CAMCO FINANCIAL CORP - 10-Q Quarterly Report

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003
-------------------------------------------

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _______________

Commission File Number 0-25196

CAMCO FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 51-0110823
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

6901 Glenn Highway, Cambridge, Ohio 43725-9757
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)

Registrant's telephone number, including area code: (740) 435-2020

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

As of November 12, 2003, the latest practicable date, 7,380,387 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.

Page 1 of 23

Camco Financial Corporation

INDEX

2

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

3

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

4

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

5

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

6

CAMCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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

7

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the nine- and three-month periods ended September 30, 2003 and 2002

1. Basis of Presentation

The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with accounting principles generally accepted in
the United States of America ("US GAAP"). Accordingly, these financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto of Camco Financial Corporation
("Camco" or the "Corporation") included in Camco's Annual Report on
Form 10-K for the year ended December 31, 2002. However, all
adjustments (consisting only of normal recurring accruals) which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial statements, have been included. The results of
operations for the nine and three month periods ended September 30,
2003, are not necessarily indicative of the results which may be
expected for the entire year.

2. Principles of Consolidation

The accompanying consolidated financial statements include the accounts
of Camco and two wholly-owned subsidiaries: Advantage Bank ("Advantage"
or the "Bank") and Camco Title Insurance Agency, Inc., as well as a
second tier subsidiary, Camco Mortgage Corporation.

3. Critical Accounting Policies

The "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 Financial'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 assets 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 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

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

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 ASSETS

To 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.

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 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 the mortgage servicing asset is marked to lower of
amortized cost or market for the current quarter.

9

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

3. Critical Accounting Policies (continued)

GOODWILL

We have developed procedures to test goodwill for impairment on an
annual basis using June financials. 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 audit committee for review.

SUMMARY

Management believes the accounting estimates related to the allowance
for loan losses, the capitalization, amortization, and valuations of
mortgage servicing assets 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 audit committee of the board of directors and the audit
committee has reviewed Camco's disclosures relating to them in the
quarterly Management's Discussion and Analysis.

10

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

4. Earnings Per Share

Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the period.
Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under the Corporation's
stock option plan. The computations are as follows:

Options to purchase 7,088 and 65,441 shares of common stock with
respective weighted-average exercise prices of $16.59 and $14.83 were
outstanding at September 30, 2003 and 2002, respectively, but were
excluded from the computation of common share equivalents for the nine
and three month periods then ended, because the exercise prices were
greater than the average market price of the common shares.

5. Stock Option Plans

Camco presently has options outstanding under four stock option plans.
Under the 1995 Plan and the 2002 Plan, 161,488 and 400,000 shares,
respectively, were reserved for issuance. Additionally, in connection
with the 1996 acquisition of First Savings, 265,876 shares were
reserved for issuance under the First Ashland stock option plan. In
connection with the 2000 acquisition of Westwood Homestead, 311,794
shares were reserved for issuance under the Westwood stock option plan.

The Corporation accounts for its stock option plans in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," which contains
a fair-value based method for valuing stock-based compensation that
entities may use, 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.
Alternatively, SFAS No. 123 permits entities to continue to account for
stock options and similar equity instruments under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options
using APB Opinion No. 25 are required to make pro forma disclosures of
net earnings and earnings per share, as if the fair-value based method
of accounting defined in SFAS No. 123 had been applied.

The Corporation utilizes APB Opinion No. 25 and related Interpretations
in accounting for its stock option plans. Accordingly, no compensation
cost has been recognized for the plans. 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. 123, the Corporation's net
earnings and earnings per share for the nine- and three-month periods
ended September 30, 2003 and 2002, would have been reported as the pro
forma amounts indicated below:

11

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

5. Stock Option Plans (continued)

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 2003, 2002 and 2001:
dividend yield of 3.50%, 3.84% and 4.07%, respectively; expected
volatility of 16.88%, 16.34%, and 17.06%, respectively; a risk-free
interest rate of 3.95%, 2.00% and 3.00%, respectively, and an expected
life of ten years for all grants.

A summary of the status of the Corporation's stock option plans as of
September 30, 2003 and December 31, 2002 and 2001, and changes during
the periods ending on those dates is presented below:

12

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

5. Stock Option Plans (continued)

The following information applies to options outstanding at September
30, 2003:

Number outstanding 141,302
Range of exercise prices $7.40 - $9.79
Number outstanding 125,505
Range of exercise prices $11.36 - 16.59
Weighted-average exercise price $11.83
Weighted-average remaining contractual life 6.0 years

6. Effects of Recent Accounting Pronouncements

In September 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 provides financial accounting and reporting guidance for
costs associated with exit or disposal activities, including one-time
termination benefits, contract termination costs other than for a
capital lease, and costs to consolidate facilities or relocate
employees. SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. Management adopted SFAS No. 146
effective January 1, 2003, without material effect on the Corporation's
financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. SFAS No. 148 is effective for fiscal years
beginning after December 15, 2002. The expanded annual disclosure
requirements and the transition provisions are effective for fiscal
years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The Corporation
adopted the disclosure provisions of SFAS No. 148 effective December
31, 2002, without material effect on the Corporation's financial
position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others."
FIN 45 requires a guarantor entity, at the inception of a guarantee
covered by the measurement provisions of the interpretation, to record
a liability for the fair value of the obligation undertaken in issuing
the guarantee. FIN 45 applies prospectively to guarantees Camco issues
or modifies subsequent to December 31, 2002. Camco had no letters of
credit outstanding at September 30, 2003.

13

CAMCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

6. Effects of Recent Accounting Pronouncements (continued)

In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or
both. FIN 46 also requires disclosures about variable interest entities
that a company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January
31, 2003. The consolidation requirements apply to existing entities in
the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Corporation has no
variable interest entities. Management adopted FIN 46 effective July 1,
2003, without material effect on Camco's financial condition or results
of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," which clarifies
certain implementation issues raised by constituents and amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to include the conclusions reached by the FASB on certain
FASB Staff Implementation Issues that, while inconsistent with
Statement 133's conclusions, were considered by the Board to be
preferable; amends SFAS No. 133's discussion of financial guarantee
contracts and the application of the shortcut method to an
interest-rate swap agreement that includes an embedded option and
amends other pronouncements.

The guidance in Statement 149 is effective for new contracts entered
into or modified after June 30, 2003 and for hedging relationships
designated after that date. Management adopted SFAS No. 149 effective
July 1, 2003, as required, without material effect on the Corporation's
financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which changes the classification in the statement of financial
position of certain common financial instruments from either equity or
mezzanine presentation to liabilities and requires an issuer of those
financial statements to recognize changes in fair value or redemption
amount, as applicable, in earnings. SFAS No. 150 requires an issuer to
classify certain financial instruments as liabilities, including
mandatorily redeemable preferred and common stocks.

SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and, with one exception, is effective at
the beginning of the first interim period beginning after June 15, 2003
(July 1, 2003 as to the Corporation). The effect of adopting SFAS No.
150 must be recognized as a cumulative effect of an accounting change
as of the beginning of the period of adoption. Restatement of prior
periods is not permitted. Management adopted SFAS No. 150 effective
July 1, 2003, as required, without material effect on the Corporation's
financial condition or results of operations.

7. Forward Looking Statements

Certain statements contained in this report that are not historical
facts are forward looking statements that are subject to certain risks
and uncertainties. When used herein, the terms "anticipates," "plans,"
"expects," "believes," and similar expressions as they relate to Camco
or its management are intended to identify such forward looking
statements. Camco's actual results, performance or achievements may
materially differ from those expressed or implied in the
forward-looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not limited
to, general economic conditions, interest rate environment, competitive
conditions in the financial services industry, changes in law,
governmental policies and regulations, and rapidly changing technology
affecting financial services.

14

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

For the nine- and three-month periods ended September 30, 2003 and 2002

Discussion of Financial Condition Changes from December 31, 2002 to September
30, 2003

At September 30, 2003, Camco's consolidated assets totaled $1.045 billion, a
decrease of $38.5 million, or 3.6%, from the December 31, 2002 total. The
decrease in total assets was comprised primarily of decreases in loans held for
sale and investment and mortgage-backed securities, which were partially offset
by an increase in loans receivable.

Cash and interest-bearing deposits in other financial institutions totaled $45.1
million at September 30, 2003, a decrease of $11.9 million, or 20.9%, from
December 31, 2002 levels. Investment securities totaled $34.4 million at
September 30, 2003, a decrease of $9.7 million, or 22.0%, from the total at
December 31, 2002. Investment securities purchases, which were comprised
primarily of $10.3 million of intermediate-term callable U.S. Government agency
obligations with an average yield of 2.95%, were offset by $17.2 million of
maturities and sales of $2.0 million.

Mortgage-backed securities totaled $97.6 million at September 30, 2003, a
decrease of $19.7 million, or 16.8%, from December 31, 2002. Mortgage-backed
securities purchases totaled $113.3 million, while principal repayments totaled
$75.4 million and sales totaled $54.1 million during the nine-month period ended
September 30, 2003. Purchases of mortgage-backed securities during the period
were comprised primarily of short duration mortgage-backed securities and
collateralized mortgage obligations yielding 3.41%, which were classified as
available for sale.

Loans receivable, including loans held for sale, totaled $800.8 million at
September 30, 2003, an increase of $3.8 million, or .5%, from December 31, 2002.
The increase resulted primarily from loan disbursements and purchases totaling
$511.3 million, which were partially offset by principal repayments of $250.8
million and loan sales of $253.2 million. The volume of loans originated and
purchased during the first nine months of 2003 was greater than that of the
comparable 2002 period by $169.3 million, or 49.5%, while the volume of loan
sales increased by $114.7 million year to year. As interest rates in the economy
have begun to rise, consumer preference is moving towards adjustable-rate
mortgage loans to fund home purchases. Camco has typically held adjustable-rate
mortgage loans in its portfolio as part of its strategy to maintain its
asset-sensitive interest-rate risk position. Loan originations during the
nine-month period ended September 30, 2003, were comprised primarily of $392.8
million of loans secured by one- to four-family residential real estate, $72.0
million in consumer and other loans and $46.5 million in loans secured by
commercial real estate. Management will continue to expand its consumer and
commercial real estate lending in future periods as a means of increasing the
yield on its loan portfolio.

The allowance for loan losses totaled $5.3 million and $5.5 million at September
30, 2003 and December 31, 2002, respectively, representing 43.4% and 40.3% of
nonperforming loans, respectively, at those dates. Nonperforming loans (90 days
or more delinquent plus nonaccrual loans) totaled $12.3 million and $13.6
million at September 30, 2003 and December 31, 2002, respectively, constituting
1.53% and 1.71% of total net loans, including loans held for sale, at those
dates. At September 30, 2003, nonperforming loans were comprised of $10.5
million in one- to four-family residential real estate loans, $1.3 million in
commercial real estate loans and $467,000 of consumer loans. Management believes
all nonperforming loans are adequately collateralized and no loss is expected
over and above allocated reserves on such loans. Loans delinquent greater than
30 days but less than 90 days totaled $8.6 million at September 30, 2003,
compared to $10.5 million at December 31, 2002, a decrease of $1.9 million, or
18.1%. Although management believes that its allowance for loan losses is
adequate based upon the available facts and circumstances at September 30, 2003,
there can be no assurance that increased provisions will not be necessary in
future periods, which could adversely affect Camco's results of operations.

15

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

Discussion of Financial Condition Changes from December 31, 2002 to September
30, 2003 (continued)

Deposits totaled $661.5 million at September 30, 2003, a decrease of $32.6
million, or 4.7%, from the total at December 31, 2002. The decrease in deposits
was due to withdrawal of maturing public funds totaling approximately $12.5
million, coupled with management's decision to not aggressively compete to renew
matured higher rate certificates of deposit.

Stockholders' equity totaled $93.8 million at September 30, 2003, a decrease of
$4.9 million, or 4.9%, from December 31, 2002. The decrease resulted primarily
from dividends of $3.2 million, purchases of treasury shares totaling $7.0
million and a $2.0 million decrease in the unrealized gains on available for
sale securities, which were partially offset by net earnings of $6.3 million and
proceeds from the exercise of stock options of $1.1 million. The increase in
treasury shares represented purchases under the 5% stock repurchase plan that
was announced in October 2002.

Advantage is required to maintain minimum regulatory capital pursuant to federal
regulations. At September 30, 2003, the Bank's regulatory capital exceeded all
regulatory capital requirements.

Comparison of Results of Operations for the Nine Months Ended September 30, 2003
and 2002

General

Camco's net earnings for the nine months ended September 30, 2003 totaled $6.3
million, a decrease of $1.1 million, or 15.0%, from the $7.4 million of net
earnings reported in the comparable 2002 period. The decrease in earnings was
primarily attributable to a decrease of $2.9 million in net interest income, an
increase in the provision for losses on loans of $178,000 and an increase in
general, administrative and other expense of $919,000, which were partially
offset by an increase in other income of $2.2 million and a decrease in federal
income tax expense of $677,000.

Net Interest Income

Total interest income amounted to $42.0 million for the nine months ended
September 30, 2003, a decrease of $8.4 million, or 16.7%, compared to the
nine-month period ended September 30, 2002, generally reflecting the effects of
a decrease in yield on total interest-earning assets of 101 basis points, from
6.51% in the 2002 period to 5.50% in the 2003 period, coupled with a $14.1
million, or 1.4%, decrease in the average balance of interest-earning assets
outstanding year to year.

Interest income on loans totaled $36.5 million for the nine months ended
September 30, 2003, a decrease of $7.6 million, or 17.1%, from the comparable
2002 period. The decrease resulted primarily from a $44.4 million, or 5.4%,
decrease in the average balance outstanding and an 89 basis point decrease in
the average yield, to 6.29% in the 2003 period. Interest income on
mortgage-backed securities totaled $2.8 million for the nine months ended
September 30, 2003, a $520,000, or 15.8%, decrease year to year. The decrease
was due primarily to a 165 basis point decrease in the average yield, to 3.06%
in the 2003 period, which was partially offset by a $27.8 million, or 29.8%,
increase in the average balance outstanding. Interest income on investment
securities increased by $87,000, or 9.4%, due primarily to an $8.4 million
increase in the average balance outstanding, which was partially offset by a
decline in the average yield, to 3.36% in the 2003 period. Interest income on
other interest-earning assets decreased by $453,000, or 21.4%, due primarily to
a decrease in the average yield, to 2.69% in the 2003 period, coupled with a
decrease of $6.0 million, or 6.8%, in the average balance outstanding year to
year.

16

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

Comparison of Results of Operations for the Nine Months Ended September 30, 2003
and 2002 (continued)

Net Interest Income (continued)

Interest expense on deposits totaled $12.5 million for the nine months ended
September 30, 2003, a decrease of $5.5 million, or 30.8%, compared to the 2002
period, due primarily to a 97 basis point decrease in the average cost of
deposits, to 2.53% in the 2003 period, and a $31.0 million, or 4.5%, decrease in
the average balance of deposits outstanding year to year. Interest expense on
borrowings totaled $11.5 million for the nine months ended September 30, 2003, a
decrease of $16,000, or .1%, from the 2002 nine-month period. The decrease
resulted primarily from a 31 basis point decrease in the average cost of
borrowings to 5.56% in the 2003 period, which was partially offset by a $14.2
million, or 5.4%, increase in the average balance outstanding year to year.
Decreases in the level of average yields on interest-earning assets and average
costs of interest-bearing liabilities were due primarily to the overall decrease
in interest rates in the economy.

As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $2.9 million, or 13.8%, to a total of $18.0
million for the nine months ended September 30, 2003. The interest rate spread
decreased to approximately 2.07% at September 30, 2003, from 2.36% at September
30, 2002, while the net interest margin decreased to approximately 2.36% for the
nine months ended September 30, 2003, compared to 2.70% for the 2002 period.

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 collectibility of the Bank's loan portfolio.
Based upon an analysis of these factors, management recorded a provision for
losses on loans totaling $930,000 for the nine months ended September 30, 2003,
an increase of $178,000, or 23.7%, over the comparable period in 2002. The
current period provision was predicated primarily on an increase in the loan
portfolio, including the increased percentage of loans secured by commercial
real estate within the loan portfolio and an increase in the level of loans
charged-off year to year. Management believes all classified loans are
adequately collateralized, however, there can be no assurance that the loan loss
allowance will be adequate to absorb losses on known classified assets or that
the allowance will be adequate to cover losses on classified assets in the
future.

Other Income

Other income totaled $9.2 million for the nine months ended September 30, 2003,
an increase of $2.2 million, or 31.0%, over the comparable 2002 period. The
increase in other income was primarily attributable to a $1.6 million increase
in the gain on sale of loans, a $574,000, or 24.2%, increase in late charges,
rent and other and a $689,000 increase in gain on sale of investment and
mortgage-backed securities, which were partially offset by an $812,000, or
81.2%, decrease in income from mortgage servicing rights. Management anticipates
less gain on sale of investment and mortgage-backed securities in the forseeable
future due to rising rate environment and projected liquidity needs. The
increase in the gain on sale of loans was due to the $114.7 million, or 82.8%,
increase in sales volume, as Advantage continued to sell fixed-rate loans
originated in the low interest rate environment that prevailed through much of
the nine month period ended September 30, 2003. As interest rates increase
management expects the volume of loans sold into the secondary market to
decrease. If this occurs the gain on sale of loans would decrease. The increase
in late charges, rent and other was due primarily to an increase in title
premiums and other fees on loans and proceeds of $175,000 from a life insurance
policy due to the death of an officer of the Bank. The decrease in mortgage
servicing rights was comprised of increases in amortization totaling $1.5
million and impairment charges of $782,000, partially offset by an increase in
new servicing rights recognized of $1.5 million year to year.

17

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

Comparison of Results of Operations for the Nine Months Ended September 30, 2003
and 2002 (continued)

General, Administrative and Other Expense

General, administrative and other expense totaled $17.2 million for the nine
months ended September 30, 2003, an increase of $919,000, or 5.6%, over the
comparable period in 2002. The increase in general, administrative and other
expense was due primarily to a $411,000, or 5.3%, increase in employee
compensation and benefits, an increase of $347,000 in franchise taxes and an
increase of $237,000, or 9.3%, in occupancy and equipment and the absence of
$112,000 related to the reversal of the restructuring charge recognized in 2001,
which were partially offset by a $193,000, or 4.9%, decrease in other operating
costs and a $51,000, or 8.4%, decrease in advertising. The increase in employee
compensation and benefits was due primarily to an increase in incentive
compensation and 401(k) plan costs, as well as normal merit increases, which
were partially offset by an increase in deferred loan origination costs related
to the increase in loan volume year to year. The increase in franchise tax
expense reflects the effects of refund claims recorded in 2002. The increase in
occupancy and equipment was due primarily to an increase in office repairs and
maintenance expenses, as well as costs associated with the new Dover office
location. The decrease in other operating costs was due primarily to a decrease
in long distance telephone costs following a change in service providers, a
decrease in FHLB charges due to use of bonds as pledged collateral versus
letters of credit and decreases in legal, accounting and other professional
services. The decrease in advertising was due primarily to cost savings realized
from implementation of a plan to centralize the purchase of advertising
contracts.

Federal Income Taxes

The provision for federal income taxes totaled $2.8 million for the nine months
ended September 30, 2003, a decrease of $677,000, or 19.3%, compared to the nine
months ended September 30, 2002. This decrease was primarily attributable to a
$1.8 million, or 16.4%, decrease in pre-tax earnings and the non-taxable
redemption of a life insurance policy. The Corporation's effective tax rates
amounted to 31.2% and 32.3% for the nine-month periods ended September 30, 2003
and 2002, respectively.

Comparison of Results of Operations for the Three Months Ended September 30,
2003 and 2002

General

Camco's net earnings for the three months ended September 30, 2003 totaled $1.6
million, a decrease of $944,000, or 37.3%, from the $2.5 million of net earnings
reported in the comparable 2002 period. The decrease in earnings was primarily
attributable to a decrease of $1.2 million in net interest income and a decrease
in other income of $261,000, which were partially offset by a decrease in the
provision for losses on loans of $83,000, a decrease in general, administrative
and other expense of $8,000 and a decrease in federal income tax expense of
$472,000.

Net Interest Income

Total interest income amounted to $13.3 million for the three months ended
September 30, 2003, a decrease of $3.1 million, or 18.9%, compared to the
three-month period ended September 30, 2002, generally reflecting the effects of
a decrease in yield on total interest-earning assets of 100 basis points, from
6.31% in the 2002 period to 5.31% and a $37.9 million, or 3.6%, decrease in the
average balance of interest-earning assets outstanding year to year.

18

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

Comparison of Results of Operations for the Three Months Ended September 30,
2003 and 2002 (continued)

Net Interest Income (continued)

Interest income on loans totaled $11.8 million for the three months ended
September 30, 2003, a decrease of $2.1 million, or 14.9%, from the comparable
2002 period. The decrease resulted primarily from a $10.2 million, or 1.3%,
decrease in the average balance outstanding and a 97 basis point decrease in the
average yield, to 6.02% in the 2003 period. Interest income on mortgage-backed
securities totaled $736,000 for the three months ended September 30, 2003, a
$753,000, or 50.6%, decrease from the 2002 quarter. The decrease was due
primarily to a 221 basis point decrease in the average yield, to 2.40% for the
2003 period, coupled with a $6.5 million, or 5.0%, decrease in the average
balance outstanding in the 2003 period. Interest income on investment securities
decreased by $133,000, or 30.4%, due primarily to an $11.8 million decrease in
the average balance outstanding, coupled with a 31 basis point decrease in the
average yield, to 3.21% in the 2003 period. Interest income on other
interest-earning assets decreased by $160,000, or 24.0%, due primarily to a
decrease in the average yield, to 3.33% in the 2003 period as compared to 3.80%
for the three months ended September 30, 2002, coupled with a decrease in the
average balance outstanding of $9.3 million, or 13.3%.

Interest expense on deposits totaled $3.8 million for the three months ended
September 30, 2003, a decrease of $1.7 million, or 31.0%, compared to the same
quarter in 2002, due primarily to an 89 basis point decrease in the average cost
of deposits, to 2.37% in the current quarter, and a $35.7 million, or 5.29%,
decrease in average deposits outstanding. Interest expense on borrowings totaled
$3.8 million for the three months ended September 30, 2003, a decrease of
$156,000, or 3.9%, from the same 2002 three-month period. The decrease resulted
primarily from a 25 basis point decrease in the average cost of borrowings to
5.53%, partially offset by a $1.3 million, or .5%, increase in the average
balance outstanding year to year. Decreases in the level of average yields on
interest-earning assets and average costs of interest-bearing liabilities were
due primarily to the overall decrease in interest rates in the economy.

As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $1.2 million, or 18.0%, to a total of $5.7
million for the three months ended September 30, 2003. The interest rate spread
decreased to approximately 1.99% at September 30, 2003, from 2.33% at September
30, 2002, while the net interest margin decreased to approximately 2.26% for the
three months ended September 30, 2003, compared to 2.66% for the 2002 period.

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 collectibility of the Bank's loan portfolio.
Based upon an analysis of these factors, management recorded a provision for
losses on loans totaling $255,000 for the three months ended September 30, 2003,
a decrease of $83,000, or 24.6%, from the comparable period in 2002. The
decrease in the current period provision compared to the 2002 period was
predicated primarily on a decrease in the level of classified loans year to
year. Management believes all classified loans are adequately collateralized,
however, there can be no assurance that the loan loss allowance will be adequate
to absorb losses on known classified assets or that the allowance will be
adequate to cover losses on classified assets in the future.

19

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

Comparison of Results of Operations for the Three Months Ended September 30,
2003 and 2002 (continued)

Other Income

Other income totaled $2.4 million for the three months ended September 30, 2003,
a decrease of $261,000, or 9.7%, from the comparable 2002 period. The decrease
in other income was primarily attributable to a $662,000 decrease in the
valuation of mortgage servicing rights and a $300,000 decrease in gain on sale
of loans, partially offset by a $531,000 gain on sale of investment and
mortgage-backed securities and an increase of $43,000, or 4.8%, in late charges,
rent and other. The decrease in mortgage servicing rights was attributable to an
increase in amortization of mortgage servicing rights due to the high level of
prepayments on the portfolio of loans serviced. The decrease in gain on sale of
loans was due primarily to the $3.7 million, or 7.1%, decrease in sales volume.
After several quarters of contraction in our owned loan portfolio due to heavy
refinancing activity, we are beginning to see growth, due to a shift from
selling long-term, fixed-rate home loans into the secondary market to
origination of rate-sensitive loans for our portfolio. The increase in late
charges, rent and other was due primarily to an increase in title premiums and
other fees on loans and an increase in ATM fees.

General, Administrative and Other Expense

General, administrative and other expense totaled $5.6 million for the three
months ended September 30, 2003, a decrease of $8,000, or .1%, from the
comparable period in 2002. The decrease in general, administrative and other
expense was due primarily to a $251,000, or 9.3%, decrease in employee
compensation and benefits and a decrease of $60,000, or 15.9%, in data
processing expense, which were partially offset by an increase of $79,000 or
9.2%, in occupancy and equipment and a $121,000, or 10.4%, increase in other
operating costs. The decrease in employee compensation and benefits was due
primarily to an increase in deferred loan origination costs related to the
increase in loan volume. The decrease in data processing expense was primarily
due to the 2002 expenses related to the consolidation of Columbia Federal
Savings Bank's data processing into Advantage's system. The increase in
occupancy and equipment was due primarily to an increase in office repairs and
maintenance expenses, as well as costs associated with the new Dover office
location and the amortization of new software products. The increase in other
operating costs was due primarily to an increase in customer checks and ATM
cards, as well as stationery and other office supplies resulting from the
centralization of operations following the charter consolidation, including
changing all previous individual bank division names to Advantage Bank.

Federal Income Taxes

The provision for federal income taxes totaled $718,000 for the three months
ended September 30, 2003, a decrease of $472,000, or 39.7%, compared to the
three months ended September 30, 2002. This decrease was primarily attributable
to a $1.4 million, or 38.1%, decrease in pre-tax earnings. The Corporation's
effective tax rates amounted to 31.2% and 32.0% for the three-month periods
ended September 30, 2003 and 2002, respectively.

20

CAMCO FINANCIAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine- and three-month periods ended September 30, 2003 and 2002

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in the Corporation's market risk since the
Corporation's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2002.

ITEM 4: Controls and Procedures

Management refines the Corporation's internal controls on an ongoing basis with
a view towards continuous improvement. In this regard, during the third quarter
of 2003, management became aware of certain deficiencies and weaknesses in the
Corporation's internal controls relating to:

o The designation and recordation of loans held for sale; and
o The recordation of deferred loan origination fees and costs.

To address the deficiencies and weaknesses identified, management is taking the
following corrective actions with respect to internal controls:

o More clearly documenting the Corporation's internally
established exposure limitations for loans held for sale and
enhancing the monitoring process to ensure compliance with
those limits.

o Requiring the generation of a monthly summary of loan
originations and related deferred fees and costs to insure
completeness of future financial information in the
Corporation's financial statements.

The Corporation's independent auditors have advised the Audit Committee that
these internal control deficiencies constitute material weaknesses and
significant deficiencies as defined in the auditing literature. The
Corporation's independent auditors concurred with the corrective actions taken
by management as described above.

The Corporation's Chief Executive Officer and Chief Financial Officer evaluated
the disclosure controls and procedures (as defined under Rule 13a-14(c) and
15d-14 (c) of the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this quarterly report. Based upon that evaluation and the
corrective actions discussed above, the Chief Executive Officer and Chief
Financial Officer have concluded that the Corporation's disclosure controls and
procedures are effective.

21

Camco Financial Corporation

PART II

ITEM 1. Legal Proceedings

Not applicable

ITEM 2. Changes in Securities and Use of Proceeds

None

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

3 Bylaws, as amended

31.1 Written Statement of Chief Executive Officer
furnished Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350

31.2 Written Statement of Chief Financial Officer
furnished Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350

32.1 Written Statement of Chief Executive Officer
furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350

32.2 Written Statement of Chief Financial Officer
furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350

Reports on Form 8-K: On July 24, 2003, a Form 8-K was filed to
report that Richard C. Baylor, the President
and CEO, will make a presentation at the
Keefe, Bruyette & Woods Fourth Annual
Community Investor Conference in New York.

On July 25, 2003, a Form 8-K was filed to
report that Camco has been added to the
Russell 2000(R) Index.

On July 28, 2003, a Form 8-K was filed to
report that Camco had been included in the
"Plain Dealer 100" Listing compiled by the
Plain Dealer, a newspaper published in
Cleveland, Ohio.

On July 30, 2003, a Form 8-K was filed to
report earnings for the second quarter of
2003.

On September 23, 2003, a Form 8-K was filed to
report the declaration of a cash dividend.

22

SIGNATURES

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

Date: November 12, 2003 By: /s/ Richard C. Baylor
------------------------- ----------------------------
Richard C. Baylor
Chief Executive Officer

Date: November 12, 2003 By: /s/ Mark A. Severson
------------------------- ----------------------------
Mark A. Severson
Chief Financial Officer

23