REGULATORY CAPITAL MATTERS

9 Months Ended

Sep. 30, 2012

REGULATORY CAPITAL MATTERS

NOTE 13 – REGULATORY CAPITAL MATTERS

CFBank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, 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.

Actual and required capital amounts and ratios of CFBank are presented below:

											Required
						For Capital					By Terms Of
	Actual					Adequacy Purposes					CFBank Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2012
Total Capital to risk weighted assets	$	24,816		20.00	%	$	9,926		8.00	%	$	14,890		12.00	%
Tier 1 (Core) Capital to risk weighted assets		23,217		18.71	%		4,963		4.00	%		N/A		N/A
Tier 1 (Core) Capital to adjusted total assets		23,217		10.52	%		8,844		4.00	%		17,687		8.00	%
Tangible Capital to adjusted total assets		23,217		10.52	%		3,316		1.50	%		N/A		N/A

											Required
						For Capital					By Terms Of
	Actual					Adequacy Purposes					CFBank Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011
Total Capital to risk weighted assets	$	15,351		10.30	%	$	11,918		8.00	%	$	17,876		12.00	%
Tier 1 (Core) Capital to risk weighted assets		13,436		9.02	%		5,959		4.00	%		N/A		N/A
Tier 1 (Core) Capital to adjusted total assets		13,436		5.39	%		9,968		4.00	%		19,937		8.00	%
Tangible Capital to adjusted total assets		13,436		5.39	%		3,738		1.50	%		N/A		N/A

The CFBank Order required CFBank to have by September 30, 2011, and maintain thereafter, 8% Tier 1 (Core) Capital to adjusted total assets and 12% Total Capital to risk weighted assets, which it did not meet at September 30, 2011, December 31, 2011 or June 30, 2012. CFBank met the capital requirement at September 30, 2012 as a result of a $13,500 capital contribution from the Holding Company resulting from the net proceeds of the stock offering. However, CFBank will not be considered “well-capitalized” under applicable regulatory capital standards as long as it is subject to individual minimum capital requirements under the CFBank Order. See Note 2 – Going Concern Considerations and Management’s Plans for additional information regarding the CFBank Order.

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, or CFBank must convert to a commercial bank charter. Management believes that CFBank met the Qualified Thrift Lender test at September 30, 2012.

CFBank converted from a mutual to a stock institution in 1998, and a “liquidation account” was established at $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 receive a distribution from this account if CFBank liquidated and sufficient funds were available after payment of all CFBank 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. Under the terms of the CFBank Order, CFBank must receive regulatory approval prior to any dividend payments. See Note 2 – Going Concern Considerations and Management’s Plans for additional information on the Orders.