Camco Financial (CAFI) - Description of business

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Item 1. Business.

General

     Camco Financial Corporation (“Camco”) is a financial holding company that was organized under Delaware law in 1970. Camco is engaged in the financial services business in Ohio, Kentucky and West Virginia, through its wholly-owned subsidiaries, Advantage Bank and Camco Title Agency, Inc. In June 2001, Camco completed a reorganization in which it combined its banking activities under one Ohio savings bank charter known as Advantage Bank (“Advantage” or the “Bank”). Prior to the reorganization, Camco operated five separate banking subsidiaries serving distinct geographic areas. The branch office groups in each of the regions previously served by the five subsidiary banks now operate as divisions of Advantage. In 2003, Camco dissolved its second tier subsidiary, Camco Mortgage Corporation, and converted its offices into branch offices of the Bank. In August 2004, Camco completed a business combination with London Financial Corporation (“London”) of London, Ohio, and its wholly-owned subsidiary, The Citizens Bank of London. The acquisition was accounted for using the purchase method of accounting and, therefore, the financial statements for prior periods have not been restated. At the time of the merger, Advantage Bank merged into The Citizens Bank of London and changed the name of the resulting institution to Advantage Bank. As a result, Camco’s subsidiary financial institution is now an Ohio-chartered commercial bank instead of an Ohio savings bank. Further, Camco converted from an OTS regulated thrift holding company to a financial holding company regulated by the Federal Reserve Board.

     In December 2004, Advantage sold its Ashland, Kentucky division, consisting of two branches.

     Advantage is primarily regulated by the State of Ohio Department of Commerce, Division of Financial Institutions (the “Division”), and the Federal Deposit Insurance Corporation (the “FDIC”). Advantage is a member of the Federal Home Loan Bank (the “FHLB”) of Cincinnati, and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund (the “DIF”) administered by the FDIC. Camco is regulated by the Federal Reserve Board.

     Advantage’s lending activities include the origination of commercial real estate and business loans, consumer, and residential conventional fixed-rate and variable-rate mortgage loans for the acquisition, construction or refinancing of single-family homes located in Camco’s primary market areas. Camco also originates construction and permanent mortgage loans on condominiums, two- to four-family, multi-family (over four units) and nonresidential properties. Camco continues to diversify the balance sheet through increasing commercial, commercial real estate, and consumer loan portfolios as well as checking and money market deposit accounts.

     The financial statements for Camco and its subsidiaries are prepared on a consolidated basis. The principal source of revenue for Camco on an unconsolidated basis has historically been dividends from the Bank. Payment of dividends to Camco by the Bank is subject to various regulatory restrictions and tax considerations.

     References in this report to various aspects of the business, operations and financial condition of Camco may be limited to Advantage, as the context requires.

     Camco’s Internet site, http://www.advantagebank.com , contains a hyperlink to the Securities and Exchange Commission’s EDGAR website where Camco’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after Camco has filed the report with the SEC.

Lending Activities

     General. Camco’s lending activities include the origination of commercial real estate and business loans, consumer loans, residential conventional fixed-rate and variable-rate mortgage loans for the construction, acquisition or refinancing of single-family homes located in Advantage’s primary market areas. Construction and permanent

mortgage loans on condominiums, multifamily (over four units) and nonresidential properties are also offered by Camco.

     Loan Portfolio Composition. The following table presents certain information regarding the composition of Camco’s loan portfolio, including loans held for sale, at the dates indicated:

		At December 31,
		2006			2005			2004			2003			2002
						Percent							Percent							Percent							Percent							Percent
						of total							of total							of total							of total							of total
		Amount			loans			Amount			loans			Amount			loans			Amount			loans			Amount			loans
																		(Dollars in thousands)
Type of loan:
Existing residential properties(1)			600,634				72.6	%		$	591,407				69.7	%		$	603,722				72.2	%		$	652,953				81.1	%		$	641,464				80.5	%
Construction and development			42,654				5.1				74,601				8.8				50,560				6.0				28,892				3.6				20,568				2.6
Nonresidential real estate			100,189				12.1				95,380				11.2				105,247				12.6				51,533				6.4				74,094				9.3
Consumer and other loans(2)			91,917				11.1				94,547				11.1				84,550				10.1				78,155				9.7				67,712				8.5
Total			835,394				100.9				855,935				100.8				844,079				100.9				811,533				100.8				803,838				100.9
Less:
Unamortized yield adjustments			(8	)			(0.0	)			(266	)			(0.0	)			(937	)			(0.1	)			(810	)			(0.1	)			(1,390	)			(0.2	)
Allowance for loan losses			(7,144	)			(0.9	)			(6,959	)			(0.8	)			(6,476	)			(0.8	)			(5,641	)			(0.7	)			(5,490	)			(0.7	)
Total loans, net		$	828,242				100.0	%		$	848,710				100.0	%		$	836,666				100.0	%		$	805,082				100.0	%		$	796,958				100.0	%

(1)		Includes loans held for sale, home equity lines of credit and mortgage servicing rights.
(2)		Includes second mortgage, multifamily and commercial loans.

     Loan Maturity Schedule. The following table sets forth certain information as of December 31, 2006, regarding the dollar amount of loans maturing in Camco’s portfolio based on the contractual terms to maturity of the loans. Demand loans, loans having no stated schedule of repayments and loans having no stated maturity, are reported as due in one year or less.

		Due during the
		year ending							Due in
		December 31,			Due in years			years after
		2007			2008-2012			2012			Total
		(In thousands)
Real estate loans (1):
One- to four-family		$	10,540			$	112,436			$	467,569			$	590,545
Multifamily			201				7,846				35,345				43,392
Nonresidential			7,774				14,366				78,049				100,189
Commercial			4,248				7,754				10,770				22,772
Consumer and other loans (2)			21,808				15,509				31,091				68,408
Total		$	44,571			$	157,911			$	622,824			$	825,306

(1)		Excludes loans held for sale of $3.7 million and does not consider the effects of unamortized yield adjustments of $8,000 the allowance for loan losses of <$7.1> million and mortgage-servicing rights totaling $6.4 million.
(2)		Includes loans secured by developed building lots.

     The following table sets forth at December 31, 2006, the dollar amount of all loans due after December 31, 2007, which have fixed or adjustable interest rates:

		Due after
		December 31, 2007
		(In thousands)
Fixed rate of interest		$	238,243
Adjustable rate of interest			542,492
Total		$	780,735

     Generally, loans originated by Advantage are on a fully amortized basis. Advantage has no rollover provisions in its loan documents and anticipates that loans will be paid in full by the maturity date.

     Residential Loans. A large portion of the lending activity of Advantage is the origination of fixed-rate and adjustable-rate conventional loans for the acquisition, refinancing or construction of single-family residences. At December 31, 2006, 57.5% of the total outstanding loans consisted of loans secured by mortgages on one- to four-family residential.

     Federal regulations and Ohio law limit the amount which Advantage may lend in relationship to the appraised value of the underlying real estate at the time of loan origination (the “Loan-to-Value Ratio” or “LTV”). In accordance with such regulations and law, Advantage generally makes loans on single-family residences up to 95% of the value of the real estate and improvements. Advantage generally requires the borrower on each loan which has a LTV in excess of 80% to obtain private mortgage insurance or a guarantee by a federal agency. Advantage permits, on an exception basis, borrowers to exceed a LTV of 80% without private mortgage insurance or a guarantee by a federal agency.

     The interest rate adjustment periods on adjustable-rate mortgage loans (“ARMs”) offered by Advantage are generally one, three and five years. The interest rates initially charged on ARMs and the new rates at each adjustment date are determined by adding a stated margin to a designated interest rate index. Advantage has generally used the one-year and three-year United States Treasury bill rates, adjusted to a constant maturity, as the index for their one-year and three-year adjustable-rate loans, respectively. Advantage has used LIBOR as an additional index on certain loan programs to begin to diversify its concentrations of indices that may prove beneficial during repricing of loans throughout changing economic cycles. The initial interest rates for three-year and five-year ARMs are set slightly higher than for the one-year ARM to compensate for the reduced interest rate sensitivity. The maximum adjustment at each adjustment date for ARMs is usually 2%, with a maximum adjustment of 6% over the term of the loan.

     From time to time, Advantage originates ARMs which have an initial interest rate that is lower than the sum of the specified index plus the margin. Such loans are subject to increased risk of delinquency or default due to increasing monthly payments as the interest rates on such loans increase to the fully indexed level. Advantage attempts to reduce the risk by underwriting one–year ARM at the fully indexed rate and three-year and five-year ARM utilizing the note rates. None of Advantage’s ARMs has negative amortization features.

     Residential mortgage loans offered by Advantage are usually for terms of up to 30 years, which could have an adverse effect upon earnings if the loans do not reprice as quickly as the cost of funds. To minimize such effect, Advantage emphasizes the origination of ARMs and generally sells fixed-rate loans into the secondary market. Furthermore, experience reveals that, as a result of prepayments in connection with refinancings and sales of the underlying properties, residential loans generally remain outstanding for periods which are substantially shorter than the maturity of such loans.

     Of the total mortgage loans originated by Advantage during the year ended December 31, 2006, 80.4% were ARM and 19.6% were fixed-rate loans. Adjustable-rate loans comprised 69.5% of Advantage’s total loans outstanding at December 31, 2006.

     Construction Loans. Advantage offers residential construction loans both to owner-occupants and to builders for homes being built under contract with owner-occupants. Advantage also makes loans to persons constructing projects for investment purposes. At December 31, 2006, a total of $42.7 million, or approximately 5.1% of Advantage’s total loans, consisted of construction loans, primarily for one- to four-family properties.

     Construction loans to owner-occupants are 30-year fixed rate, 15-year fixed rate, or seven-year balloon loans or adjustable-rate long-term loans on which the borrower pays only interest on the disbursed portion during the construction period. Some construction loans to builders, however, have terms of up to 24 months at fixed or adjustable rates of interest.

     Construction loans for investment properties involve greater underwriting and default risks to Advantage than loans secured by mortgages on existing properties or construction loans for single-family residences. Loan funds are advanced upon the security of the project under construction, which is more difficult to value in the case of investment properties before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate precisely the total loan funds required to complete a project and the related LTV Ratios. In the event a default on a construction loan occurs and foreclosure follows, Advantage could be adversely affected because it would have to take control of the project and either arrange for completion of construction or dispose of the unfinished project. At December 31, 2006, Advantage had 31 construction loans totaling $24.3 million on investment properties.

     Nonresidential Real Estate Loans. Advantage originates loans secured by mortgages on nonresidential real estate, including retail, office and other types of business facilities. Nonresidential real estate loans are generally made on an adjustable-rate basis for terms of up to 20 years. Nonresidential real estate loans originated by Advantage generally have an LTV of 80% or less. The largest nonresidential real estate loan outstanding at December 31, 2006, was a $5.4 million loan secured by a commercial building. Nonresidential real estate loans comprised $100.2 million, or 12.1% of total loans at December 31, 2006.

     Nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. Advantage has endeavored to reduce this risk by carefully evaluating the credit history and past performance of the borrower, the location of the real estate, the quality of the management operating the property, the debt service ratio and cash flow analysis, the quality and characteristics of the income stream generated by the property and appraisals supporting the property’s valuation.

     Consumer and Other Loans. Advantage makes various types of consumer loans, including loans made to depositors on the security of their savings deposits, automobile loans, home improvement loans, home equity line of credit loans and unsecured personal loans. Home equity loans are made at fixed and variable rates of interest for terms of up to 10 years. Most other consumer loans are generally made at fixed rates of interest for terms of up to 10 years. The risk of default on consumer loans during an economic recession is greater than for residential mortgage loans. Included in consumer and other loans is approximately $43.4 million of multifamily loans of which the largest is $2.8 million secured by an apartment building. At December 31, 2006, education, consumer and other loans constituted $48.5 million of Advantage’s total loans.

     Developed Building Lots. Advantage originates loans secured by developed building lots. These loans generally are made on an adjustable-rate basis for terms of up to three years. Developed building lots generally have an LTV of 75% or less.

     Loan Solicitation and Processing. Loan originations are developed from a number of sources, including: solicitations by Advantage’s lending staff; referrals from real estate brokers, loan brokers and builders; participations with other banks; continuing business with depositors, other business borrowers and real estate developers; and walk-in customers. Advantage’s management stresses the importance of individualized attention to the financial needs of its customers.

     The loan origination process is decentralized, with each of Advantage’s market areas having autonomy in loan processing and approval for its respective market area. Mortgage loan applications from potential borrowers are taken by loan officers originating loans, and then forwarded to the local loan department for processing. On new loans, the Bank typically obtains a credit report, verification of employment and other documentation concerning the borrower and orders an appraisal of the fair market value of the collateral which will secure the loan, if any. The collateral is thereafter physically inspected and appraised by a staff appraiser or by a designated fee appraiser approved by the Board of Directors of Advantage. Upon the completion of the appraisal and the receipt of all necessary information regarding the borrower, the loan is approved by the loan officer up to such officer’s maximum loan approval authority. Loans above an individual’s authority receive additional approval by officers with higher loan approval authority. If the loan is approved, an attorney’s opinion of title or title insurance is obtained on the real estate which will secure the loan. Borrowers are required to carry satisfactory fire and casualty insurance and, if applicable, flood and private mortgage insurance, and to name Advantage as an insured mortgagee.

     The procedure for approval of construction loans is the same as for residential mortgage loans, except that the appraiser evaluates the building plans, construction specifications and construction cost estimates. Advantage also evaluates the feasibility of the proposed construction project.

     Consumer loans are underwritten on the basis of the borrower’s credit history and an analysis of the borrower’s income and expenses, ability to repay the loan and the value of the collateral, if any.

     Loan Originations, Purchases and Sales. Advantage has been actively originating new 30-year, 15-year, 10-year fixed-rate and seven-year balloon real estate loans as well as adjustable-rate real estate loans, consumer loans, business loans and commercial loans. Generally all residential fixed-rate loans made by Advantage are originated with documentation which will permit a possible sale of such loans to secondary mortgage market investors. When a mortgage loan is sold to the investor, Advantage generally services the loan by collecting monthly payments of principal and interest and forwarding such payments to the investor, net of a servicing fee. During the year ended December 31, 2006, Advantage also sold loans with servicing released. Fixed-rate loans not sold and generally all of the ARMs originated by Advantage are held in Advantage’s loan portfolio. During the year ended December 31, 2006, Advantage sold approximately $50.9 million in loans. Advantage recognized a gain of $703,000 in mortgage

servicing rights during 2006, while amortization of mortgage servicing rights totaled $1.3 million for the year ended December 31, 2006.

     From time to time, Advantage sells participation interests in mortgage loans, business loans and commercial loans originated by it and purchases whole loans or participation interests in loans originated by other lenders. Advantage held whole loans and participations in loans originated by other lenders of approximately $27.4 million at December 31, 2006. Loans which Advantage purchases must meet or exceed the underwriting standards for loans originated by Advantage.

     In recent years, Advantage has purchased or originated mortgage-backed securities, business or commercial loans insured or guaranteed by U.S. Government agencies in order to improve Advantage’s asset yield by profitably investing excess funds. Advantage intends to continue to purchase such mortgage-backed securities when conditions favor such an investment. See “Investment Activities.”

     The following table presents Advantage’s mortgage loan origination, purchase, sale and principal repayment activity for the periods indicated:

		Year ended December 31,
		2006			2005			2004			2003			2002
		(In thousands)
Loans originated:
Construction (purchased and originated)		$	23,752			$	45,066			$	45,826			$	37,791			$	54,114
Permanent			86,613				121,033				164,540				422,021				447,379
Consumer and other			172,403				234,214				126,168				147,668				70,772
Total loans originated			282,768				400,313				336,534				607,480				572,265
Loans purchased (1)			5,665				14,490				70,602				126,006				116,306
Reductions:
Principal repayments (1)			263,241				344,344				243,074				407,521				441,419
Loans sold (1)			50,924				69,734				130,801				337,376				239,636
Transfers from loans to real estate owned			4,092				3,725				6,591				4,010				1,270
Total reductions			(318,257	)			(417,803	)			(380,466	)			(748,907	)			(682,325	)
Increase (decrease) in other items, net (2)			(1,316	)			(1,559	)			(2,655	)			(8,167	)			(1,142	)
Decrease due to branch sales (3)			—				—				(42,634	)			—				—
Increase due to mergers (4)			—				—				49,050				—				—
Net increase (decrease)		$	(31,140	)		$	(4,559	)		$	30,431			$	(23,588	)		$	5,104

(1)		Includes mortgage-backed securities and SBA guaranteed loans.
(2)		Other items primarily consist of amortization of deferred loan origination fees, the provision for losses on loans and unrealized gains on mortgage-backed securities designated as available for sale.
(3)		The 2004 decrease resulted from the sale of the Ashland division.
(4)		The 2004 increase resulted from the acquisition of London.

     Lending Limit. Federal regulations and Ohio law generally impose a lending limit on the aggregate amount that a depository institution can lend to one borrower to an amount equal to 15% of the institution’s total capital for risk-based capital purposes plus any loan reserves not already included in total capital (the “Lending Limit Capital”). A depository institution may loan to one borrower an additional amount not to exceed 10% of the institution’s Lending Limit Capital, if the additional amount is fully secured by certain forms of “readily marketable collateral.”

Real estate is not considered “readily marketable collateral.” In applying this limit, the regulations require that loans to certain related or affiliated borrowers be aggregated.

     The largest amount which Advantage could have loaned to one borrower at December 31, 2006, was approximately $12.7 million. The largest amount Advantage had outstanding to one borrower and related persons or entities at December 31, 2006, was $7.7 million, which consisted of nine loans secured by various types of commercial real estate, including commercial real estate in development and building lots.

     Loan Origination and Other Fees. In addition to interest earned on loans, Advantage may receive loan origination fees or “points” of generally up to 1.0% of the loan amount, depending on the type of loan, plus reimbursement of certain other expenses. Loan origination fees and other fees are a volatile source of income, varying with the volume of lending and economic conditions. All nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment to yield over the life of the related loan in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 91.

     Delinquent Loans, Nonperforming Assets and Classified Assets. Advantage attempts to minimize loan delinquencies through the assessment of late charges and adherence to established collection procedures. Generally, after a loan payment is 15 days delinquent, a late charge of 5% of the amount of the payment is assessed and a collection officer contacts the borrower to request payment. In certain limited instances, Advantage may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs. Advantage generally initiates foreclosure proceedings, in accordance with applicable laws, when it appears that a modification or moratorium would not be productive.

     Real estate which has been acquired by Advantage as a result of foreclosure or by deed in lieu of foreclosure is classified as “real estate owned” until it is sold. “Real estate owned” is recorded at the lower of the book value of the loan or the fair value of the property less estimated selling expenses at the date of acquisition. Periodically, “real estate owned” is reviewed to ensure that fair value is not less than carrying value, and any write-down resulting therefrom is charged to earnings as a provision for losses on real estate acquired through foreclosure. All costs incurred from the date of acquisition are expensed in the period paid.

     The following table reflects the amount of loans in a delinquent status as of the dates indicated:

		At December 31,
		2006			2005			2004			2003			2002
						(Dollars in thousands)
Loans delinquent for:
30 to 89 days		$	13,833			$	9,490			$	12,302			$	8,682			$	10,524
90 or more days			18,536				13,922				9,794				13,608				13,625
Total delinquent loans		$	32,369			$	23,412			$	22,096			$	22,290			$	24,149
Ratio of total delinquent loans to total net loans (1)			3.91	%			2.76	%			2.64	%			2.77	%			3.03	%

(1)		Total net loans includes loans held for sale.

     Nonaccrual status denotes loans three months past due for which, in the opinion of management, the collection of additional interest is unlikely, or loans that meet nonaccrual criteria as established by regulatory authorities. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the collectibility of the loan. The following table sets forth information with respect to Advantage’s nonaccrual and delinquent loans for the periods indicated.

		At December 31,
		2006			2005			2004			2003			2002
		(Dollars in thousands)
Loans accounted for on nonaccrual basis:
Real estate:
Residential		$	15,142			$	10,267			$	7,922			$	12,135			$	11,021
Nonresidential			1,989				3,109				463				357				1,726
Commercial			398				387				—				—				—
Consumer and other			136				159				1,409				1,116				878
Total nonaccrual loans			17,665				13,922				9,794				13,608				13,625
Accruing loans delinquent three months or more:
Real estate:
Residential			871				—				—				—				—
Nonresidential			—				—				—				—				—
Consumer and other			—				—				—				—				—
Total loans 90 days past due			871				—				—				—				—
Total nonperforming loans		$	18,536			$	13,922			$	9,794			$	13,608			$	13,625
Allowance for loan losses		$	7,144			$	6,959			$	6,476			$	5,641			$	5,490
Nonperforming loans as a percent of total net loans (1)			2.23	%			1.64	%			1.17	%			1.69	%			1,71	%
Allowance for loan losses as a percent of nonperforming loans			38.5	%			50.0	%			66.1	%			41.5	%			40.3	%

(1)		Includes loans held for sale.

     The amount of interest income that would have been recorded had nonaccrual loans performed in accordance with contractual terms totaled approximately $865,000 for the year ended December 31, 2006. Interest collected on such loans and included in net earnings was $192,000.

     At December 31, 2006, there were no mortgage or consumer loans which were not classified as nonaccrual, 90 days past due or restructured which management considered classifying in the near future due to concerns as to the ability of the borrowers to comply with repayment terms.

     Federal regulations require the Bank to classify its assets on a regular basis. Problem assets are to be classified as either (i) “substandard,” (ii) “doubtful” or (iii) “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the same weaknesses as substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of existing facts, conditions and value. Assets classified as “loss” are considered uncollectible and of such little value that their treatment as assets without the establishment of a specific reserve is unwarranted. Loans classified and generally charged off in the month are identified as a loss. Federal regulations provide for the reclassification of real estate assets by federal examiners.

     At December 31, 2006, the aggregate amounts of Advantage’s classified assets excluding impaired loans were as follows:

		At December 31, 2006
		(In thousands)
Classified assets:
Substandard		$	14,790
Doubtful			—
Loss			35
Total classified assets		$	14,825

     The interpretive guidance of the regulations also includes a “special mention” category, consisting of assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification, but which possess credit deficiencies or potential weaknesses deserving management’s close attention. Advantage had assets in the amount of $2.4 million designated as “special mention” at December 31, 2006.

     Allowance for Loan Losses. The allowance for loan losses is maintained at 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. The following table sets forth an analysis of Advantage’s allowance for loan losses:

		Year ended December 31,
		2006			2005			2004			2003			2002
						(Dollars in thousands)
Balance at beginning of year		$	6,959			$	6,476			$	5,641			$	5,490			$	4,256
Charge-offs:
1-4 family residential real estate			646				877				1,142				509				134
Multifamily and nonresidential real estate			562				146				25				418				—
Consumer and other			231				257				430				392				73
Total charge-offs			1,439				1,280				1,597				1,319				207
Recoveries:
1-4 family residential real estate			25				265				180				17				23
Consumer and other			158				18				9				7				249
Total recoveries			184				283				189				24				272
Net (charge-offs) recoveries			(1,255	)			(997	)			(1,408	)			(1,295	)			65
Provision for losses on loans			1,440				1,480				1,620				1,446				1,169
Increase attributable to mergers (1)			—				—				623				—				—
Balance at end of year		$	7,144			$	6,959			$	6,476			$	5,641			$	5,490
Net (charge-offs) recoveries to average loans			(.15	)%			(.12	)%			(.17	)%			(.17	)%			.01	%

(1)		The 2004 increase resulted from the acquisition of London.

     The following table sets forth the allocation of Advantage’s allowance for loan losses by type of loan at the dates indicated:

		At December 31,
		2006			2005			2004			2003			2002
						Percent							Percent							Percent							Percent							Percent
						of loans							of loans							of loans							of loans							of loans
						in each							in each							in each							in each							in each
						category							category							category							category							category
						to total							to total							to total							to total							to total
		Amount			loans			Amount			loans			Amount			loans			Amount			loans			Amount			loans
		(Dollars in thousands)
Balance at year end applicable to:
Secured loans		$	6,096				95.5	%		$	5,262				95.8	%		$	4,915				94.9	%		$	4,452				90.3	%		$	4,910				91.5	%
Unsecured loans			1,048				4.5				1,697				4.2				1,561				5.1				1,189				9.7				580				8.5
Total		$	7,144				100.0	%		$	6,959				100.0	%		$	6,476				100.0	%		$	5,641				100.0	%		$	5,490				100.0	%

Investment and Mortgage-Backed Securities Activities

     Federal regulations require that Advantage maintain a minimum amount of liquid assets, which may be invested in United States Treasury obligations, securities of various agencies of the federal government, certificates of deposit at insured banks, bankers’ acceptances and federal funds sold. Advantage is also permitted to make limited investments in commercial paper, corporate debt securities and certain mutual funds, as well as other investments permitted by federal laws and regulations.

     The following table sets forth the composition of Camco’s investment and mortgage-backed securities portfolio, except its stock in the FHLB of Cincinnati, at the dates indicated:

		At December 31,
		2006			2005			2004
		Amortized			% of			Fair			% of			Amortized			% of			Fair			% of			Amortized			% of			Fair			% of
		cost			total			value			total			cost			total			value			total			cost			total			value			total
		(Dollars in thousands)
Held to maturity:
U.S. Government agency obligations		$	—				—	%		$	—				—	%		$	—				—	%		$	—				—	%		$	2,999				2.8	%		$	2,997				2.7	%
Municipal bonds			710				0.7				736				0.7				919				0.8				947				0.8				1,124				1.0				1,177				1.1
Mortgage-backed securities			2,739				2.4				2,734				2.4				3,257				2.8				3,251				2.9				4,146				3.8				4,188				3.9
Total			3,449				3.1				3,470				3.1				4,176				3.6				4,198				3.7				8,269				7.6				8,362				7.7
Available for sale:
U.S. Government agency obligations			55,962				49.6				55,578				50.1				47,993				41.3				47,374				41.7				18,007				16.6				17,921				16.5
Municipal bonds			291				0.3				291				0.2				346				0.3				348				0.3				523				0.5				536				0.5
Corporate equity securities			159				0.1				184				0.2				159				0.1				185				0.1				247				0.2				387				0.4
Treasury			—				—				—				—				—				—				—				—				999				0.9				995				0.9
Mortgage-backed securities			52,950				46.9				51,453				46.4				63,536				54.7				61,607				54.2				80,782				74.2				80,321				74.0
Total			109,362				96.9				107,506				96.9				112,034				96.4				109,514				96.3				100,558				92.4				100,160				92.3
Total investments and mortgage-backed securities		$	112,811				100.0	%		$	110,976				100.0	%		$	116,210				100.0	%		$	113,712				100.0	%		$	108,827				100.0	%		$	108,522				100.0	%

     The following table presents the contractual maturities or terms to repricing of Advantage’s investment securities, except its stock in the FHLB of Cincinnati and corporate equity securities, and the weight