10K 2014

0001070680-15-000008.txt : 20150327 0001070680-15-000008.hdr.sgml : 20150327 20150327150206 ACCESSION NUMBER: 0001070680-15-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20150327 FILED AS OF DATE: 20150327 DATE AS OF CHANGE: 20150327 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25045 FILM NUMBER: 15730620 BUSINESS ADDRESS: STREET 1: C/O CFBANK STREET 2: 7000 N. HIGH ST. CITY: WORTHINGTON STATE: OH ZIP: 43085 BUSINESS PHONE: 6143347979 MAIL ADDRESS: STREET 1: C/O CFBANK STREET 2: 7000 N. HIGH ST. CITY: WORTHINGTON STATE: OH ZIP: 43085 FORMER COMPANY: FORMER CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP DATE OF NAME CHANGE: 19980918 10-K 1 cfbk-20150327x10k.htm 10-K 10K 2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2014


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

For the transition period from __________ to______________

Commission File Number 0-25045

CENTRAL FEDERAL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware	34-1877137
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)


7000 N. High Street, Worthington, Ohio	43085
(Address of Principal Executive Offices)	(Zip Code)

(614) 334-7979

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Common Stock, par value $.01 per share	Nasdaq® Capital Market
(Title of Class)	(Name of Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

YES [ ] NO [X]

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) YES[X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES [ ] NO [X]

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates as of June 30, 2014 was $23.4 million based upon the closing price as reported on the Nasdaq® Capital Market for that date.

As of March 15, 2015, there were 15,823,710 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Annual Report to Stockholders for its fiscal year ended December 31, 2014, included as Exhibit 13.1 to this Form 10-K, and its Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 2015, are incorporated herein by reference into Parts II and III, respectively, of this Form 10-K.

INDEX


PART I
Item 1.	Business	3
Item 1A.	Risk Factors	32
Item 1B.	Unresolved Staff Comments	39
Item 2.	Properties	39
Item 3.	Legal Proceedings	40
Item 4.	Mine Safety Disclosures	40
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	40
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	41
Item 9A.	Controls and Procedures	41
Item 9B.	Other Information	41

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	42
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters	44
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accounting Fees and Services	44
PART IV
Item 15.	Exhibits and Financial Statement Schedules	44
SIGNATURES		45
EXHIBIT INDEX		46

Forward-Looking Statements

Statements in this Annual Report on Form 10-K (this “Form 10-K”) and in other communications by the Company that are not statements of historical fact are forward-looking statements which are made in good faith by us. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of Central Federal Corporation (the “Holding Company”) or CFBank; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as "estimate," "strategy," "may," "believe," "anticipate," "expect," "predict," "will," "intend," "plan," "targeted," and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements, including, without limitation, those risks set forth in the section captioned “RISK FACTORS” in Part I, Item 1A of this Form 10-K.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Holding Company, including its subsidiaries (together referred to as the “Company”) believes it has chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. The forward-looking statements included in this report speak only as of the date of the report. We undertake no obligation to publicly release revisions to any forward-looking statements to reflect events or circumstances after the date of such statements, except to the extent required by law.

PART I

Item 1. Business.

General

Central Federal Corporation (the “Holding Company”), was organized as a Delaware corporation in September 1998 as the holding company for CFBank in connection with CFBank’s conversion from a mutual to stock form of organization. As a savings and loan holding company, we are subject to regulation by the Board of Governors of the Federal Reserve System (the “FRB”). CFBank is a savings institution which was originally organized in 1892, and was formerly known as Central Federal Savings and Loan Association of Wellsville and more recently as Central Federal Bank. As used herein, the terms “we,” “us,” “our” and the “Company” refer to Central Federal Corporation and its subsidiaries, unless the context indicates to the contrary.

The consolidated financial statements include Central Federal Corporation (the “Holding Company”) and its wholly-owned subsidiaries, CFBank, Ghent Road, Inc., and Smith Ghent LLC (together referred to as the “Company”). Ghent Road, Inc. was formed in 2006 and owned the land adjacent to the corporate office, and Smith Ghent LLC owned the office building on such land. During October 2013, the Company consummated a sale of its corporate office building and adjacent land, and relocated its main office branch to a nearby location. After the sale was finalized, Ghent Road, Inc. and Smith Ghent LLC were legally dissolved, prior to year-end 2013. However, the results of operations of Ghent Road, Inc. and Smith Ghent LLC for 2013 prior to dissolution are included in these consolidated financial statements.

Central Federal Capital Trust I (the “Trust”), a wholly owned subsidiary of the Holding Company, was formed in 2003 to raise additional funding for the Company. The Holding Company is not considered the primary beneficiary of this trust (variable interest entity) and, therefore, the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.

Currently, the Company does not transact material business other than through CFBank. At December 31, 2014, the Company assets totaled $315.6 million and stockholders’ equity totaled $34.5 million.

CFBank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. Our business model emphasizes personalized service, clients’ access to decision makers, solution-driven lending and quick execution, efficient use of technology and the convenience of online internet banking, mobile banking, remote deposit and corporate cash management. We attract retail and business deposits from the general public and use the deposits, together with borrowings and other funds, primarily to originate commercial and commercial real estate loans, single-family and multi-family residential mortgage loans and home equity lines of credit. The majority of our customers are small businesses, small business owners and consumers.

Revenues are derived principally from the generation of interest and fees on loans originated and, to a lesser extent, interest and dividends on securities. Our primary sources of funds are retail and business deposit accounts and certificates of deposit, brokered certificates of deposit and, to a lesser extent, principal and interest payments on loans and securities, Federal Home Loan Bank (FHLB) advances, other borrowings and proceeds from the sale of loans.

Regulatory Order Considerations

On May 25, 2011, the Holding Company and CFBank each consented to the issuance of an Order to Cease and Desist (the “Holding Company Order” and the “CFBank Order”, respectively, and collectively, the “Orders”) by the Office of Thrift Supervision (the “OTS”), the primary regulator of the Holding Company and CFBank at the time the Orders were issued. In July 2011, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the FRB replaced the OTS as the primary regulator of the Holding Company and the Office of the Comptroller of the Currency (the “OCC”) replaced the OTS as the primary regulator of CFBank. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding the Orders.

The Orders imposed significant directives applicable to the Holding Company and CFBank, including requirements that we reduce the level of our classified and criticized assets, achieve growth and operating metrics in line with an approved business plan, and comply with restrictions on brokered deposits and on certain types of lending and prohibitions on dividends and repurchases of our capital stock. The CFBank Order required CFBank to have 8% core capital and 12% total risk-based capital, and CFBank could not be considered well-capitalized under the prompt corrective action regulations so long as the CFBank Order remained in place, even if it met or exceeded these capital levels. In addition, the regulators were required to approve any deviation from our business plan and certain compensation arrangements with directors and executive officers. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding the Orders.

On August 20, 2012, the Holding Company announced the successful completion of its common stock offering, pursuant to which the Holding Company sold 15.0 million shares of its common stock at $1.50 per share, resulting in gross proceeds of $22.5 million before expenses. With the proceeds from the stock offering, the Holding Company contributed $13.5 million to CFBank to improve its capital ratios and support future growth and expansion, bringing CFBank into compliance with the capital ratios required by the CFBank Order. In addition, the Holding Company used proceeds from the common stock offering to redeem its TARP obligations on September 26, 2012. The remaining proceeds from the restructured registered common stock offering were retained by the Company for general corporate purposes. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding the Orders.

Effective as of January 23, 2014, the OCC released and terminated the CFBank Order based upon the improved capital position of CFBank, among other factors. Notwithstanding the release of the CFBank Order, CFBank is required to continue to maintain a minimum Tier 1 Leverage Capital Ratio of 8% and a Total Risk-based Capital to Risk-Weighted Assets ratio of 12%. In addition, in connection with the release and termination of the CFBank Order, CFBank has made certain commitments to the OCC to continue to adhere to certain prudent practices, including, without limitation, maintaining a written program to continue to improve CFBank’s credit underwriting and administrative process; take actions to protect its interest in criticized assets as identified by CFBank, the OCC examiners or its external loan review process and implement its written program to effectively identify, monitor, control and continue to reduce the level of credit risk to CFBank; review and monitor progress against such plan with the Board of Directors and continue CFBank’s aggressive workout efforts and individualized workout plans on all criticized assets greater than $250,000. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding the Orders.

On May 15, 2014, the FRB announced the termination of the Holding Company Order, effective as of May 9, 2014. Notwithstanding the termination of the Holding Company Order, the Holding Company is required to continue to adhere to certain requirements and restrictions based on commitments made to the FRB in connection with the termination of the Holding Company Order. These commitments require the Holding Company, among other things, to continue to implement certain actions in accordance with the capital plan previously submitted to the FRB; not declare or pay dividends on its stock, purchase or redeem its stock, or accept dividends or other capital distributions from CFBank without the prior written approval of the FRB; not incur, increase or guarantee any debt without the prior written consent of the FRB; and provide prior written notice to the FRB with respect to certain changes in directors and senior executive officers. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding the Orders.

The significant directives contained in the Orders and the commitments made by CFBank and the Holding Company in connection with the release and termination of the Orders have provided challenges for the operation of our business and our ability to effectively compete in our markets. In addition, the Orders and our ongoing commitments to the regulators have required that we obtain approval from our regulators for any deviations from our business plan, which has limited our flexibility to make changes to the scope of our business activities. We have also incurred significant additional regulatory compliance expense in connection with the Orders and our regulatory commitments, and it is possible that regulatory compliance expenses could continue to have a material adverse impact on us in the future.

Dividend Restrictions: The ability of the Holding Company to pay dividends on its common stock and Series B Preferred Stock is generally dependent upon the receipt of dividends and other distributions from CFBank. The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Currently, CFBank cannot declare or pay dividends or make any other capital distributions without receiving prior written regulatory approval. Future dividend payments by CFBank to the Holding Company would be based on future earnings and regulatory approval. The payment of dividends from CFBank to the Holding Company is not likely to be approved by regulators until CFBank is able to generate consistent earnings. As a result of the current level of problem assets and the continuing slow economy, it is unlikely CFBank will be able to pay dividends to the Holding Company until such issues are resolved.

The Holding Company also is subject to various legal and regulatory policies and requirements impacting the Holding Company’s ability to pay dividends on its stock, and pursuant to the commitments made to the FRB in connection with the termination of the Holding Company Order, the Holding Company may not declare or pay dividends on its stock without the prior written non-objection of the FRB. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities, which also requires the written non-objection of the FRB. Finally, so long as the Company’s Series B Preferred Stock remains outstanding, the Holding Company will be prohibited from paying dividends on (other than dividends payable solely in shares) the Company’s common stock, for the then-current dividend period, unless full dividends on the Series B Preferred Stock have been paid or set aside for payment. Dividends on the Series B Preferred Stock are non-cumulative, which means that if for any reason we do not declare cash dividends on the Series B Preferred Stock for a quarterly dividend period we will have no obligation to pay any dividends for that period (i.e., the dividends will not accrue or cumulate), whether or not we declare dividends on the Series B Preferred Stock for any subsequent dividend period.

The Holding Company has adequate operating capital for the foreseeable future. The Holding Company had $3.0 million in cash and cash equivalents at December 31, 2014. The regulators have further required the Holding Company to develop a business plan, separate from CFBank, that enables it to significantly reduce its dependence on CFBank for dividends through alternative funding mechanisms.

Market Area and Competition

Our primary market area is a competitive market for financial services and we face competition both in making loans and in attracting deposits. Direct competition comes from a number of financial institutions operating in our market area, many of which have a statewide or regional presence, and in some cases, a national presence. Many of these financial institutions are significantly larger and have greater financial resources than we do. Competition for loans and deposits comes from savings institutions, mortgage banking companies, commercial banks, credit unions, brokerage firms and insurance companies.

Lending Activities

Loan Portfolio Composition. The loan portfolio consists primarily of commercial, commercial real estate and multi-family mortgage loans, mortgage loans secured by single-family residences and, to a lesser degree, consumer loans. It also consists of a portfolio of residential mortgage loans totaling $25.0 million as a result of participation in the Northpointe Mortgage Purchase Program. CFBank also finances a variety of commercial and residential construction projects. At December 31, 2014, gross loans receivable totaled $264.1 million and increased approximately $51.3 million, or 24.1% from $212.9 million at December 31, 2013. Commercial, commercial real estate and multi-family mortgage loans, including related construction loans, totaled $182.7 million and represented 69.2% of the gross loan portfolio at December 31, 2014 and 77.5% at December 31, 2013. Commercial, commercial real estate and multi-family mortgage loan balances, including related construction loans, increased $13.1 million, or 8.1% during 2014. Portfolio single-family residential mortgage loans, including related construction loans and the Mortgage Purchase Program Loans, totaled $59.5 million and represented 22.5% of total gross loans at year-end 2014, compared to 15.1% at year-end 2013. The remainder of the portfolio consisted of consumer loans, which totaled $22.0 million, or 8.3% of gross loans receivable at year-end 2014.

The types of loans originated are subject to federal and state laws and regulations. Interest rates charged on loans are affected by the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. In turn, these factors are affected by, among other things, economic conditions, fiscal policies of the federal government, monetary policies of the FRB and legislative tax policies.

The following table sets forth the composition of the loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated.


		December 31,
	2014			2013			2012			2011			2010
			Percent			Percent			Percent			Percent			Percent
	Amount		of Total	Amount		of Total	Amount		of Total	Amount		of Total	Amount		of Total
	(Dollars in thousands)
Real estate mortgage loans:
Single-family	$	51,542	19.51%	$	32,219	15.13%	$	43,058	27.21%	$	18,214	11.58%	$	23,273	11.61%
Multi-family		28,863	10.93%		32,197	15.12%		21,576	13.63%		27,163	17.27%		35,308	17.61%
Construction		23,732	8.98%		11,465	5.39%		14	0.01%		-	0.00%		4,919	2.45%
Commercial real estate		91,404	34.60%		83,752	39.34%		54,291	34.30%		69,757	44.35%		80,725	40.26%
Total real estate mortgage loans		195,541	74.02%		159,633	74.99%		118,939	75.15%		115,134	73.20%		144,225	71.93%

Consumer loans:
Home equity loans		551	0.21%		352	0.17%		419	0.26%		651	0.41%		968	0.48%
Home equity lines of credit		16,955	6.42%		14,851	6.98%		12,963	8.19%		14,921	9.49%		16,316	8.14%
Automobile		122	0.05%		77	0.04%		50	0.03%		41	0.03%		98	0.05%
Other		4,322	1.64%		431	0.20%		501	0.32%		529	0.34%		724	0.36%
Total consumer loans		21,950	8.32%		15,711	7.38%		13,933	8.80%		16,142	10.27%		18,106	9.03%

Commercial loans		46,656	17.66%		37,526	17.63%		25,408	16.05%		25,994	16.53%		38,194	19.04%
Total loans receivable		264,147	100.00%		212,870	100.0%		158,280	100.0%		157,270	100.0%		200,525	100.0%

Less:
Allowance for loan losses		(6,316)			(5,729)			(5,237)			(6,110)			(9,758)
Loans receivable, net	$	257,831		$	207,141		$	153,043		$	151,160		$	190,767

Loan Maturity. The following table shows the remaining contractual maturity of the loan portfolio at December 31, 2014. Demand loans and other loans having no stated schedule of repayments or no stated maturity are reported as due within one year. The table does not include potential prepayments or scheduled principal amortization.


	At December 31, 2014
	Real Estate Mortgage Loans(1)		Consumer Loans		Commercial Loans		Total Loans Receivable
	(Dollars in thousands)
Amounts due:
Within one year	$	37,061	$	4,298	$	3,685	$	45,044
After one year:
More than one year to three years		45,510		99		4,961		50,570
More than three years to five years		35,806		122		18,801		54,729
More than five years to 10 years		36,415		635		8,210		45,260
More than 10 years to 15 years		8,565		5,344		45		13,954
More than 15 years		32,184		11,452		10,954		54,590
Total due after 2015		158,480		17,652		42,971		219,103
Total amount due	$	195,541	$	21,950	$	46,656	$	264,147

The following table sets forth at December 31, 2014, the dollar amount of total loans receivable contractually due after December 31, 2015, and whether such loans have fixed interest rates or adjustable interest rates.


	Due After December 31, 2015
	Fixed		Adjustable		Total
Real estate mortgage loans(1)	$	85,536	$	72,944	$	158,480
Consumer loans		502		17,150		17,652
Commercial loans		16,625		26,346		42,971
Total loans	$	102,663	$	116,440	$	219,103

(1)

Real estate mortgage loans include single-family, multi-family and commercial real estate loans and construction loans.

Origination of Loans. Lending activities are conducted through our offices located in Summit, Cuyahoga, Franklin and Columbiana Counties, Ohio. We originate commercial, commercial real estate and multi-family mortgage loans and also expanded into business financial services in the Akron, Cleveland and Columbus, Ohio markets.

Commercial, commercial real estate and multi-family loans are originated as fixed, floating and ARM structures. Fixed-rate loans are generally limited to three to five years. Historically, CFBank also has also utilized interest-rate swaps to protect the related fixed-rate loans from changes in value due to changes in interest rates. See Note 20 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information on interest-rate swaps.

CFBank participates in various loan programs offered by the Small Business Administration (SBA) enabling us to provide our customers and small business owners in our markets with access to funding to support their businesses, as well as reduce credit risk associated with these loans. Individual loans include SBA guarantees of up to 90%. We also participated in the State of Ohio’s GrowNOW program, which provides small business borrowers with a 3% interest rate reduction on small business loans funded through deposits from the State of Ohio at CFBank. Neither the SBA nor the GrowNOW programs are a material component of our lending programs.

A majority of our single-family mortgage loan originations are fixed-rate loans. Current originations of long-term, fixed-rate single-family mortgages are generally sold rather than retained in portfolio in order to minimize investment in long-term, fixed-rate assets that have the potential to expose the Company to long-term interest rate risk. Although we currently expect that most of our long-term, fixed-rate mortgage loan originations will continue to be sold, primarily on a servicing-released basis, a portion of these loans may be retained for portfolio within our interest rate risk and profitability guidelines.

Single-Family Mortgage Lending. A significant lending activity has been the origination of permanent conventional mortgage loans secured by single-family residences located within and outside of our primary market area. Loan originations are primarily obtained from our loan officers and their contacts within the local real estate industry and with existing or past customers and members of the local communities. We offer both fixed-rate and adjustable-rate mortgage (ARM) loans with maturities generally up to 30 years, priced competitively with current market rates. We offer several ARM loan programs with terms of up to 30 years and interest rates that adjust with a maximum adjustment limitation of 2.0% per year and a 6.0% lifetime cap. The interest rate adjustments on ARM loans currently offered are indexed to a variety of established indices and these loans do not provide for initial deep discount interest rates. We do not originate option ARM loans or loans with negative amortization.

The volume and types of single-family ARM loan originations are affected by market factors such as the level of interest rates, consumer preferences, competition and the availability of funds. In recent years, demand for single-family ARM loans has been weak due to consumer preference for fixed-rate loans as a result of the low interest rate environment. Consequently, our origination of ARM loans on single-family residential properties has not been significant as compared to our origination of fixed-rate loans.

We currently sell the majority of the single-family mortgage loans that we originate on a servicing released basis. All single-family mortgage loans sold are underwritten according to Federal Home Loan Mortgage Corporation (Freddie Mac) or Federal National Mortgage Association (Fannie Mae) guidelines, or are underwritten to comply with additional guidelines as may be required by the individual investor. CFBank is a direct endorsed underwriter, a designation by the Department of Housing and Urban Development that allows us to offer loans insured by the Federal Housing Authority (FHA).

A high volume of residential mortgage originations is a key metric for the continued success of our mortgage business. For the year ended December 31, 2014, single-family mortgage loans originated for sale totaled $50.5 million, an increase of $17.9 million or 54.8% over the $32.6 million that was originated in 2013. The increase in originations was partially due to additional mortgage loan originators in the current year. The volume of refinance activity, which is very sensitive to market mortgage interest rates, was a significant factor that impacted the level of residential loan originations in 2014. If market mortgage rates increase, our mortgage production, and the resultant gains on sales of loans, could decrease.

At December 31, 2014, portfolio single-family mortgage loans originated by CFBank totaled $26.5 million, or 10.0% of total loans. Our policy is to originate single-family residential mortgage loans for portfolio in amounts up to 85% of the lower of the appraised value or the purchase price of the property securing the loan, without requiring private mortgage insurance. Loans in excess of 85% of the lower of the appraised value or purchase price of the property securing the loan require private mortgage insurance. Mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property without our consent.

Portfolio single-family ARM loans, which totaled $11.0 million, or 21.3% of the single-family mortgage loan portfolio at December 31, 2014, generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Periodic and lifetime caps on interest rate increases help to reduce the credit risks associated with ARM loans, but also limit the interest rate sensitivity of such loans.

On December 11, 2012, CFBank entered into a Mortgage Purchase Program with Northpointe, a Michigan banking corporation. Through a Participation Agreement, CFBank agreed to temporarily purchase from the Michigan bank fully underwritten and pre-sold mortgage loans originated by various prescreened mortgage brokers located throughout the U.S. The Participation Agreement provides for CFBank to purchase individually (MERS registered) loans from the Michigan bank and hold them until funded by the end investor. This process on average takes roughly 14 days. The mortgage loan investors include Fannie Mae and Freddie Mac, and other major financial institutions like Wells Fargo Bank. The Purchase Agreement provided CFBank with $25.0 million and $12.7 million in purchased mortgage loans at December 31, 2014 and December 31, 2013, respectively. CFBank purchases an 80% interest in these loans (which have been pre-sold to an investor) from Northpointe. These Loans are 100% risk-rated and held as portfolio loans. Effective December 18, 2014, the participation agreement was amended and CFBank agreed to increase the level of loans it would purchase from Northpointe from 80% to 95% of the aforementioned loans, and therefore, Northpointe now maintains a 5% ownership interest in each loan it participates. See Note 4 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K.

Commercial Real Estate and Multi-Family Residential Mortgage Lending. Origination of commercial real estate and multi-family residential mortgage loans continues to be a significant portion of CFBank’s lending activity. Commercial real estate and multi-family residential mortgage loan balances increased $4.3 million to $120.3 million at December 31, 2014. This represented an increase of 3.7% over the $115.9 million balance at December 31, 2013.

We originate commercial real estate loans that are secured by properties used for business purposes, such as manufacturing facilities, office buildings or retail facilities. We originate multi-family residential mortgage loans that are secured by apartment buildings, condominiums, and multi-family residential houses. Commercial real estate and multi-family residential mortgage loans are secured by properties generally located in our primary market area.

Underwriting policies provide that commercial real estate and multi-family residential mortgage loans may be made in amounts up to 85% of the lower of the appraised value or purchase price of the property. An independent appraisal of the property is required on all loans greater than or equal to $250,000. In underwriting commercial real estate and multi-family residential mortgage loans, we consider the appraised value and net operating income of the property, the debt service ratio and the property owner’s and/or guarantor’s financial strength, expertise and credit history. We offer both fixed and adjustable rate loans. Fixed rate loans are generally limited to three to five years, at which time they convert to adjustable rate loans. At times, CFBank accommodates loans to borrowers who desire fixed-rate loans for longer than three to five years. We have utilized interest-rate swaps to protect these fixed-rate loans from changes in value due to changes in interest rates, as appropriate. See Note 20 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information on interest-rate swaps. Adjustable-rate loans are tied to various market indices and generally adjust monthly or annually. Payments on both fixed and adjustable rate loans are based on 15 to 25 year amortization periods.

Commercial real estate and multi-family residential mortgage loans are generally considered to involve a greater degree of risk than single-family residential mortgage loans. Because payments on loans secured by commercial real estate and multi-family residential properties are dependent on successful operation or management of the properties, repayment of commercial real estate and multi-family residential mortgage loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. As with single-family residential mortgage loans, adjustable rate commercial real estate and multi-family residential mortgage loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable rate commercial real estate and multi-family residential mortgage loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable rate commercial real estate and multi-family residential mortgage loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

Commercial real estate and multi-family residential mortgage loans also have larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. Some of our borrowers also have more than one commercial real estate or multi-family residential mortgage loan outstanding with us. Additionally, some loans may be collateralized by junior liens. Consequently, an adverse development involving one or more loans or credit relationships can expose us to significantly greater risk of loss compared to an adverse development involving a single-family residential mortgage loan. We seek to minimize and mitigate these risks through underwriting policies which require such loans to be qualified at origination on the basis of the property’s income and debt

coverage ratio and the financial strength of the property owners and/or guarantors.

Commercial Lending. The origination of commercial loans continues to be a significant component of our lending activity. During 2014, commercial lending activity improved over prior years and increased by $9.1 million, or 24.3%, to $46.7 million at year-end 2014. We originate commercial loans primarily to businesses located within our primary market area. Commercial loans are generally secured by business equipment, inventory, accounts receivable and other business assets. In underwriting commercial loans, we consider the net operating income of the company, the debt service ratio and the financial strength, expertise and credit history of the business owners and/or guarantors. We offer both fixed and adjustable rate commercial loans. Fixed-rate loans are generally limited to a maximum term of five years. Adjustable-rate loans are tied to various market indices and generally adjust monthly or annually.

Commercial loans are generally considered to involve a greater degree of risk than loans secured by real estate. Because payments on commercial loans are dependent on successful operation of the business enterprise, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. We seek to mitigate these risks through underwriting policies which require such loans to be qualified at origination on the basis of the enterprise’s income and debt coverage ratio and the financial strength of the business owners and/or guarantors.

Adjustable-rate commercial loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable-rate commercial loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable-rate commercial loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

Construction and Land Lending. With some economic improvement in our market areas, there was also an increase in commercial building activity. During 2014, construction loans increased by $12.3 million, or 107.0%, to $23.7 million, which was a substantial increase from the $11.5 million in the portfolio at year-end 2013. The additional capital has allowed CFBank to take advantage of select market opportunities in this area within the risk tolerances we have identified.

Construction loans are made to finance the construction of residential and commercial properties generally located within our primary market area. Construction loans are fixed- or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. Our policies provide that construction loans may be made in amounts up to 80% of the appraised value of the property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant and regular inspections are required to monitor the progress of construction. Land development loans generally do not exceed 75% of the actual cost or current appraised value of the property, whichever is less. Loans on raw land generally do not exceed 65% of the actual cost or current appraised value of the property, whichever is less.

Construction and land financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on construction loans by requiring personal guarantees and reviewing current personal financial statements and tax returns, as well as other projects of the developer.

Consumer and Other Lending. The consumer loan portfolio generally consists of home equity lines of credit, automobile loans, home improvement loans and loans secured by deposits. At December 31, 2014, the consumer loan portfolio totaled $22.0 million, which was 8.3% of gross loans receivable. During 2014, the consumer loan portfolio grew $6.2 million, or 39.7% over the year-end 2013 balance of $15.7 million.

Home equity lines of credit include those purchased in the past and loans we originate for our portfolio. We offer a variable rate home equity line of credit which we originate for our portfolio. The interest rate adjusts monthly at various margins above the prime rate of interest as disclosed in The Wall Street Journal. The margin is based on certain factors including the loan balance, value of collateral, election of auto-payment and the borrower’s FICO® score. The amount of the line is based on the borrower’s credit history, income and equity in the home. When combined with the balance of the prior mortgage liens, these lines generally may not exceed 89.9% of the appraised value of the property at the time of the loan commitment. The lines are secured by a subordinate lien on the underlying real estate and are, therefore, vulnerable to declines in property values in the geographic areas where the properties are located. Credit approval for home equity lines of credit requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral.

Delinquencies and Classified Assets. Management and the Board of Directors monitors the status of all loans 30 days or more past due on a monthly basis through the analysis of past due statistics and trends for all loans. Procedures with respect to resolving delinquencies vary depending on the nature and type of the loan and period of delinquency. We make efforts, consistent with safety and soundness principles, to work with the borrower and develop action steps to have the loan brought current. If the loan is not brought current, it then becomes necessary to take additional legal actions including the repossession of collateral.

We maintain an internal credit rating system and loan review procedures specifically developed to monitor credit risk for commercial, commercial real estate and multi-family residential loans. Internal loan reviews for these loan types are performed at least annually, and more often for loans with higher credit risk. Loan officers maintain close contact with borrowers between reviews. Adjustments to loan risk ratings are based on the reviews and at any time information is received that may affect risk ratings. Additionally, an independent third party review of commercial, commercial real estate and multi-family residential loans is performed at least annually. Management uses the results of these reviews to help determine the effectiveness of the existing policies and procedures and to provide an independent assessment of our internal loan risk rating system.

Federal regulations and CFBank’s asset classification policy require use of an internal asset classification system as a means of reporting and monitoring assets. We have incorporated the regulatory asset classifications as a part of our credit monitoring and internal loan risk rating system. Loans are classified 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. In accordance with regulations, problem loans are classified as special mention, substandard, doubtful or loss, and the classifications are subject to review by banking regulators. Loans designated as special mention are considered criticized assets. Loans designated as substandard, doubtful or loss are considered classified assets. Loans designated as special mention possess weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the loan or of CFBank’s credit position at some future date. A loan is considered substandard if it is 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. A loan considered doubtful has all of the weaknesses inherent in those classified 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 designated as loss are considered uncollectible based on the borrower’s inability to make payments, and any value attached to collateral, if any, is based on liquidation value. Loans considered loss are generally uncollectible and have so little value that their continuance as assets is not warranted and are charged off, unless certain circumstances exit that could potentially warrant a specific reserve be established.

See the section titled “Financial Condition - Allowance for loan losses” and Notes 1 and 4 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for detailed information on criticized and classified loans as of December 31, 2014 and 2013.

Classified loans include all nonaccrual loans, which are discussed in further detail in the section below titled “Nonperforming Assets”. In addition to nonaccrual loans, classified loans include the following loans that were identified as substandard assets, were still accruing interest at December 31, 2014, but exhibit weaknesses that could lead to nonaccrual status in the future.


	# of Loans		Balance
Commercial	2	$	91
Single-family residential real estate	2		32
Multi-family residential real estate	3		2,382
Commercial real estate	14		8,631
Home equity lines of credit	3		261
Total	24	$	11,397

The following table sets forth information concerning delinquent loans in dollar amounts and as a percentage of the total loan portfolio. The amounts presented represent the total remaining balances of the loans rather than the actual payment amounts which are overdue. Loans shown as 90 days or more delinquent include nonaccrual loans, regardless of delinquency.


	December 31, 2014						December 31, 2013						December 31, 2012
	60-89 Days			90 Days or More			60-89 Days			90 Days or More			60-89 Days			90 Days or More
	Number	Balance		Number	Balance		Number	Balance		Number	Balance		Number	Balance		Number	Balance
	of	of		of	of		of	of		of	of		of	of		of	of
	Loans	Loans		Loans	Loans		Loans	Loans		Loans	Loans		Loans	Loans		Loans	Loans
	(Dollars in thousands)						(Dollars in thousands)						(Dollars in thousands)
Real estate loans:
Single-family	2	$	47	9	$	549	1	$	36	10	$	479	2	$	122	5	$	113
Multi-family	-		-	-		-	-		-	1		1,701	-		-	2		2,082
Commercial	-		-	1		477	-		-	5		2,943	-		-	9		3,438
Consumer loans:
Home equity lines of credit	-		-	2		153	-		-	1		52	-		-	1		9
Home equity loans	-		-	-		-	-		-	-		-	-		-	-		-
Other	2		10	-		-	-		11	-		-	-		-	-		-
Commercial loans	-		-	3		369	-		-	2		563	1		65	3		714
Total delinquent loans	4	$	57	15	$	1,548	1	$	47	19	$	5,738	3	$	187	20	$	6,356

Delinquent loans as a percent of total loans			.02%			.59%			.02%			2.78%			.12%			4.02%


	December 31, 2011						December 31, 2010
	60-89 Days			90 Days or More			60-89 Days			90 Days or More
	Number	Balance		Number	Balance		Number	Balance		Number	Balance
	of	of		of	of		of	of		of	of
	Loans	Loans		Loans	Loans		Loans	Loans		Loans	Loans
	(Dollars in thousands)						(Dollars in thousands)
Real estate loans:
Single-family	7	$	281	11	$	736	8	$	444	3	$	266
Multi-family	-		-	3		4,996	-		-	3		3,986
Commercial	1		51	6		2,356	-		-	5		3,550
Consumer loans:
Home equity lines of credit	-		-	3		166	1		54	2		161
Home equity loans	1		30	-		-	-		-	-		-
Automobile	-		-	-		-	-		-	-		-
Other	-		-	-		-	1		31	1		10
Commercial loans	-		-	1		47	-		-	5		2,084
Total delinquent loans	9	$	362	24	$	8,301	10	$	529	19	$	10,057

Delinquent loans as a percent of total loans			.23%			5.28%			.26%			5.02%

Nonperforming Assets. The following table contains information regarding nonperforming loans and repossessed assets. CFBank’s policy is to stop accruing interest on loans 90 days or more past due unless the loan principal and interest are determined by management to be fully secured and in the process of collection. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income.


	At December 31,
	2014		2013		2012		2011		2010
Loans past due over 90 days still on accrual	$	-	$	-	$	-	$	-	$	-
Nonaccrual loans:
Single-family real estate		549		479		113		736		266
Multi-family real estate		-		1,701		2,082		4,996		3,986
Commercial real estate		477		2,943		3,438		2,356		3,550
Consumer		153		52		9		166		171
Commercial		369		563		714		47		2,084
Total nonaccrual loans		1,548		5,738		6,356		8,301		10,057

Total nonperforming loans		1,548		5,738		6,356		8,301		10,057
REO		1,636		1,636		1,525		2,370		3,509
Other foreclosed assets		-		-		-		-		1,000
Total nonperforming assets		3,184		7,374		7,881		10,671		14,566
Troubled Debt Restructurings		5,672		3,517		3,684		4,597		839
Total nonperforming and troubled debt restructurings	$	8,856	$	10,891	$	11,565	$	15,268	$	15,405
Nonperforming loans to total loans		0.59%		2.70%		4.02%		5.28%		5.02%
Nonperforming assets to total assets		1.01%		2.88%		3.66%		4.25%		5.29%

The $4.2 million decrease in nonperforming loans in 2014 compared to 2013 was primarily due to loan payments and payoffs, and two loans which met the criteria to be returned to accruing status, partially offset by loans that became nonperforming in 2014. There were $342,000 in loans that became nonperforming in 2014 primarily related to two single family residential loans, two consumer loans and one commercial loan. The commercial loan was $87,000, the consumer loans totaled $112,000 and the residential loans totaled $143,000.

CFBank has seen steady improvement in the credit quality of its level of nonperforming loans over the last three years. The majority of the nonperforming loans were primarily related to deterioration in the commercial, multi-family residential real estate, commercial real estate, and home equity lines of credit portfolios as a result of the sustained adverse economic conditions and its effect on collateral values and borrowers’ ability to make loan payments. For the year ended December 31, 2014, the amount of additional interest income that would have been recognized on nonaccrual loans, if such loans had continued to perform in accordance with their contractual terms, was approximately $101,000. There was no interest income recognized on nonaccrual loans in 2014.

Accounting Standards Update (ASU) No. 2011-02 to Receivables (ASC 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, clarified the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarified that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. The Company applies the guidance in this ASU to identify its restructured loans as troubled debt restructurings (“TDRs”). Loans restructured in 2014 identified as TDRs totaled $100,000.

As a component of management’s focus on the work out of troubled credits, the terms of certain loans were modified in TDRs, where concessions were granted to borrowers experiencing financial difficulties. 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. Nonaccrual loans included $422,000 in TDRs at December 31, 2014, while non-accrual loans included $2.6 million of TDRs at December 31, 2013.

At year-end 2014 there were a total of $5.7 million of TDRs, including $1.6 million in multi-family loans, $2.9 million in commercial real estate loans, $304,000 in land loans, $123,000 in single family residential loans and $262,000 in commercial loans which were not included in nonperforming loans, where customers have established a sustained period of repayment performance, loans are current according to their modified terms, and repayment of the remaining contractual payments is expected.

See the section titled “Financial Condition - Allowance for loan losses” and Notes 1 and 4 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information on nonperforming loans and TDRs as of December 31, 2014 and 2013.

For information on real estate owned (REO) and other foreclosed assets, see the section below titled “Foreclosed Assets.”

Allowance for Loan Losses (ALLL). The ALLL is a valuation allowance for probable incurred credit losses. The ALLL methodology is designed as part of a thorough process that incorporates management’s current judgments about the credit quality of the loan portfolio into a determination of the ALLL in accordance with generally accepted accounting principles and supervisory guidance. Management analyzes the adequacy of the ALLL quarterly through reviews of the loan portfolio, including: the nature and volume of the loan portfolio and segments of the portfolio; industry and loan concentrations; historical loss experience; delinquency statistics and the level of nonperforming loans; specific problem loans; the ability of borrowers to meet loan terms; an evaluation of collateral securing loans and the market for various types of collateral; various collection strategies; current economic condition, trends and outlook; and other factors that warrant recognition in providing for an adequate ALLL. See the section titled “Financial Condition - Allowance for loan losses” in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for a detailed discussion of management’s methodology for determining the appropriate level of the ALLL.

The ALLL totaled $6.3 million at December 31, 2014, and increased $587,000, or 10.2%, from $5.7 million at December 31, 2013. The increase in the ALLL is due to a combination of factors including a 24.5% increase in overall loan balances and a $313,000 increase in net recoveries during the twelve months ended December 31, 2014. The provision for growth was partially offset by continuous improvement in credit quality and a 73.0% decrease in nonperforming loans. The ratio of the ALLL to total loans was 2.39% at December 31, 2014, compared to 2.69% at December 31, 2013; the decline is primarily attributable to an increase in the loan portfolio combined with improving asset quality. In addition, the ratio of the ALLL to nonperforming loans improved to 408.01% at December 31, 2014, compared to 99.9% at December 31, 2013.

We believe the ALLL is adequate to absorb probable incurred credit losses in the loan portfolio as of December 31, 2014; however, future additions to the allowance may be necessary based on factors including, but not limited to, deterioration in client business performance, recessionary economic conditions, declines in borrowers’ cash flows, and market conditions which result in lower real estate values. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. Such agencies may require additional provisions for loan losses based on judgments and estimates that differ from those used by management. Management continues to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. An increase in estimated probable incurred losses and an increase in required loan provision expense could occur if economic conditions and factors which affect credit quality, real estate values and general business conditions worsen.

The following table sets forth activity in the ALLL for the periods indicated.


	2014		2013		2012		2011		2010
ALLL, beginning of period	$	5,729	$	5,237	$	6,110	$	9,758	$	7,090
Charge-offs:
Real estate loans:
Single-family		-		164		64		124		169
Multi-family		-		59		796		3,167		250
Commercial real estate		5		6		1,467		2,652		3,145
Consumer loans:
Home equity		26		17		126		241		830
Automobile		-		-		5		-		50
Other		-		6		34		18		44
Commercial loans		44		-		99		1,296		1,677
Total charge-offs		75		252		2,591		7,498		6,165

Recoveries on loans previously charged off:
Recoveries
Real estate loans:
Single-family		4		3		9		7		51
Multi-family		-		88		22		9		47
Commercial real estate		349		66		138		202		99
Consumer loans:
Home equity		24		29		17		27		10
Automobile		2		8		7		11		20
Other		-		13		16		2		-
Commercial loans		5		41		380		214		128
Total recoveries		384		248		589		472		355
Net charge-offs (Recoveries)		(309)		4		2,002		7,026		5,810
Provision for loan losses		278		496		1,129		3,375		8,468
Reclassification of ALLL on loan-related commitments		-		-		-		3		10
ALLL, end of period	$	6,316	$	5,729	$	5,237	$	6,110	$	9,758
ALLL to total loans		2.39%		2.69%		3.31%		3.89%		4.87%
ALLL to nonperforming loans		408.01%		99.85%		82.39%		73.61%		97.03%
Net charge-offs (Recoveries) to ALLL		-4.89%		0.07%		38.23%		114.99%		59.54%
Net charge-offs (recoveries) to average loans		-0.13%		0.00%		1.43%		3.97%		2.63%

The impact of economic conditions on the housing market, collateral values, and businesses’ and consumers’ ability to pay may increase the level of charge-offs in the future. Additionally, our commercial, commercial real estate and multi-family residential loan portfolios may be detrimentally affected by adverse economic conditions. Declines in these portfolios could expose us to losses which could materially affect the Company’s earnings, capital and profitability.

The following table sets forth the ALLL in each of the categories listed at the dates indicated and the percentage of such amounts to the total ALLL and loans in each category as a percent of total loans. Although the ALLL may be allocated to specific loans or loan types, the entire ALLL is available for any loan that, in management’s judgment, should be charged off.


	At December 31,
	2014				2013				2012
	Amount		% of Allowance in each Category to Total Allowance	% of Loans in each Category	Amount		% of Allowance in each Category to Total Allowance	% of Loans in each Category	Amount		% of Allowance in each Category to Total Allowance	% of Loans in each Category
	(Dollars in thousands)
Real estate loans:
Single-family	$	634	10.04%	19.51%	$	120	2.09%	15.13%	$	332	6.34%	27.21%
Multi-family		818	12.95%	10.93%		1,262	22.03%	15.12%		1,396	26.66%	13.63%
Commercial real estate		2,541	40.23%	34.60%		2,325	40.58%	39.34%		1,946	37.16%	34.30%
Construction		442	7.00%	8.98%		119	2.08%	5.39%		-	.00%	.01%
Consumer loans:
Home equity lines of credit		441	6.98%	6.42%		139	2.43%	6.98%		241	4.60%	8.19%
Other		94	1.49%	1.90%		5	.09%	.41%		11	.21%	.61%
Commercial loans		1,346	21.31%	17.66%		1,759	30.70%	17.63%		1,311	25.03%	16.05%
Total ALLL	$	6,316	100.00%	100.00%	$	5,729	100.00%	100.00%	$	5,237	100.00%	100.00%


	At December 31,
	2011				2010
	Amount		% of Allowance in each Category to Total Allowance	% of Loans in each Category	Amount		% of Allowance in each Category to Total Allowance	% of Loans in each Category
	(Dollars in thousands)
Real estate loans:
Single-family	$	207	3.39%	11.58%	$	241	2.47%	11.61%
Multi-family		1,470	24.06%	17.27%		2,520	25.82%	17.61%
Commercial real estate		1,863	30.49%	44.35%		4,719	48.36%	40.26%
Construction		-	.00%	0.00%		74	.76%	2.45%
Consumer loans:
Home equity lines of credit		272	4.45%	9.49%		303	3.11%	8.14%
Other		17	.28%	.78%		22	.23%	.89%
Commercial loans		2,281	37.33%	16.53%		1,879	19.25%	19.04%
Total ALLL	$	6,110	100.00%	100.00%	$	9,758	100.00%	100.00%

Foreclosed Assets

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating and maintenance costs after acquisition are expensed. REO and other foreclosed assets totaled $1.6 million at December 31, 2014 and 2013. See the section titled “Financial Condition - Foreclosed Assets” and Note 5 to the Consolidated Financial Statements in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for information regarding foreclosed assets at December 31, 2014. The level of foreclosed assets may increase in the future as foreclosure activities are closely tied with general economic conditions and the ability of our customers to continue to meet their loan payment obligations.

Investment Activities

Federally chartered savings institutions have the authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certificates of deposit of insured banks and savings institutions, bankers’ acceptances and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest their assets in commercial paper, municipal bonds, investment-grade corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly.

The investment policy established by the Board of Directors is designed to provide and maintain adequate liquidity, generate a favorable return on investment without incurring undue interest rate and credit risk, and compliment lending activities. The policy provides authority to invest in U.S. Treasury and federal entity/agency securities meeting the policy’s guidelines, mortgage-backed securities and collateralized mortgage obligations insured or guaranteed by the United States government and its entities/agencies, municipal and corporate bonds and other investment instruments.

At December 31, 2014, the securities portfolio totaled $10.4 million. At December 31, 2014, all mortgage-backed securities and collateralized mortgage obligations in the securities portfolio were insured or guaranteed by Ginnie Mae, Freddie Mac or Fannie Mae.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. See Notes 1 and 3 to the Consolidated Financial Statements contained in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for a detailed discussion of management’s evaluation of securities for OTTI.

The following table sets forth certain information regarding the amortized cost and fair value of securities at the dates indicated.


	At December 31,
	2014				2013				2012
Securities Available For Sale	Amortized Cost.		Fair Value		Amortized Cost.		Fair Value		Amortized Cost.		Fair Value
Corporate	$	2,932	$	2,936	$	4,360	$	4,363	$	4,429	$	4,365
State and Municipal		897		886		1,926		1,919		2,006		1,986
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		5,018		5,011
Mortgaged Back Securities		687		727		934		983		1,399		1,486
Collateralized mortgage obligations		860		885		2,354		2,408		9,698		9,802
Total temporarily impaired	$	10,394	$	10,445	$	9,574	$	9,673	$	17,532	$	17,639

The following table sets forth information regarding the amortized cost, weighted average yield and contractual maturity dates of debt securities as of December 31, 2014.


				After One Year			After Five Years
	One Year or Less			through Five Years			through Ten Years			After Ten Years			Total
			Weighted			Weighted			Weighted			Weighted			Weighted
	Amortized		Average	Amortized		Average	Amortized		Average	Amortized		Average	Amortized		Average
Securities Available For Sale	Cost		Yield	Cost		Yield	Cost		Yield	Cost		Yield	Cost		Yield
Corporate	$	2,932	1.36%	$	-	0.00%	$	-	0.00%	$	-	0.00%	$	2,932	1.36%
State and Municipal		897	1.28%		-	0.00%		-	0.00%		-	0.00%		897	1.28%
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		1,000	0.18%		4,018	1.15%								5,018	0.96%
Mortgaged Back Securities		-	0.00%		-	0.00%		-	0.00%		687	4.90%		687	4.90%
Collateralized mortgage obligations		-	0.00%		-	0.00%		-	0.00%		860	3.42%		860	3.42%
Total Securities Available For Sale	$	4,829	1.10%	$	4,018	1.15%	$	-	0.00%	$	1,547	4.08%	$	10,394	1.56%

Sources of Funds

General. CFBank’s primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans, borrowings, and funds generated from operations of CFBank. Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions and competition. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth or manage interest rate risk in accordance with asset/liability management strategies.

Pursuant to commitments made in connection with the termination of the Holding Company Order, the Holding Company is not permitted to declare or pay dividends on its stock, purchase or redeem its stock, or accept dividends or other capital distributions from CFBank without the prior written approval of the FRB. In addition, the Holding Company may not incur, increase or guarantee any debt without the prior written consent of the FRB. The Holding Company is not restricted, however, from raising funds in the securities markets through equity offerings. See the section titled “Financial Condition – Stockholders’ equity” included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K.

CFBank dividends serve as a potential source of liquidity to the Holding Company to meet its obligations. As of December 31, 2014, CFBank was not permitted to declare or pay dividends or make any other capital distributions without receiving the prior written approval of the OCC. Future dividend payments by CFBank to the Holding Company would be based on future earnings. In addition, any future dividends by the Holding Company on its preferred or common stock, and any dividends or capital contributions by CFBank to the Holding Company, are also subject to prior regulatory approval in accordance with the commitments made in connection with the release and termination of the Orders. See Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K.

The Holding Company’s available cash and cash equivalents totaled $3.0 million at December 31, 2014. Based on historical cash utilization rate and estimates of future requirements, there is sufficient liquidity to cover operating expenses for the foreseeable future. See the section titled “Liquidity and Capital Resources” and Note 2 to the Consolidated Financial Statements contained in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for information regarding Holding Company liquidity and regulatory matters.

Deposits. CFBank offers a variety of deposit accounts with a range of interest rates and terms including savings accounts, retail and business checking accounts, money market accounts and certificates of deposit. Management regularly evaluates the internal cost of funds, surveys rates offered by competitors, reviews cash flow requirements for lending and liquidity and executes rate changes when necessary as part of its asset/liability management, profitability and liquidity objectives. Certificate of deposit accounts represent the largest portion of our deposit portfolio and totaled 57.4% of average deposit balances in 2014. The term of the certificates of deposit typically offered vary from seven days to five years at rates established by management. Specific terms of an individual account vary according to the type of account, the minimum balance required, the time period funds must remain on deposit and the interest rate, among other factors.

The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Deposits are obtained predominantly from the areas in which CFBank’s offices are located. We rely primarily on a willingness to pay market-competitive interest rates to attract and retain retail deposits, as well as customer service and relationships with customers. Prior to the release of the CFBank Order and at December 31, 2013, we were prohibited from offering above-market interest rates and were subject to market rate limitations published by the FDIC when offering deposits to the general public. Accordingly, rates offered by competing financial institutions affected our ability to attract and retain deposits.

Previously, while CFBank was subject to the CFBank Order, it was prohibited from accepting or renewing brokered deposits, including reciprocal deposits in the Certificate of Deposit Account Registry Service® (CDARS) program, without FDIC approval. While under the CFBank Order, CFBank received limited waivers from the prohibition on renewal of reciprocal CDARS deposits from the FDIC, each for 90 day periods which expired on September 20, 2011, December 19, 2011, March 18, 2012, June 16, 2012, September 14, 2012 and December 31, 2013. On January 8, 2014, CFBank received a waiver for a 90-day period to allow the bank to renew deposits under the CDARS program. With the release of the CFBank Order, CFBank is no longer subject to these restrictions.

At December 31, 2014, CFBank had $29.3 million in brokered deposits with maturity dates from January 2015 through August 2018. At December 31, 2014, cash, unpledged securities and deposits in other financial institutions totaled $28.3 million.

CFBank has been a participant in the Certificate of Deposit Account Registry Service® (CDARS), a network of banks that allows us to provide our customers with FDIC insurance coverage on certificate of deposit account balances up to $50 million. Although CFBank customers participate in the CDARS program, CDARS deposits are considered brokered deposits by banking regulation. Customer balances in the CDARS program totaled $10.2 million at December 31, 2014 and increased $4.3 million, or 72.6%, from $5.9 million at December 31, 2013.

Certificate accounts in amounts of $100,000 or more totaled $109.4 million at December 31, 2014, maturing as follows:


Maturity Period	Amount		Weighted Average Rate
	(Dollars in thousands)

Three months or less	$	28,049	1.00%
Over 3 through 6 months		24,170	0.71%
Over 6 through 12 months		33,037	1.37%
Over 12 months		24,097	1.34%
Total	$	109,353

The following table sets forth the distribution of average deposit account balances for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on month-end balances.


	For The Year Ended December 31,
	2014				2013				2012
			Percent	Average			Percent	Average			Percent	Average
	Average		of Total	Rate	Average		of Total	Rate	Average		of Total	Rate
	Balance		Average Deposits	Paid	Balance		Average Deposits	Paid	Balance		Average Deposits	Paid

Interest- bearing checking accounts		8,911	3.81%	0.02%	$	10,583	5.41%	0.02%	$	12,177	6.31%	0.05%
Money market accounts		41,556	17.79%	0.39%		38,662	19.77%	0.27%		35,806	18.54%	0.23%
Savings accounts		16,270	6.97%	0.10%		14,631	7.48%	0.10%		13,750	7.12%	0.10%
Certificates of deposit		134,203	57.44%	1.03%		109,850	56.16%	1.38%		114,107	59.10%	1.76%
Noninterest-bearing deposits:
Demand deposits		32,681	13.99%	-		21,857	11.18%	-		17,250	8.93%	-
Total Average Deposits	$	233,621	100.00%	0.78%	$	195,583	100.00%	0.94%	$	193,090	100.00%	1.20%

The following table presents, by various rate categories, the amount of certificate accounts outstanding at the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2014.


	Period to Maturity from December 31, 2014								At December 31,
	Less than		One to		Two to		Over
	One Year		Two Years		Three Years		Three Years			2014		2013		2012
	(Dollars in thousands)
Certificate accounts:
0 to 0.99%	$	67,189	$	10,599	$	482	$	174	$	78,444	$	67,323	$	22,307
1.00 to 1.99%		15,442		9,094		7,688		2,557		34,781		16,791		26,789
2.00 to 2.99%		20,258		422		346		1,951		22,977		34,188		47,488
3.00 to 3.99%		143		100		-		-		243		242		281
4.00 to 4.99%		239		-		-		-		239		-		694
5.00% and above		-		499		-		-		499		499		609
Total certificate accounts	$	103,271	$	20,714	$	8,516	$	4,682	$	137,183	$	119,043	$	98,168

See the section titled “Financial Condition – Deposits” and “Liquidity and Capital Resources” contained in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information regarding deposits.

Borrowings. As part of our operating strategy, FHLB advances are used as an alternative to retail and brokered deposits to fund our asset growth. The advances are collateralized primarily by single-family mortgage loans, multi-family mortgage loans, commercial real estate loans, securities and cash, and secondarily by CFBank’s investment in the capital stock of the FHLB of Cincinnati. FHLB advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates from time to time in accordance with the policies of the FHLB. FHLB advances totaled $14.5 million at December 31, 2014. Based on the collateral pledged and CFBank’s holdings of FHLB stock, CFBank was eligible to borrow up to a total of $23.1 million at year-end 2014. At December 31, 2013, CFBank was limited to borrowing term maturities not exceeding 365 days due to restrictions imposed by FHLB due to the existence of the CFBank Order. With the termination of the CFBank Order effective January 23, 2014, the FHLB notified the Bank that the restriction on borrowings terms had been lifted, effective January 24, 2014.

In addition to access to FHLB advances, CFBank has borrowing capacity available with the Federal Reserve Bank through the Borrower in Custody program. The borrowings are collateralized by commercial and commercial real estate loans. Based on the collateral pledged, CFBank was eligible to borrow up to a total of $28.6 million at year-end 2014. There were no amounts outstanding from the Federal Reserve Bank at December 31, 2014. CFBank also had $1.0 million available in an unsecured line of credit with a commercial bank at December 31, 2014. Interest on this line accrues daily and is variable based on the commercial bank’s cost of funds and current market returns. There was no amount outstanding on this line of credit at December 31, 2014. See the section titled “Liquidity and Capital Resources” contained in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information.

During the course of 2013, CFBank had engaged in certain loan participations that according to the structure of the transactions, did not qualify for sales accounting treatment, and were therefore accounted for as secured borrowings. CFBank retains an ownership interest in these loans and provides customary servicing to the third-parties which are typically other community banks. As of year-end 2013, there were five loan participations classified as secured borrowings totaling $6.5 million. During the first quarter of 2014, management amended its loan participation agreements to remove the language that disqualified the loan participations from sales accounting treatment and entered into amended loan participation agreements with the participating institutions with respect to the aforementioned loans. There were no secured borrowing transactions as of December 31, 2014.

See the section titled “Financial Condition - Subordinated Debentures” contained in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for information regarding subordinated debentures issued by the Company in 2003.

The following table sets forth certain information regarding short-term borrowings at or for the periods ended on the dates indicated:


	For the Year ended December 31,
	2014		2013		2012
Short-term FHLB advances and other borrowings:
Average balance outstanding	$	54	$	123	$	-
Maximum amount outstanding at any month-end during the period		-		6,955		-
Balance outstanding at end of period		-		-		-
Weighted average interest rate during the period		0.21%		0.13%		0.39%

Subsidiary Activities

As of December 31, 2014, we maintained CFBank and the Trust as wholly owned subsidiaries.

As a result of the sale of its office building in Fairlawn, Ohio in October 2013, the Holding Company dissolved both Ghent Road, Inc. and Smith Ghent LLC prior to year-end 2013. All activities of these subsidiaries, including the sale of real estate, are included in our Consolidated Financial Statements.

Personnel

As of December 31, 2014, the Company had 52 full-time and 10 part-time employees.

Regulation and Supervision

Set forth below is a brief description of certain laws and regulations that apply to us. This description, as well as other descriptions of laws and regulations contained in this Form 10-K, is not complete and is qualified in its entirety by reference to the applicable laws and regulations.

General. The Holding Company, as a federally chartered savings and loan holding company, and CFBank, as a federal savings association, have historically been subject to examination and comprehensive federal regulation and oversight by the OTS. As of July 21, 2011, the Dodd-Frank Act imposed new restrictions and an expanded framework of regulatory oversight for financial institutions. In particular, the Dodd-Frank Act transferred the regulatory responsibilities and authority over federal savings associations and savings and loan holding companies from the OTS to the OCC and the FRB, respectively. CFBank has also been and continues to be subject to regulation and examination by the FDIC, which insures the deposits of CFBank to the maximum extent permitted by law, and certain other requirements established by the FRB.

The investment and lending authority of savings institutions is prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws or regulations. Such regulations and supervision primarily are intended for the protection of depositors and not for the purpose of protecting shareholders.

Federal law provides federal banking regulators, including the OCC, the FRB and the FDIC, with substantial enforcement powers. The enforcement authority of the OCC and the FRB over savings institutions and their holding companies includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe and unsound practices. Other actions or inactions may also provide the basis for enforcement action.

For information with respect to the operating and other restrictions imposed on the Holding Company and CFBank by the FRB and the OCC as a result of the Orders, see the section below titled “Regulatory Agreements.”

Recently Enacted Regulatory Reform. Federal regulators continue to implement many provisions of the Dodd-Frank Act, which was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. Currently, federal regulators are still in the process of drafting the implementing regulations for many portions of the Dodd-Frank Act. The following discussion summarizes significant aspects of the new law that may affect the Holding Company and CFBank:

Effective July 21, 2011, the OTS was merged into the OCC and the authority of the other remaining bank regulatory agencies was restructured;

The Consumer Financial Protection Bureau was established and empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws;

New capital regulations for thrift holding companies were adopted;

The prohibition on the payment of interest on demand deposits was repealed, effective July 21, 2011;

The standard maximum amount of deposit insurance per customer was permanently increased to $250,000;

The deposit insurance assessment base calculation was expanded to equal a depository institution’s total assets minus the sum of its average tangible equity during the assessment period;

New capital regulations for bank holding companies have been adopted, which will impose stricter capital requirements, and any new trust preferred securities issued after May 19, 2010 will no longer constitute Tier I capital; and

New corporate governance requirements applicable to all public companies in all industries now require new compensation practices and disclosure requirements, including requiring companies to “claw back” incentive compensation under certain circumstances, to consider the independence of compensation advisors, and to make additional disclosures in proxy statements with respect to compensation matters.

Many provisions of the Dodd-Frank Act have not yet been fully implemented and will require interpretation and rule making by federal regulators. While the ultimate effect of the Dodd-Frank Act on us cannot currently be determined, the law and its implementing rules and regulations are likely to result in increased compliance costs and fees paid to regulators, along with possible restrictions on our operations, all of which may have a material adverse affect on our operating results and financial condition.

Regulation of the Holding Company

General. The Holding Company, as a unitary savings and loan holding company, is subject to regulation, periodic examination, enforcement authority and oversight by the FRB. As a subsidiary of a savings and loan holding company, CFBank is also subject to certain restrictions in its dealings with the Holding Company and its affiliates.

Capital. Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. There is a five year transition period from July 21, 2010 (the date of enactment of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies.

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must promulgate regulations implementing the “source of strength” policy that requires holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Activities Restrictions. As a unitary savings and loan holding company, there are generally few restrictions on the activities of the Holding Company; however, this broad latitude to engage in activities can be restricted if the FRB determines an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association or if the association fails to qualify as a qualified thrift lender (QTL). The FRB may impose restrictions it deems necessary to address such risk, including limiting (i) payment of dividends by the savings association; (ii) transactions between the savings association and its affiliates; and (iii) any activities of the savings association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings association.

If the Holding Company were to acquire control of another savings institution to be held as a separate subsidiary, the Holding Company would become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and each subsidiary savings institution meets the QTL test, the activities of the Holding company and any of its subsidiaries (other than CFBank or other subsidiary savings institutions) would thereafter be subject to further restrictions.

Regulation of CFBank

General. CFBank, as a federally chartered savings institution, is subject to regulation, periodic examination, enforcement authority and oversight by the OCC extending to all aspects of CFBank’s operations. CFBank also is subject to regulation and examination by the FDIC, which insures the deposits of CFBank to the maximum extent permitted by law. This regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting stockholders. CFBank’s relationship with its depositors and borrowers also is regulated to a great extent by both Federal and state laws, especially in such matters as the ownership of savings accounts and the form and content of CFBank’s mortgage requirements.

The investment and lending authority of federal savings institutions are prescribed by federal laws and regulations, and federal savings institutions are prohibited from engaging in any activities not permitted by such laws and regulations. In addition, all savings institutions, including CFBank, are required to maintain QTL status to avoid certain restrictions on their operations. This status is maintained by meeting the QTL test, which requires a savings institution to have a designated level of thrift-related assets generally consisting of residential housing related loans and investments, thereby indirectly limiting investment in other assets. At December 31, 2014, CFBank met the QTL test and has met the test since its effectiveness. If CFBank loses QTL status, it would become subject to national bank investment and activity limits.

The OCC, as well as other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and employee benefits. Any institution which fails to comply with these standards must submit a compliance plan.

Regulatory Capital Requirements. Savings institutions are required to maintain a minimum level of regulatory capital. The OCC has established capital standards, including a leverage ratio or core capital requirement and a risk-based capital requirement applicable to savings institutions. The OCC also may impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

The capital standards generally require core capital equal to at least 4.0% of adjusted total assets. Core capital consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. The OCC also requires savings institutions to have total capital of at least 8.0% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. The OCC is also authorized to require a savings institution to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. In determining the amount of risk-weighted assets, all assets, including certain off-balance-sheet items, are multiplied by a risk weight, ranging from 0% to100%, based on the risk inherent in the type of asset.

The CFBank Order required CFBank to have an 8% Tier 1 (Core) Capital to adjusted total assets and 12% Total Capital to risk weighted assets. Although the CFBank Order was terminated by the OCC effective January 23, 2014, CFBank remains subject to the heightened capital requirements imposed by the OCC and is required to maintain an 8% Tier 1 (core) Capital ratio to adjusted total assets and 12% Total Capital to risk weighted assets. CFBank met the heightened capital requirements imposed by the OCC at December 31, 2014 and December 31, 2013. However, even though CFBank met the heightened capital requirements, CFBank was not eligible for “well capitalized” treatment under applicable regulatory capital standards while the CFBank Order was in effect and, therefore, was considered to be “adequately capitalized” at December 31, 2013. See Note 2-Regulatory Order Considerations and Note 19-Regulatory Capital Matters to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information.

Any savings institution that fails to comply with its capital plan or has a Tier 1 risk-based or core capital ratio of less than 3.0% or a risk-based capital ratio of less than 6.0% and is considered “significantly undercapitalized” must be made subject to one or more additional specified actions and operating restrictions which may cover all aspects of its operations and may include a forced merger or acquisition of the institution. The OCC is also generally authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard” (Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”) in 1988. In 2004, the Basel Committee published a new capital adequacy framework (Basel II) for large, internationally active banking organizations, and in December 2010 and January 2011, the Basel Committee issued an update to Basel II (“Basel III”). The Basel Committee frameworks did not become applicable to banks supervised in the United States until adopted into United States law or regulations. Although the United States banking regulators imposed some of the Basel II and Basel III rules on banks with $250 billion

or more in assets or $10 billion of on-balance sheet foreign exposure, it was not until July 2013 that the United States banking regulators issued final (or, in the case of the FDIC, interim final) new capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including CFBank, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phase in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital will phase in from January 1, 2015 through January 1, 2019.

The new rules include (a) a new common equity tier 1 capital ratio of at least 4.5%, (b) a Tier 1 capital ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels). The deductions phase in from 2015 through 2019.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Some of the risk weightings have been changed effective January 1, 2015.

The new rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter. The capital conservation buffer phases in starting on January 1, 2016, at .625%. The implementation of Basel III is not expected to have a material impact on CFBank’s capital ratios.

FDIC Regulation and Insurance of Accounts. CFBank’s deposits are insured up to the applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. Effective July 21, 2010, the basic deposit insurance level was increased to $250,000. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2014 were $384,000, which increased from the previous year due to an increase in the assessment base upon which the insurance premiums are calculated. Generally, FDIC insurance premiums have increased in recent years and may continue to increase due to strains on the FDIC deposit insurance fund.

In accordance with the Dodd-Frank Act, the FDIC issued new regulations setting insurance premium assessments effective April 2011. The new premiums are based on an institution’s total assets minus its Tier 1 capital instead of its deposits. The intent of the new assessment calculations is not to substantially change the level of premiums paid, notwithstanding the use of assets as the calculation base instead of deposits. CFBank’s premiums are based on its assignment under one of four risk categories based on capital, supervisory ratings and other factors. If our risk category changes, our premiums could increase substantially.

The FDIC also may prohibit any FDIC-insured institution from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund. The FDIC also has the authority to initiate enforcement actions against CFBank and may terminate our deposit insurance if it determines that we have engaged in unsafe or unsound practices or are in an unsafe or unsound condition.

Limitations on Dividends and Other Capital Distributions. Banking regulations impose various restrictions on distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

Generally, for savings institutions such as CFBank, it is required that before and after the proposed distribution the institution remain well-capitalized. Savings institutions may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the OCC may have its dividend authority restricted by the OCC. Pursuant to the CFBank Order, CFBank was not permitted to declare or pay dividends or make any other capital distributions without receiving prior written approval of the OCC.

The ability of the Holding Company to pay dividends on its common stock and Series B Preferred Stock is generally dependent upon the receipt of dividends and other distributions from CFBank. The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. The Holding Company also is subject to various legal and regulatory policies and requirements impacting the Holding Company’s ability to pay dividends on its stock, and pursuant to the commitments made to the FRB in connection with the termination of the Holding Company Order, the Holding Company may not declare or pay dividends on its stock without the prior written non-objection of the FRB. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities, which also requires the written non-objection of the FRB. Finally, so long as the Company’s Series B Preferred Stock remains outstanding, the Holding Company will be prohibited from paying dividends on (other than dividends payable solely in shares) the Company’s common stock, for the then-current dividend period, unless full dividends on the Series B Preferred Stock have been paid or set aside for payment. Dividends on the Series B Preferred Stock are non-cumulative, which means that if for any reason we do not declare cash dividends on the Series B Preferred Stock for a quarterly dividend period we will have no obligation to pay any dividends for that period (i.e., the dividends will not accrue or cumulate), whether or not we declare dividends on the Series B Preferred Stock for any subsequent dividend period. See Note 2-Regulatory Order Considerations and Note 19-Regulatory Capital Matters to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information.

Federal income tax laws provided additional deductions, totaling $2,250, for thrift bad debt reserves established before 1988. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total $765 at year-end 2014. However, if CFBank were wholly or partially liquidated or otherwise ceases to be a bank, or if tax laws were to change, this amount would have to be recaptured and a tax liability recorded. Additionally, any distributions in excess of CFBank’s current or accumulated earnings and profits would reduce amounts allocated to its bad debt reserve and create a tax liability for CFBank. The amount of additional taxable income created by such a distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if CFBank makes a distribution that reduces the amount allocated to its bad debt reserve, then approximately one and one-half times the amount used would be includible in gross income for federal income tax purposes, assuming a 34% corporate income tax rate. CFBank does not intend to make distributions that would result in a recapture of any portion of its bad debt reserve.

Regulatory Agreements. On May 25, 2011, the Holding Company and CFBank each consented to the issuance of an Order to Cease and Desist (the “Holding Company Order” and the “CFBank Order”, respectively, and collectively, the “Orders”) by the Office of Thrift Supervision (the “OTS”), the primary regulator of the Holding Company and CFBank at the time the Orders were issued. In July 2011, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Federal Reserve Board (the “FRB”) replaced the OTS as the primary regulator of the Holding Company and the Office of the Comptroller of the Currency (the “OCC”) replaced the OTS as the primary regulator of CFBank.

On August 20, 2012, the Holding Company announced the successful completion of its restructured registered common stock offering. The Holding Company sold 15.0 million shares of its common stock at $1.50 per share, resulting in gross proceeds of $22.5 million before expenses. With the proceeds from the stock offering, the Holding Company contributed $13.5 million to CFBank to improve its capital ratios and support future growth and expansion, bringing CFBank into compliance with the capital ratios required by the CFBank Order. In addition, the Holding Company used proceeds from the common stock offering to redeem its TARP obligations on September 26, 2012. The remaining proceeds from the restructured registered common stock offering were retained by the Company for general corporate purposes.

Effective as of January 23, 2014, the OCC released and terminated the CFBank Order based upon the improved capital position of CFBank, among other factors. Notwithstanding the release of the CFBank Order, CFBank is required to continue to maintain a minimum Tier 1 Leverage Capital Ratio of 8% and a Total Risk-based Capital to Risk-Weighted Assets ratio of 12%. In addition, in connection with the release and termination of the CFBank Order, CFBank has made certain commitments to the OCC to continue to adhere to certain prudent practices, including, without limitation, maintaining a written program to continue to improve CFBank’s credit underwriting and administrative process; take actions to protect its interest in criticized assets as identified by CFBank, the OCC examiners or its external loan review process; implement its written program to effectively identify, monitor, control and continue to reduce the level of credit risk to CFBank; review and monitor progress against such plan with the Board of Directors; and continue CFBank’s aggressive workout efforts and individualized workout plans on all criticized assets greater than $250,000.

The Company has been unprofitable for the past several years, prior to it achieving profitability in 2014. If we do not generate sustained profits in the future, our capital levels will be negatively impacted and the regulators could take additional enforcement action against us, including the imposition of further operating restrictions.

Federal and State Taxation

Federal Taxation General. We report income on a calendar year, consolidated basis using the accrual method of accounting, and we are subject to federal income taxation in the same manner as other corporations, with some exceptions discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company and CFBank.

The Company maintained a valuation allowance against deferred tax assets at December 31, 2014 and December 31, 2013, based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to maintain a full valuation allowance against the entire net deferred tax asset.

In 2012, a recapitalization program through the sale of $22.5 million in common stock improved the capital levels of the CFBank and provided working capital for the holding company. The result of the change in stock ownership associated with the stock offering, within the guidelines of Section 382 of the Internal Revenue Code of 1986, was that the Company incurred an ownership change. At year-end 2014, the Company had net operating loss carryforwards of $26,732, which expire at various dates from 2024 to 2033, and had alternative minimum tax credit carryforwards of $75, which do not expire. As a result of the ownership change, the Company's ability to utilize carryforwards that arose before the stock offering closed is limited to $163 per year. Due to this limitation, management determined it is more likely than not that $20,520 of net operating loss carryforwards will expire unutilized. As required by accounting standards, the Company reduced the carrying value of deferred tax assets, and the corresponding valuation allowance, by the $6,977 tax effect of this lost realizability.

See Note 14 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for additional information.

Distributions. Under the Small Business Job Protection Act of 1996, if CFBank makes “non-dividend distributions” to the Company, such distributions will be considered to have been made from CFBank’s unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from CFBank’s supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in CFBank’s taxable income. Non-dividend distributions include distributions in excess of CFBank’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of CFBank’s current or accumulated earnings and profits will not be so included in CFBank’s taxable income.

The amount of additional taxable income triggered by a non-dividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if CFBank makes a non-dividend distribution to the Holding Company, approximately one and one-half times the amount of such distribution (but not in excess of the amount of the reserves described in the previous paragraph) would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. CFBank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

Ohio Taxation

In 2013, The Holding Company and Ghent Road, Inc. were subject to the Ohio corporate franchise tax, which is a tax measured by both net earnings and net worth. In general, the tax liability is the greater of 5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50,000, or 0.4% times taxable net worth. The minimum tax is either $50 or $1,000 per year based on the size of the corporation, and the maximum tax liability as measured by net worth is limited to $150,000 per year.

A special litter tax also applies to all corporations subject to the Ohio corporate franchise tax, including the Holding Company and Ghent Road, Inc. This litter tax does not apply to financial institutions. If the franchise tax is paid on the net income basis, the litter tax is equal to 0.11% of the first $50,000 of computed Ohio taxable income and 0.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax is paid on the net worth basis, the litter tax is equal to 0.014% times taxable net worth.

Certain holding companies will qualify for complete exemption from the net worth tax if certain conditions are met. The Holding Company met these conditions for the 2013 tax year, and thus, calculated its Ohio franchise tax on the net income basis only. When the Holding Company files as a qualifying holding company, Ghent Road, Inc. must make an adjustment to its net worth computation.

CFBank is a financial institution for State of Ohio tax purposes. As such, for 2013 CFBank was subject to the Ohio corporate franchise tax on financial institutions, which is imposed annually at a rate of 1.3% of CFBank’s apportioned book net worth, determined in accordance with U.S. generally accepted accounting principles, less any statutory deductions. As a financial institution, CFBank was not subject to any tax based on net income or net profits imposed by the State of Ohio.

Beginning on January 1, 2014, the Ohio corporate franchise tax began to be phased out and the Holding Company was no longer subject to this tax on a stand-alone basis thereafter. For the 2014 tax year the consolidated organization was subject to the newly enacted Ohio Financial Institutions tax (“FIT”). The FIT is a business privilege tax for financial institutions doing business or domiciled in the State of Ohio. The three-tier structure charges financial institutions based on total capital at the prior calendar year-end based on regulatory reporting requirements. Based on its size, the Holding Company was charged at 80 basis points of its total equity capital.

Delaware Taxation

As a Delaware corporation not earning income in Delaware, the Company is exempted from Delaware corporate income tax, but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

Available Information

Our website address is www.CFBankonline.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after we electronically file such reports with the Securities Exchange Commission (SEC). These reports can be found on our website under the caption “Investor Relations – SEC Filings.” Investors also can obtain copies of our filings from the SEC website at www.sec.gov.

Item 1A. Risk Factors.

The following are certain risk factors that could impact our business, financial results and results of operations. Investing in our common stock involves risks, including those described below. These risk factors should be considered by prospective and current investors in our common stock when evaluating the disclosures contained in this Form 10-K and in other reports that we file with the SEC. These risk factors could cause actual results and conditions to differ materially from those projected in forward-looking statements. If any of the events described in the following risk factors actually occur, or if additional risks and uncertainties not presently known to us or that we believe are immaterial do materialize, then our business, financial condition or results of operations could be materially adversely impacted. In addition, the trading price of our common stock could decline due to any of the events described in these risk factors.

We remain subject to certain regulatory requirements and commitments applicable to CFBank and the Holding Company following the release and termination of the Orders. Our failure to comply with these regulatory requirements and commitments could result in additional enforcement action against us.

Effective as of January 23, 2014, the OCC released and terminated the CFBank Order based upon the improved capital position of CFBank, among other factors. Notwithstanding the release of the CFBank Order, CFBank is required to continue to maintain a minimum Tier 1 Leverage Capital Ratio of 8% and a Total Risk-based Capital to Risk-Weighted Assets ratio of 12%. In addition, in connection with the release and termination of the CFBank Order, CFBank has made certain commitments to the OCC to continue to adhere to certain prudent practices, including, without limitation, maintaining a written program to continue to improve CFBank’s credit underwriting and administrative process; take actions to protect its interest in criticized assets as identified by CFBank, the OCC examiners or its external loan review process; implement its written program to effectively identify, monitor, control and continue to reduce the level of credit risk to CFBank; review and monitor progress against such plan with the Board of Directors; and continue CFBank’s aggressive workout efforts and individualized workout plans on all criticized assets greater than $250,000.

It is possible that regulatory compliance expenses could continue to have a material adverse impact on us in the future. In addition, if we fail to comply with the regulatory requirements and commitments to the OCC and FRB, we may be subject to additional regulator enforcement action.

Our business has been and may continue to be adversely affected by conditions in the financial markets and economic conditions both nationally and in our market areas.

Our success depends to a significant extent upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control can adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings and our capital. Moreover, our market activities are concentrated in the following Ohio counties: Summit County, and contiguous counties through our office in Fairlawn, Ohio; Franklin County, and contiguous counties through our office in Worthington, Ohio; Columbiana County, and contiguous counties through our offices in Wellsville and Calcutta, Ohio; and Cuyahoga County, and contiguous counties through our loan production office in Woodmere, Ohio. Our success depends on the general economic conditions of these areas, particularly given that a significant portion of our lending relates to real estate located in these regions. Real estate values in these Ohio communities have been negatively impacted by the recent economic crisis. During the last several years, the U.S. economy has been marked by sluggish labor market improvements, limited GDP growth, low inflation, and, only recently, upward movement in housing prices, as well as uncertainty related to U.S. and European fiscal issues, political climates and global economic conditions. Continued uncertainty, sustained high unemployment, volatility or disruptions of global financial markets, or prolonged deterioration in global, national or local business or economic conditions could result in, among other things, a deterioration of credit quality, further impairment of real estate values, a decrease in the demand for our loans and other products and services, a further impairment of certain intangible assets, such as goodwill, and an increase in the number of clients who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs, an increase in our provision for loan losses, and valuation adjustments on loans held for sale, which could have a material adverse effect on our financial condition, results of operations and cash flows.

We may not be able to maintain consistent earnings or profitability.

Although we achieved a small operating profit in 2014, we had incurred net operating losses in each of the previous five years. While our operating performance has improved since August 2012, there is no assurance that we will be able to maintain profitability in future periods, or that our earnings will be consistent or increase in the future. In addition, if earnings do not grow proportionately with our assets or equity, our overall profitability may be adversely affected.

We may not be able to effectively manage our growth.

We have recently experienced significant growth in the amount of our total loans in the past two years. Since January 1, 2014, our total loans have grown by $51.3 million, or 24.1%, and our total assets have grown by $59.8 million, or 23.4%. In addition, we expanded into the Cleveland market through the opening of a loan production office in Woodmere (Eton), Ohio in January 2014. Our continued growth may place significant demands on our operations and management, and our future operating results depend to a large extent on our ability to successfully manage our growth. We may not successfully implement improvements to, or integrate, our management information and control systems, procedures and processes in an efficient or timely manner and may discover deficiencies in existing systems and controls. In particular, our controls and procedures must be able to accommodate increases in our loan volume and our growth and expansion. If we are unable to manage our loan growth and/or expanded operations, we may experience compliance and operational problems, have to slow the pace of growth, or have to incur additional expenditures beyond current projections to support such growth, any one of which could materially and adversely affect us.

Our allowance for loan losses may not be adequate to cover actual losses. Higher loan losses could require us to increase our allowance for loan losses through a charge to earnings.

When we loan money we incur the risk that our borrowers will not repay their loans. We reserve for loan losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of probable incurred credit losses in our loan portfolio. The process for determining the amount of the allowance is critical to our financial condition and results of operations. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. It also requires that we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. The allowance for loan losses may not be sufficient to cover probable losses in our loan portfolio. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount reserved. We might increase the allowance because of changing economic conditions. For example, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high loan-to-value ratios. The lingering nature of the decline in the national economy and the local economies of the areas in which our loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. In addition, our determination as to the amount of our allowance for loan losses is subject to review by our regulators as part of their examination process, which may result in the establishment of an additional allowance based upon the judgment of the regulators after a review of the information available at the time of their examination. The additions to our allowance for loan losses would be made through increased provisions for loan losses, which would reduce our income and could materially and adversely affect our financial condition, earnings and profitability.

A continuation of turmoil in the financial markets could have an adverse effect on our financial position or results of operations.

Both the national and global financial markets have experienced severe disruption and volatility, and general economic conditions have declined significantly. Adverse developments in credit quality, asset values and revenue opportunities throughout the financial services industry, as well as general uncertainty regarding the economic, industry and regulatory environment, have had a marked negative impact on the industry. Dramatic declines in the U.S. housing market, with falling home and real estate prices, increasing foreclosures and high unemployment, have negatively affected the credit performance of loans and resulted in significant write-downs of asset values by many financial institutions. The U.S. and the governments of other countries have taken steps to try to stabilize the financial system, including investing in financial institutions, and have also been working to design and implement programs to improve general economic conditions. Notwithstanding the actions of the U.S. and other governments, these efforts may not succeed in improving industry, economic or market conditions and may result in adverse unintended consequences. Factors that could continue to pressure financial services companies, including the Company, are numerous and include: (i) worsening credit quality, leading among other things to increases in loan losses and reserves; (ii) continued or worsening disruption and volatility in financial markets, leading to, among other things, continuing reductions in asset values; (iii) capital and liquidity concerns regarding financial institutions generally; (iv) limitations resulting from or imposed in connection with governmental actions intended to stabilize or provide additional regulation of the financial

system; or (v) recessionary conditions that are deeper or last longer than currently anticipated.

We may make, or be required to make, further increases in our provision for loan losses and to charge off additional loans in the future, which could adversely affect our results of operations.

As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from time to time and other factors specific to a borrower’s circumstances, the level of nonperforming assets will fluctuate. Although we have made progress in reducing our level of nonperforming assets during 2014 and 2013, and remain committed to aggressive workout efforts, our nonperforming assets could remain at higher than desired levels for the immediate future. If housing and real estate markets resume decline, we expect that we will experience increased delinquencies and credit losses. Current levels of, or an increase in our nonperforming assets, credit losses or our provision for loan losses would adversely affect our financial condition and results of operations.

Our emphasis on commercial, commercial real estate and multi-family residential real estate lending may expose us to increased lending risks.

Because payments on commercial loans are dependent on successful operation of the business enterprise, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. Because payments on loans secured by commercial real estate properties are dependent on successful operation or management of the properties, repayment of commercial real estate loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. Commercial real estate and multi-family residential mortgage loans also have larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. Some of our borrowers also have more than one commercial real estate or multi-family residential mortgage loan outstanding with us. Additionally, some loans may be collateralized by junior liens. Consequently, an adverse development involving one or more loans or credit relationships can expose us to significantly greater risk of loss compared to an adverse development involving a single-family residential mortgage loan.

Our adjustable-rate loans may expose us to increased lending risks.

While adjustable-rate loans better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, the increased payments required of adjustable-rate loan borrowers upon an interest rate adjustment in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a rising interest rate environment. In addition, although adjustable-rate loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

We are a holding company and depend on our subsidiary bank for dividends.

As a financial holding company, the Holding Company is a legal entity separate and distinct from its subsidiaries and affiliates. The Holding Company’s principal source of funds to support its operations, pay dividends on its common shares and service its debt is dividends from CFBank. In the event that CFBank is unable to pay dividends to the Holding Company, the Holding Company may not be able to service its debt, pay its other obligations or pay dividends on its common shares. Accordingly, the Holding Company’s inability to receive dividends from CFBank could also have a material adverse effect on our business, financial condition and results of operations.

Various federal and state statutory provisions and regulations limit the amount of dividends that CFBank may pay to the Holding Company without regulatory approval. Under these laws and regulations, the amount of dividends that may be paid by CFBank in any calendar year is generally limited to the current year’s net profits, combined with the retained net profits of the preceding two years. In addition, the FRB has issued policy statements that provide that insured banks and bank and savings holding companies should generally only pay dividends out of current operating earnings. Thus, the ability of CFBank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict the Holding Company’s ability to declare and pay dividends on its common shares. The ability of CFBank and any other subsidiaries to pay dividends to the Holding Company is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements and contractual obligations. At December 31, 2014, neither CFBank nor the Holding Company could pay dividends without regulatory approval.

Deposit insurance premiums may increase and have a negative effect on our results of operations.

The Deposit Insurance Fund (the “DIF”) maintained by the FDIC to resolve bank failures is funded by fees assessed on insured depository institutions. The costs of resolving bank failures has increased during the last few years and decreased the DIF. The FDIC collected a special assessment in 2009 to replenish the DIF and also required a prepayment of an estimated amount of future deposit insurance premiums. If the costs of future bank failures increase, the deposit insurance premiums required to be paid by CFBank may

also increase, which could have a material adverse effect on our business, financial condition and results of operations.

Changing interest rates may decrease our earnings and asset values.

Management is unable to accurately predict future market interest rates, which are affected by many factors, including, but not limited to inflation, recession, changes in employment levels, changes in the money supply and domestic and international disorder and instability in domestic and foreign financial markets. Changes in the interest rate environment may reduce our profits. Net interest income is a significant component of our net income, and consists of the difference, or spread, between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Although certain interest-earning assets and interest-bearing liabilities may have similar maturities or periods to which they reprice, they may react in different degrees to changes in market interest rates. In addition, residential mortgage loan origination volumes and refinancing are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations and refinancings, while falling interest rates are usually associated with higher loan originations and refinancings. Our ability to generate gains on sales of mortgage loans is significantly dependent on the level of originations. Cash flows are affected by changes in market interest rates. Generally, in rising interest rate environments, loan prepayment rates are likely to decline, and in falling interest rate environments, loan prepayment rates are likely to increase. A majority of our commercial, commercial real estate and multi-family residential real estate loans are adjustable rate loans and an increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest on and principal of their obligations, especially borrowers with loans that have adjustable rates of interest. Changes in interest rates, prepayment speeds and other factors may also cause the value of our loans held for sale to change. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, loan volume, asset quality, value of loans held for sale and cash flows, as well as the market value of our securities portfolio and overall profitability.

Legislative or regulatory changes or actions could adversely impact our business.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. These laws and regulations are primarily intended for the protection of consumers, depositors, borrowers and the deposit insurance fund, not to benefit our shareholders. Changes to laws and regulations or other actions by regulatory agencies may negatively impact us, possibly limiting the services we provide, increasing the ability of non-banks to compete with us or requiring us to change the way we operate. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on the operation of an institution and the ability to determine the adequacy of an institution’s allowance for loan losses. Failure to comply with applicable laws, regulations and policies could result in sanctions being imposed by the regulatory agencies, including the imposition of civil money penalties, which could have a material adverse effect on our operations and financial condition.

In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. In the last several years, Congress and the federal bank regulators have acted on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by Congress and regulations promulgated by federal bank regulators subject us and other financial institutions to additional restrictions, oversight and costs that may have an adverse impact on our business and results of operations. In addition to laws, regulations and supervisory and enforcement actions directed at the operations of banks, proposals to reform the housing finance market contemplate winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.

The Dodd-Frank Act was signed into law on July 21, 2010 and, although it became generally effective in July 2010, many of its provisions have extended implementation periods and delayed effective dates and have and will continue to require extensive rulemaking by regulatory authorities. In addition, we may be subjected to higher deposit insurance premiums to the FDIC. We may also be subject to additional regulations under the newly established Consumer Financial Protection Bureau, which was given broad authority to implement new consumer protection regulations. These and other provisions of the Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, may place significant additional costs on us, impede our growth opportunities and place us at a competitive disadvantage.

In July 2013, the Holding Company’s primary federal regulator, the FRB, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee's December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The implementation of the Basel III Capital Rules result in higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place. In addition, in order to avoid limitations on capital distributions, such as dividend payments and certain bonus payments to executive officers, the Basel III Capital Rules require insured financial institutions to hold a capital conservation buffer of common equity tier 1 capital above the minimum risk-based capital requirements. The capital conservation buffer will be phased in over time, becoming effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets. The Basel III Capital Rules will also revise the regulatory agencies' prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of common equity. The Basel III Capital Rules became effective for the Company on January 1, 2015 for smaller, and will be fully phased in by January 1, 2019. Until the Basel III Capital Rules are fully phased in, we cannot predict the ultimate impact it will have upon the financial condition or results of operations of the Company.

In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts specified U.S. Government, agency and/or municipal obligations, and it accepts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities. The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions.

We face strong competition from other financial institutions, financial services companies and other organizations offering services similar to those offered by us, which could result in our not being able to sustain or grow our loan and deposit businesses.

We conduct our business operations primarily in Summit, Columbiana, Franklin and Cuyahoga Counties, Ohio, and make loans generally throughout Ohio. Increased competition within these markets may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include other savings associations, community banks, regional banks and money center banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. Our competitors with greater resources may have a marketplace advantage enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, financial intermediaries not subject to bank regulatory restrictions and banks and other financial institutions with larger capitalization have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to sustain current loan and deposit levels or increase our loan and deposit levels, and our business, financial condition and future prospects may be negatively affected.

Provisions in the Holding Company’s Amended and Restated Certificate of Incorporation and statutory provisions could discourage a hostile acquisition of control.

The Holding Company’s Amended and Restated Certificate of Incorporation contains certain provisions that could discourage non-negotiated takeover attempts that certain stockholders might deem to be in their interests or through which stockholders might otherwise receive a premium for their shares over the then current market price and that may tend to perpetuate existing management. These provisions include: the classification of the terms of the members of the board of directors; supermajority provisions for the approval of certain business combinations; elimination of cumulative voting by stockholders in the election of directors; certain provisions relating to meetings of stockholders; and provisions allowing the board of directors to consider nonmonetary factors in evaluating a business combination or a tender or exchange offer. The provisions in the Amended and Restated Certificate of Incorporation requiring a supermajority vote for the approval of certain business combinations and containing restrictions on acquisitions of the Company’s equity securities provide that the supermajority voting requirements or acquisition restrictions do not apply to business combinations or acquisitions meeting specified board of directors’ approval requirements. The Amended and Restated Certificate of Incorporation also authorizes the issuance of 1,000,000 shares of preferred stock, as well as 50,000,000 shares of common stock. These shares could be

issued without further stockholder approval on terms or in circumstances that could deter a future takeover attempt.

The Amended and Restated Certificate of Incorporation restricts the ability of an acquirer to vote more than 10% of our outstanding common stock. Federal banking laws contain various restrictions on acquisitions of control of savings associations and their holding companies.

The Amended and Restated Certificate of Incorporation, as well as certain provisions of state and federal law, may have the effect of discouraging or preventing a future takeover attempt in which stockholders of the Company otherwise might receive a substantial premium for their shares over then current market prices.

We may elect or need to raise additional capital in the future, but capital may not be available when it is needed.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. In addition, federal banking agencies have recently finalized extensive changes to their capital requirements, including the adoption of the Basel III Capital Rules as discussed above, which result in higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place. The final impact on us is unknown at this time, but may require us to raise additional capital in the future. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and are based on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

We rely heavily on our management team, and the unexpected loss of key management may adversely affect our operations.

Our current management team was put in place following the completion of the Company’s common stock offering in August 2012. Our performance since August 2012 has been strongly influenced by our ability to attract and to retain senior management experienced in banking in the markets we serve. Our ability to retain executive officers and the current management team will continue to be important to successful implementation of our strategies. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.

Changes in tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, financial institutions tax, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.

We need to constantly update our technology in order to compete and meet customer demands.

The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. Our future success will depend, in part, on our ability to use current technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

We are exposed to cyber-security risks, including hacking and identity theft.

We rely heavily on communications and information systems to conduct our business. A failure, interruption or breach in security of these systems could result in disruptions to our accounting, deposit, loan and other systems, and could adversely affect our customer relationships. While we have implemented policies and procedures designed to prevent or limit the effect of these possible events, there can be no assurance that any such failure, interruption or security breach will not occur or, if any does occur, that it can be sufficiently remediated.

There have been increasing efforts on the part of third parties, including through cyber attacks, to breach data security at financial institutions or with respect to financial transactions. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data, by both private individuals and foreign governments. In addition, because the techniques used to cause such security breaches change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the

world, we may be unable to proactively address these techniques or to implement adequate preventative measures.

Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks. We may incur increasing costs in an effort to minimize these risks or in the investigation of such cyber-attacks or related to the protection of our customers from identity theft as a result of such attacks. Nevertheless, the occurrence of any failure, interruption or security breach of our systems, or of our third-party service providers, particularly if widespread or resulting in financial losses to customers, could also seriously damage our reputation, result in a loss of customer business, subject it to additional regulatory scrutiny, or expose it to civil litigation and financial liability.

We may be the subject of litigation which could result in legal liability and damage to our business and reputation.

From time to time, we may be subject to claims or legal action from customers, employees or others. Financial institutions like the Company and CFBank are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations and/or cause significant reputational harm to our business.

Although publicly traded, our Common Stock has substantially less liquidity than the average liquidity of stocks listed on NASDAQ.

Although our common stock is listed for trading on NASDAQ, our common stock has substantially less liquidity than the average liquidity for companies listed on NASDAQ. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This marketplace depends on the individual decisions of investors and general economic and market conditions over which we have no control. This limited market may affect your ability to sell your shares on short notice, and the sale of a large number of shares at one time could temporarily depress the market price of our common stock. For these reasons, our common stock should not be viewed as a short-term investment.

The market price of our common stock may fluctuate in the future, and this volatility may be unrelated to our performance. General market price declines or overall market swings in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

If we fail to continue to meet all applicable continued listing requirements of the NASDAQ Capital Market and NASDAQ determines to delist our Common Stock, the market liquidity and market price of our Common Stock could decline, and our ability to access the capital markets could be negatively affected.

Our common stock is listed on the NASDAQ Capital Market. To maintain that listing, we must satisfy minimum financial and other continued listing requirements, primarily related to the price of our common stock. Delisting from the NASDAQ Capital Market could adversely affect the market liquidity of our Common Stock and the market price of our common stock could decrease. In addition, delisting of our common stock could materially adversely affect our access to the capital markets. Any limitation on market liquidity or reduction in the price of our common stock as a result of delisting could adversely affect our ability to raise capital on terms acceptable to us, or at all.

We have implemented anti-takeover devices that could make it more difficult for another company to purchase us, even though such a purchase may increase shareholder value.

In many cases, stockholders may receive a premium for their shares if we were purchased by another company. State law and our Certificate of Incorporation and Second Amended and Restated Bylaws make it difficult for anyone to purchase us without the approval of our Board of Directors. Consequently, a takeover attempt may prove difficult, and shareholders may not realize the highest possible price for their shares of stock of the Company.

Item 1B. Unresolved Staff Comments

Not Applicable

Item 2. Properties.

We conduct our business through four branch offices located in Summit, Columbiana, and Franklin Counties, Ohio, and a loan production office in Cuyahoga County, Ohio. The net book value of the Company’s properties totaled $3.3 million at December 31, 2014. In 2013, Ghent Road Inc. owned land located adjacent to the Fairlawn, Ohio office and Smith Ghent LLC owned the Fairlawn office building and leased it to CFBank. In October 2013, the property and offices were sold (and both Ghent Road, Inc. and Smith Ghent LLC were subsequently dissolved), and CFBank entered into a new lease for an office location in Fairlawn, Ohio. Additionally, CFBank entered into a new lease agreement in Woodmere, Ohio in Cuyahoga County for the location of a loan production office effective January 2014. See Note 8 to the Consolidated Financial Statements included in our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K, for further discussion.

Locations

Administrative Office (owned facility):

7000 N. High Street

Worthington, Ohio 43085

Branch Offices:

Worthington Branch (owned facility)

7000 N. High Street

Worthington, Ohio 43085

Fairlawn Branch (leased facility)

3009 Smith Road, Suite 100

Fairlawn, Ohio 44333

Wellsville Branch (owned facility)

601 Main Street

Wellsville, Ohio 43968

Calcutta Branch (owned facility)

49028 Foulks Drive

Calcutta, Ohio 43920

Loan Production Office (leased facility):

28879 Chagrin Blvd.

Woodmere, Ohio 44122

Item 3. Legal Proceedings.

We may, from time to time, be involved in various legal proceedings in the normal course of business. Periodically, there have been various claims and lawsuits involving CFBank, such as claims to enforce liens, condemnation proceedings on properties in which CFBank holds security interests, claims involving the making and servicing of real property loans and other issues incident to our banking business. We are not a party to any pending legal proceeding that management believes would have a material adverse effect on our financial condition or operations, if decided adversely to us.

Item 4. Mine Safety Disclosures.

Not Applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

During the fiscal quarter ended December 31, 2014, the Company did not repurchase any of its securities.

The market information required by Item 201(a), the stockholders information required by Item 201(b) and the dividend information required by Item 201(c) of Regulation S-K are incorporated herein by reference from our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K; the information appears under the caption “Market Prices and Dividends Declared”, in “Note 2 – Regulatory Order Considerations and Management’s Plans” and in “Note 19 – Regulatory Capital Matters” therein, respectively.

Item 6. Selected Financial Data.

Information required by Item 301 of Regulation S-K is incorporated herein by reference from our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K; the information appears under the caption “Selected Financial and Other Data” therein.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Information required by Item 303 of Regulation S-K is incorporated herein by reference from our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this form 10-K; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” therein.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information required by Item 305 of Regulation S-K is incorporated herein by reference from our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Quantitative and Qualitative Disclosures about Market Risk’s therein.

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements required by Article 8 of Regulation S-X are incorporated by reference to our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K; the consolidated financial statements appear under the caption “Financial Statements” therein and include the following:

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures. Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Management's assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. As of December 31, 2014, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management concluded that our internal controls over financial reporting as of December 31, 2014 were effective.

Management’s Report on Internal Control Over Financial Reporting. Information required by Item 308 of Regulation S-K is incorporated herein by reference from our 2014 Annual Report to Stockholders, included as Exhibit 13.1 to this Form 10-K; the information appears under the caption “Management’s Report on Internal Control over Financial Reporting” therein.

Changes in internal control over financial reporting. We made no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) in the fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors. Information required by Item 401 of Regulation S-K with respect to our directors and committees of the Board of Directors is incorporated herein by reference from our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the Commission pursuant to SEC Regulation 14A (the “2015 Proxy Statement”), under the caption “PROPOSAL 1. ELECTION OF DIRECTORS.”

Executive Officers of the Registrant. Provided below is information regarding our executive officers:

3
Name	Age at December 31, 2014	Position held with the Holding Company and/or Subsidiaries
Robert E. Hoeweler	67	Chairman Holding Company and CFBank
Timothy T. O’Dell	61	Chief Executive Officer Holding Company and CFBank;
Thad R. Perry	71	President, Holding Company and CFBank
John W. Helmsdoerfer	56	Chief Financial Officer Holding Company and CFBank; Treasurer, Holding Company

Mr. Hoeweler is the Chairman of the Board of CFBank and the Holding Company. Mr. Hoeweler is the Chief Executive Officer of a diverse group of companies owned by the Hoeweler family, including manufacturing, communications, distribution, business services and venture capital entities. He serves on the boards of a major waste management company and large commercial bakery. He previously has been the Chairman of two family led businesses in financial services, a midsized community bank and a major payment processing services company.

Mr. O’Dell is the CEO and Director of CFBank and the Holding Company. Prior to joining CFBank in 2012, Mr. O’Dell owned and operated a consulting company specializing in providing advisory services to a number of privately held enterprises in construction, health care, real estate and professional services. Mr. O’Dell spent 22 years at Fifth Third Bank, and was a senior executive with Fifth Third’s Central Ohio operations for 12 of those years, concluding his tenure serving as President and Chief Executive Officer. At Fifth Third’s Central Ohio Affiliate, Mr. O’Dell also served as Executive Vice President and senior lender and managed its commercial banking and residential, commercial real estate divisions. Previously he managed the Asset Based Lending Division for Fifth Third Bank engaged in financing growth companies and acquisition financing. During his tenure, Fifth Third’s Central Ohio division grew by $4 billion in deposits and $5 billion in loans from organic growth and through strategic acquisitions. Mr. O’Dell served on the board of the Columbus Chamber of Commerce and The Ohio State University Medical Center, and he was a founding investor in the Ohio TechAngel Venture Fund. Mr. O'Dell holds a B.B.A. from Marshall University.

Mr. Perry is President and Director of CFBank and the Holding Company. Prior to joining CFBank, he was Senior Partner with Accenture for over 30 years where he was involved in consulting, transaction structuring, and management of operations. He operated the firm’s Columbus, Ohio practice and developed its regulated industries practice. From 1988 through 1998, Mr. Perry managed Accenture’s German, Austrian, Swiss and East European practices, which accounted for nearly $1 billion in gross revenues, was Former Chief Operating Officer of Western Europe operations, and served on Accenture’s European Management and Global Strategic Planning Boards, the Image Management Committee, Global Markets Executive Committee, and the Firmwide Outsourcing and Technology Committees. His experiences in banking include the transformation of both the technical and business processes for credit card, internet banking and security, stock and trading exchanges, international banking and customer relationship management. Mr. Perry holds a B.S. and M.B.A from The Ohio State University.

Mr. Helmsdoerfer has been the CFO of the Holding Company and CFBank since March 2013. As a CPA with over 30 years of financial experience, which includes Big Four public accounting and 23 years as a CFO, he has a diverse finance and operations background in addition to his financial services background. Prior to joining CFBank, Mr. Helmsdoerfer spent 18 years with Fifth Third Bank where he held positions as both a CFO and Regional CFO for the Central Ohio affiliate and region. He also served as CFO for Nationwide Bank and Wilmington Savings Bank during his career. Mr. Helmsdoerfer holds a B.S.B.A degree from Miami University where he graduated cum laude.

Compliance with Section 16(a) of the Exchange Act. Information required by Item 405 of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement, under the caption “BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK – SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.” Copies of Section 16 reports, Forms 3, 4 and 5 are available on our website, www.CFBankonline.com, under the tab “Investor Relations – Section 16 Filings.”

Code of Ethics. We have adopted a Code of Ethics and Business Conduct, which applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer. Since the Company’s inception in 1998, we have had a code of ethics. We require all directors, officers and other employees to adhere to the Code of Ethics and Business Conduct in addressing the legal and ethical issues encountered in conducting their work. The Code of Ethics and Business Conduct requires that our employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. All employees are required to review the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is available on our website, www.CFBankonline.com under the tab “Investor Relations – Corporate Governance.” Disclosures of amendments to or waivers with regard to the provisions of the Code of Ethics and Business Conduct also will be posted on the Company’s website.

Corporate Governance. Information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement, under the caption “CORPORATE GOVERNANCE.”

Item 11. Executive Compensation.

Information required by Item 402 of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement, under the caption “COMPENSATION OF EXECUTIVE OFFICERS.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and Management. Information required by Item 403 of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement under the caption “BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK.”

Related Stockholder Matters – Equity Compensation Plan Information. Information required by Item 201(d) of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement, under the caption “COMPENSATION OF EXECUTIVE OFFICERS-EQUITY COMPENSATION PLAN INFORMATION,” and from our 2015 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act, where the information appears under the caption “Note 16 – Stock-Based Compensation” therein.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference from our 2015 Proxy Statement, under the caption “CORPORATE GOVERNANCE-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” AND “CORPORATE GOVERNANCE-DIRECTOR INDEPENDENCE.”

Item 14. Principal Accounting Fees and Services.

Information required by this Item 14 is incorporated by reference from our 2015 Proxy Statement, under the caption “AUDIT COMMITTEE MATTERS.”

PART IV

Item 15. Exhibits and Financial Statement Schedules

See the Exhibit Index of this Report Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 authorize

CENTRAL FEDERAL CORPORATION

/s/ Timothy T. O’Dell

Timothy T. O’Dell

Chief Executive Officer

Date: March 27, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ Robert E. Hoeweler	Chairman	March 27, 2015
Robert E. Hoeweler


/s/ Timothy T. O’Dell	Director, Chief Executive Officer	March 27, 2015
Timothy T. O’Dell


/s/Thad R. Perry	Director, President	March 27, 2015
Thad R. Perry, CPA (inactive)


/s/ Thomas P. Ash	Director	March 27, 2015
Thomas P. Ash


/s/ James H. Fraunberg II	Director	March 27, 2015
James H. Fraunberg II


/s/ Edward W. Cochran	Director	March 27, 2015
Edward W. Cochran


/s/ Robert H. Milbourne	Director	March 27, 2015
Robert H. Milbourne

EXHIBIT INDEX

Exhibit No. Description of Exhibit


3.1	Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form SB-2 (File No. 333-64089), filed with the Commission on September 23, 1998)
3.2	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-2 (File No. 333-129315), filed with the Commission on October 28, 2005)
3.3	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.4 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed with the commission on August 14, 2009 (File No. 0-25045))
3.4	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.5 to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011, filed with the Commission on November 10, 2011(File No. 0-25045))
3.5	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.5 to the registrant’s Post-Effective Amendment to the Registration Statement on Form S-1 (File No. 333-177434), filed with the Commission on May 4, 2012)
3.6	Certificate of Designations to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated May 7, 2014 and filed with the Commission on May 13, 2014. (File No. 0-25045))
3.7	Second Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.3 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the Commission on March 27, 2008 (File No. 0-25045))
4.1	Form of Stock Certificate of Central Federal Corporation (incorporated by reference to Exhibit 4.0 to the registrant’s Registration Statement on Form SB-2 (File No. 333-64089), filed with the Commission on September 23, 1998)
4.2	Form of Certificate for the Series B Preferred Stock of Central Federal Corporation (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated May 7, 2014 and filed with the Commission on May 13, 2014 (File No. 0-25045))
4.3	Form of Warrant for the purchase of common stock of Central Federal Corporation (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K dated May 7, 2014 and filed with the Commission on May 13, 2014 (File No. 0-25045))
4.4	Form of Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K dated May 7, 2014 and filed with the Commission on May 13, 2014 (File No. 0-25045))
10.1*	1999 Stock-Based Incentive Plan (as Amended and Restated) (incorporated by reference to Appendix A to the registrant’s Definitive Proxy Statement filed with the Commission on March 21, 2000)
10.2*	Central Federal Corporation 2009 Equity Compensation Plan (incorporated by reference to Appendix A to the registrant’s Definitive Proxy Statement filed with the Commission on March 31, 2009)
10.3	Form of Incentive Stock Options Award Agreement under the Central Federal Corporation 2009 Equity Compensation Plan (incorporated by reference to Exhibit 10.3 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Commission on April 1, 2013 (File No. 0-25045)
10.4	Form of Non-Qualified Stock Option Award Agreement under the Central Federal Corporation 2009 Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Commission on April 1, 2013 (File No. 0-25045)
10.5	Order to Cease and Desist issued by the Office of Thrift Supervision for CFBank and the Related Stipulation and Consent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed with the Commission on May 27, 2011)
10.6	Order to Cease and Desist issued by the Office of Thrift Supervision for Central Federal Corporation and the Related Stipulation and Consent (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K, filed with the Commission on May 27, 2011)

11.1	Statement Re: Computation of Per Share Earnings
13.1	Annual Report to Security Holders for the Fiscal Year Ended December 31, 2014
21.1	Subsidiaries of the Registrant
23.1	Consent of Independent Registered Public Accounting Firm
23.2	Consent of Independent Registered Public Accounting Firm
31.1	Rule 13a-14(a) Certifications of the Chief Executive Officer
31.2	Rule 13a-14(a) Certifications of the Chief Financial Officer
32.1	Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer
101.1	Interactive Data File (XBRL)

____________________________________________________________________________________________________________

*Management contract or compensation plan or arrangement identified pursuant to Item 15 of Form 10-K

EX-11.1 2 cfbk-20150327ex111302b79.htm EX-11.1 Exhibit 111

Exhibit 11.1

Computation of Per Share Earnings

The information regarding Computation of Per Share Earnings is incorporated by reference from the Company’s 2014 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the computation appears under the caption “Note 23 - Earnings (Loss) Per Common Share” therein.

EX-13.1 3 cfbk-20150327ex13132a7ca.htm EX-13.1 cfbk-20141231

Exhibit 13.1

Annual Report to Security Holders For the Fiscal Year ended December 31, 2014


TABLE OF CONTENTS				Page

MESSAGE TO STOCKHOLDERS

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

Selected Financial and Other Data				1

Forward-Looking Statements				3

General				5

Cease and Desist Orders				6

Financial Condition				7

Comparison of Results of Operations for 2014 and 2013				13

Comparison of Results of Operations for 2013 and 2012				15

Quantitative and Qualitative Disclosures about Market Risk				18

Liquidity and Capital Resources				20

Impact of Inflation				22

Critical Accounting Policies				22

Market Prices and Dividends Declared				24


FINANCIAL STATEMENTS

Management’s Report on Internal Control Over Financial Reporting				1

Report of Independent Registered Public Accounting Firm				2

Consolidated Financial Statements				4

Notes to Consolidated Financial Statements				9

BOARD OF DIRECTORS AND OFFICERS				63

CFBANK LOCATIONS				63

CORPORATE DATA				64

Annual Report				64

Annual Meeting				64

Shareholder Services				64

Dear Shareholders:

2014 was truly a transformational year for Central Federal Corporation and CFBank. These are some of the highlights which I am enthused to share with you.

Due to our having a presence in multiple metro markets, we were able to increase net loan balances by 24% during 2014. This allowed CFBank to attain critical size to allow us to reach profitability during the second quarter of 2014. As we continue to add quality loans and earning assets, we expect that the additional earning asset growth will continue to be reflected in our net interest income.

Net interest income, which is the primary driver of earnings, increased by 61.9% during 2014. Fourth quarter net interest income was $2.5 million, reflecting an increase of 63.9% over the same quarter of 2013.

Our loan pipelines remain solid entering 2015. Our Cleveland loan production office, which opened in January of 2014, has been well received. We have established full service banking relationships with a number of business owners and entrepreneurs whose businesses are located in Northeast Ohio. We believe that our relationship business model with its value-added approach, coupled with delivery through senior level and experienced bankers, has proven successful.

Following the removal of the regulatory Cease and Desist Orders during the first half of 2014, CFBank implemented a number of initiatives that have resulted in successfully growing our core deposit base. Additionally, we have reduced our reliance on non-core funding, which was one of our key objectives. This positive trend of core deposit growth is continuing into 2015 and remains important to us as a funding source for loans.

With our entrance into the Cleveland market, CFBank now has a presence in three large metro markets in Ohio (Central Ohio, Northeast Ohio and Akron/Canton) to go along with our two community banking offices located in Columbiana County. Our footprint and access to business relationships from multiple larger metro markets positions us uniquely among our peers.

We successfully completed a private placement of our Series B Preferred Stock in July of 2014 for an aggregate offering price of $12.0 million. This capital raise further strengthened our capital position and allows for our continued growth and expansion. We have already successfully deployed much of this capital into loans, which is reflected in our increased earnings and interest income. At this point, we believe that we have sufficient capital, when coupled with earnings, to meet our needs and strategic growth objectives for the foreseeable future.

During 2014, we have achieved continued improvement in our credit metrics. Nonperforming loans were reduced by 73.0% compared to year end 2013. Our ratio of ALLL to nonperforming loans was 408.0% at year ended December 31, 2014, compared to 99.9% at December 31, 2013. Nonperforming loans at December 31, 2014 were 0.59% of total loans compared to 2.70% at December 31, 2013. CFBank currently has only one REO property.

We reduced our classified assets by 13.1% during 2014. Further reduction of classified assets remains a key objective for 2015. The vast majority of remaining classified assets are legacy loans which are amortizing and paying as agreed. Nonetheless, in spite of our good results in reducing both criticized and classified assets to date, classified asset levels remain higher than we are comfortable with. As a result, management and the Board of Directors is continuing its concerted efforts and focus to further reduce our classified assets.

We have invested substantially in strengthening our infrastructure. We have increased staffing in both our credit department and loan operations areas, which includes adding experienced and seasoned management personnel. Also, we are implementing new software to support our commercial credit, loan underwriting and risk management functions. Additional investments to further strengthen these areas of credit risk management and the operations infrastructure will be continuing in 2015 and beyond.

Our residential mortgage volumes showed solid increases over the prior year. Also, we have expanded our product offerings including construction/perm and physician loan programs. Additionally, we are pleased with our cross-sell results in the residential mortgage lending area of home equity lines of credit (HELOC’s) and depository relationships.

Again, we feel strongly that 2014 was a turning point for us at Central Federal Corporation and CFBank. We achieved profitability, made considerable improvements in credit quality, expanded our footprint, added several significant new business relationships, completed a successful capital raise, and improved operating results in the majority of our key areas of measurement.

We enter 2015 excited about the prospects for continuing our positive trajectories and results. We worked extremely hard to achieve these positive results and I am extremely proud of our team and their commitment to our success. We are grateful to you, our shareholders, for your support and to our clients for entrusting us with their business.

Our team remains committed to our objective of becoming a top performing niche bank in all key categories of measurement. Although work remains to be done, I believe that we have accomplished much and achieved several major milestones during 2014.

Onward and upward!

/s/ Timothy T. O’Dell

Timothy T. O’Dell

Chief Executive Officer

/s/ Robert E. Hoeweler

Robert E. Hoeweler

Chairman of the Board

Management’s Discussion and Analysis of Financial Condition and Results of Operations

SELECTED FINANCIAL AND OTHER DATA

The information in the following tables should be read in conjunction with our Consolidated Financial Statements, the related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report.


		At December 31,
	2014		2013		2012		2011		2010
		(Dollars in thousands)
Selected Financial Condition Data:
Total assets	$	315,588	$	255,748	$	215,035	$	250,920	$	275,232
Cash and cash equivalents		28,207		19,160		25,152		61,436		34,275
Securities available for sale		10,445		9,672		17,639		18,516		28,798
Loans held for sale		3,505		3,285		623		1,210		1,953
Loans, net (1)		257,831		207,141		153,043		151,160		190,767
Allowance for loan and lease loss (ALLL)		6,316		5,729		5,237		6,110		9,758
Nonperforming assets		3,184		7,374		7,881		10,671		14,566
Foreclosed assets		1,636		1,636		1,525		2,370		4,509
Other intangible assets		-		-		49		89		129
Deposits		258,315		208,309		173,508		217,049		227,381
FHLB advances		14,500		10,000		10,000		15,742		23,942
Other secured borrowings		-		6,526		-		-		-
Subordinated debentures		5,155		5,155		5,155		5,155		5,155
Total stockholders' equity		34,509		22,864		23,643		9,944		15,989


		At December 31,
	2014		2013		2012		2011		2010
		(Dollars in thousands)
Summary of Operations:
Total interest income	$	10,611	$	7,500	$	7,268	$	9,656	$	12,617
Total interest expense		1,889		2,113		2,633		3,478		4,183
Net interest income		8,722		5,387		4,635		6,178		8,434
Provision for loan losses		278		496		1,129		3,375		8,468
Net interest income (loss) after provision for loan losses		8,444		4,891		3,506		2,803		(34)
Noninterest income:
Net gain on sale of securities		-		-		143		353		468
Other		1,492		1,893		862		770		1,326
Total noninterest income		1,492		1,893		1,005		1,123		1,794
Noninterest expense		9,457		7,702		8,277		9,351		8,432
Income (loss) before income taxes		479		(918)		(3,766)		(5,425)		(6,672)
Income tax expense (benefit)		-		-		-		-		198
Net income (loss)	$	479	$	(918)	$	(3,766)	$	(5,425)	$	(6,870)
Dividends on Series B preferred stock and accretion of discount		(421)		-		-		-		-
Dividends on Series A preferred stock and accretion of discount		-		-		(328)		(425)		(410)
Discount on redemption of Series A preferred stock		-		-		4,960		-		-
Net income (loss) available to common stockholders	$	58	$	(918)	$	866	$	(5,850)	$	(7,280)

Management’s Discussion and Analysis of Financial Condition and Results of Operations


		At December 31,
	2014		2013		2012		2011		2010
		(Dollars in thousands)
Selected Financial Ratios and Other Data:
Performance Ratios (2)
Return on average assets		0.17%		(0.39%)		(1.65%)		(1.99%)		(2.41%)
Return on average equity		1.67%		(4.04%)		(24.29%)		(42.69%)		(35.52%)
Average yield on interest-earning assets (3)		4.03%		3.51%		3.48%		3.82%		4.76%
Average rate paid on interest-bearing liabilities		0.85%		1.12%		1.37%		1.47%		1.73%
Average interest rate spread (4)		3.18%		2.39%		2.11%		2.35%		3.03%
Net interest margin, fully taxable equivalent (5)		3.31%		2.52%		2.22%		2.44%		3.18%
Average interest-earning assets to interest bearing liabilities		119.19%		113.05%		108.41%		106.73%		109.74%
Efficiency ratio (6)		92.59%		105.11%		137.98%		117.62%		85.98%
Noninterest expenses to average assets		3.31%		3.26%		3.62%		3.43%		2.96%
Common stock dividend payout ratio		n/m		n/m		n/m		n/m		n/m

Capital Ratios: (2)
Equity to total assets at end of period		10.93%		8.94%		10.99%		3.96%		5.81%
Average equity to average assets		10.05%		9.60%		6.78%		4.66%		6.79%
Tangible capital ratio (7)		11.03%		9.34%		10.97%		5.39%		6.59%
Core capital ratio (7)		11.03%		9.34%		10.97%		5.39%		6.59%
Total risk-based capital ratio (7)		14.18%		12.08%		15.53%		10.30%		10.68%
Tier 1 risk-based capital ratio (7)		12.92%		10.81%		14.26%		9.02%		9.41%

Asset Quality Ratios: (2)
Nonperforming loans to total loans (8)		0.59%		2.70%		4.02%		5.28%		5.02%
Nonperforming assets to total assets (9)		1.01%		2.88%		3.66%		4.25%		5.29%
Allowance for loan losses to total loans		2.39%		2.69%		3.31%		3.89%		4.87%
Allowance for loan losses to nonperforming loans (8)		408.01%		99.85%		82.39%		73.61%		97.03%
Net charge-offs (recoveries) to average loans		-0.13%		0.00%		1.43%		3.97%		2.63%

Per Share Data: (10)
Basic earnings (loss) per common share	$	0.00	$	(0.06)	$	0.14	$	(7.09)	$	(8.85)
Diluted earnings (loss) per common share		0.00		(0.06)		0.14		(7.09)		(8.85)
Dividends declared per common share		-		-		-		-		-
Tangible book value per common share at end of period		1.42		1.44		1.48		3.30		10.65




(1)		Loans, net represents the recorded investment in loans net of the ALLL.
(2)		Asset quality ratios and capital ratios are end-of-period ratios. All other ratios are based on average monthly balances during the indicated periods
(3)		Calculations of yield are presented on a taxable equivalent basis using the federal income tax rate of 34%.
(4)		The average interest rate spread represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities
(5)		The net interest margin represents net interest income as a percent of average interest-earning assets.
(6)		The efficiency ratio equals noninterest expense (excluding amortization of intangibles and foreclosed assets expense) divided by net interest income plus noninterest income (excluding gains or losses on securities transactions).
(7)		Regulatory capital ratios of CFBank.
(8)		Nonperforming loans consist of nonaccrual loans and other loans 90 days or more past due.
(9)		Nonperforming assets consist of nonperforming loans and foreclosed assets.
(10)		Per share amounts adjusted for the one for five reverse stock split effective May 4, 2012.
		n/m - not meaningful

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Statements in this annual report and in other communications by the Company that are not statements of historical fact are forward-looking statements which are made in good faith by us. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of Central Federal Corporation (the “Holding Company”) or CFBank; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as "estimate," "strategy," "may," "believe," "anticipate," "expect," "predict," "will," "intend," "plan," "targeted," and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements. The following, among other factors, could cause such differences:

a continuation of difficult economic conditions including high unemployment rates or other adverse changes in general economic conditions, economic conditions in the markets we serve, any of which may affect, among other things, our level of nonperforming assets, charge-offs, and provision for loan loss expense;

changes in interest rates that may reduce net interest margin and impact funding sources;

the possibility that we will need to make increased provisions for loan losses;

our ability to maintain sufficient liquidity to continue to fund our operations;

our ability to reduce our high level of nonperforming assets and the associated operating expenses;

changes in market rates and prices, including real estate values, which may adversely impact the value of financial products including securities, loans and deposits;

the possibility of other-than-temporary impairment of securities held in our securities portfolio;

results of examinations of the Holding Company and CFBank by the regulators, including the possibility that the regulators may, among other things, require CFBank to increase its allowance for loan losses or write-down assets;

our ability to continue to meet regulatory guidelines, commitments or requirements to which we are subject;

our ability to generate profits in the future;

our ability to raise additional capital in the future, if necessary;

changes in tax laws, rules and regulations;

increases in deposit insurance rates or premiums;

further legislative and regulatory changes which may increase compliance costs and burdens;

unexpected losses of key management;

various monetary and fiscal policies and regulations, including those determined by the Board of Governors of the Federal Reserve System (the “FRB”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”);

competition with other local and regional commercial banks, savings banks, credit unions and other non-bank financial institutions;

our ability to grow our core businesses;

our ability to effectively manage our growth;

any failure, interruption or breach in security of our communications and information systems;

Management’s Discussion and Analysis of Financial Condition and Results of Operations

technological factors which may affect our operations, pricing, products and services;

unanticipated litigation, claims or assessments; and

Management's ability to manage these and other risks.

Our filings with the Securities and Exchange Commission (the “SEC”), detail other risks, all of which are difficult to predict and many of which are beyond our control.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Holding Company is a savings and loan holding company incorporated in Delaware in 1998. Substantially all of our business is conducted through our principal subsidiary, CFBank, a federally chartered savings association formed in Ohio in 1892.

Our principal market area for loans and deposits includes the following Ohio counties: Summit County through our office in Fairlawn, Ohio; Franklin County through our office in Worthington, Ohio; Columbiana County through our offices in Calcutta and Wellsville, Ohio; and Cuyahoga County, through our loan production office in Woodmere, Ohio. We originate commercial and residential real estate loans and business loans primarily throughout Ohio. Most of our deposits and loans come from our market area. Because of CFBank’s concentration of business activities in Ohio, the Company’s financial condition and results of operations depend upon economic conditions in Ohio.

General

Our net income is dependent primarily on net interest income, which is the difference between the interest income earned on loans and securities and our cost of funds, consisting of interest paid on deposits and borrowed funds. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand, the level of nonperforming assets and deposit flows.

Net income is also affected by, among other things, provisions for loan losses, loan fee income, service charges, gains on loan sales, operating expenses, income and other various taxes. Operating expenses principally consist of employee compensation and benefits, occupancy, FDIC insurance premiums and other general and administrative expenses. In general, results of operations are significantly affected by general economic and competitive conditions, changes in market interest rates and real estate values, government policies and actions of regulatory authorities. Our regulators have extensive discretion in their supervisory and enforcement activities, including the authority to impose restrictions on our operations, to classify our assets and to determine the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our business, financial condition, results of operations and/or cash flows.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act included numerous provisions designed to strengthen the financial industry, enhance consumer protection, expand disclosures and provide for transparency. Some of these provisions included changes to FDIC insurance coverage, which included a permanent increase in the coverage to $250,000 per depositor. Additional provisions created a Bureau of Consumer Financial Protection, which is authorized to write rules on all consumer financial products. Still other provisions created a Financial Stability Oversight Council, which is not only empowered to determine the entities that are systemically significant and therefore require more stringent regulations, but which is also charged with reviewing, and, when appropriate, submitting comments to the SEC and Financial Accounting Standards Board (FASB) with respect to existing or proposed accounting principles, standards or procedures. The aforementioned are only a few of the numerous provisions included in the Dodd-Frank Act. The overall impact of the entire Dodd-Frank Act will not be known until full implementation is completed, but the possibility of significant additional compliance costs exists, and the Dodd-Frank Act consequently may have a material adverse impact on our operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cease and Desist Orders

On May 25, 2011, the Holding Company and CFBank each consented to the issuance of an Order to Cease and Desist (the “Holding Company Order” and the “CFBank Order”, respectively, and collectively, the “Orders”) by the Office of Thrift Supervision (the “OTS”), the primary regulator of the Holding Company and CFBank at the time the Orders were issued. In July 2011, in accordance with the Dodd-Frank Act, the FRB replaced the OTS as the primary regulator of the Holding Company and the OCC replaced the OTS as the primary regulator of CFBank. See Note 2 to the consolidated financial statements included in this annual report for additional information regarding the Orders.

Effective as of January 23, 2014, the OCC released and terminated the CFBank Order based upon the improved capital position of CFBank, among other factors. Notwithstanding the release of the CFBank Order, CFBank is required to continue to maintain a minimum Tier 1 Leverage Capital Ratio of 8% and a Total Risk-based Capital to Risk-Weighted Assets ratio of 12%. In addition, in connection with the release and termination of the CFBank Order, CFBank has made certain commitments to the OCC to continue to adhere to certain prudent practices, including, without limitation, maintaining a written program to continue to improve CFBank’s credit underwriting and administrative process; take actions to protect its interest in criticized assets as identified by CFBank, the OCC examiners or its external loan review process and implement its written program to effectively identify, monitor, control and continue to reduce the level of credit risk to CFBank; review and monitor progress against such plan with the Board of Directors and continue CFBank’s aggressive workout efforts and individualized workout plans on all criticized assets greater than $250,000. See Note 2 to the consolidated financial statements included in this annual report for additional information regarding the Orders.

On May 15, 2014, the FRB announced the termination of the Holding Company Order, effective as of May 9, 2014. Notwithstanding the termination of the Holding Company Order, the Holding Company is required to continue to adhere to certain requirements and restrictions based on commitments made to the FRB in connection with the termination of the Holding Company Order. These commitments require the Holding Company, among other things, to continue to implement certain actions in accordance with the capital plan previously submitted to the FRB; not declare or pay dividends on its stock, purchase or redeem its stock, or accept dividends or other capital distributions from CFBank without the prior written approval of the FRB; not incur, increase or guarantee any debt without the prior written consent of the FRB; and provide prior written notice to the FRB with respect to certain changes in directors and senior executive officers. See Note 2 to the consolidated financial statements included in this Annual Report for additional information regarding the Orders.

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Currently, CFBank cannot declare or pay dividends or make any other capital distributions without receiving prior written regulatory approval. Future dividend payments by CFBank to the Holding Company would be based on future earnings and regulatory approval. The payment of dividends from CFBank to the Holding Company is not likely to be approved by regulators until CFBank is able to generate consistent earnings. As a result of the current level of problem assets and the continuing slow economy, it is unlikely CFBank will be able to pay dividends to the Holding Company until such issues are resolved. The Holding Company has adequate operating capital for the foreseeable future. The Holding Company had $3.0 million in cash and cash equivalents at December 31, 2014. The regulators have further required the Holding Company to develop a business plan, separate from CFBank, that enables it to significantly reduce its dependence on CFBank for dividends through alternative funding mechanisms.

Management’s discussion and analysis represents a review of our consolidated financial condition and results of operations for the periods presented. This review should be read in conjunction with our consolidated financial statements and related notes.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition

General. Assets totaled $315.6 million at December 31, 2014 and increased $59.8 million, or 23.4%, from $255.7 million at December 31, 2013. The increase was primarily due to a $50.7 increase in net loan balances and a $9.0 million increase in cash and cash equivalents, partially offset by a $1.5 million decrease in interest-bearing deposits in other financial institutions.

Cash and cash equivalents. Cash and cash equivalents totaled $28.2 million at December 31, 2014, and increased $9.0 million, or 47.2%, from $19.2 million at December 31, 2013. The increase in cash and cash equivalents was a result of management’s efforts to increase deposit activity in order to fund anticipated loan growth.

Securities. Securities available for sale totaled $10.4 million at December 31, 2014, and increased $773,000, or 8.0%, compared to $9.7 million at December 31, 2013. The increase was due to $5.0 million in security purchases, which was offset by scheduled payments and maturities.

Loans. Net loans totaled $257.8 million at December 31, 2014, and increased $50.7 million, or 24.5%, from $207.1 million at December 31, 2013. The increase was primarily due to a $19.3 million increase in single-family loan balances, a $12.3 million increase in construction loan balances, a $9.1 million increase in commercial loan balances and a $7.7 million increase in commercial real estate loan balances. A renewed lending focus was a key driver in growing earning assets.

On December 11, 2012, CFBank entered into a Mortgage Purchase Program with Northpointe Bank (Northpointe), a Michigan banking corporation. Through a participation agreement, CFBank agreed to purchase from Northpointe an 80% interest in fully underwritten and pre-sold mortgage loans originated by various prescreened mortgage brokers located throughout the U.S. The participation agreement provides for CFBank to purchase interests in individually (MERS registered) loans from Northpointe and hold them until funded by the end investor. This process on average takes approximately 14 days. Given the short term nature of each of these individual loans, common credit risks such as past due, impairment and trouble debt restructure (TDR), nonperforming, and nonaccrual classification are substantially reduced. Accordingly, due to the low credit risk associated with these loans, there are no reserves allocated to these loans. Northpointe maintains a 20% ownership interest in each loan it participates. Interest income earned on these loans is based on a contractual interest rate, during the time the loans are outstanding, as opposed to being recorded as a gain on sale of loans. Effective December 18, 2014, the participation agreement was amended and CFBank agreed to increase the level of interest in loans it purchases from Northpointe from 80% to 95% of the aforementioned loans, and therefore, Northpointe now maintains a 5% ownership in each loans it participates. During the twelve months ended December 31, 2014 and December 31, 2013, loan origination activity totaled $271.4 and $469.4 million, respectively, and payoffs for the same period totaled $259.2 and $482.0 million, respectively. At December 31, 2014 and December 31, 2013, CFBank held $25.0 million and $12.7 million, respectively, of such loans which are included in single-family residential loan totals.

Allowance for loan losses (ALLL). The allowance for loan losses totaled $6.3 million at December 31, 2014, and increased $587,000, or 10.2%, from $5.7 million at December 31, 2013. The increase in the ALLL is due to a combination of factors including a 24.5% increase in overall loan balances and a $313,000 increase in net recoveries during the twelve months ended December 31, 2014. The provision for growth was partially offset by continuous improvement in credit quality and a 73.0% decrease in nonperforming loans. The ratio of the ALLL to total loans was 2.39% at December 31, 2014, compared to 2.69% at December 31, 2013; the decline is primarily attributable to an increase in the loan portfolio combined with improving asset quality. In addition, the ratio of the ALLL to nonperforming loans improved to 408.0% at December 31, 2014, compared to 99.9% at December 31, 2013.

The ALLL is a valuation allowance for probable incurred credit losses. The ALLL methodology is designed as part of a thorough process that incorporates management’s current judgments about the credit quality of the loan portfolio into a determination of the ALLL in accordance with generally accepted accounting principles and supervisory guidance. Management analyzes the adequacy of the ALLL quarterly through reviews of the loan portfolio, including the nature and volume of the loan portfolio and segments of the portfolio; industry and loan concentrations; historical loss experience; delinquency statistics and the level of nonperforming loans; specific problem loans; the ability of borrowers to meet loan terms; an evaluation of collateral securing loans and the market for various types of collateral; various collection strategies; current economic conditions, trends and outlook; and other factors that warrant recognition in providing for an adequate ALLL. Based on the variables involved and the significant judgments management must make about outcomes that are uncertain, the determination of the ALLL is considered to be a critical accounting policy. See the section titled “Critical Accounting Policies” for additional discussion.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The ALLL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans of all classes within the commercial, commercial real estate and multi-family residential loan segments, regardless of size, and loans of all other classes over $250,000, are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance loans, such as consumer and single-family residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Loans within any class for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and are classified as impaired. See Notes 1 and 4 to our consolidated financial statements included in this annual report for additional information regarding the ALLL.

Individually impaired loans totaled $6.3 million at December 31, 2014, and decreased $2.6 million, or 29.7%, from $8.9 million at December 31, 2013. The decrease was primarily due to loan repayments. The amount of the ALLL specifically allocated to individually impaired loans totaled $64,000 at December 31, 2014 and $1.1 million at December 31, 2013. The decrease in the ALLL specifically allocated to impaired loans was primarily due to loan repayments and two nonaccrual loans where conditions significantly improved and the loans were evaluated and met the criteria for return to accrual status; as such, the specific reserves were no longer needed.

The specific reserve on impaired loans is based on management’s estimate of the present value of estimated future cash flows using the loan’s effective rate or the fair value of collateral, if repayment is expected solely from the collateral. On at least a quarterly basis, management reviews each impaired loan to determine whether it should have a specific reserve or partial charge-off. Management relies on appraisals or internal evaluations to help make this determination. Determination of whether to use an updated appraisal or internal evaluation is based on factors including, but not limited to, the age of the loan and the most recent appraisal, condition of the property and whether we expect the collateral to go through the foreclosure or liquidation process. Management considers the need for a downward adjustment to the valuation based on current market conditions and on management’s analysis, judgment and experience. The amount ultimately charged-off for these loans may be different from the specific reserve, as the ultimate liquidation of the collateral and/or projected cash flows may be different from management’s estimates.

Nonperforming loans, which are nonaccrual loans and loans 90 days past due but still accruing interest, decreased $4.2 million, or 73.0%, and totaled $1.5 million at December 31, 2014, compared to $5.7 million at December 31, 2013. The decrease in nonperforming loans was primarily due to the aforementioned loans that either paid off or were returned to accrual status and continued loan repayments on nonperforming loans. The ratio of nonperforming loans to total loans was 0.59% at December 31, 2014, compared to 2.70% at December 31, 2013.

The following table presents information regarding the number and balance of nonperforming loans at December 31, 2014 and December 31, 2013.



	December 31, 2014				December 31, 2013
		# of loans	Balance			# of loans	balance

Commercial		3	$	369		2	$	563
Single-family residential real estate		9		549		10		479
Multi-family residential real estate		-		-		1		1,701
Commercial real estate		1		477		5		2,943
Home equity lines of credit		2		153		1		52
Total		15	$	1,548		19	$	5,738

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Nonaccrual loans include some loans that were modified and identified as TDRs and the loans are not performing. TDRs included in nonaccrual loans totaled $422,000 at December 31, 2014 and $2.6 million at December 31, 2013. The decrease in TDRs included in nonaccrual loans was primarily due to the aforementioned loans that were returned to accrual status and continued pay-downs on nonperforming loans.

Nonaccrual loans at December 31, 2014 and December 31, 2013 do not include $5.3 million and $3.5 million, respectively, of TDRs where customers have established a sustained period of repayment performance, generally six months, the loans are current according to their modified terms and repayment of the remaining contractual payments is expected. These loans are included in total impaired loans.

See Notes 1 and 4 to our consolidated financial statements included in this annual report for additional information regarding impaired loans and nonperforming loans.

The general reserve component covers non-impaired loans of all classes and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by loan class and is based on the actual loss history experienced by the Company over a three-year period. The general component is calculated based on CFBank’s loan balances and actual historical three-year historical loss rates. For loans with little or no actual loss experience, industry estimates are used based on loan segment. This actual loss experience is supplemented with other economic and judgmental factors based on the risks present for each loan class. These economic and judgmental factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

During the fourth quarter of 2013, after running parallel calculations and analyzing results for the last two quarters, the Bank revised its ALLL methodology for the general reserve. Previously, the base methodology relied more heavily on industry data and loss given default rates and probability of default. Based on the fact that the Bank has been tracking historical loss rates for a significant time, the new methodology uses a historical three-year loss rate as its base methodology. Similar to before, the base methodology may be supplemented with economic and judgmental factors. Based on the change in methodology which considered portfolio migration, three-year loss rates and revised economic and judgmental factors, a $250,000 reduction to the allowance for loan loss was recorded. The impact on prior quarters was not considered material.

Management’s loan review process is an integral part of identifying problem loans and determining the ALLL. We maintain an internal credit rating system and loan review procedures specifically developed as the primary credit quality indicator to monitor credit risk for commercial, commercial real estate and multi-family residential real estate loans. We analyze these loans individually and categorize 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. Credit reviews for these loan types are performed at least annually, and more often for loans with higher credit risk. Loan officers maintain close contact with borrowers between reviews. Adjustments to loan risk ratings are based on the reviews and at any time information is received that may affect risk ratings. Additionally, an independent third party review of commercial, commercial real estate and multi-family residential loans is performed at least annually. Management uses the results of these reviews to help determine the effectiveness of the existing policies and procedures and to provide an independent assessment of our internal loan risk rating system.

We have incorporated the regulatory asset classifications as a part of our credit monitoring and internal loan risk rating system. In accordance with regulations, problem loans are classified as special mention, substandard, doubtful or loss, and the classifications are subject to review by the regulators. Assets designated as special mention are considered criticized assets. Assets designated as substandard, doubtful or loss are considered classified assets. See Note 4 to our consolidated financial statements included in this annual report for additional information regarding descriptions of the regulatory asset classifications.

The levels of criticized and classified loans decreased during the twelve months ended December 31, 2014 due to management’s on-going efforts to improve credit quality and continued payments by customers. Loans designated as special mention decreased $583,000, or 19.9%, and totaled $2.4 million at December 31, 2014, compared to $2.9 million at December 31, 2013. Loans classified as substandard decreased $1.9 million, or 13.1%, and totaled $12.9 million at December 31, 2014, compared to $14.9 million at

Management’s Discussion and Analysis of Financial Condition and Results of Operations

December 31, 2013. No loans were classified as doubtful at December 31, 2014 and December 31, 2013. See Note 4 to our consolidated financial statements included in this annual report for additional information regarding risk classification of loans.

In addition to credit monitoring through our internal loan risk rating system, we also monitor past due information for all loan segments. Loans that are not rated under our internal credit rating system include groups of homogenous loans, such as single-family residential real estate loans and consumer loans. The primary credit indicator for these groups of homogenous loans is past due information.

Total past due loans decreased $1.4 million, or 54.2%, and totaled $1.2 million at December 31, 2014, compared to $2.5 million at December 31, 2013. Past due loans totaled 0.4% of the loan portfolio at December 31, 2014, compared to 1.2% at December 31, 2013. The decrease in past due loan balances was primarily due to decreases in the commercial real estate non-owner and land loan segments. See Note 4 to our consolidated financial statements for additional information regarding loan delinquencies.

All lending activity involves risk of loss. Certain types of loans, such as option adjustable-rate mortgage (ARM) products, junior lien mortgages, high loan-to-value ratio mortgages, interest only loans, subprime loans and loans with initial teaser rates, can have a greater risk of non-collection than other loans. CFBank has not engaged in subprime lending, used option ARM products or made loans with initial teaser rates.

Unsecured commercial loans may present a higher risk of non-collection than secured commercial loans. Unsecured commercial loans totaled $3.9 million, or 8.4% of the commercial loan portfolio, at December 31, 2014 and $3.7 million, or 10.0% of the commercial loan portfolio, at December 31, 2013. The unsecured loans are primarily lines of credit to small businesses in CFBank’s market area and are guaranteed by the small business owners. At December 31, 2014 and December 31, 2013, none of the unsecured loans were 30 days or more delinquent.

Loans that contain interest only payments may present a higher risk than those loans with an amortizing payment that includes periodic principal reductions. Interest only loans are primarily commercial lines of credit secured by business assets and inventory, and consumer home equity lines of credit secured by the borrower’s primary residence. Due to the fluctuations in business assets and inventory of our commercial borrowers, CFBank has increased risk due to a potential decline in collateral values without a corresponding decrease in the outstanding principal. Interest only commercial lines of credit totaled $17.9 million, or 38.4% of the commercial loan portfolio, at December 31, 2014 compared to $12.9 million, or 34.4%, at December 31, 2013. Given the recessionary effects of the economy in the past several years, the collateral that secures the home equity lines of credit may have experienced a deterioration in value since the loan was originated, increasing the risk to CFBank. Interest only home equity lines of credit totaled $14.9 million, or 85.2% of total home equity lines of credit, at December 31, 2014 compared to $12.1 million, or 81.0%, at December 31, 2013.

We believe the ALLL is adequate to absorb probable incurred credit losses in the loan portfolio as of December 31, 2014; however, future additions to the allowance may be necessary based on factors including, but not limited to, further deterioration in client business performance, continued or deepening recessionary economic conditions, declines in borrowers’ cash flows and market conditions which result in lower real estate values. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. Such agencies may require additional provisions for loan losses based on judgments and estimates that differ from those used by management, or on information available at the time of their review. Management continues to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. An increase in loan losses could occur if economic conditions and factors which affect credit quality, real estate values and general business conditions worsen or do not improve.

Foreclosed assets. Foreclosed assets totaled $1.6 million at December 31, 2014 and remained constant compared to $1.6 million at December 31, 2013. Foreclosed assets at December 31, 2014 and December 31, 2013 consisted of one multi-family property in Mansfield, Ohio. The level of foreclosed assets and charges to foreclosed assets expense may increase in the future as we increase our workout efforts related to foreclosed assets, nonperforming loans and other loans with credit issues.

Premises and equipment. Premises and equipment, net, totaled $3.8 million at December 31, 2014, and increased $228,000, or 6.4%, from $3.5 million at December 31, 2013. The increase is partially attributed to opening the loan production office in Woodmere, Ohio in January 2014. See Note 8 – Premises and Equipment to our consolidated financial statements included in this annual report for additional information.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Deposits. Deposits totaled $258.3 million at December 31, 2014, an increase of $50.0 million, or 24.0%, from $208.3 million at December 31, 2013. The increase is primarily attributed to a $19.5 million increase in money market account balances, a $18.1 million increase in certificate of deposit account balances, a $9.4 million increase in noninterest checking account balances and a $2.1 million increase in savings account balances. Also, the majority of the deposit increase is a result of management’s focused sales and marketing efforts to grow core deposits to fund loan growth.

Noninterest bearing checking account balances totaled $37.0 million at December 31, 2014 and increased $9.4 million, or 33.9%, from $27.6 million at December 31, 2013. The majority of this increase is attributable to our focused sales efforts to grow core deposits and expanding our relationship opportunities with our customers.

Certificate of deposit account balances totaled $137.2 million at December 31, 2014 and increased $18.1 million, or 15.2%, from $119.0 million at December 31, 2013. The increase was due to a $13.3 million increase in retail deposit accounts and a $4.8 million increase in brokered certificate of deposits.

CFBank is a participant in the Certificate of Deposit Account Registry Service® (CDARS) program, a network of banks that allows us to provide our customers with FDIC insurance coverage on certificate of deposit account balances up to $50 million. CDARS balances are considered brokered deposits by regulation. Brokered deposits, including CDARS balances, totaled $29.3 million at December 31, 2014, and increased $8.3 million, or 39.8%, from $21.0 million at December 31, 2013. The increase in brokered is primarily due a $4.2 million increase in CDARS balances, a $3.5 million in other brokered funds and a $600,000 increase in brokered certificate of deposits. These funds were used to augment our funding sources to fund loan growth or increases in our mortgage purchase program at various times. See the section titled “Liquidity and Capital Resources” for additional information regarding regulatory restrictions on brokered deposits.

While the CFBank Order was in place from May 2011 until January 2014, CFBank was prohibited from accepting or renewing brokered deposits, including CDARS balances. CFBank received limited waivers from the prohibition on renewal of reciprocal CDARS deposits from the FDIC, and the restrictions were subsequently lifted upon the termination of the CFBank Order in January 2014. Customer balances in the CDARS program totaled $10.2 million at December 31, 2014 and increased $4.3 million, or 72.6%, from $5.9 million at December 31, 2013.

FHLB advances. FHLB advances totaled $14.5 million at December 31, 2014 and increased $4.5 million, or 45.0%, from $10.0 million at December 31, 2013. At December 31, 2013, CFBank was limited to borrowing term maturities not exceeding 365 days due to restrictions imposed by the FHLB due to the existence of the CFBank Order. With the termination of the CFBank Order effective January 23, 2014, the FHLB notified the Bank that the restriction on borrowings terms had been lifted, effective January 24, 2014. See the section titled “Liquidity and Capital Resources” for additional information regarding limitations on FHLB advances.

Subordinated debentures. Subordinated debentures totaled $5.2 million at both December 31, 2014 and December 31, 2013. These debentures were issued in 2003 in exchange for the proceeds of a $5.0 million trust preferred securities offering issued by a trust formed by the Holding Company. The terms of the subordinated debentures allow for the Holding Company to defer interest payments for a period not to exceed five years. The Holding Company’s Board of Directors elected to defer interest payments beginning with the quarterly interest payment due on December 30, 2010 in order to preserve cash at the Holding Company prior to completion of the stock offering. Cumulative deferred interest payments through September 30, 2012 totaling $348,000 were paid current in December 2012 with the approval of the FRB. Subsequently, the Company deferred interest payments, and accrued deferred interest payments totaled $210,000 as of December 31, 2013. In June 2014, the Company paid all deferred and current interest payments in the amount of $293,000. During the quarters ended September 30, 2014 and December 31, 2014, with prior non-objection from the FRB, the Company paid current all of the interest. Pursuant to the Holding Company’s current commitments to the FRB, the Holding Company may not, directly or indirectly, incur, issue, renew, rollover, or pay interest or principal on any debt (including the subordinated debentures) or commit to do so, increase any current lines of credit, or guarantee the debt of any entity, without prior written notice to and written non-objection from the FRB. As a result, the Company’s ability to continue to pay current interest on the subordinated debentures is conditioned upon receipt of the non-objection of the FRB on a quarterly basis.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Secured borrowings: During the course of 2013, CFBank entered into certain loan participations that, according to the structure of the transactions, did not qualify for sales accounting treatment and were therefore accounted for as secured borrowings. At December 31, 2013, there were five loan participation agreements classified as secured borrowings totaling approximately $6.5 million. The bank retains an ownership interest in these loans and provides customary servicing to the third-parties which are typically other community banks. During the first quarter of 2014, management amended its loan participation agreements to remove the language that disqualified the loan participations from sales accounting treatment and entered into amended loan participation agreements with the participating institutions with respect to the aforementioned loans. At December 31, 2014, there were no secured borrowings transactions.

Stockholders’ equity: Stockholders’ equity totaled $34.5 million at December 31, 2014, an increase of $11.6 million, or 50.9%, from $22.9 million at December 31, 2013. The increase in total stockholders’ equity was primarily attributed to the Company’s completion during 2014 of the sale of 480,000 shares of its newly designated 6.25% Non-Cumulative Convertible Perpetual Preferred Stock, Series B, with a liquidation preference of $25.00 per share (“Series B Preferred Stock”), for an aggregate offering price of $12,000,000. The Series B Preferred Stock was sold by the Company with the assistance of McDonald Partners, LLC, as placement agent, on a best efforts basis. After payment of approximately $482,000 in placement fees to McDonald Partners, LLC and approximately $149,000 of other offering expenses, the Company’s net proceeds from its sale of the 480,000 shares of Series B Preferred Stock were approximately $11,369,000. See Note 17 to the consolidated financial statements included in this annual report for additional information.

Management continues to proactively monitor capital levels and ratios in its on-going capital planning process and to ensure compliance with its regulatory requirements and commitments. CFBank has leveraged its capital to support balance sheet growth and drive increased net interest income. Management remains focused on growing capital though improving results from operations; however, should the need arise, CFBank has additional sources of capital and alternatives it could utilize to remain in compliance with the increased capital requirements to which CFBank is subject.

Currently, the Holding Company has excess cash to cover its expenses for the foreseeable future, and could inject capital into CFBank if necessary for CFBank to remain in compliance with its required capital ratios. Also, CFBank has the flexibility to manage its balance sheet size as a result of the short duration of the assets as discussed with the Northpointe mortgage program, as well as to deploy those assets into higher earning assets to improve net interest income as the opportunity presents itself.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparison of Results of Operations for 2014 and 2013

General. Net income for the twelve months ended December 31, 2014 totaled $479,000 and increased $1.4 million compared to a net loss of $918,000 for the twelve months ended December 31, 2013, primarily due to a $3.3 million increase in net interest income and a $218,000 decrease in provision expense, offset by a $401,000 decrease in noninterest income and a $1.8 million increase in noninterest expenses. The 2013 results include a $1.1 million gain on sale of fixed assets related to the sale of the Company’s corporate office building.

Net income attributable to common stockholders totaled $58,000, or ($0.00) per diluted common share, for the year ended December 31, 2014, compared to a net loss attributable to common stockholders of $918,000, or ($0.06) per diluted common share, for the year ended December 31, 2013. The dividend on the Series B preferred stock decreased the net income attributable to the common stockholders by $421,000 for 2014. There was no preferred stock outstanding during 2013.

Net interest income. Net interest income is a significant component of net income, and consists of the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. The tables below titled “Average Balances, Interest Rates and Yields” and “Rate/Volume Analysis of Net Interest Income” provide important information on factors impacting net interest income and should be read in conjunction with this discussion of net interest income.

Net interest income totaled $8.7 million for the year ended December 31, 2014 and increased $3.3 million, or 61.9%, compared to $5.4 million for the year ended December 31, 2013. The increase in net interest income was primarily due to a $3.1 million, or 41.5%, increase in interest income, coupled with a $224,000, or 10.6%, decrease in interest expense. The increase in interest income was primarily attributed to a $49.8 million, or 23.3%, increase in average interest-earnings assets outstanding, a 52 bps increase in average yield on interest earning assets and improved asset mix. The decrease in interest expense was attributed to a 27 bps reduction in the average cost of funds on interest bearing liabilities, and improved mix from noninterest bearing deposits. As a result, net interest margin of 3.31% for the year ended 2014 improved 79 bps over the net interest margin of 2.52% for the year ended 2013.

Interest income totaled $10.6 million and increased $3.1 million, or 41.5%, for the twelve months ended December 31, 2014, compared to $7.5 million for the twelve months ended December 31, 2013. The increase in interest income was primarily due to a $71.1 million, or 43.6%, increase in average loan and loan held for sale balances from $163.1 million at December 31, 2013, to $234.2 million at December 31, 2014, and a 52 bps improvement in the average yield on interest earning assets. Additionally, an improved earning assets mix resulted from a $17.1 million, or 47.8%, decrease other earning assets earning 35bps that were redeployed into higher yielding loans.

Interest expense totaled $1.9 million and decreased $224,000, or 10.6%, for the year ended December 31, 2014, compared to $2.1 million for the year ended December 31, 2013. The decrease in interest expense is primarily due to a 27 bps reduction in the average cost of funds on interest bearing liabilities and improved mix from noninterest bearing deposits, which offset a $32.0 million, or 16.9%, increase in average interest bearing liabilities. The average cost of funds decreased 149 bps on the average balances on FHLB advances, due to maturities and advances being re-priced in the current lower rate environment, which offset a 31.5% increase in average balances. Also, the average cost of funds decreased 16 bps on average deposit balances, primarily due to maturities of higher cost brokered CD’s, and CD’s in general re-pricing in the current lower rate environment, which offset a 15.7% increase in average deposit balances. In addition, noninterest bearing deposit balances increased $11.3 million, or 45.7%, due to increased sales focus on customer relationships, which improved the overall funding mix.

Provision for loan losses. The provision for loan losses totaled $278,000 for the twelve months ended December 31, 2014 and decreased $218,000, or 44.0%, compared to $496,000 for the twelve months ended December 31, 2013. The decrease in the provision for loan losses for the year ended December 31, 2014 was primarily due to improved credit quality and a decrease in special mention and substandard loans, which more than offset the provision for growth in the portfolio for new loans generated in 2014. Net recoveries increased $313,000 due to the fact that there were $309,000 in net recoveries for the year ended December 31, 2014 compared to the net charge-offs of $4,000, for the year ended December 31, 2013. The improvement in net recoveries was related to a large commercial real estate loan that paid off during 2014.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table presents information regarding net charge-offs for 2014 and 2013.


	2014		2013
	Charge-offs (recoveries)
(Dollars in thousands)
Commercial	$	39	$	(41)
Single-family residential real estate		(4)		161
Multi-family residential real estate		-		(29)
Commercial real estate		(344)		(60)
Home equity lines of credit		2		(12)
Other consumer loans		(2)		(15)
Total	$	(309)	$	4

See the section titled “Financial Condition – Allowance for loan losses” for additional information.

Noninterest income. Noninterest income for the year ended December 31, 2014 totaled $1.5 million, and decreased $401,000, or 21.2%, compared to $1.9 million for the year ended December 31, 2013. The decrease is primarily due to a gain realized on the sale of the Company’s corporate office building and certain furniture and fixtures of approximately $1.1 million in 2013, partially offset by a $448,000 increase in gains recognized on the sale of residential mortgages, a $206,000 increase in other noninterest income and a $59,000 increase in service charges on deposit accounts in 2014.

The increase in net gains on sales of loans is due to increased sales activities associated with the Company’s ramp up and expansion of the mortgage business. The $206,000 increase in other noninterest income was primarily due to a $33,000 increase in merchant services income and a $125,000 increase in revenue resulting from the Company’s joint ventures, as discussed in Note 22 to our consolidated financial statements. The increase in service charges on deposits is due to an increase in account levels and pricing changes.

Noninterest expense. Noninterest expense for the year ended 2014 totaled $9.5 million and increased $1.8 million, or 22.8%, compared to the $7.7 million recognized in 2013. The overall increase in operating expenses is primarily attributed to a $596,000 increase in salaries and employee benefits, a $283,000 increase in foreclosed asset expense, a $265,000 increase in data processing, a $245,000 increase in occupancy and equipment, a $219,000 increase in professional fees and a $97,000 in director fees.

Salaries and benefit expenses increased primarily due to the full year effect of the investment in mortgage personnel as this business line was ramped up in the latter part of 2013, coupled with an increase in personnel in the credit administration and treasury management areas. Foreclosed asset expense increased related to maintenance and light rehabilitation incurred to increase occupancy levels, along with increased operating costs. The increase in data processing expenses is driven by expanded IT services associated with the Company’s growth and expansion, along with investments in our infrastructure. The increase in occupancy and equipment expenses related to rent expense, leasehold improvements and associated utilities is primarily due to our growth and expansion, and the opening of our loan production office in Woodmere, Ohio. Professional fees increased due to increased legal and workout fees and increased consulting fees associated with project work related to the expansion of the mortgage division and credit area.

Income taxes. The Company recorded a deferred tax valuation allowance which reduced the deferred tax asset to zero beginning in 2009 and continuing through the year ended December 31, 2014. As such, there was no income tax benefit recorded for the year ended December 31, 2014.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparison of Results of Operations for 2013 and 2012

General. Net loss attributable to common stockholders totaled $918,000, or ($0.06) per diluted common share, for the year ended December 31, 2013, compared to net earnings attributable to common stockholders of $866,000, or $0.14 per diluted common share, for the year ended December 31, 2012. For the twelve months ended December, 2012, the discount on the redemption of the TARP obligation increased net earnings attributable to common stockholders by $5.0 million, while the preferred stock dividends and accretion of discount on the preferred stock increased the net loss attributable to the common stockholders by $328,000. Due to the redemption of the TARP obligation on September 26, 2012, there was no impact in 2013 related to the preferred stock dividends and accretion of discount on the net loss attributable to the common stockholders. The net loss of $918,000 for the year ended December 31, 2013, compared to the net loss of $3.8 million for the year ended December 31, 2012 (excluding the impact of the TARP redemption), improved $2.8 million due primarily to a $752,000 increase in net interest income, a $633,000 decrease in provision expense, a $575,000 decrease in noninterest expense, and a $888,000 increase in noninterest income.

The improved net interest income in 2013 was mainly attributed to the increase in overall outstanding loan balances, while the reduced provisioning expense was due to the improved credit quality of the loan portfolio through the reduction of problem loans. Additionally, declines in operating expenses from 2012 was primarily attributed to lower costs associated with foreclosed assets, reduced FDIC insurance premiums and reduced director fees.

The discount on redemption of the TARP obligations in 2012 increased earnings available to common stockholders by $5.0 million, which resulted in $0.14 earnings per diluted common share despite the net loss for the year ended December 31, 2012.

Net interest income. Net interest income is a significant component of net income, and consists of the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. The tables titled “Average Balances, Interest Rates and Yields” and “Rate/Volume Analysis of Net Interest Income” provide important information on factors impacting net interest income and should be read in conjunction with this discussion of net interest income.

Net interest income totaled $5.4 million for the year ended December 31, 2013 and increased $752,000, or 16.2%, compared to $4.6 million for the year ended December 31, 2012. The increase in net interest income was primarily due to a $232,000, or 3.2%, increase in interest income, coupled with a $520,000, or 19.7%, decrease in interest expense. The increase in interest income was primarily attributed to a $4.9 million, or 2.4%, increase in average interest-earnings assets outstanding, and improved mix, which was partially offset by a decline in yields. The decrease in interest expense was attributed to a 25 bps reduction in the average cost of funds on interest bearing liabilities, and improved mix from noninterest bearing deposits. As a result, net interest margin of 2.52% for the year ended 2013 improved 30 bps over the net interest margin of 2.22% for the year ended 2012.

Interest expense totaled $2.1 million and decreased $520,000, or 19.7%, for the year ended December 31, 2013, compared to $2.6 million for the year ended December 31, 2012. The decrease in interest expense resulted primarily from lower overall deposit costs due to a 25 bps decrease in average rates, as a result of deposit pricing and CD’s re-pricing in today’s lower rate environment, coupled with a decrease in higher cost brokered CD’s. In addition, CFBank's overall deposit mix improved due to an increase in average noninterest-bearing deposit liabilities, consisting primarily of commercial demand deposit accounts and other noninterest deposits, of $4.6 million, or 26.7%, as a result of CFBank's sales efforts and increase in customer relationships.

Provision for loan losses. The provision for loan losses totaled $496,000 for the twelve months ended December 31, 2013 and decreased $633,000, or 56.1%, compared to $1.1 million for the twelve months ended December 31, 2012. The decrease in the provision for loan losses for the year ended December 31, 2013 was primarily due to improved credit quality, a decrease in special mention and substandard loans, and a decrease in net charge-offs, which more than offset the provision for growth in the portfolio for new loans generated in 2013. Net charge-offs decreased $2.0 million due to the fact that there were net charge-offs of $4,000 for the year ended December 31, 2013, compared to net charge-offs totaling $2.0 million for the year ended December 31, 2012. The decrease in net charge-offs during the twelve months ended December 31, 2013 was primarily related to commercial and multi-family real estate loans.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table presents information regarding net charge-offs for 2013 and 2012.


	2013		2012
	Charge-offs (recoveries)
(Dollars in thousands)
Commercial	$	(41)	$	(281)
Single-family residential real estate		161		55
Multi-family residential real estate		(29)		774
Commercial real estate		(60)		1,329
Home equity lines of credit		(12)		109
Other consumer loans		(15)		16
Total	$	4	$	2,002

See the section titled “Financial Condition – Allowance for loan losses” for additional information.

Noninterest income. Noninterest income for the year ended December 31, 2013 totaled $1.9 million, and increased $888,000, or 88.4%, compared to $1.0 million for the year ended December 31, 2012. The increase is due to gain realized on the sale of the Company’s corporate office building and certain furniture and fixtures of approximately $1.1 million. This was partially offset by lower gains recognized on the sale of residential mortgages due to increased interest rate levels that slowed the residential mortgage market in 2013, and the fact that there were no net gains on the sale of securities for the year ended 2013, compared to $143,000 in 2012. Service charges on deposits increased approximately $108,000, or 44.1%, over 2012, due to an increase in account level and pricing changes. Other noninterest income increased approximately $127,000, or 56.8%, over 2012, as a result of investments in joint ventures the Holding Company made in 2013, as discussed in Note 22 to our consolidated financial statements.

Noninterest expense. Noninterest expense for the year ended 2013 was $7.7 million, which represented a decline of $575,000, or 6.9%, compared to the $8.3 million recognized in 2012. The overall decline in operating expenses is primarily attributed to a $607,000 reduction in costs associated with managing foreclosed properties and a $263,000 reduction in FDIC insurance premiums based on a lower assessment rate. These declines were partially offset by a $138,000 increase in professional fees associated with workout efforts, audit related and other consulting fees, and an increase in data processing fees related to certain services that were outsourced.

Income taxes. The Company recorded a deferred tax valuation allowance which reduced the deferred tax asset to zero beginning in 2009 and continuing through the year ended December 31, 2013. As such, there was no income tax benefit recorded for the year ended December 31, 2013.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Average Balances, Interest Rates and Yields. The following table presents, for the periods indicated, the total dollar amount of fully taxable equivalent interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Average balances are computed using month-end balances.


		For the Years Ended December 31,
		2014				2013					2012
	Average		Interest		Average	Average		Interest		Average	Average		Interest		Average
	Outstanding		Earned/		Yield/	Outstanding		Earned/		Yield/	Outstanding		Earned/		Yield/
	Balance		Paid		Rate	Balance		Paid		Rate	Balance		Paid		Rate
		(Dollars in thousands)
Interest-earning assets:
Securities (1) (2)	$	8,557	$	157	1.85%	$	12,743	$	199	1.58%	$	16,632	$	218	1.28%
Loans and loans held for sale (3)		234,189		10,310	4.40%		163,074		7,080	4.34%		134,397		6,795	5.06%
Other earning assets		18,758		66	0.35%		35,904		140	0.39%		55,772		169	0.30%
FHLB stock		1,942		78	4.02%		1,942		81	4.17%		1,942		86	4.43%
Total interest-earning assets		263,446		10,611	4.03%		213,663		7,500	3.51%		208,743		7,268	3.48%
Noninterest-earning assets		22,280					22,728					19,969
Total assets	$	285,726				$	236,391				$	228,712

Interest-bearing liabilities:
Deposits	$	200,940		1,562	0.78%	$	173,726		1,636	0.94%	$	175,840		2,108	1.20%
FHLB advances and other borrowings		20,097		327	1.63%		15,279		477	3.12%		16,714		525	3.14%
Total interest-bearing liabilities		221,037		1,889	0.85%		189,005		2,113	1.12%		192,554		2,633	1.37%
Noninterest-bearing liabilities		35,983					24,691					20,653
Total liabilities		257,020					213,696					213,207

Equity		28,706					22,695					15,505
Total liabilities and equity	$	285,726				$	236,391				$	228,712

Net interest-earning assets	$	42,409				$	24,658				$	16,189
Net interest income/interest rate spread			$	8,722	3.18%			$	5,387	2.39%			$	4,635	2.11%
Net interest margin					3.31%					2.52%					2.22%

Average interest-earning assets to average interest-bearing liabilities		119.19%					113.05%					108.41%

(1) Average balance is computed using the carrying value of securities.
Average yield is computed using the historical amortized cost average balance for available for sale securities.
(2) Average yields and interest earned are stated on a fully taxable equivalent basis.
(3) Average balance is computed using the recorded investment in loans net of the ALLL and includes nonperforming loans.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rate/Volume Analysis of Net Interest Income. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase and decrease related to changes in balances and/or changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the prior rate) and (ii) changes in rate (i.e., changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


	Year Ended						Year Ended
	December 31, 2014						December 31, 2013
	Compared to Year Ended						Compared to Year Ended
	December 31, 2013						December 31, 2012
	Increase (decrease) due to						Increase (decrease) due to
	Rate		Volume		Net		Rate		Volume		Net

	(Dollars in thousands)
Interest-earning assets:
Securities (1)	$	31	$	(73)	$	(42)	$	40	$	(59)	$	(19)
Loans and loans held for sale		100		3,130		3,230		(1,042)		1,327		285
Other earning assets		(13)		(61)		(74)		40		(69)		(29)
FHLB stock		(3)		-		(3)		(5)		-		(5)
Total interest-earning assets		115		2,996		3,111		(967)		1,199		232

Interest-bearing liabilities:
Deposits		(309)		235		(74)		(447)		(25)		(472)
FHLB advances and other borrowings		(271)		121		(150)		(3)		(45)		(48)
Total interest-bearing liabilities		(580)		356		(224)		(450)		(70)		(520)
Net change in net interest income	$	695	$	2,640	$	3,335	$	(517)	$	1,269	$	752
(1) Securities amounts are presented on a fully taxable equivalent basis.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss from adverse changes in market prices and interest rates. We have not engaged in and, accordingly, have no risk related to trading accounts, commodities or foreign exchange. Our hedging policy allows hedging activities, such as interest-rate swaps, up to a notional amount of 10% of total assets and a value at risk of 10% of core capital. Disclosures about our hedging activities are set forth in Note 20 to our consolidated financial statements. The Company’s market risk arises primarily from interest rate risk inherent in our lending, investing, deposit gathering and borrowing activities. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated and the resulting net positions are identified. Disclosures about fair value are set forth in Note 6 to our consolidated financial statements.

Management actively monitors and manages interest rate risk. The primary objective in managing interest rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on our net interest income and capital. We measure the effect of interest rate changes on CFBank’s economic value of equity (EVE), which is the difference between the estimated market value of its assets and liabilities under different interest rate scenarios. The change in the EVE ratio is a long-term measure of what might happen to the market value of financial assets and liabilities over time if interest rates changed instantaneously and CFBank did not change existing strategies. At December 31, 2014, CFBank’s EVE ratios, using interest rate shocks ranging from a 400 bp rise in rates to a 200 bps decline in rates are shown in the following table. All values are within the acceptable range established by CFBank’s Board of Directors.

Management’s Discussion and Analysis of Financial Condition and Results of Operations


Economic Value of Equity
as a Percent of Assets
(CFBank only)

Basis Point		Economic
Change in Rates		Value Ratio
+400		10.7%
+300		11.1%
+200		11.7%
+100		12.1%
0		12.3%
(100)		12.3%
(200)		12.3%

In evaluating CFBank’s exposure to interest rate risk, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, the table indicates results based on changes in the level of interest rates, but not changes in the shape of the yield curve. CFBank also has exposure to changes in the shape of the yield curve. Although certain assets and liabilities may have similar maturities or periods to which they reprice, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. The ability of many borrowers to service their debt may decrease when interest rates rise. As a result, the actual effect of changing interest rates may differ materially from that presented in the foregoing table.

Changes in levels of market interest rates could materially and adversely affect our net interest income, loan volume, asset quality, value of loans held for sale and cash flows, as well as the market value of our securities portfolio and overall profitability.

We continue to originate the majority of fixed-rate single-family residential real estate loans for sale rather than retain long-term, low fixed-rate loans in portfolio. Residential mortgage loan origination volumes are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations, while falling interest rates are usually associated with higher loan originations. Our ability to generate gains on sales of mortgage loans is significantly dependent on the level of originations. Changes in interest rates, prepayment speeds and other factors may also cause the value of our loans held for sale to change.

We originate commercial, commercial real estate and multi-family residential real estate mortgage loans for our portfolio, which, in many cases, have adjustable interest rates. Many of these loans have interest-rate floors, which protect income to CFBank should rates continue to fall. While adjustable-rate loans better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, the increased payments required of adjustable-rate loan borrowers upon an interest rate adjustment in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a rising interest rate environment.

Cash flows are affected by changes in market interest rates. Generally, in rising interest rate environments, loan prepayment rates are likely to decline, and in falling interest rate environments, loan prepayment rates are likely to increase.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

In general terms, liquidity is a measurement of an enterprise’s ability to meet cash needs. The primary objective in liquidity management is to maintain the ability to meet loan commitments and to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts of securities available for sale; borrowings; and operations. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

CFBank is required by regulation to maintain sufficient liquidity to ensure its safe and sound operation. Thus, adequate liquidity may vary depending on CFBank’s overall asset/liability structure, market conditions, the activities of competitors, the requirements of our own deposit and loan customers and regulatory considerations. Management believes that the Holding Company’s and CFBank’s liquidity is sufficient to meet its daily operating needs and fulfill its strategic planning.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets, primarily cash, short-term investments and other assets that are widely traded in the secondary market, based on our ongoing assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities and the objective of our asset/liability management program. In addition to liquid assets, we have other sources of liquidity available including, but not limited to, access to advances from the FHLB and borrowings from the FRB and our commercial bank line of credit.

The following table summarizes CFBank’s cash available from liquid assets and borrowing capacity at December 31, 2014 and 2013.



	December 31, 2014		December 31, 2013

	(Dollars in thousands)
Cash, unpledged securities and deposits in other financial institutions	$	28,309	$	22,735
Additional borrowing capacity at the FHLB		8,578		9,404
Additional borrowing capacity at the FRB		28,585		25,110
Unused commercial bank line of credit		1,000		1,000
Total	$	66,472	$	58,249

Cash, unpledged securities and deposits in other financial institutions increased $5.6 million, or 24.5%, to $28.3 million at December 31, 2014 compared to $22.7 million at December 31, 2013. The increase was a result of management’s efforts to increase deposit activity in order to fund anticipated loan growth of CFBank.

CFBank’s additional borrowing capacity with the FHLB decreased $826,000, or 8.8%, to $8.6 million at December 31, 2014 compared to $9.4 million at December 31, 2013. The decrease is primarily due to additional FHLB advances that CFBank added in 2014, partially offset by increased borrowing capacity as a result of additional collateral pledged due to the increase in loans. As of December 31, 2013, due to regulatory considerations, CFBank was only eligible for future advances with a maximum maturity of 365 days. On January 24, 2014, CFBank was notified by the FHLB that the restriction on the term of future advances had been lifted as a result of the CFBank Order being terminated effective January 23, 2014.

CFBank’s additional borrowing capacity at the FRB increased $3.5 million, or 13.8%, to $28.6 million at December 31, 2014 from $25.1 million at December 31, 2013. In addition, CFBank is once again eligible to participate in the FRB’s primary credit program, providing CFBank access to short-term funds at any time, for any reason, based on the collateral pledged.

CFBank’s borrowing capacity with both the FHLB and FRB may be negatively impacted by changes such as, but not limited to, further tightening of credit policies by the FHLB or FRB, deterioration in the credit performance of CFBank’s loan portfolio or CFBank’s financial performance, or a decrease in the balance of pledged collateral.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

CFBank had a $1.0 million unused line of credit with one commercial bank at December 31, 2014, and 2013.

Deposits are obtained predominantly from the areas in which CFBank’s offices are located. We rely primarily on a willingness to pay market-competitive interest rates to attract and retain retail deposits. Accordingly, rates offered by competing financial institutions may affect our ability to attract and retain deposits. As a result of the CFBank Order, we were prohibited from offering above-market interest rates and were subject to market rates published by the FDIC when offering deposits to the general public. However, these limitations are no longer applicable to CFBank as a result of the termination of the CFBank Order in January of 2014. See Note 2 – Regulatory Considerations for further discussion.

As a result of the CFBank Order, we were prohibited from accepting or renewing brokered deposits without FDIC approval, although we had the ability to seek wholesale deposits that are not considered brokered deposits. At December 31, 2013, CFBank had $21.0 million in brokered deposits with maturity dates from January 2014 through August 2016. In addition, the prohibition on brokered deposits limited CFBank’s ability to participate in the CDARS program and impacted our liquidity management. Although CFBank customers participate in the CDARS program, CDARS deposits are considered brokered deposits by regulation. As a result of the termination of the CFBank Order effective January 23, 2014, the restrictions on brokered deposits no longer apply and, therefore, we will have greater access to more diversified funding sources. See Note 2 – Regulatory Order Considerations for further discussion.

CFBank relies on competitive interest rates, customer service, and relationships with customers to retain deposits. To promote and stabilize liquidity in the banking and financial services sector, the FDIC, pursuant to the provisions of the Dodd-Frank Act as previously discussed, permanently increased deposit insurance coverage from $100,000 to $250,000 per depositor.

The Holding Company, as a savings and loan holding company, has more limited sources of liquidity than CFBank. In general, in addition to its existing liquid assets, sources of liquidity include funds raised in the securities markets through debt or equity offerings, dividends received from its subsidiaries or the sale of assets. Pursuant to commitments made in connection with the termination of the Holding Company Order, the Holding Company is not permitted to declare or pay dividends on its stock, purchase or redeem its stock, or accept dividends or other capital distributions from CFBank without the prior written approval of the FRB. In addition, the Holding Company may not incur, increase or guarantee any debt without the prior written consent of the FRB. The Holding Company is not restricted, however, from raising funds in the securities markets through equity offerings.

The Holding Company had adequate funds at December 31, 2014 to meet its current and anticipated operating needs at this time. The Holding Company’s current cash requirements include operating expenses and interest on subordinated debentures. The Company may elect to pay dividends on its preferred stock, if and when declared by the Board of Directors, subject to obtaining prior written regulatory “non-objection” from the FRB.

Annual debt service on the subordinated debentures is currently approximately $170,000. The subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month LIBOR plus 2.85%. The total rate in effect was 3.11% at December 31, 2014. An increase in the three-month LIBOR would increase the debt service requirement of the subordinated debentures.

Banking regulations limit the amount of dividends that can be paid to the Holding Company by CFBank without prior regulatory approval. Generally, financial institutions may pay dividends without prior approval as long as the dividend does not exceed the total of the current calendar year-to-date earnings plus any earnings from the previous two years not already paid out in dividends, and as long as the financial institution remains well capitalized after the dividend payment. As of December 31, 2014, CFBank could not pay any dividends to the Holding Company without receiving the prior written approval of the OCC. Future dividend payments by CFBank to the Holding Company would be based on future earnings and subject to regulatory approval. However, the payment of dividends from CFBank to the Holding Company is not likely to be approved by the OCC until CFBank is able to generate consistent earnings.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

outstanding, the Holding Company will be prohibited from paying dividends on (other than dividends payable solely for the then-current dividend period in shares) the Company’s common stock, , unless full dividends on the Series B Preferred Stock have been paid or set aside for payment.

A portion of the proceeds from the common stock offering completed in 2012 as well as a portion of the proceeds from the preferred stock offering completed in 2014 has been retained by the Holding Company for general corporate purposes. The Holding Company had $3.0 million in cash and cash equivalents at December 31, 2014.

Impact of Inflation

The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which presently require us to measure financial position and results of operations primarily in terms of historical dollars. Changes in the relative value of money due to inflation are generally not considered. In our opinion, changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate. While interest rates are generally influenced by changes in the inflation rate, they do not move concurrently. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as changes in monetary and fiscal policy. A financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its ability to perform in a volatile economic environment. In an effort to protect performance from the effects of interest rate volatility, we review interest rate risk frequently and take steps to minimize detrimental effects on profitability.

Critical Accounting Policies

We follow financial accounting and reporting policies that are in accordance with U.S. generally accepted accounting principles and conform to general practices within the banking industry. These policies are presented in Note 1 to our consolidated financial statements. Some of these accounting policies are considered to be critical accounting policies, which are those policies that are both most important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Application of assumptions different than those used by management could result in material changes in our financial condition or results of operations. These policies, current assumptions and estimates utilized, and the related disclosure of this process, are determined by management and routinely reviewed with the Audit Committee of the Board of Directors. We believe that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements were appropriate given the factual circumstances at the time.

We have identified accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand our financial statements. The following discussion details the critical accounting policies and the nature of the estimates made by management.

Determination of the allowance for loan losses. The ALLL represents management’s estimate of probable incurred credit losses in the loan portfolio at each balance sheet date. The allowance consists of general and specific components. The general component covers loans not classified as impaired and is based on historical loss experience, adjusted for current factors. Current factors considered include, but are not limited to, management’s oversight of the portfolio, including lending policies and procedures; nature, level and trend of the portfolio, including past due and nonperforming loans, loan concentrations, loan terms and other characteristics; current economic conditions and outlook; collateral values; and other items. The specific component of the ALLL relates to loans that are individually classified as impaired. Loans exceeding policy thresholds are regularly reviewed to identify impairment. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due

Management’s Discussion and Analysis of Financial Condition and Results of Operations

according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Determining whether a loan is impaired and whether there is an impairment loss requires judgment and estimates, and the eventual outcomes may differ from estimates made by management. The determination of whether a loan is impaired includes: review of historical data; judgments regarding the ability of the borrower to meet the terms of the loan; an evaluation of the collateral securing the loan and estimation of its value, net of selling expenses, if applicable; various collection strategies; and other factors relevant to the loan or loans. Impairment is measured based on the fair value of collateral, less costs to sell, if the loan is collateral dependent, or alternatively, the present value of expected future cash flows discounted at the loan’s effective rate, if the loan is not collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment loss is recorded. As a result, determining the appropriate level for the ALLL involves not only evaluating the current financial situation of individual borrowers or groups of borrowers, but also current predictions about future events that could change before an actual loss is determined. Based on the variables involved and the fact that management must make judgments about outcomes that are inherently uncertain, the determination of the ALLL is considered to be a critical accounting policy. Additional information regarding this policy is included in the previous section titled “Financial Condition - Allowance for loan losses” and in Notes 1, 4 and 6 to our consolidated financial statements.

Valuation of the deferred tax asset.

The Company maintained a valuation allowance against the net deferred tax assets at December 31, 2014 and December 31, 2013, based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to maintain a full valuation allowance against the entire net deferred tax asset.

In 2012, a recapitalization program through the sale of $22.5 million in common stock improved the capital levels of CFBank and provided working capital for the Holding Company. The result of the change in stock ownership associated with the stock offering, within the guidelines of Section 382 of the Internal Revenue Code of 1986, was that the Company incurred an ownership change. At year-end 2014, the Company had net operating loss carryforwards of $26,732, which expire at various dates from 2024 to 2033, and has alternative minimum tax credit carryforwards of $75, which do not expire. As a result of the ownership change, the Company's ability to utilize carryforwards that arose before the stock offering closed is limited to $163 per year. Due to this limitation, management determined it is more likely than not that $20,520 of net operating loss carryforwards will expire unutilized. As required by accounting standards, the Company reduced the carrying value of deferred tax assets, and the corresponding valuation allowance, by the $6,977 tax effect of this lost realizability.

At December 31, 2014 and December 31, 2013, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The Company is subject to U.S. federal income tax and is no longer subject to federal examination for years prior to 2011. Additional information is included in Notes 1 and 14 to our consolidated financial statements.

Fair value of financial instruments. Another critical accounting policy relates to fair value of financial instruments, which are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Additional information is included in Notes 1 and 6 to our consolidated financial statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Market Prices and Dividends Declared

The common stock of Central Federal Corporation trades on the Nasdaq® Capital Market under the symbol “CFBK.” As of December 31, 2014, there were 15,823,710 shares of common stock outstanding.

The following table shows the quarterly reported high and low sales prices of our common stock during 2014 and 2013. There were no dividends declared on our common stock during 2014 or 2013.


2014	High		Low
First Quarter	$	1.58	$	1.31
Second Quarter	$	1.58	$	1.42
Third Quarter	$	1.52	$	1.33
Fourth Quarter	$	1.50	$	1.22


2013	High		Low
First Quarter	$	1.75	$	1.31
Second Quarter*	$	1.56	$	1.29
Third Quarter*	$	1.50	$	1.30
Fourth Quarter	$	1.47	$	1.30

The Holding Company is subject to various legal and regulatory policies and requirements impacting the Holding Company’s ability to pay dividends on its stock. Pursuant to the commitments made to the FRB in connection with the termination of the Holding Company Order, the Holding Company may not declare or pay dividends on its stock without the prior written non-objection of the FRB. In addition, the Holding Company’s ability to pay dividends on its common stock is conditioned upon certain payments on the subordinated debentures underlying the Holding Company’s trust preferred securities and dividends on the Company’s Series B Preferred Stock. Additional information is contained in the section titled “Financial Condition - Stockholders’ equity” and in Notes 2 and 17 to our consolidated financial statements.

CENTRAL FEDERAL CORPORATION

Worthington, Ohio

ANNUAL REPORT

December 31, 2014 and 2013


CONTENTS


				Page

Management’s Report on Internal Control Over Financial Reporting				1

Report of Independent Registered Public Accounting Firm				2

Consolidated Balance Sheets				4

Consolidated Statements of Operations				5

Consolidated Statements of Comprehensive Loss				6

Consolidated Statements of Changes in Stockholders’ Equity				7

Consolidated Statements of Changes of Cash Flows				8

Notes to Consolidated Financial Statements				9

CENTRAL FEDERAL CORPORATION

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Central Federal Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2014.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

This annual report does not contain an audit report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

/s/ Timothy T. O’Dell

Timothy T. O’Dell

Chief Executive Officer

/s/ John W. Helmsdoerfer

John W. Helmsdoerfer, CPA

Chief Financial Officer and Treasurer

March 27, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee, Board of Directors and Shareholders

Central Federal Corporation

Worthington, Ohio

We have audited the accompanying consolidated balance sheets of Central Federal Corporation as of December 31, 2014 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the year ended. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Company as of December 31, 2014, and the results of its operations and its cash flows for each of the year ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

BKD, LLP

Indianapolis, Indiana

March 27, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Central Federal Corporation

Worthington, Ohio

We have audited the accompanying consolidated balance sheet of Central Federal Corporation as of December 31, 2013 and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Central Federal Corporation as of December 31, 2013 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Cleveland, Ohio

March 31, 2014

CENTRAL FEDERAL CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2014 and 2013

(Dollars in thousands, except per share data)


	December 31,		December 31,
	2014		2013

ASSETS
Cash and cash equivalents	$	28,207	$	19,160
Interest-bearing deposits in other financial institutions		494		1,982
Securities available for sale		10,445		9,672
Loans held for sale, at fair value		3,505		3,285
Loans, net of allowance of $6,316 and $5,729		257,831		207,141
FHLB stock		1,942		1,942
Foreclosed assets, net		1,636		1,636
Premises and equipment, net		3,775		3,547
Bank owned life insurance		4,665		4,535
Accrued interest receivable and other assets		3,088		2,848
Total assets	$	315,588	$	255,748


LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing	$	37,035	$	27,652
Interest bearing		221,280		180,657
Total deposits		258,315		208,309
FHLB advances		14,500		10,000
Other secured borrowings		-		6,526
Advances by borrowers for taxes and insurance		401		575
Accrued interest payable and other liabilities		2,708		2,319
Subordinated debentures		5,155		5,155
Total liabilities		281,079		232,884

Commitments and contingent liabilities		-		-

Stockholders' equity
Common stock, $.01 par value;
shares authorized: 50,000,000;
shares issued: 15,935,417 in 2014 and 2013		159		159
Series B Preferred stock, $0.01 par value; 480,000 shares authorized;
480,000 issued at December 31, 2014 and 0 shares issued at December 31, 2013		5		-
Additional paid-in capital		59,696		48,067
Accumulated deficit		(22,157)		(22,215)
Accumulated other comprehensive income		51		98
Treasury stock, at cost; 111,707 shares of common stock		(3,245)		(3,245)
Total stockholders' equity		34,509		22,864
Total liabilities and stockholders' equity	$	315,588	$	255,748

See accompanying notes.

CENTRAL FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2014, 2013 and 2012

(Dollars in thousands, except per share data)


	2014		2013		2012
Interest and dividend income
Loans, including fees	$	10,310	$	7,080	$	6,795
Securities		157		199		218
FHLB stock dividends		78		81		86
Federal funds sold and other		66		140		169
		10,611		7,500		7,268
Interest expense
Deposits		1,562		1,636		2,108
FHLB advances and other debt		162		310		345
Subordinated debentures		165		167		180
		1,889		2,113		2,633
Net interest income		8,722		5,387		4,635
Provision for loan losses		278		496		1,129
Net interest income after provision for loan losses		8,444		4,891		3,506

Noninterest income
Service charges on deposit accounts		412		353		245
Net gains on sales of loans		536		88		404
Net gain on sales of securities		-		-		143
Gain on sale of fixed assets		-		1,114		-
Earnings on bank owned life insurance		130		130		132
Other		414		208		81
		1,492		1,893		1,005
Noninterest expense
Salaries and employee benefits		4,445		3,849		3,906
Occupancy and equipment		571		326		269
Data processing		897		632		588
Franchise taxes		214		337		219
Professional fees		1,217		998		860
Director fees		122		25		119
Postage, printing and supplies		233		215		172
Advertising and promotion		110		40		30
Telephone		112		78		66
Loan expenses		82		90		137
Foreclosed assets, net		328		45		652
Depreciation		232		205		237
FDIC premiums		384		300		563
Amortization of intangibles		-		49		40
Regulatory assessment		167		158		143
Other insurance		130		148		153
Other		213		207		123
		9,457		7,702		8,277
Income (loss) before incomes taxes		479		(918)		(3,766)
Income tax expense		-		-		-
Net income (loss)		479		(918)		(3,766)
Dividends on Series B preferred stock and accretion of discount		(421)		-		-
Dividends on Series A preferred stock and accretion of discount		-		-		(328)
Discount on redemption of Series A preferred stock		-		-		4,960
Earnings (loss) attributable to common stockholders	$	58	$	(918)	$	866

Earnings (loss) per common share:
Basic	$	0.00	$	(0.06)	$	0.14
Diluted	$	0.00	$	(0.06)	$	0.14

See accompanying notes.

CENTRAL FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years ended December 31, 2014, 2013 and 2012

(Dollars in thousands, except per share data)


		2014		2013		2012
Net income (loss)	$	479	$	(918)	$	(3,766)
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period related to investment securities available for sale:
Unrealized net gains (losses)		(47)		(9)		(136)
Related income tax expense		-		-		-
Net unrealized gains (losses)		(47)		(9)		(136)
Less: reclassification adjustment for net gains realized during the period on investment securities available for sale:
Realized net gains		-		-		143
Related income tax expense		-		-		-
Net realized gains		-		-		143
Other comprehensive income (loss)		(47)		(9)		(279)
Comprehensive income (loss)	$	432	$	(927)	$	(4,045)

See accompanying notes.

CENTRAL FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 31, 2014, 2013 and 2012

(Dollars in thousands, except per share data)


											Accumulated
			Series A		Series B		Additional				Other				Total
	Common		Preferred		Preferred		Paid-In		Accumulated		Comprehensive		Treasury		Stockholders'
	Stock		Stock		Stock		Capital		Deficit		Income		Stock		Equity
Balance at January 1, 2012	$	9	$	7,120	$	-	$	27,837	$	(22,163)	$	386	$	(3,245)	$	9,944
Comprehensive loss:
Net income (loss)										(3,766)						(3,766)
Other comprehensive income (loss)												(279)				(279)
Accretion of discount on preferred stock				39						(39)						-
Release of 1,567 stock-based incentive plan shares, net of forfeitures								4								4
Stock option expense, net of forfeitures								7								7
Preferred stock dividends										(289)						(289)
Redemption of TARP obligations, including $801 accrued dividends				(7,159)						4,960						(2,199)
Proceeds from issuance of 15.0 million shares in common stock offering, net of $2,279 offering expenses		150						20,071								20,221
Balance at December 31, 2012		159		-		-		47,919		(21,297)		107		(3,245)		23,643
Comprehensive loss:
Net income (loss)										(918)						(918)
Other comprehensive income (loss)												(9)				(9)
Release of 133 stock-based incentive plan shares, net of forfeitures								(6)								(6)
Stock option expense, net of forfeitures								165								165
Offering costs associated with issuance of common stock								(11)								(11)
Balance at December 31, 2013		159		-		-		48,067		(22,215)		98		(3,245)		22,864
Net income (loss)										479						479
Other comprehensive income (loss)												(47)				(47)
Stock option expense, net of forfeitures								265								265
Cash dividends declared on Series B preferred stock and accretion of discount										(421)						(421)
Issuance of 480,000 shares Series B preferred stock at $.01 par value, net of $631 in offering expenses						5		11,364								11,369
Balance at December 31, 2014	$	159	$	-	$	5	$	59,696	$	(22,157)	$	51	$	(3,245)	$	34,509

See accompanying notes.

CENTRAL FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES OF CASH FLOWS

Years ended December 31, 2014, 2013 and 2012

(Dollars in thousands, except per share data)

fff


		2014		2013	2012
Net income (loss)	$	479	$	(918)	$	(3,766)
Adjustments to reconcile net loss to net cash from operating activities:
Provision for loan losses		278		496		1,129
Provision for losses on foreclosed assets		-		-		962
Valuation (gain) loss on mortgage servicing rights		-		-		(1)
Depreciation		232		205		237
Amortization, net		189		437		673
Net gains on sales of securities		-		-		(143)
Originations of loans held for sale		(50,140)		(32,603)		(30,461)
Proceeds from sale of loans held for sale		50,456		30,028		31,342
Net gains on sales of loans		(536)		(88)		(404)
(Gain) loss on sale of premises and equipment		-		(1,114)		4
Gain on sale of foreclosed assets		-		(28)		(338)
Earnings on bank owned life insurance		(130)		(130)		(132)
Stock-based compensation expense		265		159		11
Net change in:
Accrued interest receivable and other assets		(240)		(409)		(215)
Accrued interest payable and other liabilities		202		(169)		142
Net cash from (used by) operating activities		1,055		(4,134)		(960)

Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits in other financial institutions		1,488		744		(742)
Available-for-sale securities:
Sales		-		-		2,144
Maturities, prepayments and calls		4,073		7,690		11,497
Purchases		(5,019)		-		(13,447)
Loan originations and payments, net		(50,998)		(54,900)		(4,485)
Additions to premises and equipment		(461)		(341)		(24)
Proceeds from the sales of assets held for sale		-		3,187		-
Proceeds from the sale of foreclosed assets		-		149		1,720
Proceeds from mortgage insurance on foreclosed assets		-		14		73
Net cash from (used by) investing activities		(50,917)		(43,457)		(3,264)

Cash flows from financing activities
Net change in deposits		49,973		34,750		(43,621)
Net change in secured borrowings		(6,526)		6,526		-
Proceeds from FHLB advances		22,500		-		-
Repayments on FHLB advances		(18,000)		-		(5,742)
Net change in advances by borrowers for taxes and insurance		(174)		334		82
Cash dividends paid on Series B preferred stock		(233)		-		-
Net proceeds from issuance of Series B preferred stock		11,369		-		-
Redemption of TARP obligations		-		-		(3,000)
Net proceeds from issuance of common stock		-		-		20,221
Cost associated with issuance of common stock		-		(11)		-
Net cash from (used by) financing activities		58,909		41,599		(32,060)

Net change in cash and cash equivalents		9,047		(5,992)		(36,284)

Beginning cash and cash equivalents		19,160		25,152		61,436

Ending cash and cash equivalents	$	28,207	$	19,160	$	25,152

Supplemental cash flow information:
Interest paid	$	2,097	$	1,956	$	2,835

Supplemental noncash disclosures:
Transfers from loans to repossessed assets	$	-	$	246	$	1,754
Loans issued to finance the sale of repossessed assets		-		-		171
Loans transferred from held for sale to portfolio		-		-		109
Transfer from premises and equipment to assets held for sale		-		1,903		-

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Central Federal Corporation (the “Holding Company”) and its wholly-owned subsidiaries, CFBank, Ghent Road, Inc., and Smith Ghent LLC (together referred to as the “Company”). Ghent Road, Inc. was formed in 2006 and owned the land adjacent to the corporate office, and Smith Ghent LLC owned the office building on such land. During October 2013, the Company consummated a sale of its corporate office building and adjacent land, and relocated its main office branch to a nearby location. After the sale was finalized, Ghent Road, Inc. and Smith Ghent LLC were legally dissolved prior to year-end 2013. However, the results of operations of Ghent Road, Inc. and Smith Ghent LLC for 2013 prior to dissolution are included in these consolidated financial statements. Intercompany transactions and balances are eliminated in consolidation.

CFBank provides financial services through its four full-service banking offices in Fairlawn, Calcutta, Wellsville and Worthington, Ohio, and through its loan production office in Woodmere, Ohio (opened in first quarter 2014). Its primary deposit products are commercial and retail checking, savings, money market and term certificate accounts. Its primary lending products are commercial and commercial real estate, residential mortgages and installment loans. There are no significant concentrations of loans to any one industry or customer segment. However, our customers’ ability to repay their loans is dependent on general economic conditions and the real estate values in their geographic areas.

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles (GAAP), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses (ALLL), deferred tax assets and fair values of financial instruments are particularly subject to change.

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions and borrowings with original maturities under 90 days.

Interest-Bearing Deposits in Other Financial Institutions: Interest‑bearing deposits in other financial institutions mature at various times through November 2015 and are carried at cost.

Securities: Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income.

Interest income includes amortization of purchase premium or accretion of discount. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities and collateralized mortgage obligations where prepayments are anticipated based on industry payment trends. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or will more likely than not be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights released. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing rights when mortgage loans held for sale are sold with servicing rights retained. Loans originated as construction loans, that were subsequently transferred to held for sale, are carried at the lower of cost or market. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, adjusted for purchase premiums and discounts, deferred loan fees and costs, accrued interest receivable and an allowance for loan losses (ALLL). Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level‑yield method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable.

The accrual of interest income on all classes of loans, except other consumer loans, is discontinued and the loan is placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Other consumer loans are typically charged off no later than 90 days past due. Past due status is based on the contractual terms of the loan for all classes of loans. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Commercial, multi-family residential real estate loans and commercial real estate loans placed on nonaccrual status are individually classified as impaired loans.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income in the period in which it is placed in a nonaccrual status. Interest received on such loans is accounted for on the cash-basis or cost‑recovery method, until qualifying for return to accrual status. Loans are considered for return to accrual status provided all the principal and interest amounts that are contractually due are brought current, there is a current and well documented credit analysis, there is reasonable assurance of repayment of principal and interest, and the customer has demonstrated sustained, amortizing payment performance of at least six months.

Concentration of Credit Risk: Most of the Company’s primary business activity is with customers located within the Ohio counties of Columbiana, Franklin, Summit, Cuyahoga and contiguous counties. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economies within these counties. Although these counties are the Company’s primary market area for loans, the Company originates residential and commercial real estate loans throughout the United States.

Allowance for Loan Losses (ALLL): The ALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using 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. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans within any loan class for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired.

Factors considered by management in determining impairment for all loan classes include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Loans of all classes within the commercial, multi-family residential and commercial real estate segments, regardless of size, and loans of all other classes with balances over $250 are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and single-family residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

TDRs of all classes of loans are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using each loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. If the payment of the loan is dependent on the sale of the collateral, then costs to liquidate the collateral are included when determining the impairment. For TDRs that subsequently default, the amount of reserve is determined in accordance with the accounting policy for the ALLL.

Interest income on all classes of impaired loans that are on nonaccrual status is recognized in accordance with the accounting policy for nonaccrual loans. Cash receipts on all classes of impaired loans that are on nonaccrual status are generally applied to the principal balance outstanding. Interest income on all classes of impaired loans that are not on nonaccrual status is recognized on the accrual method. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note.

The general reserve component covers non‑impaired loans of all classes and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by loan class and is based on the actual loss history experienced by the Company over a three year period. The general component is calculated based on CFBank’s loan balances and actual historical three-year historical loss rates. For loans with little or no actual loss experience, industry estimates are used based on loan segment. This actual loss experience is supplemented with other economic and judgmental factors based on the risks present for each loan class. These economic and judgmental factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

During the fourth quarter of 2013, after running parallel calculations and analyzing results for the last two quarters, the Bank revised its ALLL methodology for the general reserve. Previously, the base methodology relied more heavily on industry data and loss given default rates and probability of default. Based on the fact that the Bank has been tracking historical loss rates for a significant time, the new methodology uses a historical three-year loss rate as its base methodology. Similar to before, the base methodology may be supplemented with economic and judgmental factors. Based on the change in methodology which considered portfolio migration, three-year loss rates and revised economic and judgmental factors, a $250 reduction to the allowance for loan loss was recorded in the fourth quarter of 2013. The impact on prior quarters was not considered material.

The following portfolio segments have been identified: commercial loans, single-family residential real estate loans; multi-family residential real estate loans; commercial real estate loans; construction loans; home equity lines of credit; and other consumer loans. A description of each segment of the loan portfolio, along with the risk characteristics of each segment is included below:

Commercial loans: Commercial loans include loans to businesses generally located within our primary market area. Those loans are generally secured by business equipment, inventory, accounts receivable and other business assets. In underwriting commercial loans, we consider the net operating income of the company, the debt service ratio and the financial strength, expertise and credit history of the business owners and/or guarantors. Because payments on commercial loans are dependent on successful operation of the business enterprise, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. We seek to mitigate these risks through underwriting policies which require such loans to be qualified at origination on the basis of the enterprise’s financial performance and the financial strength of the business owners and/or guarantors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Single-family residential real estate loans: Single-family residential real estate loans include permanent conventional mortgage loans secured by single-family residences located within and outside of our primary market area. Credit approval for single-family residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment and an established credit record. Our policy is to originate single-family residential real estate loans for portfolio in amounts up to 85% of the lower of the appraised value or the purchase price of the property securing the loan, without requiring private mortgage insurance. Loans in excess of 85% of the lower of the appraised value or purchase price of the property securing the loan require private mortgage insurance. CFBank has not engaged in subprime lending, used option adjustable-rate mortgage products or made loans with initial teaser rates.

Multi-family residential real estate loans: Multi-family residential real estate loans include loans secured by apartment buildings, condominiums and multi-family residential houses generally located within our primary market area. Underwriting policies provide that multi- family residential real estate loans may be made in amounts up to 85% of the lower of the appraised value or purchase price of the property. In underwriting multi-family residential real estate loans, we consider the appraised value and net operating income of the property, the debt service ratio and the property owner’s and/or guarantor’s financial strength, expertise and credit history. We offer both fixed- and adjustable-rate loans. Fixed-rate loans are generally limited to three to five years, at which time they convert to adjustable-rate loans. Because payments on loans secured by multi-family residential properties are dependent on successful operation or management of the properties, repayment of multi-family residential real estate loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. Adjustable-rate multi-family residential real estate loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable-rate multi-family residential real estate loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable-rate multi-family residential real estate loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

Commercial real estate loans: Commercial real estate loans include loans secured by owner occupied and non-owner occupied properties used for business purposes, such as manufacturing facilities, office buildings or retail facilities generally located within our primary market area. Underwriting policies provide that commercial real estate loans may be made in amounts up to 80% of the lower of the appraised value or purchase price of the property. In underwriting commercial real estate loans, we consider the appraised value and net operating income of the property, the debt service ratio and the property owner’s and/or guarantor’s financial strength, expertise and credit history. We offer both fixed and adjustable-rate loans. Fixed-rate loans are generally limited to three to five years, at which time they convert to adjustable-rate loans. Because payments on loans secured by commercial real estate properties are dependent on successful operation or management of the properties, repayment of commercial real estate loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. Adjustable-rate commercial real estate loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable-rate commercial real estate loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable-rate commercial real estate loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

Construction loans: Construction loans include loans to finance the construction of residential and commercial properties generally located within our primary market area. Construction loans are fixed- or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. Our policies provide that construction loans may be made in amounts up to 75% of the appraised value of the property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction. In underwriting construction loans, we consider the property owner’s and/or guarantor’s financial strength, expertise and credit history. Construction financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on construction loans through inspections of construction progress on the property and by requiring personal guarantees and reviewing current personal financial statements and tax returns, as well as other projects of the developer.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Home equity lines of credit: Home equity lines of credit include both loans we originate for portfolio and purchased loans. We originate home equity lines of credit to customers generally within our primary market area. Home equity lines of credit are variable rate loans and the interest rate adjusts monthly at various margins above the prime rate of interest as disclosed in The Wall Street Journal. The margin is based on certain factors including the loan balance, value of collateral, election of auto-payment, and the borrower’s FICO® score. The amount of the line is based on the borrower’s credit, income and equity in the home. When combined with the balance of the prior mortgage liens, these lines generally may not exceed 89.9% of the appraised value of the property at the time of the loan commitment. The lines are secured by a subordinate lien on the underlying real estate and are, therefore, vulnerable to declines in property values in the geographic areas where the properties are located. Credit approval for home equity lines of credit requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral. Collectability of home equity lines of credit are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. In 2005 and 2006, we purchased home equity lines of credit collateralized by properties located throughout the United States. The purchased home equity lines of credit may present higher risk than the home equity lines of credit we originate for our portfolio as they include properties in geographic areas that have experienced significant declines in housing values, such as California, Florida and Virginia. We continue to monitor collateral values and borrower FICO® scores on both purchased and portfolio loans and, when the situation warrants, have frozen the lines of credit.

Other consumer loans: Other consumer loans include closed-end home equity, home improvement, and auto and credit card loans to consumers generally located within our primary market area. Credit approval for other consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.

CFBank’s charge-off policy for commercial loans, single-family residential real estate loans, multi-family residential real estate loans, commercial real estate loans, construction loans and home equity lines of credit requires management to record a specific reserve or charge-off as soon as it is apparent that the borrower is troubled and there is, or likely will be a collateral shortfall related to the estimated value of the collateral securing the loan. Other consumer loans are typically charged off no later than 90 days past due.

Servicing Rights: When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Due to the fact that the servicing assets are not material, no impairment analysis is performed.

Servicing fee income, which is reported on the income statement as loan servicing fees, net is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Loan servicing fees, net totaled $17, $19 and $26 for the years ended December 31, 2014, 2013 and 2012, respectively. Late fees and ancillary fees related to loan servicing are not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, an adjustment is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight‑line method with useful lives ranging from 3 to 40 years. Furniture, fixtures and equipment are depreciated using the straight‑line method with useful lives ranging from 2 to 25 years. Leasehold improvements are depreciated straight-line over the shorter of the useful life or the lease term.

Federal Home Loan Bank (FHLB) stock: CFBank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Bank Owned Life Insurance: CFBank purchased life insurance policies on certain directors and employees in 2002. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Other Intangible Assets: Other intangible assets consist of identified intangibles from the purchase of the remaining two-thirds interest in Smith Ghent LLC in October 2009. The intangible asset was initially measured at fair value and was being amortized on a straight-line method over the estimated life of 4.5 years. When the Company sold the office building in October 2013, the remaining unamortized intangible amount was written off and Smith Ghent LLC was subsequently dissolved prior to year-end 2013.

Loan Commitments and Related Financial Instruments: Financial instruments include off‑balance-sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded, and fees associated with origination are booked to non-interest income at the origination date.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company's derivatives consist mainly of interest rate swap agreements, which are used as part of its asset liability management program to help manage interest rate risk. The Company does not use derivatives for trading purposes. The derivative transactions are considered instruments with no hedging designation, otherwise known as stand-alone derivatives. Changes in the fair value of the derivatives are reported currently in earnings, as other noninterest income.

Mortgage Banking Derivatives: Commitments to fund mortgage loans to be sold into the secondary market, otherwise known as interest rate locks, are accounted for as free standing derivatives. Fair values of these mortgage derivatives are based on anticipated gains on the underlying loans. Changes in the fair values of these derivatives are included in net gains on sales of loans.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to directors and employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the required service period for each separately vesting portion of the award.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A full valuation allowance was recorded in 2009 to reduce the carrying amount of the Company’s net deferred tax asset to zero. See Note 14 – Income Taxes.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense.

Retirement Plans: Pension expense is the amount of annual contributions to the multi-employer contributory trusteed pension plan. Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Supplemental retirement plan expense allocates the benefits over years of service.

Reverse Stock Split: Reclassifications did not impact prior period net loss or total stockholders' equity. On May 4, 2012, the Company completed a 1-for-5 reverse stock split, whereby every 5 shares of the Company’s common stock were reclassified into one share of common stock. All share and per share amounts for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented.

Earnings (Loss) Per Common Share: Basic earnings (loss) per common share is net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all reverse stock splits through the date of issuance of the financial statements.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements. See Note 24 – Contingent Liabilities.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank (FRB) is required to meet regulatory reserve and clearing requirements. Cash on deposit with the FHLB includes $3,300 pledged as collateral for FHLB advances.

Equity: Treasury stock is carried at cost. The carrying value of preferred stock and the common stock warrant is based on allocation of issuance proceeds, net of issuance costs, in proportion to their relative fair values. Preferred stock is carried net of the discount established through the allocation of proceeds.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Dividend Restriction: Banking regulations require us to maintain certain capital levels and may limit the dividends paid by CFBank to the Holding Company or by the Holding Company to stockholders. The ability of the Holding Company to pay dividends on its common stock and Series B Preferred Stock is generally dependent upon the receipt of dividends and other distributions from CFBank. The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. The Holding Company also is subject to various legal and regulatory policies and requirements impacting the Holding Company’s ability to pay dividends on its stock, and pursuant to the commitments made to the FRB in connection with the termination of the Holding Company Order, the Holding Company may not declare or pay dividends on its stock without the prior written non-objection of the FRB. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities, which also requires the written non-objection of the FRB. Finally, so long as the Company’s Series B Preferred Stock remains outstanding, the Holding Company will be prohibited from paying dividends on (other than dividends payable solely in shares) the Company’s common stock, for the then-current dividend period, unless full dividends on the Series B Preferred Stock have been paid or set aside for payment. Dividends on the Series B Preferred Stock are non-cumulative, which means that if for any reason we do not declare cash dividends on the Series B Preferred Stock for a quarterly dividend period we will have no obligation to pay any dividends for that period (i.e., the dividends will not accrue or cumulate), whether or not we declare dividends on the Series B Preferred Stock for any subsequent dividend period.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 6 – Fair Value. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Operating Segments: While management monitors and analyzes the revenue streams of the Company’s various products and services, the operations and financial performance is evaluated on a Company‑wide basis. Operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net loss or stockholders’ equity.

Adoption of New Accounting Standards:

In July 2013, the FASB amended existing guidance related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose (in which case then the unrecognized tax benefit should be presented as a liability). These amendments are effective for interim and annual reporting periods beginning after December 15, 2013. Early adoption and retrospective application is permitted. The effect of adopting this standard did not have a material effect on the Company's operating results or financial condition.

In February 2013, the FASB amended existing guidance related to reporting amounts reclassified out of accumulated other comprehensive income. These amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. These amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional details about those amounts. These amendments are effective prospectively for interim and annual reporting periods beginning after December 15, 2012. The effect of adopting this standard did not have a material effect on the Company's operating results or financial condition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

In January 2014, the FASB issued Accounting Standards Update (“ASU” or “Update”) 2014-01, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (January 2014). This Update permits entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The ASU modifies the conditions that an entity must meet to be eligible to use a method other than the equity or cost methods to account for qualified affordable housing project investments. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The amendments in this Update should be applied retrospectively to all periods presented. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (January 2014). The objective of this Update is to reduce diversity by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The amendments in this Update may be adopted using either a modified retrospective transition method or a prospective transition method. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In April 2014 the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (April 2014).This Update seeks to better define the groups of assets which qualify for discontinued operations, in order to ease the burden and cost for preparers and stakeholders. This update changed “the criteria for reporting discontinued operations” and related reporting requirements, including the provision for disclosures about the “disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation.” The amendments in this Update are effective for fiscal years beginning after December 15, 2014. Early adoption is permitted only for disposals or classifications as held for sale. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company's consolidated financial statements.

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (May 2014). Section A - Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs - Contracts with Customers (Subtopic 340-40). Section B - Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables. Section C - Background Information and Basis for Conclusions. The topic of Revenue Recognition had become broad with several other regulatory agencies issuing standards, which lacked cohesion. The new guidance establishes a “comprehensive framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company's consolidated financial statements.

In June 2014 the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (June 2014). This Update addresses the concerns of stakeholders’ by changing the accounting practices surrounding repurchase agreements. The new guidance changes the “accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements.” The amendments in this Update are effective for annual reporting periods beginning after December 15, 2014. Early adoption is prohibited. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company's consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

In June 2014 the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (June 2014). This Update defines the accounting treatment for share-based payments and “resolves the diverse accounting treatment of those awards in practice.” The new requirement mandates that “a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.” Compensation cost will now be recognized in the period in which it becomes likely that the performance target will be met. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company's consolidated financial statements.

In December 2011, the FASB amended existing guidance on disclosures about offsetting assets and liabilities. These amendments are intended to enhance disclosures required by U.S. GAAP by requiring improved information about derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the Codification or subject to a master netting arrangement or similar agreement, irrespective of whether they are offset. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. In January 2013, the FASB clarified that ordinary trade receivables and receivables are not in the scope of the December 2011 amended guidance. These amendments are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective disclosure is required for all comparative periods presented. The effect of adopting this standard did not have a material effect on the Company's operating results or financial condition.

The FASB has issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

COSO’s Internal Control Framework has been updated and enhanced. Since its release in 1992, COSO’s Internal Control – Integrated Framework has been widely accepted and adopted around the world. The updated framework, issued on May 14, 2013, maintains the fundamental elements of the original: five components of an internal control system—control environment, risk assessment, control activities, information and communication—and monitoring activities supporting three categories of objectives: effectiveness and efficiency of operations, reliability of reporting and compliance with applicable laws and regulations, structured through management’s judgment. The five components are evaluated through principles and recommended points of focus. A significant enhancement, however, is the expansion of the reporting objective to include nonfinancial and internal reporting objectives. The mandatory principles have been updated to reflect today’s business environment—an environment of increased governance, regulatory and compliance demands and increased use of technology and complex business models. The original framework still may be used through December 15, 2014; beyond that date, COSO will consider the original framework obsolete. Adoption of the updated COSO Integrated Framework is not expected to have a material effect on the Company’s internal control environment or financial reporting.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 2- REGULATORY ORDER CONSIDERATIONS

Regulatory Order Considerations: On May 25, 2011, the Holding Company and CFBank each consented to the issuance of an Order to Cease and Desist (the “Holding Company Order” and the “CFBank Order”, respectively, and collectively, the “Orders”) by the Office of Thrift Supervision (the “OTS”), the primary regulator of the Holding Company and CFBank at the time the Orders were issued. In July 2011, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Federal Reserve Board (the “FRB”) replaced the OTS as the primary regulator of the Holding Company and the Office of the Comptroller of the Currency (the “OCC”) replaced the OTS as the primary regulator of CFBank.

The Orders imposed significant directives applicable to the Holding Company and CFBank, including requirements that we reduce the level of our classified and criticized assets, achieve growth and operating metrics in line with an approved business plan, and comply with restrictions on brokered deposits and on certain types of lending and prohibitions on dividends and repurchases of our capital stock. The CFBank Order required CFBank to have 8% core capital and 12% total risk-based capital, and CFBank could not be considered well-capitalized under the prompt corrective action regulations so long as the CFBank Order remained in place, even if it met or exceeded these capital levels. At December 31, 2013, as a result of the CFBank Order, CFBank was considered “adequately capitalized” for regulatory purposes. In addition, the regulators were required to approve any deviation from our business plan and certain compensation arrangements with directors and executive officers.

Effective as of January 23, 2014, the OCC released and terminated the CFBank Order based upon the improved capital position of CFBank, among other factors. Notwithstanding the release of the CFBank Order, CFBank is required to continue to maintain a minimum Tier 1 Leverage Capital Ratio of 8% and a Total Risk-based Capital to Risk-Weighted Assets ratio of 12%. In addition, in connection with the release and termination of the CFBank Order, CFBank has made certain commitments to the OCC to continue to adhere to certain prudent practices, including, without limitation, maintaining a written program to continue to improve CFBank’s credit underwriting and administrative process; take actions to protect its interest in criticized assets as identified by CFBank, the OCC examiners or its external loan review process; implement its written program to effectively identify, monitor, control and continue to reduce the level of credit risk to CFBank; review and monitor progress against such plan with the Board of Directors; and continue CFBank’s aggressive workout efforts and individualized workout plans on all criticized assets greater than $250,000.

Prior to achieving profitability in 2014, the Company had been unprofitable for several years. If we do not continue to generate profits in the future, our capital levels will be negatively impacted and the regulators could take additional enforcement action against us, including the imposition of further operating restrictions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

At December 31, 2014, CFBank had $29,308 in brokered deposits with maturity dates from January 2015 through August 2018. At December 31, 2014, cash, unpledged securities and deposits in other financial institutions totaled $28,309.

Brokered deposit maturities over the next four years are as follows:


December 31, 2015	$	23,093
December 31, 2016		3,123
December 31, 2017		1,537
December 31, 2018		1,555
	$	29,308

CFBank dividends serve as a potential source of liquidity to the Holding Company to meet its obligations. As of December 31, 2013, CFBank was not permitted to declare or pay dividends or make any other capital distributions without receiving the prior written approval of the OCC. Future dividend payments by CFBank to the Holding Company would be based on future earnings. In addition, any future dividends by the Holding Company on its preferred or common stock, and any dividends or capital contributions by CFBank to the Holding Company, are also subject to prior regulatory approval in accordance with the commitments made in connection with the release and termination of the Orders. The Holding Company received prior approval from the FRB for the payments of a quarterly cash dividend on its Series B Preferred Stock in the amounts of $58.6 (prorated for the preferred shareholders who closed on July 15, 2014), $174.6, and $187.5, for the quarters ended June 30, 2014, September 30, 2014, and December 31, 2014 (paid in January 2015), respectively.

We have taken such actions as we believe are necessary to comply with all requirements of the Orders and the other regulatory requirements and commitments to which we are subject, and we continue to work toward ensuring compliance with those regulatory requirements and commitments to which we continue to be subject.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 3 – SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at December 31, 2014 and December 31, 2013 and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income (loss):


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2014
Corporate debt	$	2,932	$	5	$	1	$	2,936
State and municipal		897		-		11		886
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		5,018		-		7		5,011
Mortgage-backed securities - residential		687		40		-		727
Collateralized mortgage obligations		860		25		-		885
Total	$	10,394	$	70	$	19	$	10,445


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2013
Corporate debt	$	4,360	$	11	$	8	$	4,363
State and municipal		1,926		-		7		1,919
Issued by U.S. government-sponsored entities and agencies:								-
Mortgage-backed securities - residential		934		49		-		983
Collateralized mortgage obligations		2,354		53		-		2,407
Total	$	9,574	$	113	$	15	$	9,672

There was no other-than-temporary impairment recognized in accumulated other comprehensive income (loss) for securities available for sale at December 31, 2014 or December 31, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The proceeds from the sales of securities and the associated gains in 2014, 2013 and 2012 are listed below.


	2014		2013		2012
Proceeds	$	-	$	-	$	2,144
Gross gains		-		-		143
Gross losses		-		-		-

Tax effect-expense	$	-	$	-	$	-

The amortized cost and fair value of debt securities at December 31, 2014 are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.



	December 31, 2014				December 31, 2013
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	4,829	$	4,821	$	2,386	$	2,379
Due from one to five years		4,018		4,012		3,900		3,903
Mortgage-backed securities		687		727		934		983
Collateralized mortgage obligations		860		885		2,354		2,407
Total	$	10,394	$	10,445	$	9,574	$	9,672

Fair value of securities pledged was as follows:


	2014		2013			2012
Pledged as collateral for:
FHLB advances	$	4,208	$	2,024	$	4,707
Public deposits		2,476		905		2,199
Interest-rate swaps		353		443		1,511
Total	$	7,037	$	3,372	$	8,417

At year-end 2014 and 2013, there were no holdings of securities of any one issuer, other than U.S. government-sponsored entities and agencies, in an amount greater than 10% of stockholders’ equity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes securities with unrealized losses at December 31, 2014 and December 31, 2013 aggregated by major security type and length of time in a continuous unrealized loss position.


December 31, 2014	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Corporate debt	$	1,259	$	1	$	-	$	-	$	1,259	$	1
State and municipal		-		-		886		11		886		11
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		5,011		7		-		-		5,011		7
Collateralized mortgage obligations		-		-		-		-		-		-
Total temporarily impaired	$	6,270	$	8	$	886	$	11	$	7,156	$	19




December 31, 2013	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Corporate debt	$	239	$	1	$	1,002	$	7	$	1,241	$	8
State and municipal		1,015		1		904		6		1,919		7
Total temporarily impaired	$	1,254	$	2	$	1,906	$	13	$	3,160	$	15

The unrealized losses in Corporate debt, State and municipal securities and U.S. Treasuries at December 31, 2014 and December 31, 2013, are related to multiple securities. Because the decline in fair value is attributable to changes in market conditions, and not credit quality, and because the Company does not have the intent to sell these securities and will unlikely be required to sell these securities before their anticipated recovery, the Company did not consider these securities to be other-than-temporarily impaired at December 31, 2014 and December 31, 2013.

There was no unrealized loss in Collateralized mortgage obligations at December 31, 2014 and December 31, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 4 – LOANS

Loans at year-end were as follows:



	December 31,		December 31,
	2014		2013

Commercial	$	46,656	$	37,526
Real estate:
Single-family residential		51,542		32,219
Multi-family residential		28,863		32,197
Commercial		91,404		83,752
Construction		23,732		11,465
Consumer:
Home equity lines of credit		16,955		14,851
Other		4,995		860
Subtotal		264,147		212,870
Less: ALLL		(6,316)		(5,729)
Loans, net	$	257,831	$	207,141

Mortgage Purchase Program

On December 11, 2012, CFBank entered into a Mortgage Purchase Program with Northpointe Bank (Northpointe), a Michigan banking corporation. Through a participation agreement, CFBank agreed to purchase an 80% interest from Northpointe in fully underwritten and pre-sold mortgage loans originated by various prescreened mortgage brokers located throughout the U.S. The participation agreement provides for CFBank to purchase interests in individually (MERS registered) loans from Northpointe and hold them until funded by the end investor. The mortgage loan investors include Fannie Mae and Freddie Mac, and other major financial institutions such as Wells Fargo Bank. This process on average takes approximately 14 days. Given the short term nature of each of these individual loans, common credit risks (such as past due, impairment and TDR, nonperforming, and nonaccrual classification) are substantially reduced, and therefore no allowance is allocated to these loans. The maximum aggregate purchase investment shall not exceed $25 million, as of December 31, 2014. NorthPointe maintains a 20% ownership interest in each loan it participates. The participation agreement further calls for full control to be relinquished by the mortgage broker to Northpointe and its participants with recourse to the broker after 120 days, at the sole discretion of Northpointe. As such, these purchased loans are classified as portfolio loans. These loans are 100% risk rated for CFBank capital adequacy purposes. Effective December 18, 2014, the participation agreement was amended and CFBank agreed to increase the level of interest in loans it purchases from Northpointe from 80% to 95% of the aforementioned loans, and therefore, Northpointe now maintains a 5% ownership interest in each loan it participates. At December 31, 2014 and 2013, CFBank held $25,013 and $12,743, respectively, of such loans which have been included in single-family residential loan totals above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Allowance for Loan Losses

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.

The following tables present the activity in the ALLL by portfolio segment for the year ended December 31, 2014, 2013 and 2012:


	December 31, 2014
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total

Beginning balance	$	1,759	$	120	$	1,262	$	2,325	$	119	$	139	$	5	$	5,729
Addition to (reduction in) provision for loan losses		(374)		510		(444)		(128)		323		304		87		278
Charge-offs		(44)		-		-		(5)		-		(26)		-		(75)
Recoveries		5		4		-		349		-		24		2		384
Ending balance	$	1,346	$	634	$	818	$	2,541	$	442	$	441	$	94	$	6,316


	December 31, 2013
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total

Beginning balance	$	1,311	$	332	$	1,396	$	1,946	$	-	$	241	$	11	$	5,237
Addition to (reduction in) provision for loan losses		407		(51)		(163)		319		119		(114)		(21)		496
Charge-offs		-		(164)		(59)		(6)		-		(17)		(6)		(252)
Recoveries		41		3		88		66		-		29		21		248
Ending balance	$	1,759	$	120	$	1,262	$	2,325	$	119	$	139	$	5	$	5,729

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)


	December 31, 2012
			Real Estate								Consumer
			Single-		Multi-						Home Equity
	Commercial		family		family		Commercial		Construction		lines of credit		Other		Total

Beginning balance	$	2,281	$	207	$	1,470	$	1,863	$	-	$	272	$	17	$	6,110
Addition to (reduction in) provision for loan losses		(1,251)		180		700		1,412		-		78		10		1,129
Charge-offs		(99)		(64)		(796)		(1,467)		-		(126)		(39)		(2,591)
Recoveries		380		9		22		138		-		17		23		589
Ending balance	$	1,311	$	332	$	1,396	$	1,946	$	-	$	241	$	11	$	5,237

The following table presents the balance in the ALLL and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2014:



			Real Estate								Consumer
	Commercial		Single- family		Multi- family		Commercial		Construction		Home Equity lines of credit		Other		Total

ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	29	$	-	$	1	$	34	$	-	$	-	$	-	$	64
Collectively evaluated for impairment		1,317		634		817		2,507		442		441		94		6,252
Total ending allowance balance	$	1,346	$	634	$	818	$	2,541	$	442	$	441	$	94	$	6,316

Loans:
Individually evaluated for impairment	$	631	$	296	$	1,634	$	3,709	$	-	$	-	$	-	$	6,270
Collectively evaluated for impairment		46,025		51,246		27,229		87,695		23,732		16,955		4,995		257,877
Total ending loan balance	$	46,656	$	51,542	$	28,863	$	91,404	$	23,732	$	16,955	$	4,995	$	264,147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents the balance in the ALLL and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2013:



			Real Estate								Consumer
	Commercial		Single- family		Multi- family		Commercial		Construction		Home Equity lines of credit		Other		Total
ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	532	$	-	$	402	$	191	$	-	$	-	$	-	$	1,125
Collectively evaluated for impairment		1,227		120		860		2,134		119		139		5		4,604
Total ending allowance balance	$	1,759	$	120	$	1,262	$	2,325	$	119	$	139	$	5	$	5,729

Loans:
Individually evaluated for impairment		992	$	317	$	1,759	$	5,845	$	-	$	-	$	-	$	8,913
Collectively evaluated for impairment		36,534		31,902		30,438		77,907		11,465		14,851		860		203,957
Total ending loan balance	$	37,526	$	32,219	$	32,197	$	83,752	$	11,465	$	14,851	$	860	$	212,870

The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2014. 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.


	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	135	$	121	$	-	$	121	$	-
Real estate:
Single-family residential		334		173		-		180		-
Multi-family residential		1,581		1,581		-		1,631		-
Commercial:
Non-owner occupied		577		477		-		502		-
Owner occupied		708		187		-		208		-
Land		-		-		-		-		-
Total with no allowance recorded		3,335		2,539		-		2,642		-

With an allowance recorded:
Commercial		510		510		29		766		22
Real estate:
Single-family residential		123		123		-		125		7
Multi-family residential		53		53		1		56		13
Commercial:
Non-owner occupied		2,360		2,360		17		2,123		134
Owner occupied		381		381		2		388		25
Land		349		304		15		327		20
Total with an allowance recorded		3,776		3,731		64		3,785		221
Total	$	7,111	$	6,270	$	64	$	6,427	$	221

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2013. 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.


	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	135	$	120	$	-	$	292	$	-
Real estate:
Single-family residential		352		191		-		-		-
Multi-family residential		-		-		-		185		-
Commercial:
Non-owner occupied		2,022		1,453		-		1,895		-
Owner occupied		2,021		1,070		-		1,392		-
Land		-		-		-		423		-
Total with no allowance recorded		4,530		2,834		-		4,187		-

With an allowance recorded:
Commercial		872		872		532		815		26
Real estate:
Single-family residential		126		126		-		454		8
Multi-family residential		1,759		1,759		402		1,880		4
Commercial:
Non-owner occupied		2,158		2,158		46		2,191		139
Owner occupied		397		397		7		162		24
Land		812		767		138		370		22
Total with an allowance recorded		6,124		6,079		1,125		5,872		223
Total	$	10,654	$	8,913	$	1,125	$	10,059	$	223

The following table presents the recorded investment in nonperforming loans by class of loans as of December 31, 2014 and 2013:


	December 31,		December 31,
	2014		2013
Loans past due over 90 days still on accrual	$	-	$	-
Nonaccrual loans:
Commercial		369		563
Real estate:
Single-family residential		549		479
Multi-family residential		-		1,701
Commercial:
Non-owner occupied		477		1,453
Owner occupied		-		1,070
Land		-		420
Consumer:
Home equity lines of credit:		51		-
Originated for portfolio		102		52
Total nonaccrual		1,548		5,738
Total nonperforming loans	$	1,548	$	5,738

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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 December 31, 2014 or December 31, 2013.

The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2014:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not > 90 days Past Due

Commercial	$	19	$	-	$	121	$	140	$	46,516	$	248
Real estate:
Single-family residential		525		55		68		648		50,894		481
Multi-family residential		-		-		-		-		28,863		-
Commercial:
Non-owner occupied		115		-		-		115		49,027		477
Owner occupied		-		-		-		-		35,991		-
Land		-		-		-		-		6,271		-
Construction		52		-		-		52		23,680		-
Consumer:
Home equity lines of credit:
Originated for portfolio		-		-		51		51		15,469		-
Purchased for portfolio		30		102		-		132		1,303		102
Other		5		10		-		15		4,980		-
Total	$	746	$	167	$	240	$	1,153	$	262,994	$	1,308

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents the aging of the recorded investment in past due loans by class of loans as of December 31, 2013:



	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not > 90 days Past Due

Commercial	$	-	$	-	$	121	$	121	$	37,405	$	442
Real estate:
Single-family residential		352		268		247		867		31,352		232
Multi-family residential		-		-		-		-		32,197		1,701
Commercial:
Non-owner occupied		-		-		923		923		42,199		530
Owner occupied		-		-		-		-		35,202		1,070
Land		-		-		420		420		5,008		-
Construction		-		-		-		-		11,465		-
Consumer:
Home equity lines of credit:
Originated for portfolio		52		-		-		52		12,930		52
Purchased for portfolio		123		-		-		123		1,746		-
Other		2		11		-		13		847		-
Total	$	529	$	279	$	1,711	$	2,519	$	210,351	$	4,027

Troubled Debt Restructurings (TDRs)

As of December 31, 2014 and December 31, 2013, TDR’s totaled $5.7 million and $6.1 million, respectively. The Company allocated $64 and $998 of specific reserves to loans whose terms have been modified in TDRs as of December 31, 2014 and 2013, respectively. The Company had not committed to lend additional amounts as of December 31, 2014 or 2013 to customers with outstanding loans that are classified as TDRs.

From time to time, the terms of certain loans are modified as TDRs, where concessions are granted to borrowers experiencing financial difficulties. 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.

There was one loan modification during the year ended December 31, 2014 which constituted a TDR, which involved a reduction of the stated interest rate and an extension of the maturity date. The following table presents loans modified as TDRs by class of loans during the year ended December 31, 2014:



	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial		1	$	104	$	100
		1	$	104	$	100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table presents loans modified as TDRs by class of loans during the year ended December 31, 2013:


	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial		1	$	126	$	126
Real estate:
Single-family residential		1		346		350
Multi-family residential		1		1,760		1,701
Commercial:
Non-owner occupied		-		-		-
Owner occupied		1		237		239
Land		-		-		-
Construction		-		-		-
Consumer:
Home equity lines of credit:
Originated for portfolio		-		-		-
Purchased for portfolio		-		-		-
Other		-		-		-
		4	$	2,469	$	2,416

The TDRs described above resulted in charge-offs of $4 and $220 during the years ended December 31, 2014 and 2013, respectively.

There were no loans classified as TDRs for which there was a payment default within twelve months following the modification during the year ending 2014. During the year ending 2013, there was one single-family mortgage loan with a total recorded investment of $196 at December 31, 2013 which had been modified as a TDR in May 2013 for which there was a payment default within twelve months following the modification.

The terms of certain other loans were modified during the year ended December 31, 2014 and 2013 that did not meet the definition of a TDR. These loans had a total recorded investment of $20,719 and $17,835 as of December 31, 2014 and 2013, respectively. 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Nonaccrual loans include loans that were modified and identified as TDRs and the loans are not performing. At December 31, 2014 and 2013, nonaccrual TDRs were as follows:




	December 31, 2014		December 31, 2013
Commercial	$	249	$	442
Real estate:
Single-family residential		173		190
Multi-family residential		-		1,701
Commercial:
Non-owner occupied		-		-
Owner occupied		-		238
Total	$	422	$	2,571

Nonaccrual loans at December 31, 2014 and 2013 did not include $5,250 and $3,517, respectively, in TDRs where customers have established a sustained period of repayment performance, loans are current according to their modified terms and repayment of the remaining contractual payments is expected. These loans are included in total impaired loans.

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 residential real estate loans. Internal loan reviews for these loan types are performed at least annually, and more often for loans with higher credit risk. Adjustments to loan risk ratings are based on the reviews and at any time information is received that may affect risk ratings. 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 not rated or pass-rated loans. Loans listed as not rated are included in groups of homogeneous loans. Past due information is the primary credit indicator for groups of homogenous loans. Loans listed as pass-rated loans are loans that are subject to internal loan reviews and are determined not to meet the criteria required to be classified as special mention, substandard, doubtful or loss.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The recorded investment in loans by risk category and by class of loans as of December 31, 2014 and based on the most recent analysis performed follows:


	Not Rated		Pass		Special Mention		Substandard		Total

Commercial	$	1,090	$	44,663	$	443	$	460	$	46,656
Real estate:
Single-family residential		50,961		-		-		581		51,542
Multi-family residential		-		26,481		-		2,382		28,863
Commercial:
Non-owner occupied		139		43,665		89		5,249		49,142
Owner occupied		-		33,389		1,508		1,094		35,991
Land		78		3,428		-		2,765		6,271
Construction		8,673		15,059		-		-		23,732
Consumer:
Home equity lines of credit:
Originated for portfolio		15,370		-		-		150		15,520
Purchased for portfolio		858		-		313		264		1,435
Other		4,995		-		-		-		4,995
	$	82,164	$	166,685	$	2,353	$	12,945	$	264,147

The recorded investment in loans by risk category and class of loans as of December 31, 2013 follows:



	Not Rated		Pass		Special Mention		Substandard		Total

Commercial	$	228	$	35,424	$	921	$	953	$	37,526
Real estate:
Single-family residential		31,685		-		-		534		32,219
Multi-family residential		-		29,667		-		2,530		32,197
Commercial:
Non-owner occupied		3,170		34,834		556		4,561		43,121
Owner occupied		-		31,489		1,045		2,669		35,203
Land		87		2,023		-		3,318		5,428
Construction		2,115		9,350		-		-		11,465
Consumer:
Home equity lines of credit:
Originated for portfolio		12,828		-		-		154		12,982
Purchased for portfolio		1,285		-		414		170		1,869
Other		860		-		-		-		860
	$	52,258	$	142,787	$	2,936	$	14,889	$	212,870

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 5 – FORECLOSED ASSETS

Foreclosed assets at year-end were as follows:


	2014		2013		2012
Commercial	$	-	$	-	$	-
Commercial real estate		1,636		1,636		1,525
Subtotal		1,636		1,636		1,525
Valuation Allowance		-		-		-
Total	$	1,636	$	1,636	$	1,525

Activity in the valuation allowance was as follows:


	2014		2013		2012
Beginning of the year	$	-	$	-	$	1,139
Additions charged to expense		-		-		962
Direct write downs		-		-		(2,101)
End of year	$	-	$	-	$	-

Expenses related to foreclosed assets include:


	2014		2013		2012
Net loss (gain) on sales	$	-	$	(28)	$	(338)
Provision for unrealized losses		-		-		962
Operating expenses, net of rental income		328		73		28
	$	328	$	45	$	652

Foreclosed assets at December 31, 2014 and December 31, 2013 was related to one multi-family property. During December 2013, there were additional units related to the one multi-family transferred into REO at fair value which was lower than the principal balance outstanding at the time of transfer. This transfer and adjustment to fair value establishes a new cost basis. Foreclosed asset expense increased during 2014 related to light rehabilitation and maintenance expenses incurred to increased occupancy levels, and certain increased operating costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of asset and liability:

Securities available for sale: The fair value of securities available for sale is determined using pricing models that vary based on asset class and include available trade, bid and other market information or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Derivatives: The fair value of derivatives, which includes yield maintenance provisions, interest rate lock commitments and interest rate swaps, is based on valuation models using observable market data as of the measurement date (Level 2).

Impaired loans: The fair value of impaired loans with specific allocations of the ALLL is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by a third-party appraisal management company approved by the Board of Directors annually. Once received, the loan officer or a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are updated as needed based on facts and circumstances associated with the individual properties. Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management applies an additional discount to real estate appraised values, typically to reflect changes in market conditions since the date of the appraisal and to cover disposition costs (including selling expenses) based on the intended disposition method of the property. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Loans held for sale: Loans held for sale are carried at fair value, as determined by outstanding commitments from third party investors (Level 2). Loans originated as construction loans, that were subsequently transferred to held for sale, are carried at the lower of cost or market, and are excluded from the fair value measurement table. These loans totaled $1,833 at December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:


	Fair Value Measurements at December 31, 2014 Using Significant Other Observable Inputs
	(Level 2)
Financial Assets:
Securities available for sale:
Corporate debt	$	2,936
State and municipal		886
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		5,011
Mortgage-backed securities - residential		727
Collateralized mortgage obligations		885
Total securities available for sale	$	10,445

Loans held for sale	$	1,672

Yield maintenance provisions (embedded derivatives)	$	318

Interest rate lock commitments	$	25

Financial Liabilities:
Interest-rate swaps	$	318

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)


	Fair Value Measurements at December 31, 2013 Using Significant Other Observable Inputs
	(Level 2)
Financial Assets:
Securities available for sale:
Corporate debt	$	4,363
State and municipal		1,919
Issued by U.S. government-sponsored entities and agencies:
Mortgage-backed securities - residential		983
Collateralized mortgage obligations		2,407
Total securities available for sale	$	9,672

Loans held for sale	$	3,285

Yield maintenance provisions (embedded derivatives)	$	599

Interest rate lock commitments	$	16

Financial Liabilities:
Interest-rate swaps	$	599

The Company had no assets or liabilities measured at fair value on a recurring basis that were measured using Level 1 or Level 3 inputs at December 31, 2014 or 2013. There were no transfers of assets or liabilities measured at fair value between levels during 2014 or 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Assets measured at fair value on a non-recurring basis are summarized below:


Fair Value Measurements at December 31, 2014 Using
Significant Unobservable Inputs (Level 3)

Impaired loans:
Commercial	$	157
Real Estate:
Single-family residential		123
Multi-family residential		-
Commercial:
Non-owner occupied
Owner occupied		225
Land		289
Total impaired loans	$	794


Fair Value Measurements at December 31, 2013 Using
Significant Unobservable Inputs (Level 3)

Impaired loans:
Commercial	$	-
Real Estate:
Single-family residential		316
Multi-family residential		1,301
Commercial:
Non-owner occupied		-
Owner occupied		234
Land		629
Total impaired loans	$	2,480

The Company had no assets or liabilities measured at fair value on a non-recurring basis that were measured using Level 1 or 2 inputs at December 31, 2014 or 2013.

The impaired loan servicing rights, which are carried at fair value at December 31, 2014 and December 31, 2013 are not material based on the value of the asset.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $867, with a valuation allowance of $20 at December 31, 2014. Impaired loans carried at the fair value of collateral had an unpaid principal balance of $3,465 with a valuation allowance of $985 at December 31, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following Table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2014:


	Fair Value		Valuation Technique(s)	Unobservable Inputs	(Range) Weighted Average
Impaired loans:
Commercial	$	157	Income approach	Adjustments by management to reflect current discount rates	-16.00%
Commercial real estate:
Single-family residential		123	Comparable sales approach	Adjustment for differences between the comparable market transactions	2.35%
Commercial:
Owner occupied		225	Comparable sales approach	Adjustment for differences between the comparable market transactions	-12.21%
Land		289	Comparable sales approach	Adjustment for differences between the comparable market transactions	8.10%

The following Table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2013:


	Fair Value		Valuation Technique(s)	Unobservable Inputs	(Range) Weighted Average
Impaired loans:
Commercial real estate:
Single -family residential	$	316	Comparable sales approach	Adjustment for differences between the comparable market transactions	(-17.67%, 2.35%) -8.33%
Multi-family residential		1,301	Comparable sales approach	Adjustment for differences between the comparable market transactions	-20.59%
Commercial:
Owner occupied		234	Comparable sales approach	Adjustment for differences between the comparable market transactions	-12.21%
Land		629	Comparable sales approach	Adjustment for differences between the comparable market transactions	(-8.59% , 8.10%) 1.44%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Financial Instruments Recorded Using Fair Value Option

The Company has elected the fair value option for loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Loans originated as construction loans, that were subsequently transferred to held for sale, are carried at the lower cost or market and are not included. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due or on nonaccrual as of December 31, 2014 or December 31, 2013.

As of December 31, 2014 and December 31, 2013, the aggregate fair value, contractual balance (including accrued interest) and gain or loss was as follows:



	December 31, 2014		December 31, 2013

Aggregate fair value	$	1,672	$	3,285
Contractual balance		1,657		3,270
Gain (loss)		15		15

The total amount of gains and losses from changes in fair value included in earnings for the year ended December 31, 2014, 2013 and 2012 for loans held for sale were:


	2014		2013		2012
Interest income	$	97	$	65	$	46
Interest expense		-		-		-
Change in fair value		-		(13)		14
Total change in fair value	$	97	$	52	$	60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The carrying amounts and estimated fair values of financial instruments at year-end were as follows:


	Fair Value Measurements at December 31, 2014 Using:
	Carrying
	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	28,207	$	28,207	$	-	$	-	$	28,207
Interest-bearing deposits in other financial institutions		494		494		-		-		494
Securities available for sale		10,445		-		10,445		-		10,445
Loans held for sale		1,672		-		1,672		-		1,672
Loans, net		257,831		-		-		258,079		258,079
FHLB stock		1,942		n/a		n/a		n/a		n/a
Accrued interest receivable		34		2		32		-		34
Yield maintenance provisions (embedded derivatives)		318		-		318		-		318
Interest rate lock commitments		25		-		25		-		25

Financial liabilities
Deposits	$	(258,315)	$	(121,132)	$	(137,700)	$	-	$	(258,832)
FHLB advances and other borrowings		(14,500)		-		(14,663)		-		(14,663)
Advances by borrowers for taxes and insurance		(401)		-		-		(401)		(401)
Subordinated debentures		(5,155)		-		(2,536)		-		(2,536)
Accrued interest payable		(48)		-		(48)		-		(48)
Interest-rate swaps		(318)		-		(318)		-		(318)

The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:



	Fair Value Measurements at December 31, 2013 Using:
	Carrying
	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	19,160	$	19,160	$	-	$	-	$	19,160
Interest-bearing deposits in other financial institutions		1,982		1,982		-		-		1,982
Securities available for sale		9,672		-		9,672		-		9,672
Loans held for sale		3,285		-		3,285		-		3,285
Loans, net		207,141		-		-		207,445		207,445
FHLB stock		1,942		n/a		n/a		n/a		n/a
Accrued interest receivable		50		4		46		-		50
Yield maintenance provisions (embedded derivatives)		599		-		599		-		599
Interest rate lock commitments		16		-		16		-		16

Financial liabilities
Deposits	$	(208,309)	$	(89,266)	$	(119,933)	$	-	$	(209,199)
FHLB advances and other borrowings		(16,526)		-		(10,051)		(6,526)		(16,577)
Subordinated debentures		(5,155)		-		(3,004)		-		(3,004)
Accrued interest payable		(255)		-		(255)		-		(255)
Interest-rate swaps		(599)		-		(599)		-		(599)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The methods and assumptions used to estimate fair value are described as follows.

Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Interest-Bearing Deposits in Other Financial Institutions

The carrying amounts of interest bearing deposits in other financial institutions approximate fair values and are classified as Level 1.

FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans

Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposits

The fair values disclosed for demand deposits (e.g., interest and noninterest bearing checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Other Borrowings

The fair values of the Company’s long-term FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The fair values for the secured borrowings are valued in the same manner as loans noted above, resulting in a Level 3 classification.

The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 1 or 2 classification, consistent with the asset or liability with which they are associated.

Off-Balance-Sheet Instruments

The fair value of off-balance-sheet items is not considered material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 7 – LOAN SERVICING

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year-end were as follows:


	2014		2013

Mortgage loans serviced for Freddie Mac	$	6,560	$	8,243

Custodial escrow balances maintained in connection with serviced loans were $178 and $166 at year-end 2014 and 2013, respectively.

Activity for mortgage servicing rights and the related valuation allowance follows:


	2014		2013		2012

Servicing rights, net of valuation allowance:
Beginning of year	$	20	$	29	$	37
Additions		-		-		-
Amortized to expense		(5)		(9)		(9)
Change in valuation allowance		-		-		1
End of year		15		20		29

Valuation allowance:
Beginning of year		1		1		2
Additions expensed		-		-		-
Reductions credited to operations		-		-		(1)
End of year	$	1	$	1	$	1

NOTE 8- PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:


	2014		2013		2012
Land and land improvements	$	1,293	$	1,293	$	1,679
Buildings		3,827		3,722		5,792
Furniture, fixtures and equipment		2,610		2,255		2,858
		7,730		7,270		10,329
Less: Accumulated Depreciation		(3,955)		(3,723)		(5,012)
	$	3,775	$	3,547	$	5,317

Depreciation expense for 2014, 2013 and 2012 totaled $232, $205 and $237, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The Holding Company previously owned Smith Ghent LLC, an Ohio limited liability company that owned and managed the office building at 2923 Smith Road, Fairlawn, Ohio 44333, where the Holding Company’s and CFBank’s headquarters were located. On October 29, 2013, the Company consummated a sale of the Fairlawn office building, located at 2923 Smith Road in Fairlawn, certain furniture and fixtures, and adjacent land for approximately $3.2 million and recognized a gain on sale of fixed assets of approximately $1.1 million. As a result of the sale, the Company relocated its Fairlawn main office branch during December of 2013 to a nearby location for a short-term interim period until its new permanent, expanded branch facility was ready for occupancy in the second quarter of 2014. Based on the aforementioned transaction, the subsidiaries were legally dissolved prior to year end 2013.

At December 31, 2012, CFBank had $167 of land in an adjacent lot in assets held for sale, which was sold in 2013 with the building.

During the fourth quarter of 2013, the Company entered into a lease agreement to open a Commercial Banking Loan office in Woodmere, Ohio. The office opened in January of 2014.

Operating Leases: As a result of the aforementioned transaction, the Company now leases certain branch and loan office property space under two operating leases. The Fairlawn branch is a ten year operating lease beginning in 2014 with annual rent increases each year. There is one five year renewal option on this lease. The Woodmere lease is for a 128 -month term commencing January 1, 2014 with no renewal options. Each lease requires CFBank to absorb its pro rata share of building operating expenses and utilities based on square footage. The Company’s lease for the interim main office branch location is not material. There were no lease expenses in 2012. During 2013, CFBank incurred partial prorated lease payment for December 2013 related to its interim location, which was not material. Lease expense for year ended December 31, 2014 totaled $320. Leasehold improvements are depreciated straight line over the lease term before consideration of renewal options.

Lease expense is recognized evenly over the lease term to account for lease incentives. Rent commitments, before renewal options, are as follows:



2015	$	294
2016		295
2017		320
2018		321
2019		322
Thereafter		1,507
	$	3,059

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 9 – DEPOSITS

Time deposits of $100 or more were $109,353 and $94,213 at year-end 2014 and 2013, respectively.

Scheduled maturities of time deposits for the next five years are as follows:


2015	$	103,271
2016		20,714
2017		8,516
2018		2,522
2019		2,160
Thereafter		-
Total	$	137,183

Time deposits included $29,308 and $20,966 in brokered deposits at year-end 2014 and 2013, respectively.

NOTE 10 –FHLB ADVANCES

Fixed Rate Advances from the FHLB were as follows:



	Rate		December 31, 2014		December 31, 2013
Fixed Rate Advances
Maturities:
January 2014	3.12%	$	-	$	5,000
May 2014	3.06%		-		5,000
January 2015	0.35%		2,500		-
May 2016	0.66%		3,000		-
November 2016	0.90%		2,000		-
September 2017	1.35%		1,500		-
July 2020	2.27%		2,500		-
July 2021	2.53%		3,000		-
Total		$	14,500	$	10,000

Each advance is payable at its maturity date, with a prepayment penalty for fixed-rate advances.

In January 2015, a $2,500 fixed-rate advance matured and was replaced with a $2,500 advance with a 54-month term and a fixed-rate of 1.70%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The advances were collateralized as follows:



	December 31, 2014		December 31, 2013

Single-family mortgage loans	$	19,978	$	14,940
Multi-family mortgage loans		6,291		4,890
Commercial real estate loans		3,110		3,339
Securities		4,208		2,024
Cash		3,300		3,300
Total	$	36,887	$	28,493

Based on the collateral pledged to FHLB and CFBank’s holdings of FHLB stock, CFBank was eligible to borrow up to a total of $23,078 from the FHLB at December 31, 2014. As of December 31, 2013, CFBank was limited to borrowing term maturities not exceeding 365 days due to restrictions imposed by the FHLB due to the existence of the CFBank Order. With the termination of the CFBank Order effective January 23, 2014, the FHLB notified CFBank that the restriction on borrowings terms had been lifted, effective January 24, 2014.

Payments due over the next five years are as follows:


2015	$	2,500
2016		5,000
2017		1,500
2018		-
2019		-
	$	9,000

NOTE 11 - OTHER BORROWINGS

There were no outstanding borrowings with the Federal Reserve Bank (the “FRB”) at December 31, 2014 or at December 31, 2013.

Assets pledged as collateral with the FRB were as follows:



	December 31, 2014		December 31, 2013
Commercial loans	$	18,111	$	19,591
Commercial real estate loans		38,475		28,721
	$	56,586	$	48,312

Based on the collateral pledged, CFBank was eligible to borrow up to $28,585 from the FRB at year-end 2014.

CFBank had a $1.0 million line of credit with a commercial bank at both December 31, 2014 and December 31, 2013. There were no outstanding borrowings on this line of credit at December 31, 2014 or December 31, 2013. If CFBank were to borrow on this line of credit, interest would accrue daily at a variable rate based rate on the commercial bank’s cost of funds and current market returns.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

During the course of 2013, CFBank entered into certain loan participations that, according to the structure of the transactions, did not qualify for sales accounting treatment and were therefore accounted for as secured borrowings. At December 31, 2013, there were five loan participation agreements classified as secured borrowings totaling approximately $6,500. The maturities of the secured borrowings range from March 2016 through January 2024, with a weighted average rate of approximately 4.10%. These loans provided CFBank with the ability to repurchase the loan at its discretion. CFBank retains an ownership interest in these loans and provides customary servicing to the third-parties which are typically other community banks. During the first quarter of 2014, management amended its loan participation agreements to remove the language that disqualified the loan participations from sales accounting treatment and entered into amended loan participation agreements with the participating institutions with respect to the aforementioned loans. There were no secured borrowing transactions as of December 31, 2014.

NOTE 12 – SUBORDINATED DEBENTURES

In December 2003, Central Federal Capital Trust I, a trust formed by the Holding Company, closed a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1 per security. The Holding Company issued $5,155 of subordinated debentures to the trust in exchange for ownership of all of the common stock of the trust and the proceeds of the preferred securities sold by the trust. The Holding Company is not considered the primary beneficiary of this trust (variable interest entity); therefore, the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Holding Company’s investment in the common stock of the trust was $155 and is included in other assets.

The Holding Company may redeem the subordinated debentures, in whole or in part, in a principal amount with integral multiples of $1, on or after December 30, 2008 at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on December 30, 2033. The subordinated debentures are also redeemable in whole or in part from time to time, upon the occurrence of specific events defined within the trust indenture. There are no required principal payments on the subordinated debentures over the next five years. The Holding Company has the option to defer interest payments on the subordinated debentures for a period not to exceed five consecutive years.

The Company’s Board of Directors elected to defer interest payments on the subordinated debentures in 2010. Cumulative deferred interest payments through September 30, 2012 totaling $348 were paid current in December 2012 with the approval of the FRB. Subsequently, the Company deferred interest payments, and the accrued deferred interest payments totaled $210 at December 31, 2013. In June 2014, with the prior “non-objection” from the FRB, the Company paid all deferred and current interest payments in the amount of $293. During the remainder of 2014, CFBank solicited and obtained the prior “non-objection” of the FRB to pay the interest current as of September 30, 2014 and December 31, 2014, respectively. Accrued deferred payments at December 31, 2014 and December 31, 2013 were $0 and $210, respectively. Pursuant to the Holding Company’s current commitments to the FRB, the Holding Company may not, directly or indirectly, incur, issue, renew, rollover, or pay interest or principal on any debt (including the subordinated debentures) or commit to do so, increase any current lines of credit, or guarantee the debt of any entity, without prior written notice to and written non-objection from the FRB.

The subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month London Interbank Offered Rate plus 2.85%, which was 3.11% at year-end 2014 and 3.10% at year-end 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 13 – BENEFIT PLANS

Multi-employer pension plan: CFBank participates in the Pentegra Defined Benefit Plan for Financial Institutions (the Pentegra DB Plan), a multi-employer contributory trusteed pension plan. The retirement benefits to be provided by the plan were frozen as of June 30, 2003 and future employee participation in the plan was stopped. The plan was maintained for all eligible employees and the benefits were funded as accrued. The cost of funding was charged directly to operations.

The unfunded liability at June 30, 2014 totaled $35 and at June 30, 2013 was $192. CFBank’s contributions for the plan year ending June 30, 2015, and the plan years ended June 30, 2014 and June 30, 2013, totaled $64, $80 and $49, respectively. Contributions to the plan may vary from period to period due to the change in the plan's unfunded liability. The unfunded liability is primarily related to the change in plan assets and the change in plan liability from one year to the next. The change in plan assets is based on contributions deposited, benefits paid and the actual rate of return earned on those assets. The change in plan liability is based on demographic changes and changes in the interest rates used to determine plan liability. In the event the actual rate of return earned on plan assets declines, the value of the plan assets will decline. In the event the interest rates used to determine plan liability decrease, plan liability will increase. The combined effect of each change determines the change in the unfunded liability and the change in the employer contributions.

The Pentegra DB Plan is a tax-qualified defined-benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

Funded status (market value of plan assets divided by funding target) based on valuation reports as of July 1, 2014 and 2013 was 96.51% and 82.95%, respectively.

Total contributions made to the Pentegra DB Plan, as reported on Form 5500 of the Pentegra DB Plan, totaled $136,478 and $196,473 for the plan years ended June 30, 2013 and June 30, 2012, respectively. CFBank’s contributions to the Pentegra DB Plan were not more than 5% of the total contributions to the Pentegra DB Plan.

401(k) Plan: The Company sponsors a 401(k) plan that allows employee contributions up to the maximum amount allowable under federal tax regulations, which are currently matched in an amount equal to 25% of the first 8% of the compensation contributed. Expense for 2014, 2013 and 2012 was $28, $27 and $33, respectively.

Salary Continuation Agreement: In 2004, CFBank entered into a nonqualified salary continuation agreement with the former Chairman Emeritus. Benefits provided under the plan are unfunded, and payments are made by CFBank. Under the plan, CFBank pays him, or his beneficiary, a benefit of $25 annually for 20 years, beginning 6 months after his retirement date, which was February 28, 2008. The expense related to this plan totaled $12, $12 and $47 in 2014, 2013 and 2012, respectively. The accrual is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $247 at year-end 2014 and $260 at year-end 2013.

Life Insurance Benefits: CFBank has entered into agreements with certain employees, former employees and directors to provide life insurance benefits which are funded through life insurance policies purchased and owned by CFBank. The expense related to these benefits totaled $12, ($1) and $16 in 2014, 2013 and 2012, respectively. The accrual for CFBank’s obligation under these agreements is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $216 at year-end 2014 and $204 at year-end 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 14 – INCOME TAXES

Income tax expense was as follows:



	2014			2013		2012
Current Federal	$	-	$	-	$	-
Deferred Federal		-		-		-
Total	$	-	$	-	$	-

Effective tax rates differ from the federal statutory rate of 34% applied to income (loss) before income taxes due to the following:



	2014		2013		2012
Federal Statutory rate times financial statement income (loss)	$	163	$	(312)	$	(1,280)

Effect of:
Incentive Stock Options		75		47		3
Bank owned life insurance income		(44)		(44)		(45)
Increase (decrease) in deferred tax valuation allowance		(201)		303		1,314
Other		7		6		8
	$	-	$	-	$	-
Effective tax rate		0%		0%		0%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Year-end deferred tax assets and liabilities were due to the following:


	2014		2013
Deferred tax assets:
Allowance for loan losses	$	924	$	1,002
Post-retirement death benefits		73		69
Deferred compensation		169		88
Deferred loan fees		116		44
AMT Credit		75		60
Nonaccrual interest		110		80
Net operating loss carry forward		2,112		2,487
Other		67		38
		3,646		3,868

Deferred tax liability:
FHLB stock dividend		366		366
Mortgage servicing rights		5		7
Depreciation		14		31
Prepaid expenses		61		63
Unrealized gain on securities available for sale		33		33
		479		500
Net deferred tax asset before valuation allowance		3,167		3,368
Deferred tax valuation allowance		(3,167)		(3,368)
Net deferred tax asset	$	-	$	-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

In 2012, a recapitalization program through the sale of $22.5 million in common stock improved the capital levels of the Bank and provided working capital for the holding company. The result of the change in stock ownership associated with the stock offering, within the guidelines of Section 382 of the Internal Revenue Code of 1986, was that the Company incurred an ownership change. At year-end 2014, the Company had net operating loss carryforwards of $26,732, which expire at various dates from 2024 to 2033, and has alternative minimum tax credit carryforwards of $75, which do not expire. As a result of the ownership change, the Company's ability to utilize carryforwards that arose before the stock offering closed is limited to $163 per year. Due to this limitation, management determined it is more likely than not that $20,520 of net operating loss carryforwards will expire unutilized. As required by accounting standards, the Company reduced the carrying value of deferred tax assets, and the corresponding valuation allowance, by the $6,977 tax effect of this lost realizability.

At December 31, 2014 and 2013, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The Company is subject to U.S. federal income tax and is no longer subject to federal examination for years prior to 2011.

NOTE 15 – RELATED-PARTY TRANSACTIONS

Loans to principal officers, directors and their affiliates during 2014 were as follows:



Beginning balance	$	712
New loans		-
Effect of changes in composition of related parties		-
Repayments		(30)
Ending balance	$	682

Deposits from principal officers, directors, and their affiliates at year-end 2014 and 2013 were $550 and $256, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 16 – STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans (the Plans) as described below. Total compensation cost that has been charged against income for the Plans was $265, $159, and $11 for 2014, 2013 and 2012, respectively. The total income tax benefit was $15, $7, and $1, respectively.

The Plans, which are stockholder-approved, provide for stock option grants and restricted stock awards to directors, officers and employees. The 1999 Stock-Based Incentive Plan, which expired July 13, 2009, provided 38,778 shares for stock option grants and 15,511 shares for restricted stock awards. The 2003 Equity Compensation Plan (the “2003 Plan”), as amended and restated, provided an aggregate of 100,000 shares for stock option grants and restricted stock awards, of which up to 30,000 shares could be awarded in the form of restricted stock awards. The 2009 Equity Compensation Plan, which was approved by stockholders on May 21, 2009, replaced the 2003 Plan and provides 200,000 shares, plus any remaining shares available to grant or that are later forfeited or expire under the 2003 Plan, that may be issued as stock option grants, stock appreciation rights or restricted stock awards. On May 16, 2013, stockholders approved the First Amendment to the 2009 Equity Compensation Plan to increase the number of shares of common stock reserved for stock option grants and restricted stock awards thereunder to 1,500,000.

Stock Options

The Plans permit the grant of stock options to directors, officers and employees of the Holding Company and CFBank. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally have vesting periods ranging from one to three years, and are exercisable for ten years from the date of grant. Unvested stock options immediately vest upon a change of control.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted in 2014. The fair value of options granted in 2013 and 2012 was determined using the following weighted‑average assumptions as of the grant date.


	2014	2013	2012

Risk-free interest rate	0.00%	1.60%	1.23%
Expected term (years)	0	6	7
Expected stock price volatility	0%	88%	78%
Dividend yield	0.00%	0.00%	0.00%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

A summary of stock option activity in the Plans for 2014 follows:



	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Intrinsic Value
Outstanding at beginning of year	639,686	$	1.70
Granted	-		-
Exercised	-		-
Expired	(1,200)		63.00
Cancelled or Forfeited	(17,090)		2.58
Outstanding at end of period	621,396	$	1.56	8.4	$	-

Expected to vest	343,331	$	1.40	8.5	$	-

Exercisable at end of period	278,065	$	1.75	8.2	$	-

During the year ended December 31, 2014, there were 17,090 stock options canceled or forfeited. Expense associated with unvested forfeited shares is reversed.

Information related to the Plans during each year follows. There were no options exercised in 2014 or 2013.



	2014		2013		2012
Intrinsic value of options exercised	$	-	$	-	$	-
Cash received from option exercises		-		-		-
Tax benefit realized from option exercises		-		-		-
Weighted average fair value of options granted	$	0.00	$	1.03	$	0.91

As of December 31, 2014, there was $137 of total unrecognized compensation cost related to nonvested stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.3 years. Substantially all of the 343,331 nonvested stock options at December 31, 2014 are expected to vest.

Restricted Stock Awards

The Plans also permit the grant of restricted stock awards to directors, officers and employees. Compensation is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock is determined using the closing share price on the date of grant and shares generally have vesting periods of one to three years. There were 953,642 shares available for stock option grants and restricted stock to be issued under the Plans at December 31, 2014. There were no shares of restricted stock issued in 2014 or 2013. As of December 31, 2014 and December 31, 2013, there were no nonvested restricted share awards.

There were no shares of restricted stock forfeited during the year ended December 31, 2014. There were 1,000 shares of restricted stock forfeited during the year ended December 31, 2013, which resulted in the reversal of previously recognized expense associated with the nonvested shares. As of December 31, 2014 and 2013, there was no unrecognized compensation cost related to nonvested shares granted under the Plans. The total fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was $0, $1 and $4, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 17 – PREFERRED STOCK

Series B Preferred Stock

Commencing in April 2014, the Company conducted a private placement of up to 480,000 shares of its 6.25% Non-Cumulative Convertible Perpetual Preferred Stock, Series B (“Series B Preferred Stock”) for an offering price of $25.00 per share (the “Private Placement”). Pursuant to the Private Placement, the Company sold an aggregate of 480,000 shares of Series B Preferred Stock on May 12, 2014 and July 15, 2014, for an aggregate offering price of $12,000. The Series B Preferred Stock was sold by the Company with the assistance of McDonald Partners, LLC, as placement agent, on a best efforts basis. After payment of approximately $482 in placement fees to McDonald Partners, LLC and approximately $149 of other offering expenses, the Company’s net proceeds from its sale of the 480,000 shares of Series B Preferred Stock in the Private Placement were approximately $11,369.

For each share of Series B Preferred Stock sold in the Private Placement, the Company also agreed to issue, at no additional charge, a Warrant to purchase (i) 2.00 shares of common stock of the Company if the purchaser purchased less than $700 (28,000 shares) of Series B Preferred Stock in the Private Placement, or (ii) 3.25 shares of common stock if the purchaser purchased $700 (28,000 shares) or more of Series B Preferred Stock in the Private Placement. See Note 18- Warrants for additional information.

The Series B Preferred Stock and Warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any state in reliance upon exemptions from registration thereunder, including the exemptions provided under Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The Series B Preferred Stock and Warrants were sold solely to “accredited investors” as defined in Rule 501(a), and neither the Series B Preferred Stock or Warrants, nor any shares of common stock of the Company into which the Series B Preferred Stock may be converted or for which the Warrants may be exercised, may be resold for a period of at least six months from the date of issue without registration or an exemption from registration under the Securities Act and applicable state securities laws. However, the Company has agreed to provide certain registration rights to the holders of the Warrants pursuant to the terms of a Registration Rights Agreement between the Company and each purchaser of Series B Preferred Stock and Warrants in the Private Placement.

Troubled Asset Relief Program (TARP)

On December 5, 2008, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase Program, the Company issued to the Department of the Treasury (“Treasury”) 7,225 shares of Central Federal Corporation Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Preferred Stock) for $7,225. The Preferred Stock initially paid quarterly dividends at a five percent annual rate, which rate was scheduled to increase to nine percent after February 14, 2014, on a liquidation preference of $1,000 per share.

On July 13, 2012, the Company received approval from the FRB of Cleveland of an agreement with Treasury to redeem the Preferred Stock, including all accrued but unpaid dividends and the common stock warrant issued in connection with the TARP Capital Purchase Program (together, the “TARP obligations”) using proceeds of the Holding Company’s common stock offering. On August 23, 2012, the Company received regulatory non-objection from the OCC for redemption of the TARP obligations.

On September 26, 2012, pursuant to the agreement with the Treasury, the Company utilized $3,000 of the proceeds from its August 2012 stock offering to redeem the TARP obligations including deferred dividends totaling $801. The redemption included satisfaction of common stock warrants associated with the preferred stock. The redemption was completed at a discount and resulted in an increase in common stockholders’ equity of $4,960. See Note 18 - Warrants for additional information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 18 – COMMON STOCK WARRANTS

Series B Preferred Stock – Warrants

In connection with the issuance of the Series B Preferred Stock sold in the Private Placement, for each share of Series B Preferred Stock, the Company also agreed to issue, at no additional charge, a Warrant to purchase (i) 2.00 shares of common stock of the Company if the purchaser purchased less than $700 (28,000 shares) of Series B Preferred Stock in the Private Placement, or (ii) 3.25 shares of common stock if the purchaser purchased $700 (28,000 shares) or more of Series B Preferred Stock in the Private Placement. Warrants to purchase an aggregate of 1,152,125 shares of common stock were issued by the Company to the purchasers of the 480,000 shares of Series B Preferred Stock sold in the Private Placement. Subject to certain limitations, the Warrants are exercisable for a period of approximately five (5) years expiring on July 15, 2019, at a cash purchase price of $1.85 per share of common stock.

Troubled Asset Relief Program (TARP)

In connection with the issuance of the Preferred Stock associated with TARP, the Company also issued to Treasury a warrant to purchase 67,314 shares of the Company’s common stock at an exercise price of $16.10 per share, which represented an aggregate investment, if exercised for cash, of approximately $1,100 in Company common stock. The exercise price could have been paid either by withholding a number of shares of common stock issuable upon exercise of the warrant equal to the value of the aggregate exercise price of the warrant, determined by reference to the market price of the Company’s common stock on the trading day on which the warrant is exercised, or, if agreed to by the Company and the warrant holder, by the payment of cash equal to the aggregate exercise price. The warrant was exercisable any time before December 5, 2018.

The common stock warrant was redeemed on September 26, 2012 as part of the transaction with U.S. Treasury for redemption of the TARP obligations. See Note 17 for a discussion of the agreement with U.S. Treasury for redemption of the TARP obligations, including redemption of the common stock warrant.

NOTE 19 – REGULATORY CAPITAL MATTERS

CFBank is subject to regulatory capital requirements administered by federal banking agencies. Prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off‑balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Actual and required capital amounts and ratios are presented below at year end:


							To Be Well
							Capitalized Under
				For Capital			Applicable Regulatory			Required By
	Actual			Adequacy Purposes			Capital Standards			OCC
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio

December 31, 2014
Total Capital to risk
weighted assets	$	37,898	14.18%	$	21,379	8.00%	$	26,724	10.00%	$	32,069	12.00%

Tier 1 (Core) Capital to risk
weighted assets		34,520	12.92%		10,690	4.00%		16,034	6.00%		N/A	N/A

Tier 1 (Core) Capital to
adjusted total assets		34,520	11.03%		12,515	4.00%		15,643	5.00%		25,029	8.00%

Tangible Capital to
adjusted total assets		34,520	11.03%		4,693	1.50%		N/A	N/A		N/A	N/A



							To Be Well
							Capitalized Under
				For Capital			Applicable Regulatory			Required By
	Actual			Adequacy Purposes			Capital Standards			OCC
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio

December 31,2013
Total Capital to risk
weighted assets	$	26,246	12.08%	$	17,385	8.00%	$	21,731	10.00%	$	26,078	12.00%

Tier 1 (Core) Capital to risk
weighted assets		23,942	10.81%		8,693	4.00%		13,039	6.00%		N/A	N/A

Tier 1 (Core) Capital to
adjusted total assets		23,942	9.34%		10,061	4.00%		12,576	5.00%		20,121	8.00%

Tangible Capital to
adjusted total assets		23,492	9.34%		3,773	1.50%		N/A	N/A		N/A	N/A

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The CFBank Order required CFBank to have an 8% Tier 1 (Core) Capital to adjusted total assets and 12% Total Capital to risk weighted assets. Although the CFBank Order was terminated by the OCC effective January 23, 2014, CFBank remains subject to the heightened capital requirements imposed by the OCC and is required to maintain an 8% Tier 1 (core) Capital ratio to adjusted total assets and 12% Total Capital to risk weighted assets. CFBank met these heightened capital requirements imposed by the OCC at December 31, 2014, and December 31, 2013. However, even though CFBank met the heightened capital requirements, CFBank was not eligible for “well capitalized” treatment under applicable regulatory capital standards while the CFBank Order was in effect and, therefore, was considered to be “adequately capitalized” at December 31, 2013. See Note 2.-Regulatory Order Considerations for additional information.

As a result of the sale of the Company’s Fairlawn office building during the fourth quarter of 2013 for approximately $3.2 million, which generated a gain of approximately $1.1 million (see Note 8- Premises and Equipment for additional information on the transaction), the Holding Company downstreamed $1.5 million of capital to CFBank as of October 29, 2013. The Company sought and obtained all required regulatory “non-objection” letters from both the FED and OCC in order to consummate the transaction.

The Qualified Thrift Lender test requires at least 65% of assets be maintained in housing-related finance and other specified areas. If this test is not met, limits are placed on growth, branching, new investments, FHLB advances and dividends. Management believes that this test was met by the Company at December 31, 2014.

CFBank converted from a mutual to a stock institution in 1998, and a “liquidation account” was established with an initial balance of $14,300, which was the net worth reported in the conversion prospectus. The liquidation account represents a calculated amount for the purposes described below, and it does not represent actual funds included in the consolidated financial statements of the Company. Eligible depositors who have maintained their accounts, less annual reductions to the extent they have reduced their deposits, would be entitled to a priority distribution from this account if CFBank liquidated and its assets exceeded its liabilities. Dividends may not reduce CFBank’s stockholder’s equity below the required liquidation account balance.

Dividend Restrictions: The Holding Company’s principal source of funds for dividend payments is dividends received from CFBank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above.

As of December 31, 2014, CFBank could pay no dividends to the Holding Company under these regulations without receiving the prior written approval of the OCC. Future dividend payments by CFBank to the Holding Company would be based on future earnings and regulatory approval. The payment of dividends from CFBank to the Holding Company is not likely to be approved by the OCC until CFBank is able to generate consistent earnings.

Additionally CFBank does not intend to make distributions to the Holding Company that would result in a recapture of any portion of its thrift bad debt reserve as discussed in Note 14-Income taxes.

NOTE 20 – DERIVATIVE INSTRUMENTS

Interest-rate swaps

CFBank utilizes interest-rate swaps as part of its asset liability management strategy to help manage its interest rate risk position, and does not use derivatives for trading purposes. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements. CFBank was party to interest-rate swaps with a combined notional amount of $3,811 at December 31, 2014 and $7,535 at December 31, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The objective of the interest-rate swaps is to protect the related fixed-rate commercial real estate loans from changes in fair value due to changes in interest rates. CFBank has a program whereby it lends to its borrowers at a fixed-rate with the loan agreement containing a two-way yield maintenance provision, which will be invoked in the event of prepayment of the loan, and is expected to exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded derivative which is bifurcated from the host loan contract and, as such, the swaps and embedded derivatives are not designated as hedges. Accordingly, both instruments are carried at fair value and changes in fair value are reported in current period earnings.

CFBank currently does not have any derivatives designated as hedges.

Contingent Features: The counterparty to CFBank’s interest-rate swaps is exposed to credit risk whenever the interest-rate swaps are in a liability position. At December 31, 2014, CFBank had $852 in securities and cash pledged as collateral for these derivatives. Should the liability increase, CFBank will be required to pledge additional collateral.

Additionally, CFBank’s interest-rate swap instruments contain provisions that require CFBank to remain well capitalized under regulatory capital standards. The interest-rate swaps may be called by the counterparty if CFBank fails to maintain well-capitalized status under regulatory capital standards. As of December 31, 2014, CFBank was well-capitalized under regulatory capital standards.

Summary information about the derivative instruments is as follows:


	2014		2013		2012
Notional amount	$	3,811	$	7,535	$	7,750
Weighted average pay rate on interest-rate swaps		4.06%		3.86%		3.86%
Weighted average receive rate on interest-rate swaps		0.18%		0.19%		0.24%
Weighted average maturity (years)		4.3		3.6		4.6
Fair value of interest-rate swaps	$	(318)	$	(599)	$	(990)
Fair value of yield maintenance provisions	$	318	$	599	$	990

The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other liabilities, respectively, in the consolidated balance sheet. Changes in the fair value of the yield maintenance provisions and interest-rate swaps are reported currently in earnings, as other noninterest income in the consolidated statements of operations. There were no net gains or losses recognized in earnings related to yield maintenance provisions and interest-rate swaps in 2014, 2013 or 2012.

Mortgage banking derivatives

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market are considered derivatives. These mortgage banking derivatives are not designated in hedge relationships. The Company had approximately $2,964 and $3,476 of interest rate lock commitments related to residential mortgage loans at December 31, 2014 and 2013, respectively. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $25 and $16 at December 31, 2014 and 2013, respectively, which was included in other assets in the consolidated balance sheet. Fair values were estimated based on anticipated gains on the sale of the underlying loans. Changes in the fair values of these mortgage banking derivatives are included in net gains on sales of loans. Net gains (losses) recognized in earnings related to these mortgage banking derivatives totaled $9, ($29) and $6 in 2014, 2013, and 2012, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 21 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off‑balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year end were as follows:



	2014				2013
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	14,992	$	17,339	$	8,169	$	11,569
Unused lines of credit	$	189	$	26,955	$	47	$	22,993
Standby letters of credit	$	-	$	-	$	-	$	-

Commitments to make loans are generally made for periods of 60 days or less, except for construction loan commitments, which are typically for a period of one year, and loans under a specific drawdown schedule, which are based on the individual contracts. The fixed-rate loan commitments had interest rates ranging from 3.25% to 5.00% and maturities ranging from 18 months to 30 years at December 31, 2014. The fixed-rate loan commitments had interest rates ranging from 4.0% to 5.25% and maturities ranging from 6 months to 31 years at December 31, 2013.

NOTE 22 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Central Federal Corporation follows:



	2014		2013
Assets
Cash and cash equivalents	$	3,025	$	3,263
Investment in banking subsidiary		34,572		23,592
Investment in and advances to other subsidiaries		220		273
Other assets		2,202		1,155
Total assets	$	40,019	$	28,283

Liabilities and Equity
Subordinated debentures	$	5,155	$	5,155
Accrued expenses and other liabilities		355		264
Stockholders' equity		34,509		22,864
Total liabilities and stockholders' equity	$	40,019	$	28,283

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)



	2014		2013		2012

Interest income	$	5	$	17	$	3
Other income		260		103		-
Interest expense		164		167		180
Other expense		687		666		400
Loss before income tax and undistributed subsidiaries' operations		(586)		(713)		(577)
Effect of subsidiaries' operations		1,065		(205)		(3,189)
Net income (loss)	$	479	$	(918)	$	(3,766)
Comprehensive income (loss)	$	432	$	(927)	$	(4,045)


	2014		2013		2012
Cash flows from operating activities
Net Income (loss)	$	479	$	(918)	$	(3,766)
Adjustments:
Effect of subsidiaries' operations		(1,065)		205		3,189
Change in other assets and other liabilities		(1,142)		(1,052)		173
Net cash from operating activities		(1,728)		(1,765)		(404)

Cash flows from investing activities
Investment in bank subsidiary		(9,700)		(1,500)		(13,500)
Investments in other subsidiaries		54		1,866		(3)
Net cash from investing activities		(9,646)		366		(13,503)

Cash flows from financing activities
Stock issuance costs		-		(11)		-
Redemption of TARP obligation		-		-		(3,000)
Net proceeds from issuance of common stock		-		-		21,020
Dividends paid on Series B preferred stock		(233)		-		-
Net proceeds from issuance of Series B preferred stock		11,369		-		-
Net cash from financing activities		11,136		(11)		18,020

Net change in cash and cash equivalents		(238)		(1,410)		4,113

Beginning cash and cash equivalents		3,263		4,673		560

Ending cash and cash equivalents	$	3,025	$	3,263	$	4,673

During 2013 and 2014, the Holding Company invested funds into a series of joint ventures (equity stake) for the purpose of allocating excess liquidity into higher earning assets while diversifying its revenue sources. Each of the joint ventures is related to the development of single family real estate in the form of condominiums. Income is recognized based on a preferred rate of return on the outstanding investment balance. As units are sold, the Holding Company receives a return of capital and an additional incentive payment; the incentive payment is recognized as income. The investment balance outstanding in joint ventures at December 31, 2014 and December 31, 2013 was $2,184 and $1,139, respectively. Income recognized on the joint ventures from the preferred rate of return and incentives was $223 and $102, respectively, for 2014 and 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 23 – EARNINGS (LOSS) PER COMMON SHARE

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common stockholders for the period are allocated between common stockholders and unvested share-based payment awards according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:


	2014		2013		2012
Basic
Net earnings (loss)	$	479	$	(918)	$	(3,766)
Dividends on Series A preferred stock, discount on redemption and accretion of discount, net		-		-		4,632
Dividends on Series B preferred stock and accretion of discount		(421)		-		-
Earnings (loss) allocated to common stockholders	$	58	$	(918)	$	866

Weighted average common shares outstanding including unvested share-based payment awards		15,823,710		15,823,834		6,317,032
Less: Unvested share-based payment awards		-		(210)		(2,331)
Average shares		15,823,710		15,823,624		6,314,701
Basic earnings (loss) per common share	$	0.00	$	(0.06)	$	0.14

Diluted
Net earnings (loss) allocated to common stockholders	$	58	$	(918)	$	866

Weighted average common shares outstanding for basic earnings (loss) per common share		15,823,710		15,823,624		6,314,701
Add: Dilutive effects of assumed exercises of stock options		30,279		-		948
Add: Dilutive effects of assumed exercises of stock warrants		-		-		-
Average shares and dilutive potential common shares		15,853,989		15,823,624		6,315,649
Diluted earnings (loss) per common share	$	0.00	$	(0.06)	$	0.14

The following potential common shares were anti-dilutive and not considered in computing diluted earnings (loss) per common share.


	2014	2013	2012
Stock options	245,381	639,686	40,502
Series B preferred stock	6,857,143	-	-
Stock warrants	1,152,125	-	49,474

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 24 - CONTINGENT LIABILITIES

CFBank participates in a multi-employer contributory trusteed pension plan. On August 17, 2012, CFBank was notified by the trustees of the plan that, due to CFBank’s financial performance and the CFBank Order, it was required to make a contribution or provide a letter of credit in the amount of the funding shortfall plus estimated cost of annuitization of benefits in the plan, which was determined to be $908. CFBank obtained a letter of credit from the FHLB for this amount, which was subsequently replaced with a letter of credit from Comerica Bank. The cost of obtaining the letter of credit was $9. The letter of credit was in place from August 28, 2012 to August 28, 2013. Subsequent to August 28, 2013 the letter of credit was no longer required.

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

NOTE 25 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes within each classification of accumulated other comprehensive income, net of tax, for the year ended December 31, 2014 and December 31, 2013 and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:


Changes in Accumulated Other Comprehensive Income by Component
For the Year Ended December 31, 2014 and 2013 (1)

	Unrealized Gains and Losses on Available-for-Sale Securities

	2014		2013
Accumulated other comprehensive income (loss), beginning of period	$	98	$	107

Other comprehensive income (loss) before reclassifications		(47)		(9)
Amount reclassified from accumulated other comprehensive income (2)		-		-
Net current-period other comprehensive income (loss)		(47)		(9)

Accumulated other comprehensive income (loss), end of period	$	51	$	98

(1)

All amounts are net of tax. Amounts in parentheses indicate a reduction of other comprehensive income.

There were no amounts reclassified out of other comprehensive income for the year ended December 31, 2014 and 2013.


Central Federal Corporation and CFBank	Central Federal Corporation Officers
Board of Directors

Robert E. Hoeweler	Timothy T. O’Dell
Chief Executive Officer, Hoeweler Holdings	Chief Executive Officer
Chairman of the Board, Central Federal Corporation and CFBank

Thomas P. Ash	Thad R. Perry
Director of Governmental Relations	President
Buckeye Association of School Administrators

Edward W. Cochran	John W. Helmsdoerfer, CPA
Attorney	Executive Vice President and
	Chief Financial Officer
James H. Frauenberg II
Principal Owner,
Addison Holdings LLC

Robert H. Milbourne
RHM Advisors

Timothy T. O’Dell	CFBank
Chief Executive Officer,	Executive Officers
CFBank
	Timothy T. O’Dell
Thad R. Perry	Chief Executive Officer
President,
CFBank	Thad R. Perry
	President

CFBank	John W. Helmsdoerfer, CPA
Office Locations (Markets Served)	Executive Vice President and
	Chief Financial Officer
Worthington, Ohio (Greater Columbus)*
7000 North High Street
Worthington, Ohio 43085
614-334-7979

Woodmere, Ohio (Greater Cleveland)**
28879 Chagrin Blvd.
Woodmere, Ohio 44122
216-468-3100

Fairlawn, Ohio (Akron/Canton)*
3009 Smith Road, Suite 100
Fairlawn, Ohio 44333
330-666-7979

Wellsville, Ohio (Columbiana County)*
601 Main Street
Wellsville, Ohio 43968
330-532-1517

Calcutta, Ohio (Columbiana County)*
49028 Foulks Drive
Calcutta, Ohio 43920
330-385-4323

* Full service branch

** Loan production office

Corporate Data

Annual Report

A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission is available without charge upon written request to:

John W. Helmsdoerfer, CPA

Executive Vice President and Chief Financial Officer

Central Federal Corporation

7000 North High Street

Worthington, Ohio 43085

Phone: 614-318-4661

Fax: 614-334-7980

Email: Johnhelmsdoerfer@cfbankmail.com

Annual Meeting

The Annual Meeting of Shareholders of Central Federal Corporation will be held at 10 a.m. on Wednesday, May 20, 2015, at the New Albany Country Club, 1 Club Lane, New Albany, Ohio 43054.

Shareholder Services

Registrar and Transfer Company serves as transfer agent for Central Federal Corporation shares. Communications regarding change of address, transfer of shares or lost certificates should be sent to:

Computershare, Inc.

250 Royall Street

Canton, MA 02021

Phone: 1-800-368-5948

EX-21.1 4 cfbk-20150327ex21196b8d1.htm EX-21.1 Exhibit 211

Exhibit 21.1

Subsidiaries of the Registrant

CFBank

Central Federal Capital Trust I

EX-23.1 5 cfbk-20150327ex23182960e.htm EX-23.1 Exhibit 231

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statements on Form S-8 (333-84817, 333-114025 and 333-163102), Form S-3 (333-110218, 333,124323 and 333-156564) and Form S-1/A (333-177434) of Central Federal Corporation (formerly Grand Central Financial Corp.) of our report dated March 27, 2015 related to the consolidated financial statements of Central Federal Corporation included in this Annual Report on Form 10-K for the year ended December 31, 2014.

/s/ BKD, LLP

BKD, LLP

Indianapolis, Indiana

March 27, 2015

EX-23.2 6 cfbk-20150327ex2325f8e2c.htm EX-23.2 Exhibit 232

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements on Form S-8 (333-84817, 333-114025 and 333-163102) and Form S-3/A (333-177434) of Central Federal Corporation (formerly Grand Central Financial Corp) of our report dated March 31, 2014, related to the consolidated balance sheet of Central Federal Corporation as of December 31, 2013 and the consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for the each of the two years in the period ended December 31, 2013 included in this Annual Report on Form 10-K.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Cleveland, Ohio

March 27, 2015

EX-31.1 7 cfbk-20150327ex311c08881.htm EX-31.1 Exhibit 311

Exhibit 31.1

Rule 13a-14(a) Certifications

I, Timothy T. O’Dell, certify, that:

I have reviewed this report on Form 10-K of Central Federal Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 27, 2015	/s/ Timothy T. O’Dell
	Timothy T. O’Dell
	Chief Executive Officer

EX-31.2 8 cfbk-20150327ex3124bd01a.htm EX-31.2 Exhibit 312

Exhibit 31.2

Rule 13a-14(a) Certifications

I, John W. Helmsdoerfer, certify, that:

I have reviewed this report on Form 10-K of Central Federal Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 27, 2015	/s/ John W. Helmsdoerfer
	John W. Helmsdoerfer, CPA
	Executive Vice President and Chief Financial Officer

EX-32.1 9 cfbk-20150327ex321e6db6d.htm EX-32.1 Exhibit 321

Exhibit 32.1

Section 1350 Certifications

In connection with the Annual Report of Central Federal Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Timothy T. O’Dell, Chief Executive Officer of the Company and John W. Helmsdoerfer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Timothy T. O’Dell

Timothy T. O’Dell

Chief Executive Officer

/s/ John W. Helmsdoerfer

John W. Helmsdoerfer, CPA

Executive Vice President and

Chief Financial Officer

Date:March 27, 2015