##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-25196
 CAMCO FINANCIAL CORPORATION
  Delaware
    
    51-0110823(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 
    þ o
  þ o
  o þ o
  o þ




---



##### 



PagePART I -
    
    FINANCIAL INFORMATIONConsolidated Statements of Financial Condition
    
    
    3Consolidated Statements of Earnings
    
    
    4Consolidated Statements of Comprehensive Income (Loss)
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    14Quantitative and Qualitative Disclosures about
Market Risk
    
    
    23Controls and Procedures
    
    
    24PART II -
    
    OTHER INFORMATION
    
    
    25SIGNATURES
    
    
    26EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



Camco Financial Corporation
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCash and due from banks
    
    
    13,592
    
    
    
    21,786Interest-bearing deposits in other financial institution
    
    
    19,346
    
    
    
    11,299Cash and cash equivalents
    
    
    32,938
    
    
    
    33,085Investment securities available for sale  at market
    
    
    55,612
    
    
    
    47,907Investment securities held to maturity  at cost, approximate market
value of $935 and $947 as of June 30, 2006 and December 31,
2005, respectively
    
    
    917
    
    
    
    919Mortgage-backed securities available for sale  at market
    
    
    55,053
    
    
    
    61,607Mortgage-backed securities held to maturity  at cost, approximate market
value of $2,907 and $3,251 as of June 30, 2006 and December 31,
2005, respectively
    
    
    3,004
    
    
    
    3,257Loans held for sale  at lower of cost or market
    
    
    2,114
    
    
    
    1,947Loans receivable  net
    
    
    845,282
    
    
    
    846,763Office premises and equipment  net
    
    
    13,092
    
    
    
    11,569Real estate acquired through foreclosure
    
    
    1,976
    
    
    
    2,581Federal Home Loan Bank stock  at cost
    
    
    27,890
    
    
    
    27,112Accrued interest receivable
    
    
    5,953
    
    
    
    5,297Prepaid expenses and other assets
    
    
    1,502
    
    
    
    1,228Cash surrender value of life insurance
    
    
    20,915
    
    
    
    20,793Goodwill  net of accumulated amortization
    
    
    6,683
    
    
    
    6,683Prepaid federal income taxes
    
    
    742
    
    
    
    500Total assets
    
    $
    1,073,673
    
    
    $
    1,071,248LIABILITIES AND STOCKHOLDERS EQUITYDeposits
    
    $
    681,905
    
    
    $
    660,242Advances from the Federal Home Loan Bank
    
    
    290,441
    
    
    
    307,223Advances by borrowers for taxes and insurance
    
    
    2,089
    
    
    
    3,249Accounts payable and accrued liabilities
    
    
    5,031
    
    
    
    5,331Dividends payable
    
    
    1,127
    
    
    
    1,102Deferred federal income taxes
    
    
    2,977
    
    
    
    3,338Total liabilities
    
    
    983,570
    
    
    
    980,485Stockholders equityPreferred stock  $1 par value; authorized 100,000 shares; no shares outstanding
    
    
    
    
    
    
    Common stock  $1 par value; authorized 14,900,000 shares; 8,829,839 and
8,829,839 shares issued at June 30, 2006 and December 31, 2005, respectively
    
    
    8,830
    
    
    
    8,830Additional paid-in capital
    
    
    59,636
    
    
    
    59,567Retained earnings  substantially restricted
    
    
    43,808
    
    
    
    42,569Accumulated other comprehensive income (loss)  unrealized gains (losses) on
securities designated as available for sale, net of related tax effects
    
    
    (2,360
    )
    
    
    (1,663
    )Less 1,341,025 and 1,251,125 shares of treasury stock at June 30, 2006
and December 31, 2005, respectively  at cost
    
    
    (19,811
    )
    
    
    (18,540
    )Total stockholders equity
    
    
    90,103
    
    
    
    90,763Total liabilities and stockholders equity
    
    $
    1,073,673
    
    
    $
    1,071,248
 3




---



##### Table of Contents



Camco Financial Corporation
 
 CONSOLIDATED STATEMENTS OF EARNINGS
  Six months ended
    
    
    Three months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest incomeLoans
    
    $
    26,740
    
    
    $
    24,273
    
    
    $
    13,491
    
    
    $
    12,311Mortgage-backed securities
    
    
    1,241
    
    
    
    1,493
    
    
    
    608
    
    
    
    742Investment securities
    
    
    1,019
    
    
    
    442
    
    
    
    539
    
    
    
    257Interest-bearing deposits and other
    
    
    1,615
    
    
    
    1,258
    
    
    
    825
    
    
    
    651Total interest income
    
    
    30,615
    
    
    
    27,466
    
    
    
    15,463
    
    
    
    13,961Interest expenseDeposits
    
    
    9,532
    
    
    
    7,289
    
    
    
    5,108
    
    
    
    3,786Borrowings
    
    
    5,849
    
    
    
    5,280
    
    
    
    2,900
    
    
    
    2,646Total interest expense
    
    
    15,381
    
    
    
    12,569
    
    
    
    8,008
    
    
    
    6,432Net interest income
    
    
    15,234
    
    
    
    14,897
    
    
    
    7,455
    
    
    
    7,529Provision for losses on loans
    
    
    720
    
    
    
    600
    
    
    
    360
    
    
    
    360Net interest income after provision
for losses on loans
    
    
    14,514
    
    
    
    14,297
    
    
    
    7,095
    
    
    
    7,169Other incomeLate charges, rent and other
    
    
    1,188
    
    
    
    1,460
    
    
    
    726
    
    
    
    715Loan servicing fees
    
    
    713
    
    
    
    749
    
    
    
    353
    
    
    
    371Service charges and other fees on deposits
    
    
    783
    
    
    
    720
    
    
    
    431
    
    
    
    386Mortgage servicing rights  net
    
    
    (68
    )
    
    
    9
    
    
    
    (46
    )
    
    
    (42
    )Gain on sale of loans
    
    
    179
    
    
    
    349
    
    
    
    80
    
    
    
    179Gain (loss) on sale of real estate acquired through foreclosure
    
    
    (25
    )
    
    
    34
    
    
    
    (80
    )
    
    
    25Gain on sale of fixed assets
    
    
    1
    
    
    
    6
    
    
    
    1
    
    
    
    Gain on investment securities transactions
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    Total other income
    
    
    2,771
    
    
    
    3,340
    
    
    
    1,465
    
    
    
    1,634General, administrative and other expenseEmployee compensation and benefits
    
    
    7,295
    
    
    
    6,873
    
    
    
    3,559
    
    
    
    3,427Deferred compensation and benefits (FAS 91)
    
    
    (1,030
    )
    
    
    (1,098
    )
    
    
    (543
    )
    
    
    (616
    )Occupancy and equipment
    
    
    1,560
    
    
    
    1,560
    
    
    
    780
    
    
    
    763Data processing
    
    
    726
    
    
    
    678
    
    
    
    333
    
    
    
    347Advertising
    
    
    524
    
    
    
    532
    
    
    
    220
    
    
    
    303Franchise taxes
    
    
    473
    
    
    
    146
    
    
    
    228
    
    
    
    67Other operating
    
    
    2,657
    
    
    
    2,685
    
    
    
    1,366
    
    
    
    1,519Total general, administrative and other expense
    
    
    12,205
    
    
    
    11,376
    
    
    
    5,943
    
    
    
    5,810Earnings before federal income taxes
    
    
    5,080
    
    
    
    6,261
    
    
    
    2,617
    
    
    
    2,993Federal income taxes
    
    
    1,586
    
    
    
    2,003
    
    
    
    802
    
    
    
    953NET EARNINGS
    
    $
    3,494
    
    
    $
    4,258
    
    
    $
    1,815
    
    
    $
    2,040EARNINGS PER SHAREBasic
    
    $
    .46
    
    
    $
    .56
    
    
    $
    .24
    
    
    $
    .27Diluted
    
    $
    .46
    
    
    $
    .55
    
    
    $
    .24
    
    
    $
    .26
 4




---



##### Table of Contents



Camco Financial Corporation
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
  Six months ended
    
    
    Three months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings
    
    $
    3,494
    
    
    $
    4,258
    
    
    $
    1,815
    
    
    $
    2,040Other comprehensive income (loss), net of related tax effects:Unrealized holding gains(losses) during the period,
net of tax benefits of $(359), $(165), $(91) and $347
for the respective periods
    
    
    (697
    )
    
    
    (319
    )
    
    
    (177
    )
    
    
    673Reclassification adjustment for realized gains included
in earnings, net of taxes of $0 and $4 for the respective six
month periods and $0 and $0 for each of the three month
periods ended June 30, 2006 and 2005, respectively
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    2,797
    
    
    $
    3,930
    
    
    $
    1,638
    
    
    $
    2,713
 5




---



##### Table of Contents



Camco Financial Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 2006
    
    
    2005Cash flows from operating activities:Net earnings for the period
    
    $
    3,494
    
    
    $
    4,258Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:Amortization of deferred loan origination fees
    
    
    85
    
    
    
    31Amortization of premiums and discounts on investment and
mortgage-backed securities  net
    
    
    132
    
    
    
    254Amortization of mortgage servicing rights  net
    
    
    462
    
    
    
    456Amortization of purchase accounting adjustments  net
    
    
    (44
    )
    
    
    (44
    )Depreciation and amortization
    
    
    613
    
    
    
    621Stock option expense
    
    
    69
    
    
    
    Provision for losses on loans
    
    
    720
    
    
    
    600Federal Home Loan Bank stock dividends
    
    
    (778
    )
    
    
    (603
    )(Gain) loss on sale of real estate acquired through foreclosure
    
    
    25
    
    
    
    (34
    )Gain on sale of office premises and equipment
    
    
    (1
    )
    
    
    (6
    )Gain on investment securities transactions
    
    
    
    
    
    
    (13
    )Gain on sale of loans
    
    
    (179
    )
    
    
    (349
    )Loans originated for sale in the secondary market
    
    
    (27,603
    )
    
    
    (33,825
    )Proceeds from sale of loans in the secondary market
    
    
    27,614
    
    
    
    33,570Increase (decrease) in cash due to changes in:Accrued interest receivable
    
    
    (656
    )
    
    
    (207
    )Prepaid expenses and other assets
    
    
    (274
    )
    
    
    (182
    )Accrued interest and other liabilities
    
    
    (300
    )
    
    
    (271
    )Federal income taxes:Current
    
    
    (242
    )
    
    
    4,582Deferred
    
    
    (1
    )
    
    
    49Net cash provided by operating activities
    
    
    3,136
    
    
    
    8,887Cash flows provided by (used in) investing activities:Proceeds from maturities of investment securities and interest-bearing deposits
    
    
    
    
    
    
    8,000Proceeds from sale of mortgage-backed securities designated as available for saleProceeds from sale of investment securities designated as available for sale
    
    
    
    
    
    
    27Purchase of investment securities designated as available for sale
    
    
    (7,916
    )
    
    
    (21,088
    )Purchase of mortgage-backed securities designated as available for sale
    
    
    (938
    )
    
    
    (3,348
    )Principal repayments on mortgage-backed securities
    
    
    6,769
    
    
    
    10,582Loan principal repayments
    
    
    124,465
    
    
    
    147,045Loan disbursements
    
    
    (122,619
    )
    
    
    (152,313
    )Purchase of loans
    
    
    (1,501
    )
    
    
    (4,730
    )Additions to office premises and equipment
    
    
    (2,136
    )
    
    
    (475
    )Additions to real estate acquired through foreclosure
    
    
    (29
    )
    
    
    (23
    )Proceeds from sale of real estate acquired through foreclosure
    
    
    523
    
    
    
    1,693Proceeds from sale of office premises and equipment
    
    
    1
    
    
    
    7Net increase in cash surrender value of life insurance
    
    
    (382
    )
    
    
    (374
    )Proceeds from redemption of life insurance
    
    
    260
    
    
    
    Net cash used in investing activities
    
    
    (3,503
    )
    
    
    (14,997
    )Net cash provided by (used in) operating and investing activities
(balance carried forward)
    
    
    (367
    )
    
    
    (6,110
    )
 6




---



##### Table of Contents



Camco Financial Corporation
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
 2006
    
    
    2005Net cash provided by (used in) operating and investing activities
(balance brought forward)
    
    
    (367
    )
    
    $
    (6,110
    )Cash flows provided by (used in) financing activities:Net increase in deposits
    
    
    21,663
    
    
    
    1,505Proceeds from Federal Home Loan Bank advances
    
    
    42,139
    
    
    
    10,000Repayment of Federal Home Loan Bank advance
    
    
    (58,921
    )
    
    
    (7,015
    )Dividends paid on common stock
    
    
    (2,230
    )
    
    
    (2,225
    )Purchase of treasury stock
    
    
    (1,271
    )
    
    
    (623
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    200Decrease in advances by borrowers for taxes and insurance
    
    
    (1,160
    )
    
    
    (1,848
    )Net cash provided by (used in) financing activities
    
    
    220
    
    
    
    (6
    )Net decrease in cash and cash equivalents
    
    
    (147
    )
    
    
    (6,116
    )Cash and cash equivalents at beginning of period
    
    
    33,085
    
    
    
    42,894Cash and cash equivalents at end of period
    
    $
    32,938
    
    
    $
    36,778Supplemental disclosure of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    15,303
    
    
    $
    14,389Cash paid for taxes
    
    $
    1,829
    
    
    $
    Supplemental disclosure of noncash investing activities:Unrealized losses on securities designated as available
for sale, net of related tax benefits
    
    $
    (697
    )
    
    $
    (319
    )Recognition of mortgage servicing rights in accordance with
SFAS No. 140
    
    $
    394
    
    
    $
    466Transfers from loans to real estate acquired through foreclosure
    
    $
    1,134
    
    
    $
    2,390Dividends declared but unpaid
    
    $
    1,127
    
    
    $
    1,108
 7




---



##### Table of Contents



Camco Financial Corporation
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    
    Basis of PresentationThe 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, 2005. 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
six- and three-month periods ended June 30, 2006, are not necessarily indicative of the
results which may be expected for the entire year.2.
    
    Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Camco and its two
wholly-owned subsidiaries: Advantage Bank (Advantage or the Bank) and Camco Title
Agency, Inc.3.
    
    Critical Accounting PoliciesManagements Discussion and Analysis of Financial Condition and Results of Operations, as
well as disclosures found elsewhere in this quarterly report, are based upon Camcos
consolidated financial statements, which are prepared in accordance with US GAAP. The
preparation of these financial statements requires Camco to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses. Several
factors are considered in determining whether or not a policy is critical in the preparation
of financial statements. These factors include, among other things, whether the estimates
are significant to the financial statements, the nature of the estimates, the ability to
readily validate the estimates with other information including third parties or available
prices, and sensitivity of the estimates to changes in economic conditions and whether
alternative accounting methods may be utilized under US GAAP.Material estimates that are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses, the valuation of mortgage
servicing rights and goodwill impairment. Actual results could differ from those estimates.Allowance for Loan LossesThe procedures for assessing the adequacy of the allowance for loan losses reflect our
evaluation of credit risk after careful consideration of all 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.
 8




---



##### Table of Contents



Camco Financial Corporation
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  3.
    
    Critical Accounting Policies (continued)Allowance for Loan Losses(continued)The allowance is regularly reviewed by management to determine whether the amount is
considered adequate to absorb probable 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 judgement 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 believed adequate by management to
absorb probable losses inherent in the loan portfolio. Managements evaluation of the
adequacy of the allowance is an estimate based on managements current judgement about the
credit quality of the loan portfolio. While the Corporation strives to reflect all known
risk factors in its evaluations, judgment errors may occur.Mortgage Servicing RightsTo determine the fair value of its mortgage servicing rights (MSRs) each reporting
quarter, the Corporation transmits information to a third party provider, representing
individual 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 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 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 earning 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 market for the current quarter.
 9




---



##### Table of Contents



Camco Financial Corporation
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  3.
    
    Critical Accounting Policies (continued)GoodwillWe have developed procedures to test goodwill for impairment on an annual basis using June
30 financial information. This testing procedure is outsourced to 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 reporting units and comparing the fair value of each 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 (DCF) approach. The application of
the valuation techniques take 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 Enterprise Risk and Audit Committee for review.SummaryManagement believes 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 management 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 Enterprise Risk and Audit
Committee of the Board of Directors and the Enterprise Risk and Audit Committee has reviewed
Camcos disclosures relating to such matters in the quarterly Managements Discussion and
Analysis.
 10




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  4.
    
    Earnings Per ShareBasic earnings per common share is computed based upon the weighted-average number of common
            shares outstanding during the period. Diluted earnings per common share include the
dilutive effect of additional potential common shares issuable under the Corporations stock
option plans. The computations are as follows:
 For the six months ended
    
    For the three months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Weighted-average common shares
outstanding (basic)
    
    
    7,542,430
    
    
    
    7,668,909
    
    
    
    7,521,529
    
    
    
    7,660,120Dilutive effect of assumed exercise
of stock options
    
    
    3,377
    
    
    
    23,719
    
    
    
    3,258
    
    
    
    21,066Weighted-average common shares
outstanding (diluted)
    
    
    7,545,807
    
    
    
    7,692,628
    
    
    
    7,524,787
    
    
    
    7,681,186
 Anti-dilutive options to purchase 291,842 and 167,879 shares of common stock with
respective weighted-average exercise prices of $15.51 and $16.46 were outstanding at June
30, 2006 and 2005, respectively, but were excluded from the computation of common share
equivalents for each of the six month periods then ended, because the exercise prices were
greater than the average market price of the common shares.Anti-dilutive options to purchase 291,842 and 211,650 shares of common stock with respective
weighted-average exercise prices of $15.51 and $16.08 were outstanding at June 30, 2006 and
2005, respectively, but were excluded from the computation of common share equivalents for
each of the three month periods then ended, because the exercise prices were greater than
the average market price of the common shares.5.
    
    Stock Option PlansUnder the 2002 Stock Option Plan, 400,000 shares were reserved for issuance. Additionally,
in connection with the acquisition of Ashland Financial Corporation, the stock options of
Ashland were converted into options to purchase 174,421 shares of the Corporations stock at
an exercise price of $7.38 per share, which were exercisable through 2005. In connection
with the 2000 acquisition of Westwood Homestead Financial Corporation, the stock options of
Westwood Homestead were converted into options to purchase 311,794 shares of the
Corporations stock at a weighted-average exercise price of $11.89 per share, which are
exercisable through 2008.Effective January 1, 2006, the Corporation adopted SFAS No. 123R, Accounting for
Stock-Based Compensation, which contains 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. Compensation is then recognized over the service period, which is usually the
vesting period.
 11




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  5.
    
    Stock Option Plans (continued)Prior to January 1, 2006, the Corporation utilized APB Opinion No. 25 and related
Interpretations in accounting for its stock option plans in 2005. Accordingly, no
compensation cost has been recognized for the plans in 2005. Had compensation cost for the
Corporations stock option plans been determined based on the fair value at the grant dates
for awards under the plans consistent with the accounting method utilized in SFAS No. 123R,
the Corporations net earnings and earnings per share for the three-month and six-month
periods ended June 30, 2006 and 2005 would have been reported as the pro forma amounts
indicated below:
 Six months ended
    
    
    Three months endedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Net earningsAs reported
    
    $
    3,494
    
    
    $
    4,258
    
    
    $
    1,815
    
    
    $
    2,040Add: Stock-based compensation, expense included
in reported income, net of tax
    
    
    61
    
    
    
    
    
    
    
    31
    
    
    
    Deduct: Total stock-based compensation expense
determined under fair value based method
for awards, net of tax
    
    
    (61
    )
    
    
    (42
    )
    
    
    (31
    )
    
    
    (21
    )$
    3,494
    
    
    $
    4,216
    
    
    $
    1,815
    
    
    $
    2,019Earnings per shareBasicAs reported
    
    $
    .46
    
    
    $
    .56
    
    
    $
    .24
    
    
    $
    .27Stock-based compensation, net of tax
    
    
    
    
    
    
    (.01
    )
    
    
    
    
    
    
    (.01
    )Proforma
    
    $
    .46
    
    
    $
    .55
    
    
    $
    .24
    
    
    $
    .26DilutedAs reported
    
    $
    .46
    
    
    $
    .55
    
    
    $
    .24
    
    
    $
    .26Stock-based compensation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pro-forma
    
    $
    .46
    
    
    $
    .55
    
    
    $
    .24
    
    
    $
    .26
 The fair value of each option grant is estimated on the date of grant using the modified
Black-Scholes options-pricing model with the following assumptions used for grants during
2006 and 2005: dividend yield of 4.0% and 3.80%, respectively; expected volatility of
15.16% and 18.76% respectively; a risk-free interest rate of 4.57% and 4.22% respectively,
and an expected life of ten years for all grants.
 12




---



##### Table of Contents



Camco Financial Corporation
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  5.
    
    Stock Option Plans (continued)
  Six months ended
    
    
    Year endedJune 30,
    
    
    December 31,2006
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exerciseShares
    
    
    price
    
    
    Shares
    
    
    priceOutstanding at beginning of period
    
    
    224,636
    
    
    $
    15.71
    
    
    
    218,324
    
    
    $
    12.91Granted
    
    
    84,513
    
    
    
    14.12
    
    
    
    87,240
    
    
    
    16.51Exercised
    
    
    
    
    
    
    
    
    
    
    (70,162
    )
    
    
    8.43Forfeited
    
    
    (442
    )
    
    
    16.43
    
    
    
    (10,766
    )
    
    
    12.85Outstanding at end of period
    
    
    308,707
    
    
    $
    15.28
    
    
    
    224,636
    
    
    $
    15.71Options exercisable at period-endWeighted-average fair value of
options granted during the period
    
    
    227,016
    
    
    $
    15.34
    
    
    
    138,305
    
    
    $
    15.22
  Number outstanding
    
    
    5,255Range of exercise prices
    
    $
    8.92  9.75Number outstanding
    
    
    96,123Range of exercise prices
    
    
    11.36  14.16Number outstanding
    
    
    207,329Range of exercise prices
    
    
    14.55  17.17Weighted-average exercise price
    
    $
    15.28Weighted-average remaining contractual life
    
    
    7.05
 6.
    
    Forward Looking Statements
  13




---



##### Table of Contents



Camco Financial Corporation
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Discussion of Financial Condition Changes from December 31, 2005 to June 30, 2006
      14




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Discussion of Financial Condition Changes from December 31, 2005 to June 30, 2006
    15




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Discussion of Financial Condition Changes from December 31, 2005 to June 30, 2006
   Camco:
    
    At June 30, 2006To be well-capitalized underFor capital
    
    prompt correctiveActual
    
    adequacy purposes
    
    action provisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital
(to risk-weighted assets)
    
    $
    92,729
    
    
    
    12.26
    %
    
    
    3$60,496
    
    
    
    38.0
    %
    
    
    3$75,620
    
    
    
    310.0
    %Tier I capital
(to risk-weighted assets)
    
    $
    85,090
    
    
    
    11.25
    %
    
    
    3$30,248
    
    
    
    34.0
    %
    
    
    3$45,372
    
    
    
    3  6.0
    %Tier I leverage
    
    $
    85,090
    
    
    
    7.97
    %
    
    
    3$42,720
    
    
    
    34.0
    %
    
    
    3$52,892
    
    
    
    3  5.0
    %
 Advantage:
    
    At June 30, 2006To be well-capitalized underFor capital
    
    prompt correctiveActual
    
    adequacy purposes
    
    action provisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital
(to risk-weighted assets)
    
    $
    84,057
    
    
    
    11.13
    %
    
    
    3$60,354
    
    
    
    38.0
    %
    
    
    3$75,493
    
    
    
    310.0
    %Tier I capital
(to risk-weighted assets)
    
    $
    76,418
    
    
    
    10.12
    %
    
    
    3$30,197
    
    
    
    34.0
    %
    
    
    3$45,296
    
    
    
    3  6.0
    %Tier I leverage
    
    $
    76,418
    
    
    
    7.22
    %
    
    
    3$42,314
    
    
    
    34.0
    %
    
    
    3$52,892
    
    
    
    3  5.0
    %
  Comparison of Results of Operations for the Six Months Ended June 30, 2006 and 2005
 General
  16




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Six Months Ended June 30, 2006 and 2005
(continued)
 Net Interest Income
  AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
  For six months ended June 30,2006
    
    
    2005Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    Averageoutstanding
    
    
    earned/
    
    
    yield/
    
    
    outstanding
    
    
    earned/
    
    
    yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rate(Dollars in thousands)Interest-earning assets:Loans receivable (1)
    
    $
    846,501
    
    
    $
    26,740
    
    
    
    6.32
    %
    
    $
    842,347
    
    
    $
    24,273
    
    
    
    5.76
    %Mortgage-backed securities (2)
    
    
    61,136
    
    
    
    1,241
    
    
    
    4.06
    
    
    
    80,439
    
    
    
    1,493
    
    
    
    3.71Investment securities (2)
    
    
    51,285
    
    
    
    1,019
    
    
    
    3.97
    
    
    
    27,529
    
    
    
    442
    
    
    
    3.21Interest-bearing deposits and other
interest-earning assets
    
    
    63,114
    
    
    
    1,615
    
    
    
    5.12
    
    
    
    59,437
    
    
    
    1,258
    
    
    
    4.23Total interest-earning assets
    
    $
    1,022,036
    
    
    
    30,615
    
    
    
    5.99
    
    
    $
    1,009,752
    
    
    
    27,466
    
    
    
    5.44Interest-bearing liabilities:Deposits
    
    $
    639,589
    
    
    
    9,532
    
    
    
    2.98
    
    
    $
    644,082
    
    
    
    7,289
    
    
    
    2.26FHLB advances
    
    
    296,448
    
    
    
    5,849
    
    
    
    3.95
    
    
    
    291,590
    
    
    
    5,280
    
    
    
    3.62Total interest-bearing liabilities
    
    $
    936,037
    
    
    
    15,381
    
    
    
    3.29
    
    
    $
    935,672
    
    
    
    12,569
    
    
    
    2.69Net interest income/Interest rate spread
    
    
    
    
    
    $
    15,234
    
    
    
    2.70
    %
    
    
    
    
    
    $
    14,897
    
    
    
    2.75
    %Net interest margin(3)
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    2.95
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    109.2
    %
    
    
    
    
    
    
    
    
    
    
    107.9
    %
 
 (1)
    
    Includes nonaccrual loans and loans held for sale.(2)
    
    Includes securities designated as available for sale.(3)
    
    Net interest income as a percent of average interest-earning assets. 17




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Six Months Ended June 30, 2006 and 2005
(continued)
    Provision for Losses on Loans
  18




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Six Months Ended June 30, 2006 and 2005
 Other Income
   General, Administrative and Other Expense
  Federal Income Taxes
  19




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Three Months Ended June 30, 2006 and 2005
 General
  Net Interest Income
     20




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Three Months Ended June 30, 2006 and 2005
 Provision for Losses on Loans
  Other Income
  General, Administrative and Other Expense
  21




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  Comparison of Results of Operations for the Three Months Ended June 30, 2006 and 2005
 Federal Income Taxes
  Liquidity and Capital Resources
     Payments due by periodLess
    
    
    
    
    
    
    
    
    
    MoreMore
    
    
    1-3
    
    
    3-5
    
    
    than1 year
    
    
    years
    
    
    years
    
    
    5 years
    
    
    Total(In thousands)Contractual obligations:Operating lease obligations
    
    $
    97
    
    
    $
    348
    
    
    $
    263
    
    
    $
    296
    
    
    $
    1,004Advances from the Federal Home Loan Bank
    
    
    105,317
    
    
    
    93,108
    
    
    
    26,630
    
    
    
    51,881
    
    
    
    276,936Certificates of deposit
    
    
    285,856
    
    
    
    121,668
    
    
    
    17,463
    
    
    
    854
    
    
    
    425,841Amount of commitments expiration per period
Commitments to originate loans:Overdraft lines of credit
    
    
    760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760Home equity lines of credit
    
    
    78,101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,101Commercial lines of credit/loans in process
    
    
    11,259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,259One- to four-family and multi-family loans
    
    
    39,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,038Non-residential real estate and land loans
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187Total contractual obligations
    
    $
    520,615
    
    
    $
    215,124
    
    
    $
    44,356
    
    
    $
    53,031
    
    
    $
    833,126
 22




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  
 Quantitative and Qualitative Disclosures about Market Risk
     Change in
    
    Percentage Change inInterest Rates
    
    Net Interest Income(basis points)
    
    12 Months+200
    
    -7.95%+100
    
    -3.71%-100
    
    +1.02%-200
    
    -0.66%
 23




---



##### Table of Contents



Camco Financial Corporation
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
     Change inInterest Rates(basis points)
    
    EVE Ratio+200
    
    5.91%+100
    
    6.86%0
    
    7.69%-100
    
    8.22%-200
    
    8.74%
 
 Controls and Procedures
   24




---



##### Table of Contents



Legal Proceedings
  Unregistered Sales of Equity Securities and Use of Proceeds
 Maximum Number ofShares that May yetNumber of shares
    
    Average price paid
    
    be Purchased UnderPeriod of Repurchase
    
    purchased
    
    per share
    
    the ProgramApril 1  April 30
    
    
    
    
    
    
    N/A
    
    
    
    376,836May 1  31
    
    
    20,500
    
    
    $
    14.10
    
    
    
    356,336June 1  30
    
    
    27,400
    
    
    $
    14.03
    
    
    
    328,936Total
    
    
    47,900
    
    
    $
    14.06
    
    
    
    328,936
  Defaults Upon Senior Securities
  Submission of Matters to a Vote of Security Holders
  For
    
    WithheldRichard C. Baylor
    
    
    6,156,272
    
    
    
    113,474Robert C. Dix
    
    
    6,133,945
    
    
    
    135,801Paul D. Leake
    
    
    6,147,932
    
    
    
    121,814Douglas F. Mock
    
    
    6,148,663
    
    
    
    121,083
  Other Information
  Exhibits
 Exhibit 31.1
    
    Section 302 certification by Chief Executive OfficerExhibit 31.2
    
    Section 302 certification by Chief Financial OfficerExhibit 32.1
    
    Section 1350 certification by Chief Executive OfficerExhibit 32.2
    
    Section 1350 certification by Chief Financial Officer
 25




---



##### Table of Contents



SIGNATURES
  Date:August 4, 2006
    By:
    /s/ Richard C. BaylorRichard C. BaylorChief Executive OfficerDate:  August 4, 2006
    By:
    /s/ Mark A. SeversonMark A. SeversonChief Financial Officer 26