of pricing competition for both loans and deposits in our markets and the amount and composition of earning assets and interest-bearing liabilities. We have found that “core” deposit growth continues to be challenging in our markets but have continued to work with commercial borrowers to build banking relationships. The extended low rate environment and increased competition for deposits continue to put pressure on marginal funding costs, despite lower market rates in 2010 and 2011. Earnings related to net interest income continues to be challenged as net interest income and margin are impacted by changes in market interest rates based upon actions taken by the Federal Reserve either directly or through its Open Market Committee. Between 2007 and 2008 the Federal Reserve reduced the Federal Funds rate 500 basis points to a range of 0% to .25% and reduced the Discount Rate 575 basis points to .50%. These actions have caused a downward shift in short-term market interest rates and these rates have continued at historically low levels.

On April 1, 2011, new regulations required by the Dodd-Frank Act became effective changing the deposit insurance assessment base from total domestic deposits to average total assets and minimum average tangible equity, as well as changing the assessment system for large institutions and the assessment rate schedule. The new assessment base reduced the Corporation’s FDIC insurance costs beginning with the amount recorded for the second quarter of 2011.

Discussion of Financial Condition Changes from December 31, 2010 to September 30, 2011

At September 30, 2011, Camco’s consolidated assets totaled $793.6 million, a decrease of $21.4 million, or 2.6%, from December 31, 2010. The decrease in total assets resulted primarily from decreases in investment securities and loans receivable and the redemption of FHLB stock, which were offset partially by increases in cash and cash equivalents. the weak residential loan market Loans receivable has decreased year to date, primarily due to the deterioration and depreciating value of the residential loan market. The weak residential loan market, coupled with high unemployment rates, has resulted in fewer new residential loans being originated in 2011. If this trend continues our residential loan portfolio will continue to decrease. The current loan rates may continue to slow residential lending and the sale of fixed rate loans, therefore it is likely that the gain on sale will continue to be less in 2011 than was previously experienced in 2010. Additionally, in the second quarter of 2011 we sold three portfolio loans at a loss of $433,000 which was offset by our current year to date gain on the sale of mortgage loans of $562,000. When comparing the nine months ended September 2011 versus 2010 the gain on sale of mortgage loans decreased $260,000. Commercial loan volume increased in the third quarter of 2011, compared to the first half of the year and we have an adequate pipeline going into the 4th quarter of 2011. Management’s overall focus at the Bank has been on managing credit, reducing risk within the loan portfolio and enhancing liquidity and capital in a distressed economic environment. Continuous progress is being made on addressing these issues, but we expect the distressed economic environment to continue into 2012.

Cash and interest-bearing deposits in other financial institutions totaled $69.7 million at September 30, 2011, an increase of $40.6 million, or 139.4%, from December 31, 2010. Cash has increased as we have begun to restructure the balance sheet by decreasing assets and liabilities when possible to improve our capital position in conjunction with ensuring on-hand liquidity is also adequate

As of September 30, 2011 securities totaled $14.5 million, a decrease of $20.2 million, or 58.2%, from December 31, 2010, due to the sale of $27.2 million in securities, principal repayments and maturities of $8.1 million and the change in the unrealized gain on securities available for sale of $1.7 million for the nine-month period ended September 30, 2011. These decreases were offset partially by purchases of $15.4 million which were primarily investment securities at a weighted rate of 1.12%. Additionally, $20.0 million of FHLB stock was redeemed during the first quarter 2011.

Loans receivable, including loans held for sale, totaled $646.8 million at September 30, 2011, a decrease of $23.2 million, or 3.5%, from December 31, 2010. The decrease resulted primarily from principal repayments of $153.2 million, loan sales of $43.3 million and $9.8 million of loans transferred to real estate owned offset partially by loan disbursements totaling $184.3 million. Principal repayments are slightly higher than 2010 on loans and our ability to originate new loans has not been as strong in 2011 compared to the previous year. The reduction in residential real estate loan balances was intensified by the secondary market offering historically low long-term fixed rates during most of 2010. New purchase customers are currently more likely to choose fixed rate loans during this low rate environment. Due to the fact that Advantage normally sells fixed rate loans and does not hold them in the portfolio the balance of residential loans continues to decrease.

Loan originations during the nine-month period ended September 30, 2011, included $102.5 million of commercial loans, $70.1 million in loans secured by one- to four-family residential real estate and $12.2 million in consumer and other loans. Our intent is to continue to service our communities in one- to four-family residential, consumer and commercial real estate lending in the future and continue with our strategic plan of generating additional lending opportunities and core relationships.

During the nine months of 2011, the yield on loans was 5.54% a decrease of 16 basis points as compared to 5.70% for the same per in 2010. The decrease in yield is due to lower average loan balances coupled with lower effective rates in the loan portfolio during 2011. As we continue to have adjustable rate loans re-price and originate new loans at the current lower rate environment we expect the yield on loans to continue to decrease slightly in 2012.

The allowance for loan losses totaled $16.0 million and $16.9 million at September 30, 2011, and December 31, 2010, representing 61.7% and 49.9% of nonperforming loans, respectively, at those dates. Nonperforming loans (loans with three payments delinquent plus nonaccrual loans) totaled $26.0 million and $33.8 million at September 30, 2011 and December 31, 2010, respectively, constituting 3.9% and 4.9% of total net loans, including loans held for sale. The decrease in non-accrual loan balances is due to credit quality efforts. During 2011 provision for loan losses decreased substantially while the coverage of allowance to nonperforming loans increased comparative to the December coverage. See the Allowance for loan losses footnote above for additional information related to change in allowance and delinquency. Net charge-offs totaled $2.3 million for the nine months ended September 30, 2011.

The following table sets forth information with respect to Advantage’s nonperforming assets for the periods indicated.


Loans accounted for on nonaccrual basis:	September 30,			December 31,			December 31,			December 31,			December 31,
(dollars in thousands)	2011			2010			2009			2008			2007

Total nonperforming loans	$	25,950		$	33,779		$	36,449		$	53,528		$	25,515
Other real estate owned		12,592			10,096			9,660			5,841			5,034

Total nonperforming assets	$	38,542		$	43,875		$	46,109		$	59,369		$	30,549

Allowance for loan losses	$	16,015		$	16,870		$	16,099		$	15,747		$	6,623


Nonperforming loans as a percent of total net loans		3.88	%		4.92	%		5.40	%		6.91	%		3.13	%
Nonperforming assets to total assets		4.83	%		5.38	%		5.47	%		5.93	%		2.99	%
Allowances for loan losses as a percent of nonperforming loans		61.7	%		49.9	%		44.2	%		29.4	%		26.0	%

Memo section:
Troubled debt restructurings
Loans and leases restructured and in compliance with modified terms	$	18,614		$	7,122		$	16,645		$	11,440		$	—


Loans and leases restructured and not in compliance with modified terms	$	8,618		$	9,276		$	4,783		$	12,882		$	—

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

At September 30, 2011, the Corporation’s other real estate owned (REO) consisted of 174 repossessed properties with a net book value of $12.6 million, an increase of $2.5 million, compared to December 31, 2010, due primarily to one large relationship. Initial loss is recorded as a charge to the allowance for loan losses. Thereafter, if there is a further deterioration in value, a specific valuation allowance is established and charged to operations. The Corporation reflects costs to carry REO as period costs. When property is acquired through foreclosure or deed in lieu of foreclosure, it is initially recorded at the fair value of the related assets at the date of foreclosure, less estimated costs to sell the property.

The Corporation works with borrowers to avoid foreclosure if possible. Furthermore, if it becomes inevitable that a borrower will not be able to retain ownership of 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. The strategy of pursuing deeds in lieu of foreclosure more aggressively should result in a reduction in the holding period for nonperforming assets and ultimately reduce economic losses.

Deposits totaled $624.3 million at September 30, 2011, a decrease of $27.5 million, or 4.2%, from the total at December 31, 2010. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at September 30, 2011 and December 31, 2010:


	September 30, 2011					December 31, 2010					Change
(Dollars in thousands)	Balance		Rate			Balance		Rate			Balance			Rate
Noninterest-bearing demand		59,652		0.00	%	$	46,597		0.00	%		13,055			0.00	%
Interest-bearing demand		60,596		0.17			65,679		0.30			(5,083	)		(0.13	)
Money market		114,025		0.48			96,294		0.69			17,731			(0.21	)
Savings		42,219		0.10			38,665		0.25			3,554			(0.15	)
Certificates of deposit — retail		347,835		1.71			392,098		1.93			(44,263	)		(0.22	)
Certificates of deposit — brokered		0		0.00			12,483		3.60			(12,483	)		(3.60	)

Total deposits	$	624,327		1.07	%	$	651,816		1.38	%		(27,489	)		(0.31	)

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

In 2010, we implemented a number of organizational and product development initiatives including a new suite of commercial and small business checking accounts, enhancements to our online business cash management system, and the launch of remote deposit capture solution. We believe these products will continue to help us be more competitive for business checking accounts. Additionally, in 2011 we plan to implement paperless statements which will be less costly to the Bank, more efficient for many customers, and strategically add convenience products to enhance our banking products with current technology.

All of our brokered deposits have matured and have not been renewed. We continue to strategically grow core deposits which we believe will improve the long-term funding mix of the Bank’s deposit portfolio by deepening core relationships and aggregating small business, commercial and retail checking accounts.

Effective January 1, 2010, interest rates paid by Advantage on deposits became subject to limitations as a result of a consent order Advantage entered into with the FDIC and Ohio Division of Financial Institutions in July 2009 (“Consent Order”). Deposits solicited by the Bank cannot significantly exceed the prevailing rates in our market areas. The FDIC has implemented by regulation the statutory language “significantly exceeds” as meaning more than 75 basis points. Although the rule became effective January 1, 2010, Advantage has utilized these standards since mid-year 2009.

Advances from the FHLB and other borrowings totaled $101.2 million at September 30, 2011, an increase of $8.3 million, or 8.9%, from the total at December 31, 2010. The increase in borrowings was primarily due to borrowings in the third quarter of $30.0 million offset by the early payoff of $21.0 million of borrowings that had a prepayment penalty of $216,000 in March of 2011. The sale of investments in the first quarter of 2011 provided the cash to pay off such borrowings and decreased reliance on non-core funding.

Stockholders’ equity totaled $46.3 million at September 30, 2011 and $46.1 million at December 31, 2010. Net changes included decreased accumulated other comprehensive income related to the unrealized gain of our investment securities in the amount of $1.0 million offset partially by net earnings of $952,000.

Comparison of Results of Operations for the Nine Months Ended September 30, 2011 and 2010

Camco’s net earnings for the nine months ended September 30, 2011, totaled $952,000, an increase of $16.5 million, from the net loss of $15.6 million reported in the comparable 2010 period. On a per share basis, the net earnings for the nine months ended 2011 were $0.13, compared to $(2.16) per share in the nine months of 2010. The increase in earnings was primarily attributable to decreased provision for losses on loans, increased gain on sale of investments which was offset partially by increased general, administrative and other expenses.

Net Interest Income

Net interest income totaled $19.5 million for the nine months ended September 30, 2011, an increase of $133,000 or 0.7%, compared to the nine month period ended September 30, 2010, generally reflecting the effects of a $56.8 million decrease in the average balance of interest bearing liabilities coupled with the average cost of funding decreasing by 45 basis points year to year. Net interest margin increased to 3.66% in 2011 compared to 3.41% of 2010.

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.


	2011							2010
	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⁾	$	636,264		26,455		5.54	%	$	656,746	$	28,074		5.70	%
Securities		21,309		511		3.20	%		47,052		1,515		4.29	%
FHLB stock		11,888		592		6.64	%		29,888		1,006		4.49	%
Other Interest-bearing accounts		41,759		10		.03	%		24,694		4		0.02	%

Total interest-earning assets		711,220		27,568		5.17	%		758,380		30,599		5.38	%

Noninterest-earning assets⁽²⁾		78,290							92,463


Total average assets	$	789,510						$	850,843


Interest-bearing liabilities:
Deposits		590,454		5,841		1.32	%		610,673		8,259		1.80	%
FHLB advances and other		90,584		2,215		3.26	%		127,141		2,961		3.11	%

Total interest-bearing liabilities		681,038		8,056		1.58	%		737,814		11,220		2.03	%

Noninterest-bearing deposits		51,395							41,845
Noninterest-bearing liabilities		10,928							13,125


Total average liabilities		743,361							792,784
Total average shareholders’ equity		46,149							58,059


Total liabilities and shareholders’ equity	$	789,510						$	850,843

Net interest income/Interest rate spread			$	19,512		3.59	%			$	19,379		3.35	%


Net interest margin⁽³⁾						3.66	%						3.41	%
Average interest-earning assets to average interest-bearing liabilities						104.4	%						102.8	%


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

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

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

Interest income totaled $27.6 million for the nine months ended September 30, 2011, a decrease of $3.0 million, or 9.9%, from the comparable 2010 period. The decrease resulted primarily from a decrease in the average balance outstanding of $47.2 million, or 6.6%, from the comparable 2010 period. As discussed previously this is primarily related to the sale of securities and the redemption of FHLB stock in the first quarter of 2011. A 16 basis point decrease in the average yield on loans coupled with a decrease in balances of $20.5 million in the 2011 period also negatively impacted interest income.

Interest income on securities totaled $511,000 for the nine months ended September 30, 2011, a decrease of $1.0 million, or 66.3%, from the first nine month of 2010. The decrease was due primarily to a $25.7 million decrease in the average balance coupled with a 109 basis point decrease in the average yield, to 3.20% for the 2011 period.

Dividend income on FHLB stock is paid a quarter in arrears, therefore, due to our redemption of $20.0 million in January 2011 the yield was inflated for the first six months of 2011 by the number of days of interest received in January and April related to the additional $20.0 million of average stock. Interest income decreased in the 3rd quarter and the yield on the asset was comparable to previous year quarter. Interest income on other interest bearing accounts continues to be low due to higher balances needed to compensate for charges at correspondent banks, leaving less balance for interest calculation offset partially by a slight increase in rates. We will continue to deploy cash when available by paying down advances and borrowings in order to generate additional income. Brokered deposits were paid off in the 3^rd quarter of 2011 and we are not currently in the market for these higher yielding deposits.

Interest expense on deposits totaled $5.8 million for the nine months ended September 30, 2011, a decrease of $2.4 million, or 29.3%, compared to the same period in 2010 due primarily to a 48 basis point decrease in the average cost of deposits to 1.32% in the current period, coupled with a $20.2 million, or 3.3%, decrease in average interest bearing deposits outstanding. While the cost of deposits was lower in 2011 compared to 2010, the cost of funds in 2011 is expected to stabilize as rates have been at low levels for the past few years. However, we will continue to re-price certificates of deposit in the current lower interest rate environment in 2011, which should decrease costs slightly if rates continue to be at the current low levels. Although, competitive pressures may limit our ability to reduce interest rates paid on deposits.

Interest expense on borrowings totaled $2.2 million for the nine months ended September 30, 2011 a decrease of $746,000, or 25.1%, from the same 2010 nine month period. The decrease resulted primarily from a $36.6 million, or 28.8%, decrease in the average borrowings outstanding, offset partially by a 15 basis point increase in the average cost of borrowings to 3.26%. This increase is due to longer term FHLB advances of approximately $46.7 million at higher rates that have a weighted term of 3.1 years, due to the high pre-payment penalties we have not made the decision to pay-down such advances.

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.

Camco’s loan quality has been negatively impacted by conditions within our market areas which has caused declines in real estate values and deterioration in the financial condition of some of our borrowers. These conditions have led Camco to downgrade the loan quality ratings on various loans through our loan review process. In addition, some of our loans became under-collateralized due to reductions in the estimated net realizable fair value of the underlying collateral. As a result, Camco’s provision for loan losses, net charge-offs and nonperforming loans have been significantly higher than historical levels since 2008. The company has made noted improvement in 2011 see item 7. Allowance Loan Losses and related tables above.

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

Based upon an analysis of these factors, the continued economic outlook and new production we recorded a provision for losses on loans of $1.4 million for the nine months ended September 30, 2011, compared to $17.5 million for the same period in 2010. We believe our loans are adequately reserved for probable losses inherent in our loan portfolio at September 30, 2011. However, there can be no assurance that the loan loss allowance will be adequate to absorb actual losses. See item 7. Allowance for Loan Losses for additional information.

Other Income

Other income totaled $5.2 million for the nine months ended September 30, 2011, an increase of $481,000, or 10.1%, from the comparable 2010 period. The increase in other income was primarily attributable to a $1.3 million increase in gain on sale of investments, offset partially by the decrease in gain on sale of loans.

Gain on sale of loans decreased due to the sale of three portfolio loans at a loss of $433,000 which was offset by our current year to date gain on the sale of loans through our mortgage banking activity of $562,000, which was a decrease of $260,000 from the 2010 period. Loans held for sale has increased $8.2 million which is currently adding interest to the income statement and we expect the additional loans held for sale will increase the gain in the 4^th quarter of 2011.

General, Administrative and Other Expense

General, administrative and other expense totaled $21.8 million for the nine months ended September 30, 2011 an increase of $95,000 or .4%, from the comparable period in 2010. The increase in general, administrative and other expense was due to increases in real estate owned which was partially offset by decreases in franchise taxes and FDIC premiums.

The increase in real estate owned expense of $1.4 million is reflective of the large real estate owned portfolio and expenses related to ownership such as real estate taxes, and upkeep of properties. These expenses were coupled with the continued decrease in real estate values that have negatively impacted our portfolio values and caused a write down to fair market value. Additionally, a bulk sale of properties in Florida created a loss of $350,000.

The decrease in franchise taxes is related to decreased equity levels.

Federal income taxes totaled $542,000 for the nine months ended September 30, 2011 an increase of $85,000 compared to the nine months ended September 30, 2010. This increase reflects the change for 2011 in the valuation allowance against the Corporation’s net deferred tax asset. In 2011, the Corporation sold available for sale investments that were no longer carrying a deferred position and recorded tax expense related to such transactions.

The Corporation recorded a 100% valuation allowance against the net deferred tax asset in 2010. Based on the 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. A cumulative tax loss position is considered significant negative evidence in assessing the realization of a net deferred tax asset, which is difficult to overcome. Reversal of the valuation allowance can be realized in the future based on estimates of projected taxable income.

The Corporation has a net operating loss carry forward for tax purposes of approximately $1 million at September 30, 2011. This compares to a net operating loss carry forward of approximately $13.0 million at December 31, 2010. The net operating loss carry forward was substantially reduced during the nine months ended September 30, 2011 as the Corporation generated approximately $12.0 million of taxable income during that period, primarily due to the redemption of the FHLB stock which resulted in taxable income of approximately $10.0 million. As the Corporation executes plans to return to profitability future earnings may benefit from the current operating loss carry-forwards.

Comparison of Results of Operations for the Three Months Ended September 30, 2011 and 2010

Camco’s net earnings for the three months ended September 30, 2011, totaled $163,000, an increase of $11.8 million, from the net loss of $11.6 million, reported in the comparable 2010 period. On a per share basis, the net earnings during the third quarter of 2011 were $0.02, compared to a loss of $(1.61) per share in the third quarter of 2010. The increase in earnings was primarily attributable to the decrease of a recorded provision for loan and lease losses of $11.2 million. As previously stated the allowance for loan and lease losses totaled $16.0 million and $16.9 million at September 30, 2011 and December 31, 2010, representing 61.7% and 49.9% of nonperforming loans, respectively, at those dates.

Net Interest Income

Net interest income totaled $6.5 million for the three months ended September 30, 2011, a decrease of $284,000, or 4.2%, compared to the three-month period ended September 30, 2010, generally reflecting the effects of a $1.4 million decrease in total interest income related to the sale of investments and the redemption of FHLB stock in the first quarter of 2011. Net interest margin increased to 3.73% in the third quarter of 2011 compared to 3.59% in the third quarter of 2010.


	2011							2010
	Average		Interest		Average			Average		Interest		Average
Three 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⁾		635,662		8,715		5.48	%	$	661,778	$	9,513		5.75	%
Securities		15,216		72		1.89	%		40,154		442		4.40	%
FHLB stock		9,888		98		3.96	%		29,888		335		4.48	%
Other Interest-bearing accounts		33,218		1		0.01	%		21,301		2		0.04	%

Total interest-earning assets		693,984		8,886		5.12	%		753,121		10,292		5.47	%

Noninterest-earning assets⁽²⁾		79,019							94,118


Total average assets	$	773,003						$	847,239


Interest-bearing liabilities:
Deposits		574,338		1,734		1.21	%		608,661		2,570		1.69	%
FHLB advances and other		89,295		686		3.07	%		129,429		972		3.00	%

Total interest-bearing liabilities		663,633		2,420		1.46	%		738,090		3,542		1.92	%

Noninterest-bearing deposits		52,887							42,848
Noninterest-bearing liabilities		10,328							12,317


Total average liabilities		726,788							793,255
Total average shareholders’ equity		46,215							53,984


Total liabilities and shareholders’ equity	$	773,003						$	847,239

Net interest income/Interest rate spread			$	6,466		3.66	%			$	6,750		3.55	%


Net interest margin⁽³⁾						3.73	%						3.59	%
Average interest-earning assets to average interest-bearing liabilities						104.6	%						102.0	%


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

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

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

Interest income totaled $8.9 million for the three months ended September 30, 2011, a decrease of $1.4 million, or 13.7%, from the comparable 2010 period. The decrease resulted primarily from a decrease in the average balance outstanding of $59.1 million, or 7.9%, from the comparable 2010 period. As discussed previously this is primarily related to the sale of securities and the redemption of FHLB stock in the first quarter of 2011.

Interest income on loans decreased due to a 27 basis point decrease in yield and a $26.1 million decrease in average balances. The decrease in yield relates to continued re-pricing of adjustable rate loans and new loan originations at the current lower rate environment. We expect the yield on loans to continue to decrease slightly in 2012.

Interest income on securities totaled $72,000 for the three months ended September 30, 2011, a decrease of $370,000, or 83.7%, from the third quarter of 2010. The decrease was due primarily to a $24.9 million decrease in the average balance coupled with a 251 basis point decrease in the average yield, to 1.89% for the 2011 period.

Dividend income on FHLB stock was slightly lower than the previous year. Interest on such stock is paid a quarter in arrears, therefore, due to our redemption of $20.0 million in January 2011 the yield was inflated during the first half of 2011. Interest income on other interest bearing accounts continues to be low due to higher balances needed to compensate for charges at correspondent banks leaving less balance for interest calculation, which is offset partially by a slight increase in rates. Cash on hand balances were increased due to the sale of investments and redemption of FHLB Stock at the end of March 2011 but we have deployed the cash by paying down advances, borrowings and higher cost brokered deposits to decrease total funding costs.

Interest expense on deposits totaled $1.7 million for the three months ended September 30, 2011, a decrease of $836,000, or 32.5%, compared to the same quarter in 2010 due primarily to a 48 basis point decrease in the average cost of deposits to 1.21% in the current quarter, coupled with a $34.3 million, or 5.6%, decrease in average interest bearing deposits outstanding. While the cost of deposits was lower in the third quarter of 2011 compared to the third quarter of 2010, the future costs are expected to stabilize as rates have been at low levels over the past two years. However, we will continue to re-price certificates of deposit in 2011 and into 2012, which should decrease costs slightly if rates continue to be at the current low levels. However, competitive pressures may limit our ability to reduce interest rates paid on deposits.

Interest expense on borrowings totaled $686,000 for the three months ended September 30, 2011 a decrease of $286,000, or 29.4%, from the same 2010 three-month period. The decrease resulted primarily from a $40.1 million, or 31.0% decrease in the average borrowings outstanding offset partially by a 7 basis point increase in the average cost of borrowings to 3.07%. The average rate increased quarter to quarter primarily due to the mix and longer term advances with higher rates that have not matured. Management has reviewed early pre-payment of such borrowings but felt it is not prudent at this time due to substantial penalty fees.

Provision for Losses on Loans

Camco’s loan quality has been negatively impacted by the conditions within our market areas which caused declines in real estate values and deterioration in the financial condition of some of our borrowers. These conditions have led Camco to downgrade the loan quality ratings on various loans through our loan review process throughout the past two years. In addition, some of our loans became under-collateralized due to reductions in the estimated net realizable fair value of the underlying collateral. As a result, Camco’s provision for loan losses, net charge-offs and nonperforming loans have been significantly higher than historical levels since 2008. The company has made noted improvement in 2011 see item 7. Allowance Loan Losses and related tables above.

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

Based upon an analysis of these factors, the continued economic outlook and new loan quality production, over the past few years we had to increase the provision for losses on loans to strengthen our allowance in previous years. Due to the previous strengthening of the allowance and the decrease in our non-accrual and classified assets we determined that a much lesser increase the provision was needed for this quarter. An additional $228,000 was added to the provision for the three months ended September 30, 2011, compared to $11.4 million for the same period in 2010. We believe our loans are adequately reserved for probable losses inherent in our loan portfolio at September 30, 2011. However, there can be no assurance that the loan loss allowance will be adequate to absorb actual losses.

Other Income

Other income totaled $1.2 million for the three months ended September 30, 2011 a decrease of $257,000, or 17.8%, from the comparable 2010 period. The decrease in other income was primarily attributable to a $203,000, or 61.1% decrease in gain on sale of loans, coupled with the liquidation of Camco Title on March 31, 2011 and earnings related to the subsidiary in the previous period, which was offset partially by less of a decrease in the net value of our mortgage servicing rights asst.

General, Administrative and Other Expense

General, administrative and other expense totaled $7.3 million for the three months ended September 30, 2011, a decrease of $556,000 or 7.1%, from the comparable period in 2010. The decrease in general, administrative and other expense was primarily due to decreases in employee compensation and benefits partially offset by increases in real estate owned and other expenses.

The decrease in employee compensation is due to a decrease in the total number of employees. The Corporation has made it a priority to identify cost savings opportunities throughout its operations and is committed to maintaining cost control measures, believing that the effort will play a major role in improving its performance. The Corporation also believes that its technology allows it to be efficient in its back-office operations. In addition, as the level of nonperforming assets is reduced, the operating costs associated with carrying those assets, such as maintenance, legal proceedings, insurance and taxes will decrease.

The increase in real estate owned expense of $1.4 million is reflective of the large real estate owned portfolio and expenses related to ownership such as real estate taxes, and upkeep of properties. These expenses were coupled with the continued falling of real estate values that have negatively impacted our portfolio values and caused a write down to fair market value.

Federal Income Taxes

Federal income tax benefit totaled $5,000 for the three months ended September 30, 2011 a decrease of $567,000, compared to the three months ended September 30, 2010. This decrease reflects the change in our 100% valuation allowance that was taken in September 2010 on the Corporation’s deferred tax asset. At September 30, 2011, the Corporation has a federal net operating loss carry-forward of approximately $1 million available to offset future taxable income.

Additional Capital

The Corporation’s Tier 1 capital at September 30, 2011 did not meet the requirements set forth in the Consent Order or the Memorandum of Understanding (the “MOU”) that Camco entered into with the Federal Reserve Board of Governors (“FRB”) on March 4, 2009 as those agreements are discussed under “Liquidity and Capital Resources” below. As a result, the Corporation will need to increase capital levels to meet the standards set forth by the FDIC, Ohio Division and FRB. The Corporation has engaged an investment banking firm and has developed a capital plan that includes, but is not limited to, the potential for balance sheet reduction, the sale of branches, issuing common stock, preferred stock, debt or some combination of those issuances, or other financing alternatives that will be treated as capital. Although the Corporation anticipates raising additional capital, the Board of Directors has not yet determined the type, timing, amount, or terms of possible securities to be issued in the offering, and there are no assurances that an offering will be completed or that the Corporation will succeed in this endeavor. On July 11, 2011, the Board decided to file a Form S-1 for a public rights offering. This is only one of several alternatives currently being evaluated by the Board and there is no assurance that this be the final capital raising measure pursued. However, the Board believed it was prudent to make the filing so that it could move quickly once its evaluation of available alternatives is complete. In addition, a transaction, which would likely involve equity financing would result in substantial dilution to current stockholders and could adversely affect the price of the Corporation’s common stock.

Liquidity and Capital Resources

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

Camco is a single bank holding company with its primary source of liquidity derived from dividends received from the Bank which are dependent on the Bank’s cash flow and earnings. Ohio statutes also impose certain limitations on a bank’s payment of dividends and other capital distributions. Currently, a Consent Order prohibits the Bank from paying a dividend to Camco without prior approval of the FDIC and Ohio Division. Camco has $5.0 million in trust preferred securities outstanding with a maturity date of 2037 and a provision that provides for a deferment of interest payment for up to 20 consecutive quarters without default, if required. Based on notification received from the FRB on April 30, 2009, Camco was required to exercise this provision to defer interest payments and has deferred a total of ten quarters as of September 30, 2011. Further, as a result of entering into the MOU, Camco is prohibited from paying dividends to our stockholders without first obtaining the approval of the FRB. Our ability to pay dividends to stockholders is dependent on our net earnings. Increases in loan losses or higher regulatory capital reserve requirements may also jeopardize our ability to pay dividends.

The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and to fund ongoing operations. Core relationship deposits are the primary source of the Bank’s liquidity. As such, the Bank focuses on deposit relationships with local business and consumer clients with a strategy to increase the number of services/products per client. The Corporation views such deposits as the foundation of its long-term liquidity because it believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors compared to large time deposits or wholesale purchased funds.

Liquidity is monitored and assessed daily in order to meet deposit, loan and operational needs of the Bank. A liquidity contingency funding plan at both the Camco and Bank levels identifies liquidity thresholds and red flags that may evidence liquidity concerns or future crises. The contingency plan details specific actions to be taken by management and the Board of Directors should such an incident arise and identifies sources of both asset and liability based liquidity. In conjunction with the Corporation’s asset/liability and interest rate risk management activities, we actively monitor liquidity risk and analyze various scenarios that could impact or impair Camco’s ability to access emergency funding during a liquidity crisis.

Liquid assets consist of cash and interest-bearing deposits in other financial institutions, investments and mortgage-backed securities. Approximately $9.6 million, or 66.7%, of our investment portfolio is expected to mature or prepay during the next 12 months. While these maturities could provide a source of liquidity in the short term, the collateral requirements of public deposits and repurchase agreements limit our ability to use these funds freely. State and local political subdivision deposits equaled $32,000 at September 30, 2011, and $4.2 million at December 31, 2010.

Liquidity sources also include deposits, borrowings and principal and interest repayments on loans. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan and security prepayments are influenced more by interest rates, general economic conditions, and competition and are difficult to predict. Approximately $211.1 million of the Corporation’s certificate of deposit portfolio is scheduled to mature during the next 12 months. Depositors continue a preference toward short-term certificates or other issuances less than 18 months. The shorter term preference places additional liquidity pressure on the Corporation, however, management has seen a weakening in competition for deposits in the current economic environment. A material loss of these short-term deposits could force us to seek funding through contingency sources, which may negatively impact earnings.

Management may augment liquidity and core deposit funding utilizing diversified and reliable sources of wholesale funds. Borrowings with up to 90 days maturity may be used to compensate for reduction in other sources of funds or to support lending activities. The Bank’s loan portfolio and FHLB stock provide collateral to support its borrowing needs. Management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available. However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions. One wholesale funding source historically used by the Bank is brokered deposits. At September 30, 2011, all such deposits have matured and been paid off.

FHLB advances are another funding source. While significant strategic and tactical focus is currently being placed on deposit growth, borrowings and additional borrowing capacity at the FHLB are still vital sources of liquidity and growth funding. However, our total borrowing capacity at the FHLB is dependent on the level of eligible collateral assets held by the Bank and the Bank’s credit rating with the FHLB. Available capacity at the FHLB has been increased by pay downs of advances during 2011. The inability of the Bank to access contingency funding from the FHLB may significantly limit our growth and negatively affect earnings, however, the Bank has improved on-balance-sheet liquidity in response to FHLB’s higher collateral maintenance requirements.

We plan to continue to monitor our funding sources through wholesale deposits and FHLB borrowings, but recognize that our current credit risk profile may restrict these sources. Our Funds Management Group monitors the market deposit rates to allow for competitive pricing in order to raise funds through deposits. Funds in excess of loan demand and available borrowing repayments will be held in short-term investments or federal funds sold. We are taking these actions to proactively prepare for the possibility of continued balance sheet management opportunities, possible credit markets deteriorations and non-performing loan status changes, which may change our borrowing capacity at the FHLB further.

The following table sets forth information regarding the Bank’s obligations and commitments to make future payments under contract as of September 30, 2011.


	Payments due by period
	Less						More
	than		1 – 3		3 – 5		than
	1 year		Years		years		5 years		Total
	(In thousands)

Contractual obligations:
Operating lease obligations	$	355	$	395	$	281	$	41	$	1,072
Advances from the FHLB		47,500		27,277		20,220		6,189		101,186
Repurchase agreements		5,672		—		—		—		5,672
Certificates of deposit		211,074		102,365		34,396		—		347,835
Subordinated debentures⁽¹⁾		—		—		—		5,000		5,000
Ohio equity funds for housing		103		201		292		36		632

Amount of commitments expiring per period:
Commitments to originate loans:
Revolving open-end lines secured by 1-4 residential properties	$	41,700	$	—	$	—	$	—	$	41,700
Not secured by real estate		12,122		—		—		—		12,122
One- to four-family construction loan		2,726		—		—		—		2,726
Commercial real estate, other construction loan and land development		32,552		—		—		—		32,552
Commercial and industrial and other unused commitments		7,206		—		—		—		7,206
Letters of credit		344		—		—		—		344
Total contractual obligations	$	361,354	$	130,238	$	55,189	$	11,266	$	558,047


(1)		The subordinated debentures are redeemable, at Camco’s option.

		The debentures mature on September 15, 2037.

The subordinated debentures are redeemable, at Camco’s option.

We anticipate that we will have sufficient funds available to meet our current loan commitments. Based upon historical deposit flow data, the Bank’s competitive pricing in its market and management’s experience, we believe that a significant portion of our maturing certificates of deposit in the next 12 months will remain with the Bank, but recognize the risk related to a large portion of the certificates of deposit maturing within three years.

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

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

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

Camco and Advantage are required to maintain minimum regulatory capital pursuant to federal regulations. The following tables present certain information regarding compliance by Camco and Advantage with applicable regulatory capital requirements at September 30, 2011:


											To be “well-
											capitalized” under
						For capital					prompt corrective
	Actual					Adequacy purposes					action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total capital to risk-weighted assets:
Camco Financial Corporation	$	58,803		9.48	%	>$	49,631	>	8.0	%	>$	62,039		10.0	%
Advantage Bank	$	56,183		9.06	%	>$	49,603	>	8.0	%	>$	62,004		10.0	%
Tier I capital to risk-weighted assets:
Camco Financial Corporation	$	50,951		8.21	%	>$	24,816	>	4.0	%	>$	37,224		6.0	%
Advantage Bank	$	48,331		7.79	%	>$	24,802	>	4.0	%	>$	37,202		6.0	%
Tier I leverage to average assets:
Camco Financial Corporation	$	50,951		6.66	%	>$	30,612	>	4.0	%	>$	38,264		5.0	%
Advantage Bank	$	48,331		6.34	%	>$	30,509	>	4.0	%	>$	38,135		5.0	%

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

On March 4, 2009, Camco entered into a Memorandum of Understanding (the “MOU”) with the FRB. The MOU prohibits Camco from engaging in certain activities while the MOU is in effect, including, without the prior written approval of the FRB, (1) the declaration or payment of dividends to stockholders or (2) the repurchase of Camco’s stock.

On April 30, 2009, Camco was notified by the FRB that it had conducted a “surveillance review” as of December 31, 2008. Based on that review, the FRB notified Camco that it must (i) eliminate stockholder dividends and (ii) defer interest payments on its 30-year junior subordinated deferrable interest notes that were issued to its wholly-owned subsidiary, Camco Statutory Trust I, in its trust preferred financing that was completed in July 2007. These prohibitions were memorialized in a written agreement with the FRB on August 5, 2009 (the “Camco Agreement”). Camco and Camco Statutory Trust I, are permitted to defer interest and dividend payments, respectively, for up to five consecutive years without resulting in a default. As of September 30, 2011, Camco had deferred payments for eleven quarters. Camco may not resume these dividend or interest payments until it receives approval from the FRB.

The Camco Agreement also requires Camco to obtain FRB approval prior to: (i) receiving dividends or any other form of payment representing a reduction in capital from Advantage; (ii) making any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities; (iii) incurring, increasing or guaranteeing any debt; or (iv) repurchasing any Camco stock.

Advantage entered into the Consent Agreement with the FDIC and the State of Ohio, Division of Financial Institutions (“Ohio Division”) that provided for the issuance of an order by the FDIC and the Ohio Division, which order was executed by the FDIC and Ohio Division on July 31, 2009 (the “Bank Agreement”). The Consent Agreement requires Advantage to, among other things, (i) increase its Tier 1 leverage capital ratio to 8%; and (ii) seek regulatory approval prior to declaring or paying any cash dividend. As a result of the Consent Agreement, Advantage is disqualified as a public depository under Ohio law and will incur higher premiums for FDIC insurance of its accounts. Advantage is not in compliance with the capital requirement of the Consent Order and must raise additional capital.

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

There can be no assurances that the Corporation will be successful in its efforts to raise additional capital during 2011. An equity financing transaction would result in substantial dilution to the Corporation’s current stockholders and could adversely affect the market price of the Corporation’s common stock. We are unable to predict if these efforts will be successful, either on a short-term or long-term basis. Should these efforts be unsuccessful, due to the regulatory restrictions which exist that prohibit dividends between the Bank and Camco, which may cause Camco to be unable to meet its financial obligations in the normal course of business. Further, a material failure to comply with the provisions of the MOU, Camco Agreement or Consent Order could result in additional enforcement actions by the FDIC, the Ohio Division or the FRB.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable.

Item 4: Controls and Procedures

Camco’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of Camco’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2011. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Camco’s disclosure controls and procedures were effective as of September 30, 2011. During the quarter ended September 30, 2011, there were no changes in Camco’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect Camco’s internal controls over financial reporting.

PART II

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in the Corporation’s Form 10-K for the year ended December 31, 2010. The risk factors described in the Annual Report on Form 10-K are not the only risks facing the Corporation. Additional risks and uncertainties not currently known to the Corporation or that management currently deems to be immaterial also may materially adversely affect the Corporation’s business, financial condition and / or operating results. Moreover, the Corporation undertakes no obligation and disclaims any intention to publish revised information or updates to forward looking statements contained in such risk factors or in any other statement made ay any time by the Corporation or any of its directors, officers, employees or other representatives, unless and until any such revisions or updates are expressly required to be disclosed by securities laws or regulations.

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

(a) Not applicable

(b) Not applicable

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits


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

Exhibit 3(ii)	2003 Amended and Restated By-Laws of Camco Financial Corporation	Incorporated by reference to Camco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, Exhibit 3(ii)

Exhibit 10	2011 Incentive Award Plan	Incorporated by reference to Camco’s 8-K filed on April 26, 2011

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

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

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

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

Exhibit 101.INS	XBRL Instance Document

Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Link base Document

Exhibit 101.LAB	XBRL Taxonomy Extension Label Link base Document

Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Link base Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 10, 2011	By:	/s/ James E. Huston
		James E. Huston
		Chief Executive Officer

Date: November 10, 2011	By:	/s/ John E. Kirksey
		John E. Kirksey
		Chief Financial Officer

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