CENTRAL FEDERAL CORPORATION 8-K

0000950152-08-001171.txt : 20080215 0000950152-08-001171.hdr.sgml : 20080215 20080215122146 ACCESSION NUMBER: 0000950152-08-001171 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080215 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080215 DATE AS OF CHANGE: 20080215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL FEDERAL CORP CENTRAL INDEX KEY: 0001070680 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341877137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25045 FILM NUMBER: 08621700 BUSINESS ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 BUSINESS PHONE: 3305321517 MAIL ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 FORMER COMPANY: FORMER CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP DATE OF NAME CHANGE: 19980918 8-K 1 l30160ae8vk.htm CENTRAL FEDERAL CORPORATION 8-K CENTRAL FEDERAL CORPORATION 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): February 15, 2008

CENTRAL FEDERAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware	0-25045	34-1877137

(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)


2923 Smith Road, Fairlawn, Ohio	44333	(330) 666-7979

(Address of Principal Executive Offices)	(Zip Code)	(Registrant’s Telephone Number)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Item 2.02		Results of Operations and Financial Condition

On February 15, 2008, the registrant issued a press release announcing performance for the quarter and year to date period ended December 31, 2007. A copy of the press release is included as Exhibit 99 to this report.


Item 9.01		Financial Statements and Exhibits



	99			Press release issued on February 15, 2008 announcing performance for the quarter and year to date period ended December 31, 2007

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 hereunto duly authorized.


	Central Federal Corporation
Date: February 15, 2008	By:	/s/ Therese Ann Liutkus
		Therese Ann Liutkus, CPA
		Treasurer and Chief Financial Officer

EX-99 2 l30160aexv99.htm EX-99 EX-99

Exhibit 99

PRESS RELEASE


*FOR IMMEDIATE RELEASE:*		February 15, 2008
For Further Information:		Mark S. Allio, Chairman, President and CEO
		Phone: 330.576.1334
		Fax: 330.666.7959

CENTRAL FEDERAL CORPORATION ANNOUNCES RECORD EARNINGS
FOR THE 4^TH QUARTER OF 2007

Highlights

	•		Net income totaled $297,000, or $.07 per diluted share, for the quarter ended December 31, 2007, an increase of 241% compared to $87,000 or $.02 per diluted share for the prior year quarter.

	•		Total assets increased 18%, or $43.6 million, during 2007 to $279.6 million at December 31, 2007.

	•		CFBank’s commercial, commercial real estate and multi-family loans increased 38%, or $47.5 million, during 2007.

	•		Net interest income increased 19% during the 4^thquarter of 2007 compared to the prior year quarter and 14% for the year ended December 31, 2007 compared to 2006.

	•		Credit losses remain low while credit quality continues to remain constant. CFBank continues to monitor loan quality and adjusts the allowance for loan losses to reflect current loan characteristics and fluctuations. Since implementing the Bank’s commercial lending strategy in 2003, the Bank has not yet incurred a loss on a commercial loan. The Bank has no exposure to subprime lending activities.

	•		The net loss for the year ended December 31, 2007 totaled $17,000, compared to $37,000 for the year ended December 31, 2006. The current year loss was primarily due to the cost of an arbitration loss and lease termination expense in the 3^rd quarter of 2007 which reduced after-tax earnings by $511,000, or $.11 per diluted share.

Fairlawn, Ohio — February 15, 2008 — Central Federal Corporation (Nasdaq: CFBK) announced record net income for the 4^th quarter of 2007 of $297,000, or $.07 per diluted share, compared to net income of $87,000, or $.02 per diluted share, in the 4^th quarter of 2006. The net loss for the year ended December 31, 2007 totaled $17,000, or $.00 per diluted share, compared to a net loss of $37,000, or $.01 per diluted share, for 2006.

The net loss for 2007 was primarily due to the $511,000, or $.11 per diluted share, after-tax cost of an arbitration loss and lease termination expense. The arbitration loss, which represented $423,000 of the $511,000, resulted from an unfavorable decision in an arbitration brought by the former divisional President of Reserve Mortgage Services, Inc. (Reserve). Reserve had been acquired by the Company in October 2004 and was later merged into CFBank. The lease termination expense, which represented $88,000 of the $511,000, resulted from the move of CFBank’s mortgage banking operations to the Fairlawn office and negotiation of a settlement of the remaining future lease obligations at the former Reserve facility, which was owned by a company wholly owned by the former Reserve divisional President.

During 2007, CFBank continued successfully to execute its strategic plan focused on systematic growth. The result was an increase in total assets of $43.6 million, or 18.5%, during 2007 and included $47.5 million, or 37.6%, growth in commercial, commercial real estate and multi-family loans.

Mark S. Allio, Chairman, President and CEO stated, “Since the spring of 2005, CFBank has been executing a growth strategy which was crucial in our transition from a residentially focused savings and loan to a community bank which has added business banking, commercial real estate and commercial and industrial lending to our savings and loan foundation. As of December 2007, we have an adequate earning asset base to produce a return which has stabilized capital and has provided us a platform to implement the next stage of profitable incremental growth while managing credit risk as well as non-interest expenses.

“Implementing a growth strategy during a period of an inverted yield curve is extremely difficult since the return on the incremental growth will not be accretive in the short term. We needed to grow the balance sheet and net interest income regardless of the slope of the yield curve. During the inverted yield curve period, we have maintained a shorter duration of our liabilities than our earning assets. As the yield curve returns to a positive slope, we will benefit from the liability repricing and a resultant increase in our net interest margin. We are also pleased with the performance and credit quality of our loan portfolio.

“The communities and customers we serve have welcomed our brand promise as a partner in their banking needs and not just a provider of commodity financial products. With community and customer support and referrals, our asset base has doubled. Both business and retail customers appreciate our broad experience, knowledgeable people, access to decision-makers, customized solutions and execution with a sense of urgency. We look forward to their continued support, which will result in growth of CFBank and increased value to our shareholders.”

Net interest income
The flat/inverted yield curve challenged growth in net interest income during 2007. Although loan growth positively affected gross interest income, which increased 28.3% in 2007, interest expense increased 42.2%, resulting in a 14.2% increase in net interest income in 2007 compared to 2006. Net interest margin declined from 3.39% for the year ended December 31, 2006 to 3.19% for 2007.

Gross interest income increased 21.4% in the 4^th quarter of 2007 compared to the prior year quarter, and interest expense increased 23.1% during the same time frame, resulting in a 19.3% increase in net interest income for the 4^th quarter of 2007 compared to the prior year quarter. Net interest margin increased from 3.20% in the 4^th quarter of 2006 to 3.24% in the 4^th quarter of 2007.

Reductions in the Federal Funds rate and an increase in the slope of the yield curve positively impacted net interest margin in the 4^th quarter of 2007; however, management of the net interest margin in the current interest rate and competitive environment is a challenge, and continued pressure on margins is expected. CFBank continues to manage the net interest margin by matching asset and liability pricing closely to its business model.

Noninterest income
Noninterest income totaled $149,000 and $728,000 for the quarter and year ended December 31, 2007, respectively, compared to $212,000 and $823,000 in the prior year periods. The decline in noninterest income in the current year was primarily due to lower mortgage loan production in 2007, which resulted in lower net gains on sales of loans.

Provision for loan losses
CFBank continues to provide reserves for loan losses in relation to its loan growth, portfolio composition, current economic conditions and ascertainable credit risk information available. Since commercial lending began in 2003, the Bank has provided a total of $2.8 million to build the allowance for loan losses as the commercial lending portfolio has grown. To date the Bank has not incurred a loss on a commercial loan asset. The provision totaled $104,000 and $539,000 in the three months and year ended December 31, 2007 compared to $118,000 and $820,000 for the same periods in 2006.

In 2007, the Bank provided a larger loan loss provision on loans with less than satisfactory risk ratings based on review of current facts and judgment regarding changes in the risk characterization of these loans. As the portfolio has become more seasoned, significant credit problems have not appeared in loans with satisfactory risk ratings, which resulted in lower allocations to the allowance on these loans and a lower provision for loan losses in 2007.

CFBank continued to experience low levels of nonperforming loans and net loan charge-offs. Nonperforming loans totaled $391,000, or 0.17% of total loans, at December 31, 2007 compared to $297,000, or 0.16% of total loans, at December 31, 2006. For the quarter ended December 31, 2007, the Bank had net charge-offs totaling $3,000, or 0.01% on an annualized basis of average loans, compared to net charge-offs of $41,000, or 0.09% on an annualized basis of average loans, during the prior year quarter. Net recoveries totaled $36,000, or 0.02% of average loans, in 2007 compared to net charge-offs of $206,000, or 0.13%, in 2006.

The ratio of the allowance for loan losses to total loans was 1.15% at December 31, 2007 and 1.13% at December 31, 2006.

Management continues to diligently monitor credit quality in the existing portfolio and analyzes potential loan opportunities carefully in order to manage credit risk while implementing our growth strategy. We believe the allowance for loan losses is adequate to absorb probable incurred credit losses in the loan portfolio at December 31, 2007; however, future additions to the allowance may be necessary based on factors such as changes in client business performance, economic conditions, and sudden changes in real estate values.

Noninterest expense
Noninterest expense totaled $1.7 million and $8.0 million for the quarter and year ended December 31, 2007. Noninterest expense for the year ended December 31, 2007 included the $774,000 pre-tax arbitration loss and lease termination expenses described previously. Salaries and employee benefits expense included a $641,000 arbitration loss paid to the former divisional President of Reserve. Occupancy and equipment expense included a $100,000 lease termination expense, and other expense included $33,000 lease termination expense.

Noninterest expense in the 4^th quarter of 2007 totaled $1,721,000 and decreased $14,000, or 0.8%, compared to $1,735,000 in the prior year quarter. Noninterest expense for the year ended December 31, 2007, not including the arbitration loss and lease termination expense, totaled $7.2 million and increased $374,000, or 5.5%, from the prior year. The increase in noninterest expense in the current year was due to costs associated with additional operational resources necessary to further implement our strategic growth plan. Management leveraged growth during calendar year 2006 and was able to grow assets by 36.4%, or $63.0 million, with no increase in noninterest expense during that year. Additional expenses were incurred in the current year for the opening of CFBank’s office in Worthington, Ohio in the summer of 2007, replacing the office at Easton Town Center in Columbus, Ohio. Ohio franchise tax increased $122,000 in 2007 due to additional capital from the Company’s 2006 stock offering. Noninterest expenses in the current year were also incurred for marketing, advertising and additional human resources necessary to support growth.

Balance sheet activity
Assets totaled $279.6 million at December 31, 2007, an increase of $43.6 million, or 18.5%, from $236.0 million at December 31, 2006. The growth was primarily due to growth in the loan portfolio and was funded with deposits and Federal Home Loan Bank (FHLB) advances.

Net loans totaled $230.5 million at December 31, 2007, an increase of $45.8 million, or 24.8%, from $184.7 million at December 31, 2006. Commercial, commercial real estate and multi-family loans totaled $173.9 million at December 31, 2007, an increase of $47.5 million, or 37.6%, from $126.4 million at December 31, 2006. Mortgage loans totaled $31.0 million at December 31, 2007, an increase of $865,000 from $30.1 million at December 31, 2006. Most of CFBank’s mortgage loan production was originated for sale. Consumer loans decreased $2.1 million and totaled $28.2 million at December 31, 2007 compared to $30.3 million at December 31, 2006. The decrease was primarily due to repayments on home equity lines of credit and auto loans.

Deposits totaled $194.3 million at December 31, 2007 and increased $26.7 million, or 15.9%, from $167.6 million at December 31, 2006. Certificate of deposit accounts increased $16.7 million and included a $16.2 million increase in brokered certificate of deposit accounts. Additionally, money market accounts increased $6.4 million, interest bearing checking accounts increased $4.2 million and noninterest bearing deposits increased $1.0 million. Traditional savings account balances decreased by $1.6 million.

FHLB advances totaled $49.5 million at December 31, 2007 and increased $17.0 million, or 52.3%, compared to $32.5 million at December 31, 2006. A $2.2 million economic development advance from the FHLB was drawn during the March 2007 quarter to fund construction of CFBank’s new Columbus regional office in Worthington, which opened in June 2007. The remaining increase in FHLB advances was used to fund loan growth.

Shareholders’ equity totaled $27.4 million at December 31, 2007 and decreased $1.7 million, or 5.8%, compared to $29.1 million at December 31, 2006 as a result of the net loss for the year, an $830,000 treasury stock repurchase and $1.2 million in dividends to shareholders.

About Central Federal Corporation and CFBank
Central Federal Corporation is the holding company for CFBank, a federally chartered savings association formed in Ohio in 1892. CFBank has four full-service banking offices in Fairlawn, Calcutta, Wellsville and Worthington, Ohio. Additional information about CFBank’s banking services and the Company is available at www.CFBankOnline.com.

Statements contained in this release that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions that such statements necessarily are based on certain assumptions which are subject to risks and uncertainties, including, but not limited to, changes in general economic and market conditions. Further information on these risk factors is included in the Company’s filings with the Securities and Exchange Commission.


Consolidated Statements of Operations	Three months ended							Year ended
($ in thousands, except share data)	December 31,							December 31,
(unaudited)	2007		2006		change			2007			2006			change

Total interest income	$	4,710	$	3,881		21	%	$	17,523		$	13,654			28	%
Total interest expense		2,610		2,121		23	%		9,795			6,889			42	%

Net interest income		2,100		1,760		19	%		7,728			6,765			14	%

Provision for loan losses		104		118		-12	%		539			820			-34	%

Net interest income after provision for loan losses		1,996		1,642		22	%		7,189			5,945			21	%

Noninterest income
Service charges on deposit accounts		84		68		24	%		287			232			24	%
Net gain on sales of loans		26		87		-70	%		233			326			-29	%
Net loss on sale of securities		—		—		n/m			—			(5	)		n/m
Other		39		57		-32	%		208			270			-23	%

Noninterest income		149		212		-30	%		728			823			-12	%

Noninterest expense
Salaries and employee benefits		970		986		-2	%		4,601			3,788			21	%
Occupancy and equipment		92		119		-23	%		534			471			13	%
Data processing		138		139		-1	%		556			492			13	%
Franchise taxes		82		44		86	%		293			171			71	%
Professional fees		64		74		-14	%		358			428			-16	%
Director fees		36		34		6	%		148			149			-1	%
Postage, printing and supplies		30		36		-17	%		162			155			5	%
Advertising and promotion		27		28		-4	%		203			95			114	%
Telephone		22		27		-19	%		99			109			-9	%
Loan expenses		13		24		-46	%		23			101			-77	%
Foreclosed assets, net		8		5		n/m			(30	)		8			n/m
Depreciation		154		140		10	%		619			506			22	%
Other		85		79		8	%		431			376			15	%

Noninterest expense		1,721		1,735		-1	%		7,997			6,849			17	%

Income (loss) before income taxes		424		119		256	%		(80	)		(81	)		-1	%
Income tax expense (benefit)		127		32		297	%		(63	)		(44	)		43	%

Net income (loss)	$	297	$	87		241	%	$	(17	)	$	(37	)		-54	%


Share Data
Basic earnings (loss) per share	$	0.07	$	0.02				$	—		$	(0.01	)
Diluted earnings (loss) per share	$	0.07	$	0.02				$	—		$	(0.01	)
Cash dividends per share	$	0.05	$	0.09				$	0.28		$	0.36
Average shares outstanding — basic		4,421,255		4,529,766					4,467,750			4,452,119
Average shares outstanding — diluted		4,421,255		4,529,766					4,467,750			4,452,119

n/m — not meaningful


Consolidated Statements of Financial Condition
($ in thousands)	December 31,			September 30,			June 30,			March 31,			December 31,
(unaudited)	2007			2007			2007			2007			2006

Assets
Cash and cash equivalents	$	3,894		$	3,559		$	3,370		$	4,278		$	5,403
Securities available for sale		28,398			28,927			30,770			30,519			29,326
Loans held for sale		457			721			795			1,029			2,000
Loans
Mortgages		30,998			30,618			29,569			29,508			30,133
Commercial, commercial real estate and multi-family		173,916			164,740			150,709			132,606			126,418
Consumer		28,245			28,885			30,828			30,491			30,253

Total loans		233,159			224,243			211,106			192,605			186,804
Less allowance for loan losses		(2,684	)		(2,584	)		(2,272	)		(2,150	)		(2,109	)

Loans, net		230,475			221,659			208,834			190,455			184,695
Federal Home Loan Bank stock		1,963			1,963			1,963			1,963			2,813
Loan servicing rights		157			172			183			197			201
Foreclosed assets, net		86			109			262			—			—
Premises and equipment, net		5,717			5,834			5,835			4,535			4,105
Bank owned life insurance		3,769			3,742			3,710			3,678			3,646
Deferred tax asset		1,995			2,181			2,036			1,958			2,044
Accrued interest receivable and other assets		2,671			2,391			2,162			2,120			1,795

	$	279,582		$	271,258		$	259,920		$	240,732		$	236,028


Liabilities and Shareholders’ Equity
Deposits
Noninterest bearing	$	12,151		$	12,040		$	11,505		$	9,872		$	11,114
Interest bearing		182,157			174,450			165,612			155,647			156,477

Total deposits		194,308			186,490			177,117			165,519			167,591
Federal Home Loan Bank advances		49,450			50,175			48,045			38,170			32,520
Advances by borrowers for taxes and insurance		154			85			100			79			137
Accrued interest payable and other liabilities		3,136			2,274			2,007			2,946			1,540
Subordinated debentures		5,155			5,155			5,155			5,155			5,155

Total liabilities		252,203			244,179			232,424			211,869			206,943

Shareholders’ equity		27,379			27,079			27,496			28,863			29,085

	$	279,582		$	271,258		$	259,920		$	240,732		$	236,028


Consolidated Financial Highlights	At or for the three months ended															At or for the year ended
($ in thousands except per share data)	December 31,			September 30,			June 30,			March 31,			December 31,			December 31,
(unaudited)	2007			2007			2007			2007			2006			2007			2006

Earnings
Net interest income	$	2,100		$	1,981		$	1,845		$	1,802		$	1,760		$	7,728		$	6,765
Provision for loan losses	$	104		$	293		$	107		$	35		$	118		$	539		$	820
Noninterest income	$	149		$	164		$	215		$	200		$	212		$	728		$	823
Noninterest expense	$	1,721		$	2,588		$	1,836		$	1,852		$	1,735		$	7,997		$	6,849
Net income (loss)	$	297		$	(483	)	$	84		$	85		$	87		$	(17	)	$	(37	)
Basic earnings (loss) per share	$	0.07		$	(0.11	)	$	0.02		$	0.02		$	0.02		$	—		$	(0.01	)
Diluted earnings (loss) per share	$	0.07		$	(0.11	)	$	0.02		$	0.02		$	0.02		$	—		$	(0.01	)

Performance Ratios (annualized)
Return on average assets		0.43	%		(0.72	%)		0.13	%		0.14	%		0.15	%		(0.01	%)		(0.02	%)
Return on average equity		4.34	%		(7.04	%)		1.18	%		1.17	%		1.19	%		(0.06	%)		(0.12	%)
Average yield on interest-earning assets		7.27	%		7.38	%		7.11	%		7.13	%		7.07	%		7.23	%		6.84	%
Average rate paid on interest-bearing liabilities		4.46	%		4.68	%		4.48	%		4.37	%		4.44	%		4.50	%		4.00	%
Average interest rate spread		2.81	%		2.70	%		2.64	%		2.75	%		2.63	%		2.73	%		2.84	%
Net interest margin, fully taxable equivalent		3.24	%		3.15	%		3.12	%		3.24	%		3.20	%		3.19	%		3.39	%
Efficiency ratio		76.52	%		120.65	%		89.13	%		92.51	%		87.98	%		94.57	%		90.20	%
Noninterest expense to average assets		2.48	%		3.84	%		2.90	%		3.11	%		2.99	%		3.08	%		3.20	%

Capital
Equity to total assets at end of period		9.79	%		9.98	%		10.58	%		11.99	%		12.32	%		9.79	%		12.32	%
Tangible equity to tangible assets		9.79	%		9.98	%		10.58	%		11.99	%		12.32	%		9.79	%		12.32	%
Book value per share	$	6.17		$	6.11		$	6.20		$	6.33		$	6.40		$	6.17		$	6.40
Tangible book value per share	$	6.17		$	6.11		$	6.20		$	6.33		$	6.40		$	6.17		$	6.40
Period-end market value per share	$	3.86		$	5.48		$	7.00		$	6.90		$	7.36		$	3.86		$	7.36
Dividends declared per common share	$	0.05		$	0.05		$	0.09		$	0.09		$	0.09		$	0.28		$	0.36
Period-end common shares outstanding		4,434,787			4,434,787			4,434,787			4,559,787			4,543,662			4,434,787			4,543,662
Average basic shares outstanding		4,421,255			4,417,040			4,501,889			4,532,596			4,529,766			4,467,750			4,452,119
Average diluted shares outstanding		4,421,255			4,417,040			4,501,889			4,532,638			4,529,766			4,467,750			4,452,119

Asset Quality
Nonperforming loans	$	391		$	196		$	168		$	296		$	297		$	391		$	297
Nonperforming loans to total loans		0.17	%		0.09	%		0.08	%		0.15	%		0.16	%		0.17	%		0.16	%
Nonperforming assets to total assets		0.17	%		0.11	%		0.17	%		0.12	%		0.13	%		0.17	%		0.13	%
Allowance for loan losses to total loans		1.15	%		1.15	%		1.08	%		1.12	%		1.13	%		1.15	%		1.13	%
Allowance for loan losses to nonperforming loans		686.04	%		1318.37	%		1352.38	%		726.35	%		710.10	%		686.04	%		710.10	%
Net charge-offs (recoveries)	$	3		$	(18	)	$	(16	)	$	(5	)	$	41		$	(36	)	$	206
Annualized net charge-offs (recoveries) to average loans		0.01	%		-0.03	%		-0.03	%		-0.01	%		0.09	%		-0.02	%		0.13	%

Average Balances
Loans	$	227,943		$	218,917		$	201,737		$	187,684		$	180,417		$	209,070		$	161,453
Assets	$	277,094		$	269,763		$	253,579		$	237,906		$	232,097		$	259,586		$	213,761
Shareholders’ equity	$	27,363		$	27,453		$	28,378		$	29,013		$	29,275		$	28,052		$	29,702

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