General

Since its incorporation in 1970, Camco Financial Corporation ("Camco" or the "Corporation") has evolved into a full-service provider of financial products through its subsidiaries, Advantage Bank ("Advantage or "Bank") and Camco Title Agency. Utilizing a common marketing theme based on Camco's commitment to personalized customer service, Camco has grown from $22.8 million of consolidated assets in 1970 to $1.0 billion of consolidated assets at December 31, 2008. Camco's rate of growth is largely attributable to its acquisitions and its continued expansion of product lines from the limited deposit and loan offerings which the Bank could offer in the heavily regulated environment of the 1970s to the wider array of financial service products that commercial banks traditionally offer. Additionally, Camco has enhanced its operational growth, to a lesser extent, by chartering a title insurance agency.

Management believes that continued success in the financial services industry will be achieved by those institutions with a rigorous dedication to building value-added customer-oriented organizations. Toward this end, each of the Bank's regions has the ability to make local decisions for customer contacts and services, however back-office operations are consolidated and centralized. Based on consumer and business preferences, the Bank's management designs financial service products with a view towards differentiating each of the constituent regions from its competition. Management believes that the Bank regions' ability to rapidly adapt to consumer and business needs and preferences is essential to them as community-based financial institutions competing against the larger regional and money-center bank holding companies.

Camco's profitability depends primarily on its level of net interest income, which is the difference between interest income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on deposit accounts and borrowings. In recent years, Camco's operations have also been heavily influenced by its level of other income, including mortgage banking income and other fee income. Camco's operations are also affected by general, administrative and other expenses, including employee compensation and benefits, occupancy expense, data processing, franchise taxes, advertising, other operating expenses and federal income tax expense.

Overview.

During 2008, the economic environment for financial services companies continued
to be disruptive and challenging. We continued to execute our long-term
strategic plan to diversify the balance sheet by increasing our commercial,
commercial real estate and consumer loan portfolios and improve our funding mix
by reducing borrowings and increasing transaction-based deposits. The following
table summarizes our progress:


                                                       2008                   2007
                                                 Balance      Mix       Balance      Mix
                                                         (Dollars in thousands)

    Loans
    Residential real estate and multifamily     $ 441,369       58 %   $ 476,020       58 %
    Nonresidential real estate and commercial     169,950       22       167,988       20
    Home equity lines of credit and consumer      129,618       16       128,874       15
    Construction                                   31,097        4        45,677        5
    Deposits
    Checking accounts                           $ 124,725       17 %   $ 126,887       18 %
    Money market and savings                      146,587       20       148,703       22
    Certificates                                  452,644       63       416,594       60
    Federal Home Loan Bank advances             $ 167,106              $ 199,064

We have found that deposit growth continues to be challenging. Competition for deposits continues to put pressure on marginal funding costs, despite falling market rates in 2008. During fiscal 2008, we were able to increase deposits 4.6%. However, the majority of the growth was certificates of deposit of which $18.0 million related to brokered deposits. The brokered deposits were attained to counter the reduction in borrowing capacity and to ensure we had access to funding in case we encountered significant losses or liquidity demands, and reduced borrowings further. This strategy was defensive and had a negative impact on earnings as funds in excess of our borrowing reductions were not all deployed into loans or securities.

The real estate market in the Midwest continues to create a very challenging environment for most financial institutions. Bankruptcies, foreclosures and unemployment have continued to rise in Ohio. We are working diligently to manage delinquencies and work with our loan customers in order to reduce losses for them, as well as our company. The total loan portfolio decreased $55.5 million for the full year of 2008 as we tightened credit standards and became more selective in underwriting new loans, which reduced new loan production coupled with the volatile market conditions and the current economic environment.

Nonperforming loans increased to $53.5 million at the end of 2008 compared to $24.0 million at the end of 2007. We continued to see increases in nonperforming loans secured by residential real estate, but saw significant increases in nonperforming commercial real estate and land development loans. We continue to deal with the economic challenges in our markets, through our loan charge-offs and provision for loan losses as we recognize the results of these current economic conditions. Net charge offs totaled $5.7 million during 2008, we continue to aggressively work with borrowers to mitigate additional losses.

We believe we are taking significant steps forward in managing our operational efficiency. We are continuing our focus on improving noninterest income and controlling noninterest expense by exiting unprofitable lines of business and refining our operations. We continue to analyze new products to deepen relationships with our customers and improve the structure of our balance sheet.

Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and this annual report 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 subsidiaries, Advantage Bank and Camco Title Agency.

Non-GAAP Financial Measures

This report includes one or more non-GAAP financial measures within the meaning of Regulation G. With respect to each, Camco has disclosed the most directly comparable financial measure calculated and presented in accordance with GAAP and reconciled the differences between the non-GAAP financial measure and the most comparable financial measure presented in accordance with GAAP.

Camco believes that the presentation of the non-GAAP financial measures in this report assist management and investors to compare results period-to-period in a more meaningful and consistent manner and provide a better measure of results for Camco's ongoing operations.

Critical Accounting Policies

This MD&A, as well as disclosures found elsewhere in this annual report, are based upon Camco's consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these financial statements requires Camco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or

available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under US GAAP.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of mortgage servicing rights and goodwill impairment. Actual results could differ from those estimates.

Allowance for Loan Losses. The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration and interpretation of relevant information available to us. In developing this assessment, we 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.

The allowance is regularly reviewed by management to determine whether the amount is considered adequate to absorb probable, incurred losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss experience, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower's ability to repay, and current economic and industry conditions. Also considered as part of that judgment is a review of the Bank's trends in delinquencies and loan losses, as well as trends in delinquencies and losses for the region and nationally, and economic factors.

The allowance for loan losses is maintained at a level that management believes to be adequate to absorb probable, incurred losses inherent in the loan portfolio at the balance sheet dates presented. Our evaluation of the adequacy of the allowance for loan losses is an estimate based on management's current judgment about the credit quality of the loan portfolio. While we strive to reflect all known risk factors in our evaluations, actual results may differ significantly from our estimates.

Mortgage Servicing Rights. To determine the fair value of our mortgage servicing rights ("MSRs") each reporting quarter, we transmit information to a third party provider who assists us with determining the possible impairment of MSRs, as described below.

Servicing assets are recognized as separate assets when loans are sold with servicing retained. A pooling methodology to the servicing valuation, in which loans with similar characteristics are "pooled" together, is applied for valuation purposes. Once pooled, each grouping of loans is evaluated on a discounted earnings basis to determine the present value of future earnings that a purchaser could expect to realize from the portfolio. Earnings are projected from a variety of sources including loan service fees, interest earned on float, net interest earned on escrow balances, miscellaneous income and costs to service the loans. The present value of future earnings is the estimated market value for the pool, calculated using consensus assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. 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 float, which we estimate, takes into consideration the investment portfolio average yield as well as current short duration investment yields. We believe this methodology provides a reasonable estimate. Mortgage loan prepayment speeds are calculated by the third party provider utilizing industry standards 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 earning figures approximate the cash flow that could be received from the servicing portfolio. Valuation results are presented quarterly to management. At that time, we review the information and MSRs are marked to the lower of amortized cost or fair value for the current quarter.

Goodwill. We have developed procedures to test goodwill for impairment on an annual basis using June 30 financial information. This testing procedure is performed with the assistance of a third party that evaluates possible impairment based on the following:

The test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to a reporting unit and comparing the fair value of this reporting unit to its carrying value including goodwill. The value

is determined assuming a freely negotiated transaction between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Accordingly, to derive the fair value of the reporting unit, the following common approaches to valuing business combination transactions involving financial institutions are utilized by a third party selected by Camco: (1) the comparable transactions approach
- specifically based on earnings, book, assets and deposit premium multiples received in recent sales of comparable thrift franchises; and (2) the discounted cash flow approach. The application of these valuation techniques takes into account the reporting unit's operating history, the current market environment and future prospects. As of the most recent quarter, the only reporting unit carrying goodwill is the Bank.

If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and no second step is required. If not, a second test is required to measure the amount of goodwill impairment. The second test of the overall goodwill impairment compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. The impairment loss shall equal the excess of carrying value over fair value.

After each testing period, the third party compiles a summary of the test that is then provided to the Audit and Risk Management Committee of the Board of Directors for review. As of the most recent testing date, September 30, 2008, and utilizing subsequent events through December 21, 2008, the fair value of the reporting unit was considered fully impaired and goodwill was written off as of December 31, 2008.

Summary. We believe the accounting estimates related to the allowance for loan losses, the capitalization, amortization, and valuation of mortgage servicing rights and the goodwill impairment test 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. Management has discussed the development and selection of these critical accounting estimates with the Audit and Risk Management Committee of the Board of Directors and they have reviewed Camco's disclosures relating to such matters in this MD&A.

Discussion of Financial Condition Changes from December 31, 2007 to December 31, 2008

At December 31, 2008, Camco's consolidated assets totaled $1.0 billion, a decrease of $22.8 million, or 2.2%, from the December 31, 2007 total. The decrease in total assets was comprised primarily of decreases in loans receivable offset partially by the increase in securities and cash and cash equivalents. We expect total asset growth to be limited in the near term as the unemployment rates continue to rise and the economy continues to struggle. Further deterioration of the residential loan market in the Midwest may result in a shift in the loan portfolio toward commercial and consumer loans. The current decrease in loan rates may contribute to additional profits relating to the sale of fixed rate loans. Future growth in deposits would most likely be used to reduce outstanding borrowings and brokered deposits. We continue to believe that the distressed economic environment is expected to continue the reduction in the demand for new loan growth in 2009.

Cash and interest-bearing deposits in other financial institutions totaled $52.3 million at December 31, 2008 an increase of $29.3 million, or 127.3%, from December 31, 2007 levels. This increase is reflective of our decision to improve our liquidity position in 2008. Securities totaled $98.8 million at December 31, 2008, an increase of $7.1 million, or 7.7%, from the total at December 31, 2007. Investment security purchases totaled $74.3 million, principal repayments totaling $64.5 million, sales of $4.3 million and an increase in the fair market value of securities available for sale of $1.5 million. The yield on securities purchased during the period was 3.37%.

Approximately 57.0% of the portfolio is expected to mature or prepay during 2009. We have kept the duration and average life of the securities portfolio very short in order to provide liquidity and to reduce borrowings, when available.

At December 31, 2008, other than $641,000 of municipal bonds, all of our debt securities were issued and guaranteed by US Government sponsored enterprises such as Freddie Mac, Fannie Mae, Ginnie Mae and the Federal Home Loan Banks. We held no private-label mortgage-backed securities or collateralized debt obligations.

Loans receivable and loans held for sale totaled $758.8 million at December 31, 2008, a decrease of $56.4 million, or 6.9%, from the total at December 31, 2007. The decrease resulted primarily from repayments of $229.3 million and loan sales of $45.3 million, partially offset by loan disbursements and purchases totaling $242.6 million coupled with the increased provision relating to our allowance for loan and leases. Loan origination volume, including purchases of loans, was less than that of the comparable 2007 period by $55.7 million, or 18.7%, while the volume of loan sales decreased by $4.6 million year to year. The number of loans originated for sale in the secondary market continued to decline as unprecedented disruptions in the residential real estate market significantly slowed home sales and new home construction. Instead of selling adjustable rate loans, we have typically held adjustable-rate mortgage loans for investment as an integral part of our strategy to manage interest rate risk.

Loan originations during the 12 month period were comprised primarily of $128.8 million in commercial loans, $61.4 million of loans secured by one- to four-family residential real estate and $52.4 million in consumer and other loans. Our intent is to continue to expand consumer and commercial real estate lending in future periods as a means of increasing the yield on our loan portfolio and continue with our strategic plan of moving to a more "bank" like institution. In the near term, however, lending volumes of acceptable risk have diminished somewhat due to a slowing economy and loan repayments have been used to reduce borrowings and build liquidity.

During the fourth quarter of 2008, the yield on loans was 6.31%, and the portfolio mix continued to shift to higher yielding consumer and commercial loans. This shift is partially offsetting lower effective rates in the loan portfolio during 2008 due to rapidly falling interest rates, primarily the Prime rate. At December 31, 2008, approximately 14% of our loan portfolio had interest rates tied to the Prime rate and 31.3% of our loan portfolio was fixed rate. Loan portfolio balances fell $56.4 million, or 6.9% during the year with conventional mortgage loans comprising 4.3% of this decrease. The overall loan portfolio decreased for the full year of 2008 as we continued to tighten credit standards and became more selective in underwriting new loans, which significantly reduced new loan production coupled with economic challenges in our markets, particularly in the market for residential real estate.

The allowance for loan losses totaled $15.7 million and $6.6 million at December 31, 2008 and 2007, respectively, representing 29.4% and 26.0% of nonperforming loans at those dates. Nonperforming loans (three months or more delinquent plus nonaccrual loans) totaled $53.5 million and $25.5 million at December 31, 2008 and 2007, respectively, constituting 7.05% and 3.13% of total net loans, including loans held for sale, at those dates. Net charge-offs totaled $5.7 million for 2008 and were comprised mainly of 1-4 family loans and construction and commercial and industrial loans.

The following table details delinquent and nonaccrual loans at December 31, 2008 and 2007:

                                                        December 31,                                                   December 31,
                                                            2008                                                           2007
                                        30-89             90+ Days                                30-89             90+ Days
                                         Days            Delinquent,                               Days            Delinquent,
                                      Delinquent          Accruing           Nonaccrual         Delinquent          Accruing           Nonaccrual
                                                                                         (In thousands)

Construction/Development             $        253       $           -       $      8,603       $         11       $           -       $      5,568
HELOC and second mortgage                   2,434                   -              4,962              1,152                   -              1,026
1-4 Family                                  6,419                  44             17,203              6,652               1,520              8,310
Multifamily                                    30                   -              3,139                  -                   -                871
Commercial                                    759                   -             19,450              2,036                   -              7,603
Consumer and other                             89                   -                127              2,561                   -                617

Total                                $      9,984       $          44       $     53,484       $     12,412       $       1,520       $     23,995

Although we believe that the allowance for loan losses at December 31, 2008 is adequate to cover probable, incurred losses inherent in the loan portfolio at that date based upon the available facts and circumstances, there can be no assurance that additions to the allowance for loan losses will not be necessary in future periods, which could adversely affect our results of operations. Unemployment rates in our markets, and Ohio in general, are higher than the national average. Ohio was registered the nation's seventh-highest state foreclosure rate in 2008. Additionally,

Ohio is experiencing declining values of residential real estate. However, Ohio in general has not experienced significant increases in home values over the past five years like many regions in the U.S., which should comparatively mitigate losses on loans. Nonetheless, these factors, compounded by a very uncertain national economic outlook, may continue to increase the level of future losses beyond our current expectations.

Deposits totaled $724.0 million at December 31, 2008 an increase of $31.8 million, or 4.6% from December 31, 2007. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at December 31, 2008, and December 31, 2007:

                                             December 31,               December 31,
                                                 2008                       2007                      Change
                                          Balance        Rate        Balance        Rate       Balance        Rate
                                                                       (In thousands)
. . .