NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

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 with the Holding Company referred to as “the Company”). The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) and in compliance with U.S. generally accepted accounting principles (GAAP). Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of the management of the Company, the accompanying unaudited interim consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The financial performance reported for the Company for the nine months ended September 30, 2012 is not necessarily indicative of the results that may be expected for the full year. This information should be read in conjunction with the Company’s latest Annual Report to Stockholders and Form 10-K. Reference is made to the accounting policies of the Company described in Note 1 of the Notes to Consolidated Financial Statements contained in the Company’s 2011 Annual Report that was filed as Exhibit 13.1 to the Company’s Form 10-K for the year ended December 31, 2011. The Company has consistently followed those policies in preparing this Form 10-Q.

Reclassifications and Reverse Stock Split: Some items in the prior period financial statements were reclassified to conform to the current presentation. 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: 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 participating securities (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:


	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Basic
Net loss	$	(1,909	)	$	(435	)	$	(3,332	)	$	(4,066	)
Less: Preferred dividends and accretion of discount on preferred stock		(107	)		(107	)		(328	)		(317	)
Plus: Discount on redemption of preferred stock		4,960			—			4,960			—
Less: Net income (loss) allocated to unvested share-based payment awards		(1	)		3			(1	)		27

Earnings (loss) available to common stockholders	$	2,943		$	(539	)	$	1,299			(4,356	)

Weighted average common shares outstanding including unvested share-based payment awards		7,673,201			825,364			3,113,356			825,368
Less: Unvested share-based payment awards		(2,167	)		(4,500	)		(2,722	)		(5,102	)

Average shares		7,671,034			820,864			3,110,634			820,266

Basic earnings (loss) per common share	$	0.38		$	(0.66	)	$	0.42		$	(5.31	)

Diluted
Earnings (loss) available to common stockholders	$	2,943		$	(539	)	$	1,299		$	(4,356	)

Weighted average common shares outstanding for basic earnings (loss) per common share		7,671,034			820,864			3,110,634			820,266
Add: Dilutive effects of assumed exercises of stock options		273			—			92			—
Add: Dilutive effects of assumed exercises of stock warrant		—			—			—			—

Average shares and dilutive potential common shares		7,671,307			820,864			3,110,726			820,266

Diluted earnings (loss) per common share	$	0.38		$	(0.66	)	$	0.42		$	(5.31	)

The following stock options and warrant were not considered in computing diluted earnings (loss) per common share because the options or warrant were anti-dilutive or the Company reported a net loss for the periods presented.


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Stock options		39,694		44,656		39,694		44,656

Stock warrant		63,574		67,314		66,067		67,314

Adoption of New Accounting Standards:

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04 to Fair Value Measurement (ASC 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU amended existing guidance to achieve common fair value measurement and disclosure requirements between U.S. and international accounting principles. Overall, the guidance was consistent with existing U.S. accounting principles; however, there were some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance were effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, but the additional disclosures are included in Note 6.

In June 2011, the FASB issued ASU No. 2011-05 to Comprehensive Income (ASC 220), Presentation of Comprehensive Income. This ASU amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholder’s equity. The amendment required that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this update were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and were to be applied retrospectively. The adoption of this amendment changed the presentation of the statement of comprehensive income for the Company to two consecutive statements instead of presented as part of the consolidated statement of stockholders’ equity.

In December 2011, the FASB issued ASU No. 2011-12 to Comprehensive Income (ASC 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. This ASU amended the guidance in ASU 2011-05 related to the presentation of the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amendments in this ASU were effective at the same time as the amendments in ASU 2011-05 so that entities would not be required to comply with the presentation requirements in ASU 2011-05 that this ASU deferred. The amendments in this ASU were effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.