Summary of CAMCO FINANCIAL CORP

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 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

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Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION For the three-month periods ended March 31, 2009 and 2008 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.
Discussion of Financial Condition Changes from December 31, 2008 to March 31, 2009
At March 31, 2009, Camco's consolidated assets totaled $967.0 million, a decrease of $33.6 million, or 3.4%, from December 31, 2008. The decrease in total assets resulted primarily from decreases in loans receivable. 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. The current decrease in loan rates has contributed to additional profits relating to the sale of fixed rate loans. Pay downs of loans and possible future growth in deposits would most likely be used to reduce outstanding borrowings and brokered deposits. Cash and interest-bearing deposits in other financial institutions totaled $56.0 million at March 31, 2009, an increase of $3.7 million, or 7.1%, from December 31, 2008. As noted in our annual report for fiscal year 2008, we have improved our liquidity position by reducing borrowings and will continue to utilize excess cash to reduce borrowings and deploy into loans and investment securities in the second quarter of 2009.
As of March 31, 2009 securities totaled $95.5 million, a decrease of $3.3 million, or 3.3%, from December 31, 2008, due to principal repayments of $15.1 million offset partially by purchases totaling $11.5 million and the increase in the fair value of securities available for sale of $334,000 for the three-month period ended March 31, 2009. Purchases were comprised of intermediate-term callable notes and mortgage-backed securities issued by U.S. Government sponsored enterprises with an average yield of 2.0%. All of the securities purchased were classified as available for sale.
Loans receivable, including loans held for sale, totaled $727.9 million at March 31, 2009, a decrease of $30.9 million, or 4.1%, from December 31, 2008. The decrease resulted primarily from principal repayments of $75.0 million and loan sales of $26.0 million which were partially offset by loan disbursements totaling $72.9 million. The volume of loans originated for sale in the secondary market during the first three months of 2009 increased compared to the 2008 period by $16.9 million, or 150.1%. In conjunction with increased originations the volume of loan sales increased by $13.0 million or 100.5% year to year. While we have seen a slight increase in prepayments on residential mortgage loans, our ability to originate new residential mortgage loans has been improved by the decrease in rates and refinancing of 1-4 family residential homes. Loan originations during the three-month period ended March 31, 2009, included $39.3 million in loans secured by one- to four-family residential real estate, $23.3 million of commercial loans, and $10.3 million in consumer and other loans. Our intent is to continue to service our communities in 1-4 family residential, consumer and commercial real estate lending in future periods. Further deterioration of the residential loan market in Ohio may result in a continued shift in the loan portfolio toward commercial and consumer loans. We have embraced the strategy of transforming our balance sheet toward commercial and consumer loans and we have introduced new leadership to our commercial lending team during the first quarter of 2009 to expand our product offering and improve the execution of our relationship lending within the markets in our footprint.

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Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION For the three-month periods ended March 31, 2009 and 2008 The allowance for loan losses totaled $15.9 million and $15.7 million at March 31, 2009, and December 31, 2008, representing 27.3% and 29.4% of nonperforming loans, respectively, at those dates. Nonperforming loans (loans with three payments or more delinquent plus nonaccrual loans) totaled $58.0 million and $53.5 million at March 31, 2009 and December 31, 2008, respectively, constituting 7.9% and 7.1% of total net loans, including loans held for sale, at those dates. Net charge-offs totaled $535,000 for the first quarter of 2009.
The following table details delinquent and nonperforming loans at March 31, 2009 and December 31, 2008:

                                                      March 31, 2009                                               December 31, 2008
                                                          90+ days                                                      90+ days
                                   30 - 89 days          delinquent,                             30 - 89 days          delinquent,
In thousands                        delinquent            accruing            Nonaccrual          delinquent            accruing            Nonaccrual
Construction and development                  37                                    9,180        $         253        $           -        $      8,603
HELOC and second mortgage                  2,195                                    5,815                2,434                    -               4,962
1-4 Family                                 6,792                                   21,051                6,419                   44              17,203
Multifamily                                  729                  351               3,559                   30                    -               3,139
Commercial and agricultural                  432                                   17,944                  759                    -              19,450
Consumer and other                            55                    -                 102                   89                    -                 127

Total                             $       10,240        $         351        $     57,651        $       9,984        $          44        $     53,484

Although we believe that the allowance for loan losses at March 31, 2009, is adequate to cover probable, incurred losses inherent in the loan portfolio at that date based upon the available facts and circumstances, there can be no assurance that additions to the allowance for loan losses will not be necessary in future periods, which could adversely affect our results of operations. Unemployment rates in our markets and Ohio in general, are higher than the national average, and bankruptcy and foreclosure filings in Ohio are high compared to the rest of the nation. Additionally, Ohio is experiencing declining values of residential real estate. However, Ohio in general has not experienced significant increases in home values over the past five years like many regions in the U.S., which should comparatively mitigate losses on loans. Nonetheless, these factors, compounded by a very uncertain national economic outlook, may increase the level of future losses beyond our current expectations. Deposits totaled $720.3 million at March 31, 2009 a decrease of $3.7 million, or .5%, from the total at December 31, 2008. The following table details our deposit portfolio balances and the average rate paid on our deposit portfolio at March 31, 2009 and December 31, 2008:

                               March 31, 2009                 December 31, 2008                     Change
                            Balance          Rate           Balance           Rate          Balance          Rate
Noninterest-bearing
demand                     $  34,562          0.00 %      $    37,526          0.00 %      $  (2,964 )         0.00 %
Interest-bearing
demand                        91,416          0.72             87,199          0.91            4,217          (0.19 )
Money market                 110,871          0.69            112,749          1.35           (1,878 )        (0.66 )
Savings                       36,641          0.25             33,838          0.26            2,803          (0.01 )
Certificates of
deposit - retail             400,856          3.40            413,134          3.75          (12,278 )        (0.35 )
Certificates of
deposit - brokered            45,918          3.36             39,510          4.23            6,408          (0.87 )

Total deposits             $ 720,264          2.32 %      $   723,956          2.71 %      $  (3,692 )        (0.39 )%

Brokered deposits were used to reduce borrowings and improve the Bank's liquidity position. However, we acknowledge that brokered deposits are not core, franchise-enhancing deposits, and we do not intend to stray from our strategy of improving the long-term funding mix of the Bank's deposit portfolio by aggregating small business, commercial and retail checking accounts. We have 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.

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Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION For the three-month periods ended March 31, 2009 and 2008 The increase in money market and interest-bearing demand deposit accounts from certificates of deposit is due to customers showing preference toward liquid deposit accounts in anticipation of future increases in interest rates. This shift in the mix of the deposit portfolio from higher-cost certificates of deposits to lower-costing money market and interest-bearing demand accounts and decreasing rates has helped reduce our cost of funds during the first quarter of 2009. However, we will not be able to continue reducing rates as strongly in the second quarter of 2009 as they are currently at very low levels. In addition, we have a significant level of higher cost certificates of deposit maturing in 2009. These maturities that will help to reduce our cost of funds further during the remainder of the current year.
Advances from the FHLB and other borrowings totaled $158.6 million at March 31, 2009, a decrease of $25.3 million, or 13.7%, from the total at December 31, 2008. The decrease in borrowings was primarily due to the decrease in FHLB advances of $38.2 million as we continue to reduce borrowings as a result of the net decrease in the loan portfolio. We have also issued brokered deposits to reduce our outstanding borrowings with the FHLB. See "Liquidity and Capital Resources" for further discussion on our borrowings position.
Stockholders' equity totaled $72.3 million at March 31, 2009, an increase of $562,000, or 0.8%, from December 31, 2008. The increase resulted primarily from net earnings of $235,000, and falling interest rates improved the fair value of our investments securities, which resulted in an increase in unrealized gains on available for sale securities, net of tax, of $220,000. These increases were offset partially by dividends of $71,600.
Comparison of Results of Operations for the Three Months Ended March 31, 2009 and 2008
Camco's net earnings for the three months ended March 31, 2009, totaled $235,000, an increase of $1.2 million, from the net loss of $1.0 million reported in the comparable 2008 period. On a per share basis, the net earnings during the first quarter of 2009 were $0.03, compared to loss of $.14 per share in the first quarter of 2008. The increase in earnings was primarily attributable to a decrease in the provision for losses on loans of $1.7 million, before the effect of federal income taxes. Net Interest Income
Net interest income totaled $5.8 million for the three months ended March 31, 2009, a decrease of $635,000, or 9.8%, compared to the three-month period ended March 31, 2008, generally reflecting the effects of a $29.5 million decrease in the average balance of interest earning assets. Net interest margin fell to 2.62% in the first quarter of 2009 compared to 2.68% in the fourth quarter of 2008 and 2.81% in the first quarter of 2008. The compression in net interest margin during the first quarter of 2009, compared to the first quarter of 2008, was due to a lower volume of interest- earning assets and a lower yield on those assets offset partially by lower cost of interest-earning liabilities in the first quarter of 2009.
Margin pressure is a challenge due to the yield on assets declining at a faster rate than the cost of funds. At the same time, the loan portfolio has not grown to offset the tighter spreads. While portfolio loan production has slowed, we continue to diversify the loan portfolio by encouraging continued growth in commercial and consumer loan balances as these types of loans are normally higher-yielding assets than conventional mortgage loans.
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.

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                          Camco Financial Corporation
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATION
           For the three-month periods ended March 31, 2009 and 2008

Three Months Ended March 31,                           2009                                                 2008
(Dollars in thousands)               Average           Interest         Average           Average           Interest         Average
                                   outstanding          earned           yield/         outstanding          earned           yield/
                                     balance            / paid            rate            balance            / paid            rate
Interest-earning assets:
Loans receivable (1)                    704,211           10,567            6.00 %      $    787,903           13,524            6.87 %
Securities                               94,220              975            4.14 %            93,409            1,076            4.61 %
FHLB stock                               29,888              338            4.52 %            28,816              375            5.21 %
Other Interest-bearing
accounts                                 64,493                7            0.04 %            12,196              109            3.57 %

Total interest-earning
assets                                  892,812           11,887            5.33 %           922,324           15,084            6.54 %

Noninterest-earning assets
(2)                                      92,221                                              103,551


Total average assets              $     985,033                                         $  1,025,875


Interest-bearing
liabilities:
Deposits                                685,870            4,473            2.61 %           674,181            6,401            3.80 %
FHLB advances and other                 169,723            1,569            3.70 %           203,526            2,203            4.33 %

Total interest-bearing
liabilities                             855,593            6,042            2.82 %           877,707            8,604            3.92 %

Noninterest-bearing deposits             38,064                                               38,631
Noninterest-bearing
liabilities                              19,447                                               21,737


Total average liabilities               913,104                                              938,075
Total average shareholders'
equity                                   71,929                                               87,800


Total liabilities and
shareholders' equity              $     985,033                                         $  1,025,875

Net interest income/Interest
rate spread                                            $   5,845            2.51 %                          $   6,480            2.62 %


Net interest margin (3)                                                     2.62 %                                               2.81 %

Average interest-earning
assets to average
interest-bearing liabilities                                              107.88 %                                             107.57 %

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

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

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

Interest income on loans totaled $10.6 million for the three months ended March 31, 2009, a decrease of $3.0, or 21.9%, from the comparable 2008 period. The decrease resulted primarily from a decrease in the average balance outstanding of $83.7 million in 2009 compared to the first quarter of 2008. An 87 basis point decrease in the average yield in the 2009 period also negatively impacted interest income on loans. The Prime rate was 275 basis points lower during the first three months of 2009 compared to the first quarter of 2008, which was a key driver for the decrease in the yield on loans in 2009 as most of the loans tied to the Prime rate re-price within a month of a change in the rate.
Interest income on securities totaled $975,000 for the three months ended March 31, 2009, a decrease of $101,000, or 9.4%, from the first quarter of 2008. The decrease was due primarily to a 47 basis point decrease in the average yield, to 4.14% for the 2009 period offset partially by an $811,000, or .9%, increase in the average balance outstanding in the first quarter of 2009 from the first quarter of 2008, coupled with a.
Dividend income on FHLB stock decreased by $37,000, or 9.9%, due primarily to a 69 basis point decrease in the average yield, to 4.52% in 2009. Interest income on other interest bearing accounts decreased $102,000 or 93.6%, due primarily to a 350 basis point decrease in the average yield, to .04%. This decrease was due to higher balances needed to compensate for charges at correspondent banks leaving less balance for interest calculation coupled with decreased rates. Interest expense on deposits totaled $4.5 million for the three months ended March 31, 2009, a decrease of $1.9 million, or 30.1%, compared to the same quarter in 2008 due primarily to a 119 basis point decrease in the average cost of deposits to 2.61%

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Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION For the three-month periods ended March 31, 2009 and 2008 in the current quarter, offset partially by a $11.7 million, or 1.7%, increase in average interest bearing deposits outstanding. While the cost of deposits was lower in the first quarter of 2009 compared to the first quarter of 2008, the cost in 2009 is expected to stabilize as rates are at lowest levels. However, the interest-bearing deposit portfolio continues to re-price certificates of deposit in 2009, which should decrease costs further if rates continue to be at the current low levels. Although, competitive pressures may limit our ability to reduce interest rates paid on deposits further.
Interest expense on borrowings totaled $1.6 million for the three months ended March 31, 2009 a decrease of $634,000, or 28.8%, from the same 2008 three-month period. The decrease resulted primarily from a $33.8 million, or 16.6%, decrease in the average borrowings outstanding coupled with a 63 basis point decrease in the average cost of borrowings to 3.7%.
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. Based upon an analysis of these factors and an uncertain and pessimistic economic outlook, we increased the provision for losses on loans by $648,000 for the three months ended March 31, 2009, compared to $2.3 million for the same period in 2008. We believe our loans are adequately reserved for probable losses inherent in our loan portfolio at March 31, 2009. However, there can be no assurance that the loan loss allowance will be adequate to absorb losses. Other Income
Other income totaled $2.0 million for the three months ended March 31, 2009 an increase of $644,000, or 48.8%, from the comparable 2008 period. The increase in other income was primarily attributable to a $369,000 increase in the valuation of mortgage servicing rights, an increase of $250,000 in gain on sale of loans income, and a $109,000 increase in late charges, rent and other.
The increases in the valuation of mortgage servicing rights and gain on sale are primarily due to increased sales of $13.0 million from the comparable period in 2008. The increase in rent and other was due to increased revenue earned at our title agency.
General, Administrative and Other Expense General, administrative and other expense totaled $7.0 million for the three months ended March 31, 2009 a decrease of $136,000 or 1.9%, from the comparable period in 2008. The decrease in general, administrative and other expense was due primarily to a decrease of $111,000 in occupancy and equipment, a $93,000 decrease in employee compensation and benefits and a $59,000 decrease in real estate owned and other expense. These decreases were partially offset by an increase of $98,000 in travel, training and insurance.
The decrease in general, administrative and other expense was due to reduction in work force which has decreased employee compensation, employee benefits, payroll taxes and 401k match. The decrease in occupancy and equipment was due to decreasing depreciation coupled with fewer repairs in the current year. The decrease in real estate owned and other expenses was due to loss on the sale relating to real estate owned. The increase in travel, training and insurance was due to increased federal deposit insurance premiums.

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Camco Financial Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION For the three-month periods ended March 31, 2009 and 2008 Federal Income Taxes
The provision for federal income taxes totaled ($78,000) for the three months ended March 31, 2009. Tax credits related to our investment in affordable housing partnerships totaled $81,000 in 2009. Liquidity and Capital Resources
"Liquidity" refers to our ability to fund loan demand and deposit withdrawal requests, to pay dividends to shareholders and to meet other commitments and contingencies. The purpose of liquidity management is to ensure sufficient cash flow to meet all of Camco's financial commitments and to capitalize on opportunities for business expansion in the context of managing interest rate risk exposure. This ability depends on our financial strength, asset quality and the types of deposit and loan instruments offered to customers. We monitor and assess liquidity needs daily in order to meet deposit withdrawals, loan commitments and expenses. Camco's liquidity contingency funding plan identifies liquidity thresholds and red flags that may evidence liquidity concerns or future crises. The contingency plan details specific actions to be taken by management and the Board of Directors. It also identifies sources of emergency liquidity, both asset and liability-based, should Camco encounter a liquidity crisis. In conjunction with our 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 . . .