Loans

9 Months Ended

Sep. 30, 2011

Loans [Abstract]

LOANS

NOTE 3 — LOANS

The following table presents the recorded investment in loans by portfolio segment. The recorded investment in loans includes the principal balance outstanding adjusted for purchase premiums and discounts, deferred loan fees and costs and includes accrued interest.

	September 30,			December 31,
	2011			2010
Commercial	$	28,755		$	38,194
Real estate:
Single-family residential		18,916			23,273
Multi-family residential		29,081			35,308
Commercial		72,049			80,725
Construction		—			4,919
Consumer:
Home equity lines of credit		15,400			16,316
Other		1,250			1,790
Subtotal		165,451			200,525
Less: Allowance for loan losses (ALLL)		(6,955	)		(9,758	)
Loans, net	$	158,496		$	190,767

Construction loans consisted of $2,324 in single-family residential loans and $2,595 in commercial real estate loans at December 31, 2010. There were no construction loans at September 30, 2011.

The ALLL is a valuation allowance for probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. A provision for loan losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors described in Note 1 of the Notes to Consolidated Financial Statements contained in the Company’s 2010 Annual Report that was filed as Exhibit 13.1 to the Company’s Form 10-K for the year ended December 31, 2010.

The following tables present the activity in the ALLL by portfolio segment for the three and nine months ended September 30, 2011:

	Three months ended September 30, 2011
				Real Estate									Consumer
													Home equity lines
	Commercial			Single-family			Multi-family			Commercial			of credit			Other			Total
Beginning balance	$	2,754		$	242		$	2,183		$	2,632		$	220		$	19		$	8,050
Addition to (reduction in ) provision for loan losses		(266	)		(54	)		1,015			(387	)		100			(3	)		405
Charge-offs		—			—			(867	)		(580	)		(149	)		—			(1,596	)
Recoveries		29			2			—			47			15			1			94
Reclass of ALLL on loan-related commitments (1)		2			—			—			—			—			—			2
Ending balance	$	2,519		$	190		$	2,331		$	1,712		$	186		$	17		$	6,955

⁽¹⁾ Reclassified from (to) accrued interest payable and other liabilities in the consolidated balance sheet

	Nine months ended September 30, 2011
				Real Estate												Consumer
																Home equity
	Commercial			Single-family			Multi-family			Commercial			Construction			lines of credit			Other			Total
Beginning balance	$	1,879		$	241		$	2,520		$	4,719		$	74		$	303		$	22		$	9,758
Addition to (reduction in ) provision for loan losses		1,679			(43	)		1,926			(1,247	)		(74	)		12			3			2,256
Charge-offs		(1,140	)		(14	)		(2,117	)		(1,930	)		—			(149	)		(18	)		(5,368	)
Recoveries		100			6			2			170			—			20			10			308
Reclass of ALLL on loan-related commitments (1)		1			—			—			—			—			—			—			1
Ending balance	$	2,519		$	190		$	2,331		$	1,712		$	—		$	186		$	17		$	6,955

⁽¹⁾ Reclassified from (to) accrued interest payable and other liabilities in the consolidated balance sheet

Activity in the ALLL for the three and nine months ended September 30, 2010 was as follows:

	Three months ended			Nine months ended
	September 30,			September 30,
	2010			2010
Beginning balance	$	10,074		$	7,090
Provision for loan losses		617			7,303
Loans charged-off		(702	)		(4,515	)
Recoveries		68			179
Ending balance	$	10,057		$	10,057

The following table presents the balance in the ALLL and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2011:

			Real Estate						Consumer
									Home equity lines of
	Commercial		Single-family		Multi-family		Commercial		credit		Other		Total
ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	628	$	—	$	951	$	140	$	—	$	—	$	1,719
Collectively evaluated for impairment		1,891		190		1,380		1,572		186		17		5,236
Total ending allowance balance	$	2,519	$	190	$	2,331	$	1,712	$	186	$	17	$	6,955
Loans:
Individually evaluated for impairment	$	1,690	$	—	$	3,222	$	5,446	$	135	$	—	$	10,493
Collectively evaluated for impairment		27,065		18,916		25,859		66,603		15,265		1,250		154,958
Total ending loan balance	$	28,755	$	18,916	$	29,081	$	72,049	$	15,400	$	1,250	$	165,451

The following table presents the balance in the ALLL and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2010:

			Real Estate								Consumer
											Home
											equity lines
	Commercial		Single-family		Multi-family		Commercial		Construction		of credit		Other		Total
ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	332	$	—	$	1,296	$	1,276	$	—	$	—	$	—	$	2,904
Collectively evaluated for impairment		1,547		241		1,224		3,443		74		303		22		6,854
Total ending allowance balance	$	1,879	$	241	$	2,520	$	4,719	$	74	$	303	$	22	$	9,758
Loans:
Individually evaluated for impairment	$	2,223	$	142	$	3,985	$	4,250	$	—	$	138	$	—	$	10,738
Collectively evaluated for impairment		35,971		23,131		31,323		76,475		4,919		16,178		1,790		189,787
Total ending loan balance	$	38,194	$	23,273	$	35,308	$	80,725	$	4,919	$	16,316	$	1,790	$	200,525

The following table presents loans individually evaluated for impairment by class of loans at September 30, 2011. The unpaid principal balance is the contractual principal balance outstanding. The recorded investment is the unpaid principal balance adjusted for partial charge-offs, purchase premiums and discounts, deferred loan fees and costs and includes accrued interest. There was no cash-basis interest income recognized during the three and nine months ended September 30, 2011.

	As of September 30, 2011						Three months ended September 30, 2011				Nine months ended September 30, 2011
	Unpaid Principal		Recorded		ALLL		Average Recorded		Interest Income		Average Recorded		Interest Income
	Balance		Investment		Allocated		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial	$	1,416	$	1,016	$	—	$	1,248	$	7	$	515	$	7
Real estate:
Single-family residential		—		—		—		—		—		32		—
Multi-family residential		96		96		—		787		1		262		1
Commercial:
Non-owner occupied		2,983		1,422		—		2,236		9		796		9
Owner occupied		1,294		1,294		—		1,314		21		438		21
Land		798		682		—		684		11		688		32
Consumer:
Home equity lines of credit:
Originated for portfolio		135		135		—		135		—		136		—
Total with no allowance recorded		6,722		4,645		—		6,404		49		2,867		70
With an allowance recorded:
Commercial		1,564		674		628		515		8		1,163		8
Real estate:
Single-family residential		—		—		—		—		—		—		—
Multi-family residential		3,926		3,126		951		2,278		—		3,048		—
Commercial:
Non-owner occupied		2,156		2,048		140		1,379		31		1,752		31
Owner occupied		—		—		—		350		—		817		—
Total with an allowance recorded		7,646		5,848		1,719		4,522		39		6,780		39
Total	$	14,368	$	10,493	$	1,719	$	10,926	$	88	$	9,647	$	109

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

	Unpaid Principal		Recorded
	Balance		Investment		ALLL Allocated
With no related allowance recorded:
Commercial	$	937	$	587	$	—
Real estate:
Single-family residential		461		142		—
Commercial:
Owner occupied		78		78		—
Land		695		700		—
Consumer:
Home equity lines of credit:
Originated for portfolio		138		138		—
Total with no allowance recorded		2,309		1,645		—
With an allowance recorded:
Commercial		2,035		1,636		332
Real estate:
Multi-family residential		3,996		3,985		1,296
Commercial:
Non-owner occupied		2,551		2,419		1,244
Owner occupied		1,055		1,053		32
Total with an allowance recorded		9,637		9,093		2,904
Total	$	11,946	$	10,738	$	2,904

	Three months		Nine months
	ended		ended
	September 30,		September 30,
	2010		2010
Average of individually impaired loans during the period	$	11,342	$	11,822
Interest income recognized during impairment		10		25
Cash-basis interest income recognized		—		—

The following table presents the recorded investment in nonaccrual loans by class of loans:

	September 30, 2011		December 31, 2010
Nonaccrual loans:
Commercial	$	274	$	2,084
Real estate:
Single-family residential		707		266
Multi-family residential		3,126		3,986
Commercial:
Non-owner occupied		913		2,419
Owner occupied		—		1,131
Consumer:
Home equity lines of credit:
Originated for portfolio		159		161
Purchased for portfolio		101		—
Other consumer		—		10
Total nonaccrual loans		5,280		10,057
Total nonperforming loans	$	5,280	$	10,057

Nonaccrual loans include both smaller balance single-family mortgage and consumer loans that are collectively evaluated for impairment and individually classified impaired loans. There were no loans 90 days or more past due and still accruing interest at September 30, 2011 or December 31, 2010.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2011 by class of loans:

	30 - 59 Days		60 - 89 Days		Greater than 90				Loans Not Past		Nonaccrual Loans Not
	Past Due		Past Due		Days Past Due		Total Past Due		Due		> 90 days Past Due
Commercial	$	—	$	—	$	—	$	—	$	28,755	$	274
Real estate:
Single-family residential		—		773		535		1,308		17,608		172
Multi-family residential		—		—		3,126		3,126		25,955		—
Commercial:
Non-owner occupied		—		53		828		881		36,911		85
Owner occupied		—		—		—		—		28,680		—
Land		—		—		—		—		5,577		—
Consumer:
Home equity lines of credit:
Originated for portfolio		—		—		159		159		12,258		—
Purchased for portfolio		—		—		101		101		2,882		—
Other		2		31		—		33		1,217		—
Total	$	2	$	857	$	4,749	$	5,608	$	159,843	$	531

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

	30 - 59 Days		60 - 89 Days		Greater than 90				Loans Not Past		Nonaccrual Loans
	Past Due		Past Due		Days Past Due		Total Past Due		Due		Not Past Due
Commercial	$	449	$	—	$	—	$	449	$	37,745	$	1,635
Real estate:
Single-family residential		1,104		444		266		1,814		21,459		—
Multi-family residential		—		—		1,242		1,242		34,066		2,744
Commercial:
Non-owner occupied		1,188		—		2,419		3,607		36,687		—
Owner occupied		—		—		1,053		1,053		33,516		78
Land		—		—		—		—		5,862		—
Construction		—		—		—		—		4,919		—
Consumer:
Home equity lines of credit:
Originated for portfolio		1		54		—		55		12,850		161
Purchased for portfolio		—		—		—		—		3,411		—
Other		23		41		—		64		1,726		—
Total	$	2,765	$	539	$	4,980	$	8,284	$	192,241	$	4,618

Nonaccrual loans include some loans that were modified and identified as TDRs, where concessions had been granted to borrowers experiencing financial difficulties. These concessions could have included a reduction in the interest rate, payment extensions, principal forgiveness, and other actions intended to maximize collection.

Nonaccrual TDRs were as follows:

	September 30, 2011		December 31, 2010
Commercial	$	273	$	1,597
Real estate:
Single-family residential		—		142
Multi-family residential		719		2,744
Total	$	992	$	4,483

The Company allocated $70 and $714 of specific reserves to loans whose terms have been modified in TDRs and were nonaccrual as of September 30, 2011 and December 31, 2010, respectively. The Company has not committed to lend additional amounts as of September 30, 2011 or December 31, 2010 to customers with outstanding loans that are classified as nonaccrual TDRs.

Nonaccrual loans at September 30, 2011 and December 31, 2010, do not include $6,046 and $839, respectively of TDRs where customers have established a sustained period of repayment performance, generally six months, loans are current according to their modified terms and repayment of the remaining contractual payments is expected. These loans are included in impaired loan totals.

During the nine months ended September 30, 2011, the terms of certain loans were modified as TDRs. The modification of the terms of such loans may have included one or a combination of the following: a reduction of the stated interest rate of the loan; an increase in the stated rate of interest lower than the current market rate for new debt with similar risk; an extension of the maturity date; or a change in the payment terms.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 1 to 6 years. Modifications involving an extension of the maturity date were for periods ranging from 9 months to 10 years.

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2011:

			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
	Number of Loans		Investment		Investment
TDRs:
Commercial		4	$	1,774	$	1,524
Real estate:
Multi-family residential		1		99		100
Commercial:
Non-owner occupied		4		2,586		2,586
Owner occupied		3		1,355		1,355
Total		12	$	5,814	$	5,565

The TDRs described above increased the allowance for loan losses by $685 and did not result in any charge-offs during the nine months ended September 30, 2011.

There was one multi-family residential real estate loan with a total recorded investment of $718 at September 30, 2011 which had been modified as a TDR in October 2010 for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2011. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms, at which time the loan is re-evaluated to determine whether an impairment loss should be recognized, either through a write-off or specific valuation allowance, so that the loan is reported, net, at the present value of estimated future cash flows, or at the fair value of collateral, less cost to sell, if repayment is expected solely from the collateral. The TDR that subsequently defaulted resulted in a charge-off of $800 during the three months ended September 30, 2011.

The terms of certain other loans were modified during the period ended September 30, 2011 that did not meet the definition of a TDR. These loans have a total recorded investment as of September 30, 2011 of $16,032. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties, a delay in a payment that was considered to be insignificant or there were no concessions granted.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Certain loans which were modified during the nine months ended September 30, 2011 and did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant had delays in payment ranging from 15 days to 6 months.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Management analyzes loans individually by classifying the loans as to credit risk. This analysis includes commercial, commercial real estate, and multi-family loans. Groups of homogenous loans, such as single-family mortgage loans and consumer loans, are not risk-rated. This analysis is performed on an ongoing basis. The following definitions are used for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of CFBank’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that there will be some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, condition, and values, highly questionable and improbable.

Loans not meeting the criteria to be classified into one of the above categories are considered to be pass-rated loans. Loans listed as not rated are primarily groups of homogeneous loans. Past due information is the primary credit indicator for groups of homogenous loans. The recorded investment in loans by risk category and by class of loans as of September 30, 2011 and based on the most recent analysis performed follows. There were no loans rated doubtful at September 30, 2011.

	Not Rated		Pass		Special Mention		Substandard		Total
Commercial	$	427	$	21,009	$	3,540	$	3,779	$	28,755
Real estate:
Single-family residential		18,209		—		—		707		18,916
Multi-family residential		—		18,566		5,143		5,372		29,081
Commercial:
Non-owner occupied		379		26,082		4,161		7,170		37,792
Owner occupied		—		22,822		4,389		1,469		28,680
Land		959		1,202		—		3,416		5,577
Consumer:
Home equity lines of credit:
Originated for portfolio		12,258		—		—		159		12,417
Purchased for portfolio		2,303		—		579		101		2,983
Other		1,250		—		—		—		1,250
	$	35,785	$	89,681	$	17,812	$	22,173	$	165,451

The recorded investment in loans by risk category and by class of loans as of December 31, 2010 follows. There were no loans rated doubtful at December 31, 2010.

	Not Rated		Pass		Special Mention		Substandard		Total
Commercial	$	473	$	26,102	$	6,281	$	5,338	$	38,194
Real estate:
Single-family residential		23,007		—		—		266		23,273
Multi-family residential		—		21,021		4,529		9,758		35,308
Commercial:
Non-owner occupied		91		27,412		4,247		8,544		40,294
Owner occupied		499		27,253		5,090		1,727		34,569
Land		1,089		1,985		—		2,788		5,862
Construction		—		4,919		—		—		4,919
Consumer:
Home equity lines of credit:
Originated for portfolio		12,744		—		—		161		12,905
Purchased for portfolio		2,572		—		839		—		3,411
Other		1,780		—		—		10		1,790
	$	42,255	$	108,692	$	20,986	$	28,592	$	200,525

Management’s loan review process includes the identification of substandard loans where accrual of interest continues because the loans are under 90 days delinquent and/or the loans are well secured, a complete documentation review had been performed, and the loans are in the active process of being collected, but the loans exhibit some type of weakness that could lead to nonaccrual status in the future. At September 30, 2011, in addition to the nonperforming loans discussed previously, twelve commercial loans totaling $3,505, three multi-family residential real estate loans totaling $2,246 and seventeen commercial real estate loans totaling $11,142 were classified as substandard. None of these loans was 30 days or more past due at September 30, 2011. At December 31, 2010, in addition to the nonperforming loans discussed previously, nine commercial loans totaling $3,250, six multi-family residential real estate loans totaling $5,781 and eight commercial real estate loans totaling $9,504 were classified as substandard. One of these loans, totaling $1,183 was 37 days delinquent at December 31, 2010 and none of the remaining loans was 30 days or more past due.