10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2008

o 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	(I.R.S. Employer Identification No.)
Incorporation or Organization)
2923 Smith Road, Fairlawn, Ohio	44333
(Address of Principal Executive Offices)	(Zip Code)

(330) 666-7979
(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 o NO þ

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 o NO þ

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 þ NO o

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. þ

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 o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates as of June 30, 2008 was $13.9 million based upon the closing price as reported on the Nasdaq® Capital Market for that date.

As of March 15, 2009, there were 4,101,537 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Rule 14a-3(b) Annual Report to Shareholders for its fiscal year ended December 31, 2008 and its Proxy Statement for the 2009 Annual Meeting of Shareholders to be held on May 21, 2009, which was filed with the Securities and Exchange Commission (the Commission) on or about March 31, 2009, are incorporated herein by reference into Parts II and III, respectively, of this Form 10-K.

INDEX

	Page
PART I
Item 1. Business		4
Item 2. Properties		34
Item 3. Legal Proceedings		35
Item 4. Submission of Matters to a Vote of Security Holders		35
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		35
Item 6. Selected Financial Data		35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation		35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		36
Item 8. Financial Statements and Supplementary Data		36
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		36
Item 9A(T). Controls and Procedures		36
Item 9B. Other Information		37
PART III
Item 10. Directors, Executive Officers and Corporate Governance		37
Item 11. Executive Compensation		38
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters		39
Item 13. Certain Relationships and Related Transactions, and Director Independence		39
Item 14. Principal Accounting Fees and Services		39
PART IV
Item 15. Exhibits, Financial Statement Schedules		39
SIGNATURES		40
EXHIBIT INDEX
		41
Exhibit 11.1
Exhibit 13.1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

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Forward-Looking Statements

Statements in this Form 10-K that are not statements of historical fact are forward-looking statements. 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 Central Federal Corporation (the Company) or its management or Board of Directors; (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 factors could cause such differences:

• changes in general economic conditions and 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 interest margin and impact funding sources;

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

• changes in tax laws, rules and regulations;

• various monetary and fiscal policies and regulations, including those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS);

• 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;

• 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.

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 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.

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PART I

Item 1. Business.

General

The Company, which was formerly known as Grand Central Financial Corp., 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. CFBank is a community-oriented 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. As a savings and loan holding company, we are subject to regulation by the OTS. Reserve Mortgage Services, Inc. (Reserve), a wholly owned subsidiary of CFBank from October 2004 until May 12, 2005 when it was merged into CFBank, was acquired in October 2004 to expand CFBank’s mortgage services business. Central Federal Capital Trust I (the Trust), a wholly owned subsidiary of the Company, was formed in 2003 to raise additional funding for the Company. Under accounting guidance in Financial Accounting Standards Board (FASB) Interpretation No. 46, as revised in December 2003, the Trust is not consolidated with the Company. Accordingly, the Company does not report the securities issued by the Trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the Trust. Ghent Road, Inc., a wholly owned subsidiary of the Company, was formed in 2006 and owns land adjacent to CFBank’s Fairlawn office. Currently, we do not transact any material business other than through CFBank and the Trust. At December 31, 2008, assets totaled $277.8 million and stockholders’ equity totaled $33.1 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 remote deposit, telephone banking, corporate cash management and online internet banking. 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. We also invest in consumer loans, construction and land loans and securities. In 2003, we began originating more commercial, commercial real estate and multi-family mortgage loans than in the past as part of our expansion into business financial services. The majority of our customers are consumers, small businesses and small business owners. 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 and other borrowings and proceeds from the sale of loans. 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; and Columbiana County through our offices in Calcutta and Wellsville, Ohio. We originate commercial and conventional real estate loans and business loans primarily throughout Ohio.

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 with 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.

4

Lending Activities

Loan Portfolio Composition. The loan portfolio consists primarily of mortgage loans secured by single-family and multi-family residences, commercial real estate loans and commercial loans. At December 31, 2008, gross loans receivable totaled $237.4 million. Commercial, commercial real estate and multi-family mortgage loans totaled $182.1 million and represented 76.7% of the gross loan portfolio at December 31, 2008 compared to 74.6% of the gross loan portfolio at December 31, 2007 and 67.7% at December 31, 2006. The increase in the percentage of commercial, commercial real estate and multi-family mortgage loans in the portfolio was a result of the growth strategy implemented in 2003 to expand into business financial services. Single-family residential mortgage loans totaled $28.9 million and represented 12.2% of total gross loans at year-end 2008, compared to 13.3% of total gross loans at year-end 2007 and 16.2% at year-end 2006. The remainder of the portfolio consisted of consumer loans, which totaled $26.4 million, or 11.1% of gross loans receivable at year-end 2008.

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 Federal Reserve Board and legislative tax policies.

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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.

	At December 31,
	2008						2007						2006						2005						2004
				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	$	28,884			12.16	%	$	31,082			13.31	%	$	30,209			16.15	%	$	23,627			18.81	%	$	42,577			38.97	%
Multi-family		41,495			17.48	%		43,789			18.75	%		47,247			25.25	%		30,206			24.04	%		25,602			23.43	%
Commercial		99,652			41.98	%		95,088			40.71	%		47,474			25.37	%		25,937			20.64	%		20,105			18.40	%
Total real estate mortgage loans		170,031			71.62	%		169,959			72.77	%		124,930			66.77	%		79,770			63.49	%		88,284			80.80	%
Consumer loans:
Home equity loans		631			.27	%		604			.26	%		865			.46	%		734			.58	%		663			.61	%
Home equity lines of credit		19,708			8.30	%		18,726			8.02	%		22,148			11.84	%		23,852			18.98	%		5,928			5.43	%
Automobile		5,084			2.14	%		7,957			3.41	%		6,448			3.45	%		4,237			3.37	%		6,735			6.16	%
Other		1,006			.42	%		961			.41	%		785			.42	%		717			.57	%		626			.57	%
Total consumer loans		26,429			11.13	%		28,248			12.10	%		30,246			16.17	%		29,540			23.50	%		13,952			12.77	%
Commercial loans		40,945			17.25	%		35,334			15.13	%		31,913			17.06	%		16,347			13.01	%		7,030			6.43	%
Total loans receivable		237,405			100.00	%		233,541			100.00	%		187,089			100.00	%		125,657			100.00	%		109,266			100.00	%
Less:
Net deferred loan fees		(364	)					(382	)					(285	)					(136	)					(139	)
Allowance for loan losses		(3,119	)					(2,684	)					(2,109	)					(1,495	)					(978	)
Loans receivable, net	$	233,922					$	230,475					$	184,695					$	124,026					$	108,149

Real estate mortgage loans include $3,052, $6,184, $4,454, $1,466 and $9,774 in construction loans at year-end 2008, 2007, 2006, 2005 and 2004, respectively.

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Loan Maturity. The following table shows the remaining contractual maturity of the loan portfolio at December 31, 2008. 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, 2008
	Real Estate
	Mortgage		Consumer		Commercial		Total Loans
	Loans(1)		Loans		Loans		Receivable
	(Dollars in thousands)
Amounts due:
Within one year	$	16,810	$	1,094	$	25,852	$	43,756
After one year:
More than one year to three years		25,651		2,124		4,213		31,988
More than three years to five years		9,132		4,026		5,567		18,725
More than five years to 10 years		68,319		377		3,970		72,666
More than 10 years to 15 years		23,890		506		1,199		25,595
More than 15 years		26,229		18,302		144		44,675
Total due after 2009		153,221		25,335		15,093		193,649
Total amount due	$	170,031	$	26,429	$	40,945	$	237,405

⁽¹⁾ Real estate mortgage loans include single-family, multi-family and commercial real estate loans.

The following table sets forth at December 31, 2008, the dollar amount of total loans receivable contractually due after December 31, 2009, and whether such loans have fixed interest rates or adjustable interest rates.

	Due after December 31, 2009
	Fixed		Adjustable		Total
	(Dollars in thousands)
Real estate mortgage loans(1)	$	58,141	$	95,080	$	153,221
Consumer loans		5,810		19,525		25,335
Commercial loans		5,699		9,394		15,093
Total loans	$	69,650	$	123,999	$	193,649

⁽¹⁾ Real estate mortgage loans include single-family, multi-family and commercial real estate loans.

Origination of Loans. Lending activities are conducted through our offices. In 2003, we began originating commercial, commercial real estate and multi-family mortgage loans to take advantage of opportunities for expansion into business financial services and growth in the Fairlawn and Columbus, Ohio, markets. These loans are predominantly adjustable rate loans. 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. Although the decision to sell current single-family mortgage originations rather than retain the loans in portfolio may result in declining single-family loan portfolio balances and lower earnings from that portfolio in the near term, it protects future profitability. We believe it is not prudent to retain all of these long-term, fixed-rate loan originations and subject our performance to the interest rate risk and reduced future earnings

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associated with a rise in interest rates. In a transaction with the Federal Home Loan Mortgage Corporation (Freddie Mac) in 2005, we securitized single-family residential mortgage loans held in our portfolio with an outstanding principal balance of $18.6 million, reducing single-family mortgage loan balances. The securitization increased liquidity as the securities retained were readily marketable, eliminated credit risk on the loans and reduced CFBank’s risk-based capital requirement. Although we currently expect that most of the long-term fixed-rate mortgage loan originations will continue to be sold on a servicing-released basis, a portion of the 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. We currently sell a significant number of the single-family mortgage loans that we originate on a servicing released basis. Most single-family mortgage loans are underwritten according to Freddie Mac and other investor guidelines. Loan originations are obtained from our loan officers and their contacts with the local real estate industry, existing or past customers, members of the local communities, and to a lesser extent, through telemarketing and purchased leads. At December 31, 2008, single-family mortgage loans totaled $28.9 million, or 12.2% of total loans, of which $17.6 million, or 60.8%, were fixed-rate loans.

Our policy is to originate single-family residential mortgage loans for portfolio in amounts up to 85% of the appraised value of the property securing the loan and up to 100% of the appraised value if private mortgage insurance is obtained. 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. Due-on-sale clauses are an important means of adjusting the rates on the fixed-rate mortgage loan portfolio, and we exercise our rights under these clauses. The single-family mortgage loan originations are generally for terms to maturity of up to 30 years.

We offer several adjustable-rate mortgage (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. ARM loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, thereby 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. The Company requires that all ARM loans held in the loan portfolio have payments sufficient to amortize the loan over its term and the loans do not have negative principal 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 in our primary market area 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.

Commercial and Multi-Family Real Estate Lending. Beginning in 2003, we expanded into business financial services and positioned ourselves for growth in the Fairlawn and Columbus, Ohio, markets and, as a result, commercial real estate and multi-family residential mortgage loan balances have increased significantly. Commercial real estate and multi-family residential mortgage loans totaled $141.1 million, or 59.5% of gross loans, at December 31, 2008, compared to $138.9 million, or 59.5% of gross loans, at December 31, 2007, and $94.7 million, or 50.6% of gross loans, at December 31, 2006. We anticipate that commercial real estate and multi-family residential mortgage lending activities will continue to grow in the future as we continue to execute our strategic growth plan, but future growth will be significantly impacted by economic conditions, including the current recession.

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We originate commercial real estate loans that are secured by properties used for business purposes, such as manufacturing facilities, office buildings or retail facilities. 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 80% of the appraised value of the property. In underwriting commercial real estate and multi-family residential mortgage loans, we consider the appraisal value and net operating income of the property, the debt service ratio and the property owner’s financial strength, expertise and credit history. We offer both fixed rate and adjustable rate commercial real estate and multi-family loans. Fixed rates are generally limited to three to five years, at which time they convert to adjustable rate loans. Adjustable rate loans are tied to various market indices and generally adjust at monthly to annual time intervals. 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 properties are dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. These 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 loan outstanding with us. 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 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 owners.

Three multi-family mortgage loans to one borrower, totaling $1.3 million and secured by apartment buildings in Columbus, Ohio, were on nonaccrual status and determined to be impaired at year-end 2008. The amount of the allowance for loan losses allocated to the loans to this one borrower totaled $121,000 at year-end 2008.

At December 31, 2008, one commercial real estate loan, totaling $347,000 and secured by property in Akron, Ohio, was inadequately protected by the current net worth and paying capacity of the obligor and of the collateral pledged. The loan was 90 days past maturity and still accruing interest at December 31, 2008, as the borrower continues to make monthly payments on the loan, however, the loan exhibits weaknesses that could lead to nonaccrual classification in the future.

At December 31, 2008, one commercial real estate loan, totaling $530,000 and secured by church property in Columbus, Ohio, was identified as a significant problem loan that is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. A complete documentation review has been performed and the loan is in the active process of being collected. The borrower was two payments delinquent on the loan as of December 31, 2008 and the loan is not nonaccrual at year-end 2008; however, the loan exhibits weaknesses that could lead to nonaccrual classification in the future. As a substandard asset, the loan is characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. See “Delinquencies and Classified Assets.”

Commercial Lending. Expansion into business lending in 2003 also resulted in increased originations of commercial loans. Commercial loans totaled $40.9 million, or 17.3% of gross loans, at December 31, 2008. Commercial loans increased $5.6 million, or 15.7%, from $35.3 million, or 15.1% of gross loans, at December 31, 2007, and increased $9.0 million, or 28.3%, from $31.9 million, or 17.1% of gross loans, at December 31, 2006. We anticipate that commercial lending activities will continue to grow in the future.

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We make commercial business loans primarily to businesses. 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 owners. We offer both fixed rate and adjustable rate commercial loans. Fixed rates are generally limited to three to five years. Adjustable rate loans are tied to various market indices and generally adjust at monthly to annual time intervals.

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 minimize 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 owners.

At December 31, 2008, one commercial loan, totaling $646,000 and secured by a second lien on properties in the Kent, Ohio area, was on nonaccrual status and determined to be impaired at year-end 2008. The amount of the allowance for loan losses allocated to this loan totaled $371,000 at year-end 2008.

At December 31, 2008, seven commercial loans totaling $2.6 million were identified as significant problem loans that are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged. These seven commercial loans include three commercial loans to one borrower totaling $1.3 million secured by the facilities of a golf course in Macedonia, Ohio; 2 loans totaling $328,000 to an architectural firm in Columbus, Ohio; and 2 loans totaling $902,000 to a plastics recycler in Akron, Ohio. Complete documentation reviews have been performed and the loans are in the active process of being collected. Payments on these loans are current or one payment behind as of December 31, 2008 and the loans are not nonaccrual at year-end 2008; however, the loans exhibit weaknesses that could lead to nonaccrual classification in the future. As substandard assets, the loans are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. See “Delinquencies and Classified Assets.”

Construction and Land Lending. To a lesser extent, we originate construction and land development loans in our primary market areas. Construction loans are made to finance the construction of residential and commercial properties. Construction loans are fixed or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. 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 loans are evaluated on an individual basis, but generally they do not exceed 75% 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. Construction loans totaled $3.1 million at December 31, 2008.

Consumer and Other Lending. The consumer loan portfolio generally consists of home equity lines of credit, automobile loans, home equity and home improvement loans and loans secured by deposits. At December 31, 2008, the consumer loan portfolio totaled $26.4 million, or 11.1% of gross loans receivable.

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Home equity lines of credit comprise the majority of consumer loan balances and totaled $19.7 million at December 31, 2008. We offer a variable rate home equity line of credit with rates adjusting monthly at up to 3% above the prime rate of interest as disclosed in The Wall Street Journal. Since July 2006, our home equity line of credit product has included a 4% interest rate floor. 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. These loans 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. These home equity lines of credit are retained in our portfolio.

Home equity lines of credit include both purchased loans and loans we originated for portfolio. In 2005 and 2006, we purchased home equity lines of credit collateralized by properties located throughout the United States, including geographic areas that have experienced significant declines in housing values, such as California, Virginia and Florida. The outstanding balance of the purchased home equity lines of credit was $5.5 million at December 31, 2008, and $3.5 million, or 64%, of the balances are collateralized by properties in these states. The collateral values associated with loans in these states have declined from 10%to 25% since these loans were originated in 2005 and 2006. As a result, balances on those loans exceeded collateral values by $938,000 at year-end 2008. None of the loans where loan balances exceeded the collateral values were delinquent at December 31, 2008. We have experienced increased write-offs in the purchased portfolio as the state of the housing market and general economy has worsened and in 2008, three loans, totaling $360,000, were written off. We continue to monitor collateral values and borrower FICO scores and, when the situation warrants, have frozen the lines of credit.

Auto loan balances primarily represent remaining unpaid amounts on pools of loans purchased in 2005, 2006 and 2007. We did not purchase any auto loans in 2008. We no longer originate indirect automobile loans, as we had in years prior to 2003, and we make few direct automobile loans.

Delinquencies and Classified Assets. The Board of Directors monitors the status of all delinquent loans 30 days or more past due, past due statistics and trends for all loans on a monthly basis. Procedures with respect to resolving delinquencies vary depending on the nature and type of the loan and period of delinquency. In general, we make every effort, consistent with safety and soundness principles, to work with the borrower to have the loan brought current. If the loan is not brought current, it then becomes necessary to repossess collateral and/or take legal action.

11

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 OTS internal asset classifications as a part of our credit monitoring system. In accordance with regulations, problem assets are classified as “substandard,” “doubtful” or “loss,” and the classifications are subject to review by the OTS. An asset is considered “substandard” under the regulations if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. An asset considered “doubtful” under the regulations 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, conditions and values, “highly questionable and improbable.” Assets considered “loss” under the regulations are those considered “uncollectible” and having so little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets are required to be designated “special mention” when they posses weaknesses but do not currently expose the insured institution to sufficient risk to warrant classification in one of these categories. We maintain an internal credit grading system and loan review procedures specifically developed to monitor credit risk for commercial, commercial real estate and multi-family mortgage loans. Additionally, we utilize an independent, external firm for loan review annually.

At December 31, 2008, $4.6 million in assets were designated as special mention, and included $2.9 million in multi-family real estate loans, $1.5 million in commercial real estate loans and $245,000 in commercial loans. Assets classified as substandard totaled $4.9 million at December 31, 2008, and included $2.5 million in commercial loans, $1.3 million in multi-family mortgage loans, $877,000 in commercial real estate loans, $98,000 in consumer loans and $63,000 in single-family mortgage loans. Assets classified as doubtful totaled $646,000 at year-end 2008 and included one commercial loan. There were no loans classified as loss at year-end 2008.

12

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 principal balances of the loans rather than the actual payment amounts which are overdue.

	December 31, 2008										December 31, 2007										December 31, 2006
	60-89 Days					90 Days or More					60-89 Days					90 Days or More					60-89 Days					90 Days or More
	Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal
	of		Balance			of		Balance			of		Balance			of		Balance			of		Balance			of		Balance
	Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans
	(Dollars in thousands)
Real estate loans:
Single-family		—	$	—			3	$	63			—	$	—			5	$	332			—	$	—			5	$	288
Multi-family		—		—			3		1,264			—		—			—		—			—		—			—		—
Commercial		1		530			1		347			—		—			—		—			—		—			—		—
Consumer loans:
Home equity lines of credit		—		—			1		60			—		—			1		146			—		—			—		—
Automobile		1		2			—		—			—		—			1		9			1		1			1		9
Other		1		1			1		32			—		—			—		—			—		—			—		—
Commercial loans		—		—			1		646			—		—			1		1			2		509			—		—
Total delinquent loans		3	$	533			10	$	2,412			—	$	—			8	$	488			3	$	510			6	$	297
Delinquent loans as a percent of total loans				.22	%				1.02	%				.00	%				.21	%				.27	%				.16	%

The table does not include delinquent loans less than 60 days past due. At December 31, 2008, 2007 and 2006, total loans past due 30 to 59 days totaled $1,070, $333 and $1,533, respectively.

	December 31, 2005										December 31, 2004
	60-89 Days					90 Days or More					60-89 Days					90 Days or More
	Number		Principal			Number		Principal			Number		Principal			Number		Principal
	of		Balance			of		Balance			of		Balance			of		Balance
	Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans
	(Dollars in thousands)
Real estate loans:
Single-family		—	$	—			10	$	800			2	$	149			8	$	276
Multi-family		—		—			—		—			—		—			—		—
Commercial		—		—			—		—			—		—			—		—
Consumer loans:
Home equity lines of credit		—		—			—		—			1		7			—		—
Automobile		4		30			—		—			5		43			2		9
Other		1		2			—		—			—		—			1		1
Commercial loans		—		—			—		—			—		—			—		—
Total delinquent loans		5	$	32			10	$	800			8	$	199			11	$	286
Delinquent loans as a percent of total loans				.03	%				.64	%				.18	%				.26	%

The table does not include delinquent loans less than 60 days past due. At December 31, 2005 and 2004, total loans past due 30 to 59 days totaled $859 and $549, respectively.

13

Nonperforming Assets. The following table contains information regarding nonperforming loans and repossessed assets. It is the general policy of CFBank to stop accruing interest on loans four payments or more past due (unless the loan principal and interest are determined by management to be fully secured and in the process of collection) and set up reserves for all previously accrued interest. At December 31, 2008, 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 $141,000. There were no troubled debt restructurings for any of the years presented.

	At December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Nonaccrual loans:
Single-family real estate	$	63		$	235		$	288		$	800		$	276
Multi-family real estate		1,264			—			—			—			—
Consumer		92			155			9			—			10
Commercial		646			1			—			—			—
Total nonaccrual loans		2,065			391			297			800			286
Loans past due 90 days or more and still accruing:
Single-family real estate		—			97			—			—			—
Commercial real estate		347			—			—			—			—
Total nonperforming loans(1)		2,412			488			297			800			286
Real estate owned (REO)		—			86			—			—			132
Total nonperforming assets(2)	$	2,412		$	574		$	297		$	800		$	418
Nonperforming loans to total loans		1.02	%		.21	%		.16	%		.64	%		.26	%
Nonperforming assets to total assets		.87	%		.21	%		.13	%		.46	%		.24	%

(1)	Total nonperforming loans equal nonaccrual loans and loans past due 90 days or more and still accruing.
(2)	Nonperforming assets consist of nonperforming loans and REO.

Allowance for Loan Losses. Management analyzes the adequacy of the allowance for loan losses regularly 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 and trends; and other factors that warrant recognition in providing for an adequate loan loss allowance. The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk in the loan portfolio. Various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require additional provisions for loan losses based upon information available at the time of their review. At December 31, 2008, the allowance for loan losses totaled 1.32% of total loans, compared to 1.15% at December 31, 2007.

14

The OTS, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances in accordance with U.S. generally accepted accounting principles and guidance for banking agency examiners to use in evaluating the allowances. The policy statement requires that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. CFBank adopted an Allowance for Loan Losses Policy designed to provide a thorough, disciplined and consistently applied process that incorporates management’s current judgments about the credit quality of the loan portfolio into determination of the allowance for loan losses in accordance with U.S. generally accepted accounting principles and supervisory guidance. Management believes that an adequate allowance for loan losses has been established. However, actual losses are dependent upon future events and, as a result, further additions to the level of allowances for estimated loan losses may become necessary.

The following table sets forth activity in the allowance for loan losses for the periods indicated.

	2008			2007			2006			2005			2004
				(Dollars in thousands)
Allowance for loan losses, beginning of period	$	2,684		$	2,109		$	1,495		$	978		$	415
Charge-offs:
Single-family real estate		73			27			159			170			—
Consumer		424			17			143			85			117
Total charge-offs		497			44			302			255			117
Recoveries on loans previously charged off:
Single-family real estate		4			72			53			27			—
Consumer		11			8			43			71			34
Total recoveries		15			80			96			98			34
Net charge-offs (recoveries)		482			(36	)		206			157			83
Provision for loan losses		917			539			820			674			646
Allowance for loan losses, end of period	$	3,119		$	2,684		$	2,109		$	1,495		$	978
Allowance for loan losses to total loans		1.32	%		1.15	%		1.13	%		1.19	%		.90	%
Allowance for loan losses to nonperforming loans		129.31	%		550.00	%		710.10	%		186.88	%		341.96	%
Net charge-offs (recoveries) to the allowance for losses		15.45	%		(1.34	%)		9.77	%		10.50	%		8.49	%
Net charge-offs (recoveries) to average loans		.21	%		(.02	%)		.13	%		.14	%		.10	%

The provision for loan losses increased in 2008 due to an increase in loan charge-offs and nonperforming loans in 2008. The provision for loan losses totaled $917,000 in 2008 compared to $539,000 in 2007 and $820,000 in 2006. Growth in nonperforming commercial, commercial real estate and multi-family mortgage loans required an increase allowance for loan losses related to these loan types in 2008. As shown in the following chart, the allowance for commercial, commercial real estate and multi-family mortgage loans totaled $2.9 million at December 31, 2008, an increase of $382,000 from $2.6 million at December 31, 2007. These loans tend to be larger balance, higher risk loans and, as a result, 94.1% of the allowance was allocated to these loan types at December 31, 2008.

The current weakness in the housing market and slowing economy may increase the level of charge-offs in the future. Weakness in the housing markets in geographic regions that have experienced the largest decline in housing values may negatively impact our purchased home equity lines of credit. See “Consumer and Other Lending.” Additionally, a slowing economy may negatively impact our commercial, commercial real estate and multi-family residential loan portfolios, where we have already experienced an increase in delinquent and nonperforming assets.

15

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

	At December 31,
	2008								2007								2006
			% of			Percent					% of			Percent					% of			Percent
			Allowance			of Loans					Allowance			of Loans					Allowance			of Loans
			in each			in Each					in each			in Each					in each			in Each
			Category			Category					Category			Category					Category			Category
			to Total			to Total					to Total			to Total					to Total			to Total
	Amount		Allowance			Loans			Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)
Single-family mortgage loans	$	43		1.38	%		12.16	%	$	86		3.20	%		13.31	%	$	110		5.22	%		16.15	%
Consumer loans		142		4.55	%		11.13	%		46		1.72	%		12.10	%		53		2.51	%		16.17	%
Commercial, commercial real estate and multi-family mortgage loans		2,934		94.07	%		76.71	%		2,552		95.08	%		74.59	%		1,946		92.27	%		67.68	%
Total allowance for loan losses	$	3,119		100.00	%		100.00	%	$	2,684		100.00	%		100.00	%	$	2,109		100.00	%		100.00	%

	At December 31,
	2005								2004
			% of			Percent					% of			Percent
			Allowance			of Loans					Allowance			of Loans
			in each			in Each					in each			in Each
			Category			Category					Category			Category
			to Total			to Total					to Total			to Total
	Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)
Single-family mortgage loans	$	57		3.81	%		18.81	%	$	4		.41	%		38.97	%
Consumer loans		120		8.03	%		23.50	%		112		11.45	%		12.77	%
Commercial, commercial real estate and multi-family mortgage loans		1,318		88.16	%		57.69	%		862		88.14	%		48.26	%
Total allowance for loan losses	$	1,495		100.00	%		100.00	%	$	978		100.00	%		100.00	%

16

Real Estate Owned

There were no properties held as real estate owned at December 31, 2008. 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 costs after acquisition are expensed.

Investment Activities

Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States 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 liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complement lending activities. The policy provides authority to invest in United States Treasury and federal agency securities meeting the policy’s guidelines, mortgage-backed securities guaranteed by the United States government and agencies thereof, and municipal bonds. At December 31, 2008, the securities portfolio totaled $23.6 million.

At December 31, 2008, all mortgage-backed securities in the securities portfolio were insured or guaranteed by Freddie Mac or the Federal National Mortgage Association (Fannie Mae).

17

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

	At December 31,
	2008				2007				2006
	Amortized				Amortized		Fair		Amortized			Fair
	Cost		Fair Value		Cost		Value		Cost			Value
	(Dollars in thousands)
Securities available for sale:
Federal agency	$	—	$	—	$	6,998	$	6,993	$	6,005		$	5,883
State and municipal		—		—		1,009		1,009		2,014			1,979
Mortgage-backed		23,020		23,550		20,107		20,396		21,345			21,464
Total securities available for sale		23,020		23,550		28,114		28,398		29,364			29,326
Net unrealized gain (loss) on securities available for sale		530		—		284		—		(38	)		—
Total securities	$	23,550	$	23,550	$	28,398	$	28,398	$	29,326		$	29,326

18

The table below sets forth certain information regarding the carrying value, weighted average yields and contractual maturities of securities available for sale as of December 31, 2008. Yields are stated on a fully taxable equivalent basis.

	At December 31, 2008
						More than One Year to					More than Five Years to
	One Year or Less					Five Years					Ten Years					More than Ten Years					Total
			Weighted					Weighted					Weighted					Weighted					Weighted
	Carrying		Average			Carrying		Average			Carrying		Average			Carrying		Average			Carrying		Average
	Value		Yield			Value		Yield			Value		Yield			Value		Yield			Value		Yield
											(Dollars in thousands)
Mortgage-backed	$	—		0.00	%	$	2,207		5.03	%	$	3,569		5.34	%	$	17,774		5.40	%	$	23,550		5.36	%
Total securities at fair value	$	—		0.00	%	$	2,207		5.03	%	$	3,569		5.34	%	$	17,774		5.40	%	$	23,550		5.36	%

19

Sources of Funds

General. Primary sources of funds are deposits, principal and interest payments on loans and securities, 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. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

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 growth objectives. Certificate of deposit accounts represent the largest portion of our deposit portfolio and totaled 60.5% of average deposit balances in 2008. 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. CFBank participates in the Certificate of Deposit Account Registry Service^® (CDARS) which provides CFBank customers the ability to obtain full FDIC insurance on deposits of up to $50 million placed through the service. During the credit crisis in 2008, many CFBank customers sought the full FDIC coverage available through the CDARS program, and balances in these accounts increased $31.6 million to $48.4 million at December 31, 2008, compared to $16.8 million at December 31, 2007 and $9.5 million at December 31, 2006. At December 31, 2008, certificate accounts maturing in less than one year totaled $83.8 million and included $40.0 million in CDARS balances. Although most of the certificate of deposit accounts are expected to be reinvested with CFBank, there is a risk that the CDARS account holders may not require the full FDIC coverage available through the CDARS program when money markets stabilize, and may select higher yielding investments. 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 affect our ability to attract and retain deposits. Deposits are obtained predominantly from the areas in which CFBank offices are located, and brokered deposits are accepted. We consider brokered deposits to be a useful element of a diversified funding strategy and an alternative to borrowings. Management regularly compares rates on brokered certificates of deposit with other funding sources in order to determine the best mix of funding sources balancing the costs of funding with the mix of maturities. Although CFBank customers participate in the CDARS program, they are considered brokered deposits by regulation. Brokered deposits, including CDARS accounts, totaled $67.2 million at December 31, 2008, $52.2 million at December 31, 2007 and $30.5 million at December 31, 2006.

Certificate accounts in amounts of $100,000 or more totaled $45.6 million at December 31, 2008, maturing as follows:

			Weighted
			Average
Maturity Period	Amount		Rate
	(Dollars in thousands)
Three months or less	$	11,914		2.23	%
Over 3 through 6 months		7,492		3.64	%
Over 6 through 12 months		10,687		4.55	%
Over 12 months		15,467		4.13	%
Total	$	45,560

20

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,
	2008								2007								2006
			Percent								Percent								Percent
			of Total			Average					of Total			Average					of Total			Average
	Average		Average			Rate			Average		Average			Rate			Average		Average			Rate
	Balance		Deposits			Paid			Balance		Deposits			Paid			Balance		Deposits			Paid
									(Dollars in thousands)
Interest-bearing checking accounts	$	11,399		5.66	%		.49	%	$	10,676		6.00	%		2.17	%	$	9,522		6.37	%		2.16	%
Money market accounts		44,059		21.89	%		2.41	%		40,890		22.97	%		4.39	%		31,754		21.25	%		4.23	%
Savings accounts		10,322		5.13	%		.33	%		10,613		5.96	%		.50	%		12,770		8.55	%		.60	%
Certificates of deposit		121,715		60.47	%		4.16	%		104,063		58.47	%		4.93	%		85,010		56.88	%		4.30	%
Noninterest-bearing deposits:
Demand deposits		13,776		6.85	%		—			11,742		6.60	%		—			10,386		6.95	%		—
Total average deposits	$	201,271		100.00	%		3.31	%	$	177,984		100.00	%		4.34	%	$	149,442		100.00	%		3.80	%

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, 2008.

	Period to Maturity from December 31, 2008								At December 31,
					Two to		Over
	Less than		One to Two		Three		Three
	One Year		Years		Years		Years		2008		2007		2006
					(Dollars in thousands)
Certificate accounts:
0 to 0.99%	$	2,058	$	80	$	—	$	21	$	2,159	$	21	$	3
1.00 to 1.99%		9,985		1,548		55		40		11,628		23		7
2.00 to 2.99%		33,102		706		6		36		33,850		2,923		4,696
3.00 to 3.99%		15,823		16,283		1,149		42		33,297		11,434		11,955
4.00 to 4.99%		5,984		22,437		2,358		622		31,401		33,324		19,250
5.00% and above		16,806		831		482		796		18,915		66,443		61,547
Total certificate accounts	$	83,758	$	41,885	$	4,050	$	1,557	$	131,250	$	114,168	$	97,458

21

Borrowings. FHLB advances are used as an alternative to retail and brokered deposits to fund operations as part of our operating strategy. The advances are collateralized primarily by certain mortgage loans, home equity lines of credit, commercial real estate loans and mortgage-backed securities and secondarily by investment in capital stock of the FHLB. 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. In addition to access to FHLB advances, CFBank has a $5.0 million line of credit with a commercial bank. Interest on the line accrues daily and is variable based on the lender’s federal funds rate.

In 2003, we formed the Trust, which issued $5.0 million of three-month London Interbank Offered Rate (LIBOR) plus 2.85% floating rate trust preferred securities as part of a pooled private offering of such securities. We issued $5.2 million 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 subordinated debentures mature on December 30, 2033 and we may redeem the subordinated debentures, in whole or in part, at par plus accrued and unpaid interest, any time after December 30, 2008. We have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. There are no required payments on the subordinated debentures over the next five years. Under FASB Interpretation No. 46, as revised in December 2003, the Trust is not consolidated with the Company. Accordingly, we do not report the securities issued by the Trust as liabilities, and instead report the subordinated debentures issued by the Company and held by the Trust as liabilities.

The following table sets forth certain information regarding borrowed funds at or for the periods ended on the dates indicated:

	At or for the Year ended December 31,
	2008			2007			2006
	(Dollars in thousands)
FHLB advances and other borrowings:
Average balance outstanding	$	47,013		$	51,295		$	33,201
Maximum amount outstanding at any month-end during the period		60,305			60,205			41,604
Balance outstanding at end of period		34,205			54,605			37,675
Weighted average interest rate during the period		3.67	%		5.02	%		4.85	%
Weighted average interest rate at end of period		3.44	%		4.57	%		5.28	%

Subsidiary Activities

As of December 31, 2008, we maintained CFBank, Ghent Road, Inc. and the Trust as wholly owned subsidiaries.

Personnel

As of December 31, 2008, CFBank had 63 full-time and 12 part-time employees.

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Regulation and Supervision

General. CFBank is subject to regulation, examination and supervision by the OTS, as its chartering agency, and the FDIC, as the deposit insurer. CFBank is a member of the FHLB System. CFBank’s deposit accounts are insured up to applicable limits by the FDIC through the Deposit Insurance Fund (DIF). The FDIC merged the Bank Insurance Fund and the Savings Association Insurance Fund to form the DIF on March 31, 2006, in accordance with the Federal Deposit Insurance Reform Act of 2005. CFBank must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OTS and the FDIC to test CFBank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowances for loan losses for regulatory purposes. Legislation, including proposals to change substantially the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced in Congress. Any change in such law, regulation or policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Company, and on CFBank and its operations. Under the holding company form of organization, the Company is also required to file certain reports with, and otherwise comply with the rules and regulations of the OTS and of the Commission under the federal securities laws.

Certain of the regulatory requirements applicable to the Company and CFBank are referred to below. However, the description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on CFBank and/or the Company.

Federal Savings Institution Regulation

Business Activities. The activities of federal savings institutions are governed by the Home Owners’ Loan Act, as amended (HOLA) and, in certain respects, the Federal Deposit Insurance Act and the regulations issued by the agencies to implement these statutes. These laws and regulations delineate the nature and extent of the activities in which federal associations may engage. In particular, many types of lending authority for federal associations, for example, commercial, commercial real estate loans and consumer loans, are limited to a specified percentage of the institution’s capital or assets.

Loans-to-One Borrower. Under HOLA, savings institutions are generally subject to the national bank limit on loans to one borrower. Generally, this limit is 15% of a bank’s unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus, if such loan is secured by readily marketable collateral, which is defined to include certain financial instruments. At December 31, 2008, CFBank was in compliance with this regulation.

QTL Test. The HOLA requires that CFBank, as a savings association, comply with the qualified thrift lender (QTL) test. Under the QTL test, CFBank is required to maintain at least 65% of its portfolio assets in certain “qualified thrift investments” for at least nine months of the most recent twelve-month period. “Portfolio assets” means, in general, CFBank’s total assets less the sum of (i) specified liquid assets up to 20% of total assets, (ii) goodwill and other intangible assets and (iii) the value of property used to conduct CFBank’s business. CFBank may also satisfy the QTL test by qualifying as a domestic building and loan association as defined in the Internal Revenue Code of 1986, as amended. CFBank met the QTL test at December 31, 2008 and in each of the prior 12 months, and, therefore, qualified as a thrift lender. If CFBank fails the QTL test, it must either operate under certain restrictions on its activities or convert to a national bank charter.

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Capital Requirements. The OTS regulations require savings associations to meet three minimum capital standards: (i) a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations; (ii) a leverage ratio requirement of 3.0% of core capital to such adjusted total assets, if a savings association has been assigned the highest composite rating of 1 under the Uniform Financial Institutions Rating System; and (iii) a risk-based capital ratio requirement of 8.0% of core and supplementary capital to total risk-based assets. The minimum leverage capital ratio for any other depository institution that does not have a composite rating of 1 is 4.0%, unless a higher leverage capital ratio is warranted by the particular circumstances or risk profile of the depository institution. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk weights, which range from 0%, for cash and obligations issued by the United States government or its agencies, to 100% for consumer and commercial loans, as assigned by the OTS capital regulation based on the risks found by the OTS to be inherent in the type of asset.

Tangible capital is defined, generally, as common shareholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related earnings and minority interests in equity accounts of fully consolidated subsidiaries, less intangibles (other than certain mortgage servicing rights) and investments in and loans to subsidiaries engaged in activities not permissible for a national bank. Core capital is defined similarly to tangible capital, but core capital also includes certain qualifying supervisory goodwill and certain purchased credit card relationships. Supplementary capital currently includes cumulative and other preferred stock, mandatory convertible debt securities, subordinated debt, intermediate preferred stock and the allowance for loan and lease losses. In addition, up to 45% of unrealized gains on available-for-sale equity securities with a readily determinable fair value may be included in tier 2 capital. The allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets, and the amount of supplementary capital that may be included as total capital cannot exceed the amount of core capital. At December 31, 2008, CFBank met each of its capital requirements, in each case on a fully phased-in basis.

					Excess		Capital
	Actual		Required		(Deficiency)		Actual			Required
	Capital		Capital		Amount		Percent			Percent
	(Dollars in thousands)
Tangible	$	25,168	$	4,120	$	21,048		9.2	%		1.5	%
Core (Leverage)		25,168		10,988		14,180		9.2	%		4.0	%
Risk-based		27,737		19,163		8,574		11.6	%		8.0	%

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Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, which are based primarily on an institution’s capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution (Tier 1 Bank) and that has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice, but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its “surplus capital ratio” (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event CFBank’s capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, CFBank’s ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. At December 31, 2008, CFBank was classified as a Tier 1 Bank.

Under OTS capital distribution regulations, an application to and the prior approval of the OTS is required before an institution makes a capital distribution if (1) the institution does not meet certain criteria for “expedited treatment” for applications under the regulations, (2) the total capital distributions by the institution for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, (3) the institution would be undercapitalized following the distribution or (4) the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution may still need to give advance notice to the OTS of the capital distribution. The Company’s ability to pay dividends, service debt obligations and repurchase common stock is dependent upon receipt of dividend payments from CFBank.

Branching. OTS regulations permit federally-chartered savings associations to branch nationwide under certain conditions. Generally, federal savings associations may establish interstate networks and geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment. Under the Community Reinvestment Act (the CRA), as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings association, to assess the association’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the association. The CRA also requires each institution to publicly disclose its CRA rating. CFBank’s CRA rating was “satisfactory” based on the latest assessment by the OTS as of December 2008.

The CRA regulations establish an assessment system that bases a savings association’s rating on its actual performance in meeting community needs. In particular, the assessment system focuses on three tests: (i) a lending test, to evaluate the institution’s record of making loans in its assessment areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing and programs benefiting low- or moderate-income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. The applicability of these three tests to a particular savings association is based on its asset size.

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Transactions with Related Parties. The authority of CFBank to engage in transactions with related parties or “affiliates” (i.e., any company that controls or is under common control with an institution, including the Company and any non-savings institution subsidiaries that the Company may establish) is limited by Sections 23A and 23B of the Federal Reserve Act. Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally requires that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. A savings association also is prohibited from extending credit to any affiliate engaged in activities not permitted for a bank holding company and may not purchase the securities of an affiliate (other than a subsidiary).

Section 22(h) of the Federal Reserve Act restricts a savings association with respect to loans to directors, executive officers and principal stockholders. Under Section 22(h), loans to directors, executive officers and stockholders who control, directly or indirectly, 10% or more of voting securities of a savings association, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the savings association’s total unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and stockholders who directly or indirectly control 10% or more of voting securities of a stock savings association, and their respective related interests, unless such loan is approved in advance by a majority of the board of directors of the savings association. Any “interested” director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus. Furthermore, any loan, when aggregated with all other extensions of credit to that person, which exceeds $500,000, must receive prior approval by the board. Further, pursuant to Section 22(h), loans to directors, executive officers and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons except for extensions of credit made pursuant to a benefit or compensation program that is widely available to the institution’s employees and does not give preference to insiders over other employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Section 402 of the Sarbanes-Oxley Act of 2002 prohibits the extension of personal loans to directors and executive officers of issuers. The prohibition, however, does not apply to mortgages advanced by an insured depository institution, such as CFBank, which are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act.

Enforcement. Under the Federal Deposit Insurance Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring action against all “institution-affiliated parties,” including stockholders, and any attorneys, appraisers or accountants who knowingly or recklessly participate in a wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a supervisory directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance. Civil penalties apply to a wide range of violations and can amount to $25,000 per day, or $1 million or 1% of total assets, whichever is less per day in especially egregious cases. The FDIC also has the authority under the act to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal and state law also establishes criminal penalties for certain violations.

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Standards for Safety and Soundness. The Federal Deposit Insurance Act requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, fees and benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (Guidelines) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; asset quality; earnings; compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. The regulations under the Federal Deposit Insurance Act establish deadlines for the submission and review of such safety and soundness compliance plans.

Real Estate Lending Standards. The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that (i) are secured by real estate or (ii) are made for the purpose of financing the construction of improvements on real estate. The OTS regulations require each savings association to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying OTS guidelines, which include loan-to-value ratios for the different types of real estate loans. Associations are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The guidelines also list a number of lending situations in which exceptions to the loan-to-value standards are justified.

Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain, and is authorized to take other, supervisory actions against undercapitalized savings associations. For this purpose, a savings association would be placed in one of the following four categories based on the association’s capital: (i) well-capitalized; (ii) adequately capitalized; (iii) undercapitalized; or (iv) critically undercapitalized. When appropriate, the OTS can require corrective action by a savings association holding company under the “prompt corrective action” provision of federal law. At December 31, 2008, CFBank met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts. The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of three capital categories based on the institution’s financial information, as of the reporting period ending seven months before the assessment period, consisting of (1) well capitalized, (2) adequately capitalized or (3) undercapitalized, and one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution’s primary federal regulator and information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. An institution’s assessment rate depends on the capital category and supervisory category to which it is assigned.

On February 27, 2009, the FDIC proposed an interim rule imposing a 20 basis points emergency special assessment on insured institutions on June 30, 2009, to be collected on September 30, 2009. The interim rule also permits an additional emergency special assessment of not more than 10 basis points to be assessed after June 30, 2009. Based on CFBank’s deposit balances at December 31, 2008, the 20 basis point special assessment to CFBank would amount to approximately $415,000, but the actual amount will depend on the level of deposit balances at June 30, 2009, the date of the assessment, and the amount of the assessment in the final rule when it is adopted by the FDIC.

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In addition to the special assessment announced on February 27, 2009, the FDIC also issued a final rule regarding the restoration plan for the DIF, assessing banks a base assessment of from 7 basis points to 77.5 basis points on an annual basis, beginning April 1, 2009, based on their risk classification and all adjustments allowed under the final rule. Assessment rates for DIF member institutions ranged from 2 basis points to 40 basis points prior to the adoption of the final rule regarding the restoration plan. Information on the exact risk classification and assessment level that will be applicable to CFBank is not available at this time, but FDIC premiums payable by CFBank will increase when the final rule is implemented beginning April 1, 2009. The increased premiums and special assessment will have an adverse effect on the operating expenses and results of operations of CFBank and the Company.

In addition to the assessment for deposit insurance, institutions are required to pay on bonds issued in the late 1980s by the Financing Corporation to recapitalize the predecessor to the Savings Association Insurance Fund (now a predecessor to the DIF).

In 2006, the Federal Deposit Insurance Reform Act of 2005 was signed into law. The statute increased the coverage limit for retirement accounts to $250,000. In addition, it allowed the FDIC to set the target reserve ratio between 1.15% and 1.50%. It also provided eligible insured depository institutions that were in existence on and paid deposit insurance assessments prior to December 31, 1996, to share a one-time assessment credit based on their share of the aggregate 1996 assessment base. CFBank received a one-time assessment credit of $103,000, which was fully used to offset FDIC premiums in 2007 and 2008.

Under the Federal Deposit Insurance Reform Act of 2005, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operation or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Company does not know of any practice, condition or violation that might lead to termination of deposit insurance.

As part of the regulatory initiatives in 2008, the FDIC implemented the Temporary Liquidity Guarantee Program to strengthen confidence and encourage liquidity in the banking system. This program is comprised of the Debt Guarantee Program (DGP) and the Transaction Account Guarantee Program (TAGP). The DGP guarantees all newly issued senior unsecured debt (e.g., promissory notes, unsubordinated unsecured notes and commercial paper) up to prescribed limits issued by participating entities beginning on October 14, 2008 and continuing through June 30, 2009. For eligible debt issued by that date, the FDIC will provide the guarantee coverage until the earlier of the maturity date of the debt or June 30, 2012. The TAGP offers full guarantee for noninterest-bearing deposit accounts held at FDIC-insured depository institutions. The unlimited deposit coverage is voluntary for eligible institutions and is in addition to the $250,000 FDIC deposit insurance per account that was included as part of the Emergency Economic Stabilization Act of 2008 (EESA). The TAGP coverage became effective on October 14, 2008 and will continue for participating institutions until December 31, 2009.

Initially, these programs were provided at no cost for the first 30 days. On November 3, 2008, the FDIC extended the opt-out period to December 5, 2008 to provide eligible institutions additional time to consider the terms before making a final decision regarding participation in the program. An entity that has chosen not to opt out of either or both programs became a participating entity and will be assessed fees for participation. Participants in the DGP will be charged an annualized fee equal to 75 basis points multiplied by the debt issued, and calculated for the maturity period of that debt, or through June 30, 2012, whichever is earlier. Any eligible entity that has not chosen to opt out of the TAGP will be assessed, on a quarterly basis, an annualized 10 basis point fee on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000. CFBank has chosen to participate in both of the programs.

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Federal Home Loan Bank System. CFBank is a member of the FHLB of Cincinnati, which is one of the regional FHLBs composing the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions by providing a readily available, competitively priced source of funding which can be used for a wide variety of asset/liability purposes. CFBank, as a member of the FHLB of Cincinnati, is required to acquire and hold shares of capital stock in the FHLB of Cincinnati in an amount based on CFBank’s total assets and outstanding advances. The stock requirement is subject to change by the FHLB. CFBank was in compliance with the requirement with an investment in FHLB of Cincinnati stock at December 31, 2008 of $2.1 million. Any advances from a FHLB must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance.

The FHLBs are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of earnings that the FHLBs can pay as dividends to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future FHLB advances increased, CFBank’s net interest income would be affected. Under the Gramm-Leach-Bliley Act, membership in the FHLB is voluntary for all federally-chartered savings associations, such as CFBank. CFBank owns Class B shares which are redeemable with five-year’s notice.

Recent published reports indicate that asset quality risks and the application of certain accounting rules may negatively affect the capital levels of certain members of the FHLB System. If events occur that cause substantial doubt about the ultimate recoverability of our investment in FHLB stock, which totaled $2.1 million at December 31, 2008, we could incur an impairment loss that would cause our earnings and shareholders’ equity to be reduced by the after-tax amount of the impairment charge.

Federal Reserve System. CFBank is subject to provisions of the Federal Reserve Act and the regulations of the Federal Reserve (FR) pursuant to which depositary institutions may be required to maintain reserves against their deposit accounts and certain other liabilities. Currently, reserves must be maintained against transaction accounts, primarily NOW and regular checking accounts. At December 31, 2008, the FR regulations generally required that reserves be maintained in the amount of 3.0% of the aggregate of transaction accounts up to $43.9 million. The aggregate transaction accounts in excess of $43.9 million were subject to a reserve ratio of $1.038 million plus 10.0%. The FR regulations exempt $9.3 million of otherwise reservable balances from the reserve requirements, which exemption is adjusted by the FR at the end of each year. CFBank was in compliance with the foregoing reserve requirements at December 31, 2008. Effective for 2009, reserves in the amount of 3% of aggregate transaction accounts up to $44.4 million must be maintained, and transaction accounts in excess of the $44.4 million are subject to a reserve ratio of $1.023 million plus 10%. The FR regulations exempt $10.3 million of otherwise reservable balances from the reserve requirements. Prior to October 1, 2008, required and excess reserve balances on deposit with the Federal Reserve Bank did not earn interest. Because required reserves may be maintained in the form of vault cash, these reserves may reduce CFBank’s interest-earning assets. The balances maintained to meet the reserve requirements imposed by the FR may be used to satisfy liquidity requirements imposed by the OTS. FHLB System members are also authorized to borrow from the Federal Reserve Bank discount window.

Privacy Regulations. The OTS issued regulations implementing the privacy protection provisions of the GLB Act. The regulations generally require that CFBank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to any customer at the time of establishing the customer relationship and annually thereafter. In addition, CFBank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. CFBank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

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The USA PATRIOT Act. The USA PATRIOT Act of 2001 was enacted on October 26, 2001 and was renewed in substantially the same form on March 9, 2006. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. That statute contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. It also requires United States financial institutions to adopt policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. CFBank has adopted policies and procedures to meet those requirements.

Holding Company Regulation

The Company is a savings and loan holding company regulated by the OTS and, as such, is registered with and subject to OTS examination and supervision, as well as certain reporting requirements. In addition, the OTS has enforcement authority over the Company and any of our non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings institution. Unlike bank holding companies, federal savings and loan holding companies are not subject to any regulatory capital requirements or to supervision by the Federal Reserve System.

Permissible Activities of Central Federal Corporation. Because the Company acquired CFBank prior to May 4, 1999, it is permitted to engage in the following non-financial activities under the Gramm-Leach-Bliley Act: (i) furnishing or performing management services for a savings institution subsidiary; (ii) conducting an insurance agency or escrow business; (iii) holding, managing or liquidating assets owned or acquired from a savings institution subsidiary; (iv) holding or managing properties used or occupied by a savings institution subsidiary; (v) acting as trustee under a deed of trust; (vi) any other activity (a) that the FR, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Director of the OTS, by regulation, prohibits or limits any such activity for savings and loan holding companies, or (b) in which multiple savings and loan holding companies were authorized by regulation to directly engage in on March 5, 1987; (vii) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such holding company is approved by the Director of the OTS; and (viii) any activity permissible for financial holding companies under section 4(k) of the Bank Holding Company Act of 1956.

Permissible activities which are deemed to be financial in nature or incidental thereto under said section 4(k) include: (i) lending, exchanging, transferring, investing for others or safeguarding money or securities; (ii) insurance activities or providing and issuing annuities, and acting as principal, agent or broker; (iii) financial, investment or economic advisory services; (iv) issuing or selling instruments representing interests in pools of assets that a bank is permitted to hold directly; (v) underwriting, dealing in or making a market in securities; (vi) activities previously determined by the FR to be closely related to banking; (vii) activities that bank holding companies are permitted to engage in outside of the United States; and (viii) portfolio investments made by an insurance company.

Restrictions Applicable to All Savings and Loan Holding Companies. As a savings and loan holding company, the Company is prohibited by federal law from, directly or indirectly, acquiring: (i) control (as defined under HOLA) of another savings institution (or a holding company parent) without prior OTS approval; (ii) through merger, consolidation or purchase of assets, another savings institution or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company) without prior OTS approval; or (iii) control of any depository institution not insured by the FDIC (except through a merger with and into the holding company’s savings institution subsidiary that is approved by the OTS).

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A savings and loan holding company also may not acquire as a separate subsidiary an insured institution that has a principal office outside of the state where the principal office of its subsidiary institution is located, except (i) in the case of certain emergency acquisitions approved by the FDIC, (ii) if such holding company controls a savings institution subsidiary that operated a home or branch office in such additional state as of March 5, 1987 or (iii) if the laws of the state in which the savings institution to be acquired is located specifically authorize a savings institution chartered by that state to be acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located or by a holding company that controls such a state-chartered association.

If the savings institution subsidiary of a federal savings and loan holding company fails to meet the QTL test set forth in Section 10(m) of the HOLA and regulations of the OTS, the holding company must register with the FR as a bank holding company under the BHC Act within one year of the savings institution’s failure to so qualify.

Prohibitions Against Tying Arrangements. Federal savings banks are subject to the prohibitions of 12 U.S.C. §1972 on certain tying arrangements. A depository institution is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Securities Laws. The Company’s common stock is registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and, accordingly, we are subject to information, proxy solicitation, insider trading restrictions, and other requirements under the Exchange Act.

Sarbanes-Oxley Act. As a public company, we are subject to the Sarbanes-Oxley Act, which implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing. The Sarbanes-Oxley Act includes a requirement that companies establish and maintain a system of internal control over financial reporting and that a company’s management provide an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to its independent accountants and that such accountants provide an attestation report with respect to management’s assessment of the effectiveness of the company’s internal control over financial reporting.

The independent auditor attestation requirement of the internal control rules becomes applicable to the Company as a “non-accelerated filer” for the year ending December 31, 2009, and costs associated with this attestation will be borne by the Company.

Emergency Economic Stabilization Act of 2008. The EESA was enacted in October 2008. Pursuant to the EESA, the U.S. Treasury has authority to, among other things, invest in financial institutions and purchase mortgages, mortgage-backed securities and certain other financial instruments from financial institutions, in an aggregate amount up to $700 billion, for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

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On October 14, 2008, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase Program, established as part of the EESA, the U.S. Treasury announced a plan to invest up to $250 billion in certain eligible financial institutions in the form of non-voting, senior preferred stock initially paying quarterly dividends at a 5% annual rate. When the U.S. Treasury makes such preferred investments in any company, it will also receive 10-year warrants to acquire common shares having an aggregate market price of 15% of the amount of the senior preferred investment. Under the TARP Capital Purchase Program, dividend payments on, and repurchases of, a participating company’s outstanding preferred and common stock are subject to certain restrictions. For more information on these restrictions and the Company’s TARP Capital Purchase Program transaction, see Note 15 to the Consolidated Financial Statements.

For the period during which the Treasury holds equity issued under the TARP programs, companies participating in the programs must also comply with the standards for executive compensation and corporate governance enacted as part of EESA, as it has been amended by the American Recovery and Reinvestment Act of 2009 (the ARRA). The standards, which generally apply to the institution’s senior executive officers (defined as the five most highly compensated executives) include limitations on deductibility of compensation and on bonuses and incentive compensation, prohibit golden parachute payments, require recovery of bonuses and other incentive compensation paid under certain circumstances, and require compensation arrangements to be structured so as to avoid incentives for senior executives to take excessive risks in managing the institution. The standards also require that shareholders of publicly-traded institutions that participate in the TARP programs be given a non-binding vote on the compensation paid by the institution to its executives and require that a publicly-traded institution’s chief executive officer and chief financial officer provide to the Commission a certificate of compliance with all of the executive compensation requirements that are part of the legislation. The legislation permits the Treasury to seek to apply the ARRA requirements retroactively to TARP participants, like the Company, whose transactions predated the enactment of the ARRA. It also includes a provision that would permit such a participant to repay the funds received by it from the Treasury rather than become subject to the ARRA requirements. The Treasury is directed by the ARRA to issue regulations to implement the ARRA provisions relating to compensation. The Company will review the regulations issued by the Treasury before determining what position it will take with regard to continuing to participate in the TARP Capital Purchase Program.

Quotation on Nasdaq^®. Our common stock is quoted on the Nasdaq^® Capital Market. In order to maintain such quotation, we are subject to certain corporate governance requirements, including: (i) a majority of our Board of Directors must be composed of independent directors; (ii) we are required to have an audit committee composed of at least three directors, each of whom is an independent director, as such term is defined by both the rules of the National Association of Securities Dealers and by Exchange Act regulations; (iii) our nominating committee and compensation committee must also be composed entirely of independent directors; and (iv) each of our audit committee and nominating committee must have a publicly available written charter.

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. We are subject to a maximum federal income tax rate of 34% for 2008. At year-end 2008, the Company had net operating loss carryforwards of approximately $2.9 million which expire at various dates from 2024 to 2028.

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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 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.

Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes a tax on alternative minimum taxable income (AMTI) at a rate of 20%. AMTI is federal taxable income before net operating loss adjusted by certain tax preference amounts. AMTI is increased by an amount equal to 75% of the amount by which the Company’s adjusted current earnings exceed its AMTI . Only 90% of AMTI can be offset by alternate minimum tax net operating loss carryovers. The Company currently has AMT net operating losses totaling $2.3 million and $324,000 that originated in tax years 2004 and 2005, respectively.

Ohio Taxation

The Company and Ghent Road, Inc. are 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 maximum tax liability as measured by net worth is limited to $150,000 per year.

A special litter tax also applies to all corporations, including the holding company, subject to the Ohio corporate franchise tax. 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 Company will most likely meet these conditions, and thus, calculate its Ohio franchise tax on the net income basis only. When the Company files as a qualifying holding company, Ghent Rd., Inc. must make an adjustment to its net worth computation.

CFBank is a “financial institution” for State of Ohio tax purposes. As such, it is 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 is not subject to any tax based upon net income or net profits imposed by the State of Ohio.

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The franchise tax for corporations other than financial institutions and their related affiliates will be phased out 20% per year over five years beginning with tax due for calendar 2006. The franchise tax for financial institutions and their related affiliates remains unchanged by the recent legislation. Neither the Company nor any of its affiliated companies currently is subject to the Ohio Commercial Activity Tax.

Delaware Taxation

As a Delaware holding company 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 Commission. These reports can be found on our website under the caption “CF News and Links — Investor Relations — SEC Filings.” Investors also can obtain copies of our filings from the Commission’s website at www.sec.gov.

Item 2. Properties.

We conduct our business through four offices located in Summit, Columbiana, and Franklin Counties, Ohio. The net book value of the Company’s properties and leasehold improvements totaled $4.5 million at December 31, 2008. Ghent Road, Inc. owned land located adjacent to the Fairlawn office held for future development that totaled $702,000 at year-end 2008.

		Original Year
	Leased or	Leased or	Date of Lease
Location	Owned	Acquired	Expiration
Administrative/Home Office:
2923 Smith Rd	Leased	2004	2014
Fairlawn, Ohio 44333
Branch Offices:
601 Main Street	Owned	1989	—
Wellsville, Ohio 43968
49028 Foulks Drive	Owned	1979	—
East Liverpool, Ohio 43920
7000 N. High St	Owned	2007	—
Worthington, Ohio 43085

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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 business.

We are not a party to any other pending legal proceeding that management believes would have a material adverse effect on our financial condition or operations, if decided adversely to us.

No tax shelter penalty was assessed against the Company or any of our subsidiaries by the Internal Revenue Service in calendar year 2008 or at any other time, in connection with any transaction deemed by the Internal Revenue Service to be abusive or to have a significant tax avoidance purpose.

Item 4. Submission of Matters to a Vote of Security Holders.

None

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, 2008, the Company did not repurchase any of its securities. The Company did sell equity securities during the period covered by this report that were not registered. Information regarding that sale can be found in the Company’s Current Report on Form 8-K filed on December 5, 2008.

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 by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Market Prices and Dividends Declared” on page 19 and in “Note 17 — Regulatory Capital Matters” at page 48 therein, respectively.

The equity compensation plan information required by Item 201(d) of Regulation S-K is set forth herein under Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 6. Selected Financial Data.

Information required by Item 301 of Regulation S-K is incorporated by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Selected Financial and Other Data” at page 4 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 by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” at page 4 therein.

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

Information required by Item 305 of Regulation S-K is incorporated by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” at page 4 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 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act. The consolidated financial statements appear under the caption “Financial Statements” at page 20 therein and include the following:

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Changes in Shareholders’ 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(T). Controls and Procedures.

Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-14(c). Management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act.

Management’s Report on Internal Control Over Financial Reporting. Information required by Item 308T of Regulation S-K is incorporated by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Management’s Report on Internal Control over Financial Reporting” at page 20 therein.

Changes in internal control over financial reporting. We made no significant changes in our internal controls or in other factors that could significantly affect these controls in the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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 by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “PROPOSAL 1. ELECTION OF DIRECTORS.”

Executive Officers of the Registrant

	Age at
	December 31,		Position held with the Company and/or
Name	2008		Subsidiaries
Mark S. Allio		54	Chairman, President and Chief Executive Officer, Company; Chairman and Chief Executive Officer, CFBank
Raymond E. Heh		66	President and Chief Operating Officer, CFBank
Eloise L. Mackus		58	Executive Vice President, General Counsel and Secretary, Company and CFBank
Therese Ann Liutkus		49	Treasurer and Chief Financial Officer, Company and CFBank
R. Parker MacDonell		54	President, Columbus Region, CFBank

Mark S. Allio, Chairman, President and Chief Executive Officer of Central Federal and Chairman and Chief Executive Officer of CFBank, joined us in February 2005 and has more than 30 years of banking and banking-related experience, including service as President and Chief Executive Officer of Rock Bank in Livonia, Michigan, an affiliate of Quicken Loans, Inc., from April 2003 to December 2004. He was previously President of Third Federal Savings, MHC in Cleveland, Ohio, a multi-billion dollar thrift holding company from January 2000 to December 2002 and Chief Financial Officer of Third Federal from 1988 through 1999.

Raymond E. Heh, President and Chief Operating Officer, joined CFBank in June 2003. Formerly, Mr. Heh held numerous positions at Bank One Akron NA including Chairman, President and CEO. He was with Bank One Akron NA for 18 years and has over 40 years of experience in the commercial banking industry. Mr. Heh is a graduate of The Pennsylvania State University.

Eloise L. Mackus is Executive Vice President, General Counsel and Secretary of the Company and CFBank. Prior to joining us in July 2003, Ms. Mackus practiced in law firms in Connecticut and Ohio and was the Vice President and General Manager of International Markets for The J. M. Smucker Company. Ms. Mackus completed a bachelor’s degree at Calvin College and a juris doctorate at The University of Akron School of Law.

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Therese Ann Liutkus joined the Company and CFBank as Chief Financial Officer in November 2003. Prior to that time, Ms. Liutkus was Chief Financial Officer of First Place Financial Corp. and First Place Bank for six years, and she has more than 20 years of banking experience. Ms. Liutkus is a certified public accountant and has a bachelor’s degree in accounting from Cleveland State University.

R. Parker MacDonell, President, Columbus Region, joined CFBank in May 2003. Mr. MacDonell is a third generation Ohio banker with over 20 years of commercial banking experience. He is a former Senior Vice President of Bank One Columbus NA, a position he held for three years during his 15 year tenure with Bank One. He is a graduate of Dartmouth College and received his master’s degree from Yale University.

Compliance with Section 16(a) of the Exchange Act. Information required by Item 405 of Regulation S-K is incorporated by reference to our definitive or Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “ADDITIONAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS — 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 caption “CF News and Links — Investor Relations — Section 16 Filings.”

Code of Ethics. We have adopted a code of ethics, our Code of Ethics and Business Conduct, which meets the requirements of Item 406 of Regulation S-K and applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer. Since our 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 attend annual training sessions 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 caption “CF News and Links — 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 by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “PROPOSAL 1. ELECTION OF DIRECTORS.”

Item 11. Executive Compensation.

Information required by Item 402 of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “COMPENSATION OF EXECUTIVE OFFICERS.”

Information required by Item 407 (e)(4) and (e)(5) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS — COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE” and “COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT.”

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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 by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “STOCK OWNERSHIP.”

Related Stockholder Matters – Equity Compensation Plan Information. Information required by Item 201(d) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “EQUITY COMPENSATION PLAN INFORMATION,” and to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act, where the information appears under the caption “Note 14 – Stock-Based Compensation” at page 45 therein.

See Part II, Item 8, Financial Statements, Notes 1 and 14, for a description of the principal provisions of our equity compensation plans. The information required by Item 8 is incorporated by reference to our 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the financial statements appear under the caption “Financial Statements” at page 20 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 by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “ADDITIONAL INFORMATION ABOUT DIRECTORS AND OFFICERS — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”

Item 14. Principal Accounting Fees and Services.

Information required by Item 9(e) of Schedule 14A pursuant to this Item 14 is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Shareholders filed with the Commission on or about March 31, 2009, under the caption “PROPOSAL 5. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.”

PART IV

Item 15. Exhibits, Financial Statement Schedules.

See Exhibit Index at page 41 of this report on Form 10-K.

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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 authorized.

CENTRAL FEDERAL CORPORATION

/s/ Mark S. Allio

Mark S. Allio

Chairman, President and Chief Executive Officer

Date: March 27, 2009

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/ Mark S. Allio Mark S. Allio (principal executive officer)	Chairman of the Board, President and Chief Executive Officer	March 27, 2009
/s/ Therese Ann Liutkus Therese Ann Liutkus, CPA (principal accounting and financial officer)	Treasurer and Chief Financial Officer	March 27, 2009
/s/ David C. Vernon David C. Vernon	Chairman Emeritus	March 27, 2009
/s/ Jeffrey W. Aldrich Jeffrey W. Aldrich	Director	March 27, 2009
/s/ Thomas P. Ash Thomas P. Ash	Director	March 27, 2009
/s/ William R. Downing William R. Downing	Director	March 27, 2009
/s/ Gerry W. Grace Gerry W. Grace	Director	March 27, 2009
/s/ Jerry F. Whitmer Jerry F. Whitmer	Director	March 27, 2009

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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 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 No. 333-129315, filed with the Commission on October 28, 2005)
3.3		Second Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.3 to the registrant’s Form 10-K for the fiscal year ended December 31, 2007, filed with the Commission on March 27, 2008)
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 No. 333-64089, filed with the Commission on September 23, 1998)
4.2		Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Central Federal Corporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K, filed with the Commission on December 5, 2008)
4.3		Warrant, dated December 5, 2008, to purchase shares of common stock of the Registrant (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K, filed with the Commission on December 5, 2008)
10.1	*	Salary Continuation Agreement between CFBank and David C. Vernon (incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-K for the fiscal year ended December 31, 2004, filed with the Commission on March 30, 2005)
10.2	*	Employment Agreement between the registrant and David C. Vernon (incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-K for the fiscal year ended December 31, 2003, filed with the Commission on March 30, 2004)
10.3	*	Employment Agreement between CFBank and David C. Vernon (incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-K for the fiscal year ended December 31, 2003, filed with the Commission on March 30, 2004)
10.4	*	Amendment to Employment Agreement between the registrant and David C. Vernon (incorporated by reference to Exhibit 10.3 to the registrant’s Form 10-K for the fiscal year ended December 31, 2004, filed with the Commission on March 30, 2005)
10.5	*	Amendment to Employment Agreement between CFBank and David C. Vernon (incorporated by reference to Exhibit 10.4 to the registrant’s Form 10-K for the fiscal year ended December 31, 2004, filed with the Commission on March 30, 2005)
10.6	*	Second Amendment to Employment Agreement between the registrant and David C. Vernon (incorporated by reference to Exhibit 10.5 to the registrant’s Form 10-K for the fiscal year ended December 31, 2004, filed with the Commission on March 30, 2005)
10.7	*	Second Amendment to Employment Agreement between CFBank and David C. Vernon (incorporated by reference to Exhibit 10.6 to the registrant’s Form 10-K for the fiscal year ended December 31, 2004, filed with the Commission on March 30, 2005)
10.8	*	Third Amendment to Employment Agreement between Central Federal Corporation and David C. Vernon (incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the Commission on January 8, 2007)
10.9	*	Third Amendment to Employment Agreement between CFBank and David C. Vernon (incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed with the Commission on January 8, 2007)
10.10	*	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)
10.11	*	Third Amended and Restated Central Federal Corporation 2003 Equity Compensation Plan (incorporated by reference to Appendix A to the registrant’s Definitive Proxy Statement filed with the Commission on March 29, 2007)
10.12		Letter Agreement, dated December 5, 2008, including Securities Purchase Agreement — Standard Terms, between the Registrant and the United States Department of the Treasury (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed with the Commission on December 5, 2008)

41

Exhibit No.	Description of Exhibit
11.1	Statement Re: Computation of Per Share Earnings
13.1	Annual Report to Security Holders for the Fiscal Year Ended December 31, 2008
21.1	Subsidiaries of the Registrant
23.1	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

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

42

EX-11.1

Exhibit 11.1

Computation of Per Share Earnings

The information regarding Computation of Per Share Earnings is incorporated by reference to the Company’s 2008 Annual Report to Shareholders distributed to shareholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the computation appears under the caption “Note 21 — Earnings Per Common Share” at page 53 therein.

EX-13.1

Exhibit 13.1

2008 ANNUAL REPORT

TABLE OF CONTENTS

3	MESSAGE TO SHAREHOLDERS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4	Selected Financial and Other Data
6	Forward-Looking Statements
6	General
8	Financial Condition
10	Comparison of Results of Operations for 2008 and 2007
13	Comparison of Results of Operations for 2007 and 2006
17	Quantitative and Qualitative Disclosures about Market Risk
18	Liquidity and Capital Resources
18	Impact of Inflation
19	Critical Accounting Policies
19	Market Prices and Dividends Declared
	FINANCIAL STATEMENTS
20	Management’s Report on Internal Control Over Financial Reporting
21	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
22	Consolidated Financial Statements
29	Notes to Consolidated Financial Statements
56	BOARD OF DIRECTORS AND OFFICERS
56	CFBANK OFFICE LOCATIONS
	CORPORATE DATA
56	Annual Report
56	Annual Meeting
56	Shareholder Services

     |     page 1

page 2     |     

MESSAGE TO SHAREHOLDERS

Dear Fellow Shareholders,

A year ago, I reported to you on the positive progress of Central Federal Corporation despite economic and interest rate challenges in 2007. We continued our journey of growth and profitability during 2008, working through the credit crisis and the substantial downturn in the economy. During the year, we witnessed the near collapse of our financial system and the government’s takeover of Freddie Mac and Fannie Mae, which were unprecedented steps taken to support the financial industry. The government also provided federal support through direct investments in banking and other industries, such as auto and insurance companies. These programs and actions will likely have unintended consequences as we move forward. We will likely experience higher costs of doing business, such as increased federal deposit insurance premiums and costs to comply with new regulations that will inevitably be issued, not to mention the potential onslaught of inflation once the economy begins to recover. We will deal with these consequences diligently as we have dealt with banking industry contractions and other challenges in the past years.

Through all of these challenges, we remain completely focused on the execution of our business plan. We understand that the only actions and decision-making we can control are our own. We will focus on being stewards of your capital and employing that capital in profitable growth and business opportunities. As a shareholder, I desire what you desire: a fair rate of return on our investment. I am committed to this goal.

Our banking model continues to focus on the small business owner and the consumer. Over the past six years, we have transitioned from a single-product residential lender to a more expansive, profitable full-service bank. We hired experienced business bankers with decades of experience. We recruited and developed a group of young bankers to learn from our experienced colleagues. These individuals, working together as a team, are able to provide a level of talent, knowledge and service that we believe is unique in our communities. We structure lending products specifically to meet the needs of individual business and consumer clients, and we execute with a sense of urgency. This relationship-based banking model has been accepted with great enthusiasm, and our clients are a significant source of referrals. I believe small business owners and customers in the marketplace will continue to seek our services.

In the summer of 2008, we began to rebuild our mortgage team. While many banks have exited or significantly curtailed this business activity, I believed that the time was perfect to recruit talented mortgage professionals and expand our mortgage business. As with the commercial banking business, the mortgage business is, first and foremost, a relationship business. Our residential bankers are knowledgeable in a diversified product base and offer customized mortgage solutions for individual consumers. We do not engage in the products, practices or processes that leave consumers with the wrong product or financial solution.

Now a few words about the results of our collective efforts for 2008. Although our total assets decreased, we did have a considerable amount of activity. We originated $34 million in new commercial, commercial real estate and multi-family mortgage loans during the year, and net growth in these loan types was approximately $8 million due to payoffs. Deposits increased 7% and included nearly 20% growth in noninterest bearing deposits. Total shareholders’ equity increased approximately 21% during the year primarily due to $7.2 million in TARP funds received on December 5, 2008.

The Company was profitable in 2008. Net interest income grew 13%, or nearly $1 million, as a result of a 5% increase to our net interest margin. We increased our provision for loan losses to reflect current economic conditions, the net charges-offs we incurred in the consumer loan portfolio, and what we believe to be the most realistic reflection of our credit quality. Our noninterest income increased over 30% and our noninterest expense decreased 3% for 2008. Our efficiency ratio improved as a result of increasing the top line while managing expenses. We will continue to focus on those expenses we can control.

In summary, despite the near collapse of our financial system, the historic downturn in the economy, the significant decline in interest rates and the nebulous regulatory system, I remain optimistic that we will continue our growth with the many banking opportunities available in the communities we serve. Our goal of creating value for our shareholders, our customers and our Company provides a singular mission on which we remain focused.

We look forward to the coming year and the opportunity to serve and to grow profitably.

Mark S. Allio
Chairman, President and CEO

     |     page 3

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.

SELECTED FINANCIAL CONDITION DATA:

	AT DECEMBER 31,
(DOLLARS IN THOUSANDS)	2008		2007		2006		2005		2004
Total assets	$	277,781	$	279,582	$	236,028	$	173,021	$	171,005
Cash and cash equivalents		4,177		3,894		5,403		2,972		32,675
Securities available for sale		23,550		28,398		29,326		30,872		13,508
Loans held for sale		284		457		2,000		2,419		1,888
Loans, net (1)		233,922		230,475		184,695		124,026		108,149
Allowance for loan losses		3,119		2,684		2,109		1,495		978
Nonperforming assets		2,412		574		297		800		418
Foreclosed assets		—		86		—		—		132
Goodwill		—		—		—		—		1,749
Other intangible assets		—		—		—		—		299
Deposits		207,647		194,308		167,591		127,588		101,624
FHLB advances		29,050		49,450		32,520		22,995		41,170
Other borrowings		—		—		—		—		2,249
Subordinated debentures		5,155		5,155		5,155		5,155		5,155
Total shareholders’ equity		33,075		27,379		29,085		16,081		19,507

SUMMARY OF OPERATIONS:

	FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2008		2007			2006			2005			2004
Total interest income	$	16,637	$	17,523		$	13,654		$	8,691		$	6,144
Total interest expense		7,935		9,795			6,889			3,723			2,149
Net interest income		8,702		7,728			6,765			4,968			3,995
Provision for loan losses		917		539			820			674			646
Net interest income after provision for loan losses		7,785		7,189			5,945			4,294			3,349
Noninterest income:
Net gain (loss) on sale of securities		54		—			(5	)		—			(55	)
Other		894		728			828			866			592
Total noninterest income		948		728			823			866			537
Impairment loss on goodwill and intangibles		—		—			—			1,966			—
Noninterest expense		7,749		7,997			6,849			6,861			6,420
Income (loss) before income taxes		984		(80	)		(81	)		(3,667	)		(2,534	)
Income tax expense (benefit)		261		(63	)		(44	)		(377	)		(872	)
Net income (loss)	$	723	$	(17	)	$	(37	)	$	(3,290	)	$	(1,662	)
Net income (loss) available to common shareholders	$	694	$	(17	)	$	(37	)	$	(3,290	)	$	(1,662	)

(See footnotes on next page.)

page 4     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

SELECTED FINANCIAL RATIOS AND OTHER DATA:

	AT OR FOR THE YEAR ENDED DECEMBER 31,
	2008			2007			2006			2005			2004
Performance Ratios: (2) (10)
Return on average assets		0.26	%		(.01	%)		(.02	%)		(2.02	%)		(1.23	%)
Return on average equity		2.68	%		(.06	%)		(.12	%)		(17.71	%)		(8.60	%)
Average yield on interest-earning assets (3)		6.41	%		7.23	%		6.84	%		5.87	%		5.03	%
Average rate paid on interest-bearing liabilities		3.38	%		4.50	%		4.00	%		2.75	%		1.93	%
Average interest rate spread (4)		3.03	%		2.73	%		2.84	%		3.12	%		3.10	%
Net interest margin, fully taxable equivalent (5)		3.35	%		3.19	%		3.39	%		3.35	%		3.27	%
Interest-earning assets to interest-bearing liabilities		110.90	%		111.47	%		115.83	%		109.46	%		109.82	%
Efficiency ratio (6)		80.75	%		94.57	%		90.20	%		151.30	%		139.96	%
Noninterest expense to average assets		2.79	%		3.08	%		3.20	%		5.43	%		4.74	%
Common stock dividend payout ratio		117.65	%		n/m			n/m			n/m			n/m
Capital Ratios: (2)
Equity to total assets at end of period		11.91	%		9.79	%		12.32	%		9.29	%		11.41	%
Average equity to average assets		9.72	%		10.81	%		13.89	%		11.43	%		14.26	%
Tangible capital ratio (9)		9.20	%		8.50	%		9.80	%		6.90	%		8.10	%
Core capital ratio (9)		9.20	%		8.50	%		9.80	%		6.90	%		8.10	%
Risk-based capital ratio (9)		11.60	%		11.00	%		12.60	%		10.10	%		12.20	%
Asset Quality Ratios: (2)
Nonperforming loans to total loans (7)		1.02	%		0.21	%		0.16	%		0.64	%		0.26	%
Nonperforming assets to total assets (8)		0.87	%		0.21	%		0.13	%		0.46	%		0.24	%
Allowance for loan losses to total loans		1.32	%		1.15	%		1.13	%		1.19	%		0.90	%
Allowance for loan losses to nonperforming loans (7)		129.31	%		550.00	%		710.10	%		186.88	%		341.96	%
Net charge-offs (recoveries) to average loans		0.21	%		(0.02	%)		0.13	%		0.14	%		0.10	%
Per Share Data:
Basic earnings (loss) per common share	$	0.17		$	—		$	(0.01	)	$	(1.49	)	$	(0.82	)
Diluted earnings (loss) per common share		0.17			—			(0.01	)		(1.49	)		(0.82	)
Dividends declared per common share		0.20			0.28			0.36			0.36			0.36
Tangible book value per common share at end of period		6.36			6.17			6.40			7.17			7.99

(1)	Loans, net represents gross loans receivable net of the allowance for loan losses, loans in process and deferred loan origination fees.
(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 divided by net interest income plus noninterest income (excluding gains or losses on securities transactions).
(7)	Nonperforming loans consist of nonaccrual loans and other loans 90 days or more past due.
(8)	Nonperforming assets consist of nonperforming loans, other repossessed assets and REO.
(9)	Regulatory capital ratios of CFBank.
(10)	Performance ratios for the year ended December 31, 2005 were significantly affected by the pre-tax $2.0 million impairment loss on goodwill and intangibles.

Following are affected performance ratios for 2005 excluding this charge:

Return on average assets	(0.86	%)
Return on average equity	(7.27	%)
Efficiency ratio	117.60	%
Ratio of noninterest expense to average assets	4.20	%

Reconciliation of GAAP net loss to loss excluding the impairment loss on goodwill and intangibles:

GAAP net loss	$	(3,290	)
Impairment loss on goodwill and intangibles, net of tax		1,893
Loss excluding impairment loss on goodwill and intangibles	$	(1,397	)
Diluted loss per common share	$	(0.63	)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 5

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report that are not statements of historical fact are forward-looking statements. 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 Company or its management or Board of Directors; (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 factors could cause such differences:

• changes in general economic conditions and 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;

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

• changes in tax laws, rules and regulations;

• various monetary and fiscal policies and regulations, including those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS);

• 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;

• 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.

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 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.

Other risks are detailed in our filings with the Securities and Exchange Commission, including our Form 10-K filed for 2008, all of which are difficult to predict and many of which are beyond our control.

GENERAL

Central Federal Corporation (the Company) is a savings and loan holding company incorporated in Delaware in 1998. Substantially all of our business is the operation of our principal subsidiary, CFBank, a federally chartered savings association formed in Ohio in 1892.

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 remote deposit, telephone banking, corporate cash management and online internet banking. We attract 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 consumers and small businesses.

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; and Columbiana County through our offices in Calcutta and Wellsville, Ohio.

We originate commercial and residential real estate loans and business loans primarily throughout Ohio.

Our net income is dependent primarily on net interest income, which is the difference between the interest income earned on loans and securities and the 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 and deposit flows. Net income is also affected by, among other things, loan fee income, provisions for loan losses, service charges, gains on loan sales, operating expenses, and franchise and income taxes. Operating expenses principally consist of employee compensation and benefits, occupancy, and other general and administrative expenses. In general, results of operations are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies, and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may also materially impact our performance.

page 6     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

GENERAL (CONTINUED)

As a result of the current economic recession, which has included failures of financial institutions, investments in banks and other companies by the United States government, and government-sponsored economic stimulus packages, one area of public and political focus is how and the extent to which financial institutions are regulated by the government. The current regulatory environment may result in new or revised regulations that could have a material adverse impact on our performance.

The capital, credit and financial markets have experienced significant volatility and disruption for more than a year. These conditions have had significant adverse effects on our national and local economies, including declining real estate values; a widespread tightening in the availability of credit; illiquidity in certain securities markets; increasing loan delinquencies, foreclosures, personal and business bankruptcies and unemployment rates; declining consumer confidence and spending; significant write-downs of asset values by financial institutions and government-sponsored agencies; and a reduction of manufacturing and service business activity and international trade. These conditions have also adversely affected the stock market generally, and have contributed to significant declines in the trading prices of financial institution stocks. We do not expect these difficult market conditions to improve over the short term, and a continuation or worsening of these conditions could increase their adverse effects. Adverse effects of these conditions could include increases in loan delinquencies and charge-offs; increases in our loan loss reserves based on general economic factors; increases to our specific loan loss reserves due to the impact of these conditions on specific borrowers or the collateral for their loans; declines in the value of our securities portfolio; increases in our cost of funds due to continued aggressive deposit pricing by local and national competitors with liquidity needs; attrition of our core deposits due to this aggressive deposit pricing and/or consumer concerns about the safety of their deposits; increases in regulatory and compliance costs; and declines in the trading price of our common stock.

The U.S. Congress enacted the Emergency Economic Stabilization Act of 2008 in response to the impact of the volatility and disruption in the credit and capital markets on the financial sector. The U.S. Treasury Department and federal banking regulators are implementing a number of programs under this legislation that are intended to address these conditions and the asset quality, capital and liquidity issues they have caused for certain financial institutions and to improve the general availability of credit for consumers and businesses. In addition, the U.S. Congress recently enacted the American Recovery and Reinvestment Act of 2009 in an effort to save and create jobs, stimulate the U.S. economy and promote long-term growth and stability. There can be no assurance that these acts or the programs that are implemented under them will achieve their intended purposes. If they fail to achieve some or all of those purposes it could result in a continuation or worsening of current economic and market conditions, which could adversely affect our performance and/or the trading price of our common stock.

The Homeowner Affordability and Stability Plan, announced by President Obama on February 18, 2009, includes refinance options for homeowners to help them avoid foreclosure and loan modification options for borrowers to make mortgage payments more affordable. The Company is currently evaluating the impact of this Plan on CFBank’s current mortgage portfolio loans and loans serviced for Freddie Mac.

We own stock in the Federal Home Loan Bank (FHLB) of Cincinnati to qualify for membership in the FHLB System and to be eligible to borrow funds under FHLB of Cincinnati advance programs. The aggregate cost of our investment in FHLB stock at December 31, 2008 totaled $2.1 million based on its par value. There is no market for our FHLB stock other than redemption with the FHLB of Cincinnati and there are restrictions on its transferability. Recent published reports indicate that asset quality risks and the application of certain accounting rules may negatively affect the capital levels of certain members of the FHLB System. If events occur that cause substantial doubt about the ultimate recoverability of our investment in FHLB stock, we could incur an impairment loss that would cause our earnings and shareholders’ equity to be reduced by the after-tax amount of the impairment charge.

On February 27, 2009, the FDIC proposed an interim rule imposing a 20 basis points (bp) emergency special assessment on insured institutions on June 30, 2009, to be collected on September 30, 2009. The interim rule also permits an additional emergency special assessment of not more than 10 bp to be assessed after June 30, 2009. Based on CFBank’s deposit balances at December 31, 2008, the 20 bp special assessment to CFBank would amount to approximately $415,000, but the actual amount will depend on the level of deposit balances at June 30, 2009, the date of the assessment, and the amount of the assessment in the final rule when it is adopted by the FDIC. The FDIC also issued a final rule regarding the restoration plan for the Deposit Insurance Fund, assessing banks in the best risk category a base assessment of from 12 bp to 16 bp on an annual basis, beginning April 1, 2009. Information on the exact risk classification and assessment level that will be applicable to CFBank is not available at this time, but FDIC premiums payable by CFBank will increase when the final rule is implemented beginning April 1, 2009. The increased premiums and special assessment will have an adverse effect on the operating expenses and results of operations of CFBank and the Company.

Other than discussed above and noted in the following narrative, we are not aware of any market or institutional trends, other events, or uncertainties that are expected to have a material effect on liquidity, capital resources or operations. We are not aware of any current recommendations by regulators which would have a material effect if implemented, except as described above and in the “Shareholders’ equity” section of this Annual Report.

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

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 7

FINANCIAL CONDITION

General. Assets totaled $277.8 million at December 31, 2008 and decreased $1.8 million, or .6%, from $279.6 million at December 31, 2007. The decrease was due to the use of cash flows from the securities portfolio, which were not needed for loan growth, to repay borrowings.

ASSET GROWTH

Loans. Net loans totaled $233.9 million at December 31, 2008 and increased $3.4 million, or 1.5%, from $230.5 million at December 31, 2007. Commercial, commercial real estate and multi-family loans totaled $182.1 million at December 31, 2008 and increased $7.9 million, or 4.5%, from $174.2 million at December 31, 2007. The increase in commercial, commercial real estate, and multi-family loans was consistent with management’s focus on growth in these types of loans. Originations of commercial, commercial real estate and multi-family loans totaled $33.9 million in 2008. Mortgage loans totaled $28.9 million at December 31, 2008 and decreased $2.2 million, or 7.1%, from $31.1 million at December 31, 2007. The decrease in mortgage loans was due to principal repayments, a decline in new loans originated for portfolio, and the sale of substantially all fixed-rate single-family mortgage loan originations. See the discussion in the “Quantitative and Qualitative Disclosures about Market Risk” section of this Annual Report. Consumer loans totaled $26.4 million at December 31, 2008 and decreased $1.8 million, or 6.4%, from $28.2 million at December 31, 2007. The decrease was due to repayments of auto loans, partially offset by growth in home equity lines of credit.

LOAN PORTFOLIO COMPOSITION

Securities available for sale. Securities available for sale totaled $23.6 million at December 31, 2008 and decreased $4.8 million, or 17.1%, from $28.4 million at December 31, 2007. The decline was due to the use of proceeds from security sales, maturities and prepayments to repay borrowings.

Premises and equipment. Premises and equipment totaled $5.2 million at December 31, 2008 and decreased $471,000 from $5.7 million at December 31, 2007. The decrease was due to current year depreciation in excess of additions.

Deposits. Deposits totaled $207.6 million at December 31, 2008 and increased $13.3 million, or 6.9%, from $194.3 million at December 31, 2007. The increase was due to a $17.1 million increase in certificate of deposit account balances and a $2.4 million increase in noninterest bearing checking account balances. Money market account and interest bearing checking account balances decreased $3.4 million and $3.0 million, respectively, during 2008.

DEPOSIT GROWTH

CFBank is 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 balances up to $50 million. Customer balances in the CDARS program increased $28.6 million, and totaled $43.4 million at December 31, 2008. Growth in CDARS account balances was a result of customers seeking the safety of FDIC insurance in response to market uncertainty. CDARS balances are considered brokered deposits by regulations. We expect to continue to use the CDARS program as a source of funding depending on market conditions, demand by our customers, pricing and liquidity considerations. Not considering CDARS deposits, brokered deposits totaled $23.8 million at December 31, 2008 and decreased $13.6 million, or 36.4%, from $37.4 million at December 31, 2007.

CFBank is a participant in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2009, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to, and separate from, the coverage available under the FDIC’s general deposit insurance rules.

page 8     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

FINANCIAL CONDITION (CONTINUED)

FHLB advances. Advances from the FHLB totaled $29.1 million at December 31, 2008 and decreased $20.4 million, or 41.2%, from $49.5 million at December 31, 2007. Advances were repaid with funds from the increase in deposits and cash flows from the securities portfolio.

Subordinated debentures. Subordinated debentures totaled $5.2 million at year-end 2008 and 2007. 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 Company.

Shareholders’ equity. Shareholders’ equity totaled $33.1 million at December 31, 2008 and increased $5.7 million, or 20.8%, compared to $27.4 million at December 31, 2007. The increase was due to the issuance of $7.2 million of preferred stock to the U.S. Treasury Department under the Capital Purchase Program and current year net income, partially offset by the repurchase of 365,000 shares of the Company’s common stock, which totaled $1.6 million, and cash dividends paid to common shareholders, which totaled $843,000.

The preferred stock, issued on December 5, 2008, initially pays cumulative dividends of 5%, which increases to 9% after February 14, 2013. In conjunction with the issuance of the preferred stock, the Company also issued the U.S. Treasury Department a warrant to purchase 336,568 shares of Company common stock at a per share exercise price of $3.22, which would represent an aggregate investment, if exercised for cash, of approximately $1.1 million in Company common stock. The exercise price may be 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 our common stock on the trading day on which the warrant is exercised or, if agreed to by us and the warrant holder, by the payment of cash equal to the aggregate exercise price. The Company’s participation in this program was subject to certain terms and conditions, including limits on the payment of dividends on the Company’s common stock to a quarterly cash dividend of $0.05 per share, limits on the Company’s ability to repurchase its common stock, and subjects the Company to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008. Refer to Form 8-K filed on December 5, 2008, and the documents incorporated therein by reference, for a complete description of the terms and conditions of the Company’s participation in the Capital Purchase Program.

The $7.2 million in proceeds from the sale of the preferred stock are currently held in short-term investments pending approval from regulators to contribute it as additional capital to CFBank, and pending the Company’s review of The American Recovery and Reinvestment Act of 2009. The Company will be analyzing the provisions of the new statute and considering whether to continue its participation in the Capital Purchase Program in light of the additional restrictions imposed under the new legislation.

OTS regulations require savings institutions to maintain certain minimum levels of regulatory capital. Additionally, the regulations establish a framework for the classification of savings institutions into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a core (Tier 1) capital ratio of at least 5.0% (based on adjusted total assets); a core (Tier 1) risk-based capital ratio of a least 6.0%; and a total risk-based capital ratio of at least 10.0%. CFBank had capital ratios above the well-capitalized levels at year-end 2008 and 2007.

CFBANK CAPITAL RATIOS

Well-capitalized

The current economic environment has resulted in discussion by regulators and others about a possible need for higher capital requirements for financial institutions, including CFBank. No final regulations have been issued in this regard, however, an increase in regulatory capital requirements could have a material impact on the Company and CFBank.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 9

COMPARISON OF RESULTS OF OPERATIONS FOR 2008 AND 2007

General. Net income totaled $723,000, or $.17 per diluted common share, and increased $740,000 for the year ended December 31, 2008 compared to a net loss of $17,000, or $.00 per diluted common share, for 2007. The net loss for 2007 was primarily due to a $511,000, or $.11 per diluted common share, after-tax cost of an arbitration loss and lease termination expense. Additional information on the arbitration loss is included in Note 23 to our consolidated financial statements.

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 margin increased to 3.35% during 2008, compared to 3.19% during 2007. The margin was positively impacted by reductions in the Federal Funds rate, the prime rate and other market interest rates, beginning in September 2007 and continuing through December 2008, which resulted in larger decreases in funding costs than in asset yields. Due to the current historic low level of market interest rates, management has extended the terms of some liabilities to fix their cost at the current low rates and to protect net interest margin should interest rates rise. However, future downward pressure on margins could occur should the expected downward repricing on existing interest-earning assets be greater than the decrease in funding costs of interest-bearing liabilities.

Net interest income increased $974,000, or 12.6%, to $8.7 million in 2008, compared to $7.7 million in 2007. The increase was due to a 19.0% decrease in interest expense offset by a 5.1% decrease in interest income. The average cost of interest-bearing liabilities decreased to 3.38% in 2008, from 4.50% in 2007, due to lower short-term interest rates in 2008. The decrease in expense caused by the lower cost was partially offset by a $17.0 million increase in the average balance of interest–bearing liabilities in 2008 due to deposit growth. Interest income decreased 5.1% primarily due to a decline in the average yield on interest earning assets to 6.41% in 2008, from 7.23% in 2007. The decrease in income caused by the lower yield was partially offset by a $17.6 million increase in average interest-earning assets in 2008 due to growth in loan balances.

NET INTEREST INCOME

Interest income decreased $886,000, or 5.1%, to $16.6 million in 2008, compared to $17.5 million in 2007. The decrease was due to lower income on loans and securities. Interest income on loans decreased $654,000, or 4.1%, to $15.2 million in 2008, compared to $15.8 million in 2007, due to lower yields on loans partially offset by an increase in average loan balances. The average yield on loans decreased 98 bp to 6.56% in 2008, compared to 7.54% in 2007, due to lower market rates on new originations and downward repricing on variable-rate loans. Average loan balances increased $21.3 million, or 10.2%, and totaled $231.5 million in 2008, compared to $210.2 million in 2007, due to growth in commercial, commercial real estate and multi-family mortgage loans. Interest income on securities decreased $191,000, or 12.6%, and totaled $1.3 million in 2008, compared to $1.5 million in 2007, due to a decrease in the average balance of securities partially offset by an increase in the yield on securities. The average balance of securities decreased $3.9 million and totaled $26.0 million in 2008, compared to $29.9 million in 2007, due to sales, maturities and prepayments. The average yield on securities increased 11 bp to 5.20% in 2008, compared to 5.09% in 2007, due to prepayments on mortgage-backed securities owned at a discount.

Interest expense decreased $1.9 million, or 19.0%, to $7.9 million in 2008, compared to $9.8 million in 2007. The decrease was due to a decline in the cost of both deposits and borrowings, partially offset by an increase in average deposit balances. Interest expense on deposits decreased $1.0 million, or 14.0%, to $6.2 million in 2008, compared to $7.2 million in 2007, due to a decrease in the cost of deposits, partially offset by an increase in average deposit balances. The average cost of deposits decreased 103 bp, to 3.31% in 2008, compared to 4.34% in 2007, due to a decline in short-term market interest rates during 2008. Average deposit balances increased $21.3 million, or 12.8%, to $187.5 million in 2008, compared to $166.2 million in 2007, due to growth in certificate of deposit accounts. Interest expense on FHLB advances and other borrowings, including subordinated debentures, decreased $852,000, or 33.1%, to $1.7 million in 2008, compared to $2.6 million in 2007, due to a decrease in both the cost and average balance of borrowings. The average cost of FHLB advances and other borrowings decreased 135 bp, to 3.67% in 2008, compared to 5.02% in 2007, due to lower short-term interest rates during 2008. The average balance of FHLB advances and other borrowings decreased $4.3 million, to $47.0 million in 2008, compared to $51.3 million in 2007, due to the repayment of FHLB advances with funds from the increase in deposits and cash flows from the securities portfolio.

page 10       |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

COMPARISON OF RESULTS OF OPERATIONS FOR 2008 AND 2007 (CONTINUED)

Provision for loan losses. CFBank continues to provide reserves for loan losses based on management’s estimate of probable incurred credit losses in the loan portfolio and the resultant allowance for loan losses required. Management’s estimate is based on a review 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 and trends; and other factors. Management also uses an outside party to conduct an annual independent review of commercial, commercial real estate and multi-family loans. Based on this review, the provision totaled $917,000 in 2008, compared to $539,000 in 2007. The increase in 2008 was primarily due to an increase in nonperforming loans and net loan charge-offs.

Nonperforming loans, which are nonaccrual loans and loans past due 90 days still accruing interest, increased $1.9 million and totaled $2.4 million, or 1.02% of total loans, at December 31, 2008, compared to $488,000, or 0.21% of total loans, at December 31, 2007. The increase in nonperforming loans included: one commercial loan, totaling $646,000, and three multi-family loans to one borrower, totaling $1.3 million, which were past due and on nonaccrual status at December 31, 2008; and one commercial real estate loan totaling $347,000, which was 90 days past maturity and still accruing interest at December 31, 2008, as the borrower continues to make monthly payments on the loan. The amount of the allowance for loan losses specifically allocated to nonperforming loans totaled $514,000 at December 31, 2008. Management believes the remaining nonperforming loan balances are adequately secured by the underlying collateral at this time, however future additions may be necessary should economic conditions continue to worsen and real estate values continue to decline.

Net charge-offs totaled $481,000, or 0.21% of average loans, in 2008, compared to net recoveries of $36,000, or 0.02% of average loans, in 2007. Net charge-offs in 2008 related to home equity lines of credit, single-family mortgages and auto loans.

Home equity lines of credit include both purchased loans and loans we originated for portfolio. In 2005 and 2006, we purchased home equity lines of credit collateralized by properties located throughout the United States, including geographic areas that have experienced significant declines in housing values, such as California, Virginia and Florida. The outstanding balance of the purchased home equity lines of credit was $5.5 million at December 31, 2008, and $3.5 million, or 64%, of the balances are collateralized by properties in these states. The collateral values associated with loans in these states have declined from 10% to 25% since these loans were originated in 2005 and 2006. As a result, balances on those loans exceeded collateral values by $938,000 at year-end 2008. None of the loans where loan balances exceeded collateral values were delinquent at December 31, 2008. We have experienced increased write-offs in the purchased portfolio as the state of the housing market and general economy has worsened and in 2008, three loans, totaling $360,000, were written off. We continue to monitor collateral values and borrower FICO scores and, when the situation warrants, have frozen the lines of credit.

Management’s loan review, assignment of risk ratings and classification of assets, includes the identification of significant problem loans where accrual of interest continues because the loans are under 90 days delinquent and/or the loans are well secured, a complete documentation review had been performed, and the loans are in the active process of being collected, but the loans exhibit some type of weakness that could lead to nonaccrual status in the future. An asset that is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, is considered substandard. Substandard assets include those characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. At December 31, 2008, in addition to the nonperforming loans discussed previously, seven commercial loans and one commercial real estate loan, totaling $2.6 million and $530,000, respectively, were classified as substandard. At December 31, 2007, four commercial loans and one multi-family loan, totaling $2.1 million and $1.3 million, respectively, were classified as substandard.

We believe the allowance for loan losses is adequate to absorb probable incurred credit losses in the loan portfolio at December 31, 2008; however, future additions to the allowance may be necessary based on factors such as deterioration in client business performance, slowing economic conditions, and declines in real estate values. Management continues to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. The Company could experience an increase in loan losses should the economic conditions and factors which affect credit quality continue to worsen.

The ratio of the allowance for loan losses to total loans was 1.32% at December 31, 2008, compared to 1.15% at December 31, 2007.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT       |      page 11

COMPARISON OF RESULTS OF OPERATIONS FOR 2008 AND 2007 (CONTINUED)

ALLOWANCE FOR LOAN LOSSES

Noninterest income. Noninterest income totaled $948,000 and increased $220,000 in 2008, compared to $728,000 in 2007. The increase was primarily due to a $257,000 increase in service charges on deposit accounts for a third party payment processor. These accounts were active only during the fourth quarter of 2008. Because the accounts are no longer active, the increased income associated with these service charges will not continue. CFBank is currently investigating unusual return item activity with regard to the accounts. No losses have been incurred to date, but the investigation is on-going and the Company cannot at this time estimate whether any amounts may be at risk with regard to the accounts. Noninterest income also included $54,000 in net gains on sales of securities in 2008, and $74,000 lower net gains on sales of loans due to fewer mortgage loan originations in the current year. Mortgage loans originated for sale totaled $27.0 million in 2008, compared to $37.3 million in 2007.

Noninterest expense. Noninterest expense decreased $248,000, or 3.1%, and totaled $7.7 million in 2008, compared to $8.0 million in 2007. The decrease in noninterest expense in 2008 was due to a $543,000 decrease in salaries and employee benefits and $49,000 decrease in occupancy and equipment expense. The decrease in these expense categories in 2008 was partially due to the fact that that in 2007 they included $741,000 of the arbitration loss and lease termination expense. Salaries and employee benefits in 2008 included approximately $98,000 additional expense related to the addition of five mortgage originators and one mortgage management staff position. Occupancy and equipment expense in 2008 included a $67,000 increase in real estate tax expense related to our Worthington office and a $23,000 increase in rent expense primarily related to additional space in the Fairlawn office, offset by a $61,000 decline in rent expense associated with the former mortgage location.

Advertising and promotion expenses decreased $158,000 due to management’s decision to reduce these activities in 2008. Data processing expenses increased $130,000 in 2008 and included costs associated with increased check clearing activity related to the third party payment processor, refer to the “Noninterest income” section of this Annual Report. Professional fees increased $200,000 in 2008 due to legal fees associated with nonperforming loans and costs related to selection of a new core processing system, which is tentatively planned for implementation in 2009 to improve operational efficiency and support the requirements of our business banking strategy. Gains on sales of foreclosed assets, included in foreclosed assets, net, decreased $27,000 in 2008. Depreciation increased $64,000 in 2008 due to expense related with the Worthington office building.

FDIC insurance premiums, included in other noninterest expense, increased $65,000 and totaled $86,000 in 2008, compared to $21,000 in 2007. FDIC premiums were reduced by a $103,000 one-time assessment credit issued by the FDIC under the Federal Insurance Reform Act of 2005, which offset $74,000 in premiums in 2007 and $29,000 in premiums in 2008, at which time it was fully utilized. FDIC insurance premiums are also expected to increase in 2009 as a result of the FDIC’s proposed emergency special assessment, the FDIC’s final rule implementing a revised risk-based assessment system effective April 1, 2009, and CFBank’s participation in the Transaction Account Guarantee Program and Temporary Liquidity Guarantee Program.

The ratio of noninterest expense to average assets improved to 2.79% in 2008, from 3.08% in 2007. The efficiency ratio improved to 80.75% in 2008, compared to 94.57% in 2007.

NONINTEREST EXPENSE / AVERAGE ASSETS

Income taxes. Income taxes totaled $261,000 in 2008, compared to a tax benefit of $63,000 associated with the loss in 2007.

page 12       |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

COMPARISON OF RESULTS OF OPERATIONS FOR 2007 AND 2006

General. Operations resulted in a net loss of $17,000, or $.00 per diluted common share, in 2007, compared to a net loss of $37,000, or $.01 per diluted common share, in 2006. The net loss in 2007 was primarily due to the $511,000, or $.11 per diluted common share, after-tax cost of the arbitration loss and lease termination expense.

Net interest income. Net interest margin decreased to 3.19% during 2007, compared to 3.39% during 2006, as higher short-term market interest rates and a flat to inverted yield curve negatively impacted the cost of funding. Reductions in the Federal Funds rate and an increase in the slope of the yield curve positively impacted net interest margin in the fourth quarter of 2007.

Interest income increased $3.8 million, or 28.3%, to $17.5 million in 2007, compared to $13.7 million in 2006, due to increased income on loans offset by a decline in income on securities and other interest earning assets. Interest income on loans increased $4.0 million, or 34.2%, in 2007 to $15.8 million, compared to $11.8 million in 2006, due to growth in average loan balances and higher yields on loans. Average loan balances increased $46.0 million, or 28.0%, and totaled $210.2 million in 2007, compared to $164.2 million in 2006, due to growth in commercial, commercial real estate and multi-family mortgage loans. The average yield on loans increased 35 bp to 7.54% in 2007, compared to 7.19% in 2006, due to new loans originated at higher market interest rates. Interest income on securities decreased $89,000, or 5.5%, and totaled $1.5 million in 2007, compared to $1.6 million in 2006, due to a decrease in the average balance and yield on securities. The average balance of securities decreased $1.1 million and totaled $29.9 million in 2007, compared to $31.0 million in 2006. The average yield on securities decreased 7 bp to 5.09% in 2007, compared to 5.16% in 2006. Interest income on other earning assets, which were primarily overnight cash investments, decreased $64,000 and totaled $18,000 in 2007, compared to $82,000 in 2006. The decrease was due to a decline in the average balance of these investments offset by an increase in yield. The average balance of other earning assets decreased $1.3 million and totaled $350,000 in 2007, compared to $1.6 million in 2006, as excess cash was used to repay overnight borrowings rather than invest. The yield on other earning assets increased 5bp to 5.14% in 2007, compared to 5.09% in 2006. The average balance of interest-earning assets increased $43.0 million and the average yield of interest-earning assets increased 39 bp during 2007.

Interest expense increased $2.9 million, or 42.2%, to $9.8 million in 2007, compared to $6.9 million in 2006, due to an increase in the average balance and cost of both deposits and borrowings. Interest expense on deposits increased $1.9 million, or 36.7%, to $7.2 million in 2007, from $5.3 million in 2006, due to increases in both the average balance and cost of deposits. Average deposit balances increased $27.1 million, or 19.6%, to $166.2 million in 2007, from $139.1 million in 2006, primarily due to growth in certificate of deposit accounts and money market accounts. The average cost of deposits increased 54 bp to 4.34% in 2007, from 3.80% in 2006, due to higher competitive market deposit rates and a flat to inverted yield curve which existed during most of 2007. Interest expense on FHLB advances and other borrowings, including subordinated debentures, increased $968,000, or 60.2%, to $2.6 million in 2007, from $1.6 million in 2006. The increase in interest expense was due to an increase in both the average balance and cost of borrowings. The average balance of FHLB advances and other borrowings increased $18.1 million to $51.3 million in 2007, from $33.2 million in 2006, as FHLB advances were used to fund loan growth. The average cost of FHLB advances and other borrowings increased 17 bp to 5.02% in 2007, from 4.85% in 2006, due to higher short-term interest rates, primarily during the first three quarters of 2007, which negatively affected both the cost of short-term FHLB advances and subordinated debentures. The average balance of interest-bearing liabilities increased $45.3 million and the average cost of interest-bearing liabilities increased 50 bp in 2007.

Provision for loan losses. The provision for loan losses is based on management’s regular review of the loan portfolio, as described in detail previously. Based on this review, the provision totaled $539,000 in 2007, compared to $820,000 in 2006.

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

Nonperforming loans totaled $488,000, or 0.21% of total loans, at December 31, 2007, compared to $297,000, or 0.16% of total loans, at December 31, 2006. More than 97% of the nonaccrual loan balances were secured by single-family homes. All but one loan, which totaled $147,000, was located in our market area.

Net recoveries totaled $36,000, or 0.02% of average loans, in 2007, compared to net charge-offs of $206,000, or 0.13% of average loans, in 2006.

At December 31, 2007, four commercial loan relationships and one multi-family mortgage loan relationship, totaling $2.1 million and $1.3 million, respectively, were classified as substandard. At December 31, 2006, two commercial loan relationships, which totaled $163,000, were classified as substandard.

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

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT       |      page 13

COMPARISON OF RESULTS OF OPERATIONS FOR 2007 AND 2006 (CONTINUED)

Noninterest income. Noninterest income totaled $728,000 in 2007, and decreased $95,000, or 11.5%, from $823,000 in 2006. The decline in noninterest income during 2007 was primarily due to lower mortgage loan production, which resulted in lower net gains on sales of loans. Mortgage loans originated for sale totaled $37.3 million in 2007, compared to $44.0 million in 2006.

Noninterest expense. Noninterest expense totaled $8.0 million in 2007, and included a $774,000 pre-tax arbitration loss and lease termination expense. The $774,000 was comprised of salaries and employee benefits expense of $641,000 related to the arbitration loss, and occupancy and equipment expense of $100,000 and other expense of $33,000, both related to the lease termination. The $33,000 other expense reflected the write-off of leasehold improvements at the previously rented space.

Noninterest expense for the year ended December 31, 2007, not including the arbitration loss and lease termination expense, totaled $7.2 million and increased $374,000, or 5.5%, from 2006. The increase in noninterest expense in 2007 was due to costs associated with additional operational resources necessary to further implement our strategic growth plan. Management leveraged growth during calendar year 2006 and was able to grow assets by 36.4%, or $63.0 million, with no increase in noninterest expense during that year. Additional expenses were incurred during 2007 for the opening of CFBank’s office in Worthington, Ohio in the summer of 2007, replacing the office at Easton Town Center in Columbus, Ohio. Ohio franchise tax increased $122,000 in 2007 due to additional capital from the Company’s 2006 stock offering. Noninterest expenses in 2007 were also incurred for marketing, advertising and additional human resources necessary to support growth. The ratio of noninterest expense to average assets improved to 3.08% in 2007, from 3.20% in 2006.

Income taxes. The income tax benefit in 2007 totaled $63,000 as a result of the operating loss, and was comparable to the tax benefit in 2006.

page 14       |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

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.

	FOR THE YEARS ENDED DECEMBER 31,
	2008								2007								2006
	AVERAGE			INTEREST		AVERAGE			AVERAGE			INTEREST		AVERAGE			AVERAGE			INTEREST		AVERAGE
	OUTSTANDING			EARNED/		YIELD/			OUTSTANDING			EARNED/		YIELD/			OUTSTANDING			EARNED/		YIELD/
(DOLLARS IN THOUSANDS)	BALANCE			PAID		RATE			BALANCE			PAID		RATE			BALANCE			PAID		RATE
Interest-earning assets:
Securities (1) (2)	$	25,951		$	1,329		5.20	%	$	29,864		$	1,520		5.09	%	$	30,991		$	1,609		5.16	%
Loans and loans held for sale (3)		231,539			15,193		6.56	%		210,169			15,847		7.54	%		164,204			11,805		7.19	%
Other earning assets		513			8		1.56	%		350			18		5.14	%		1,610			82		5.09	%
FHLB stock		2,064			107		5.18	%		2,105			138		6.56	%		2,723			158		5.80	%
Total interest-earning assets		260,067			16,637		6.41	%		242,488			17,523		7.23	%		199,528			13,654		6.84	%
Noninterest-earning assets		17,409								17,098								14,233
Total assets	$	277,476							$	259,586							$	213,761
Interest-bearing liabilities:
Deposits	$	187,495			6,210		3.31	%	$	166,242			7,218		4.34	%	$	139,056			5,280		3.80	%
FHLB advances and other borrowings		47,013			1,725		3.67	%		51,295			2,577		5.02	%		33,201			1,609		4.85	%
Total interest-bearing liabilities		234,508			7,935		3.38	%		217,537			9,795		4.50	%		172,257			6,889		4.00	%
Noninterest-bearing liabilities		16,009								13,997								11,802
Total liabilities		250,517								231,534								184,059
Equity		26,959								28,052								29,702
Total liabilities and equity	$	277,476							$	259,586							$	213,761
Net interest-earning assets	$	25,559							$	24,951							$	27,271
Net interest income/ interest rate spread				$	8,702		3.03	%				$	7,728		2.73	%				$	6,765		2.84	%
Net interest margin							3.35	%							3.19	%							3.39	%
Average interest-earning assets to average interest-bearing liabilities		110.90	%							111.47	%							115.83	%

(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)	Balance is net of deferred loan origination fees, undisbursed proceeds of construction loans and includes nonperforming loans.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT       |      page 15

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 DECEMBER 31, 2008									YEAR ENDED DECEMBER 31, 2007
	COMPARED TO YEAR ENDED DECEMBER 31, 2007									COMPARED TO YEAR ENDED DECEMBER 31, 2006
	INCREASE (DECREASE) DUE TO									INCREASE (DECREASE) DUE TO
(DOLLARS IN THOUSANDS)	RATE			VOLUME			NET			RATE			VOLUME			NET
Interest-earning assets:
Securities(1)	$	29		$	(220	)	$	(191	)	$	(25	)	$	(64	)	$	(89	)
Loans and loans held for sale		(2,173	)		1,519			(654	)		600			3,442			4,042
Other earning assets		(16	)		6			(10	)		1			(65	)		(64	)
FHLB stock		(28	)		(3	)		(31	)		19			(39	)		(20	)
Total interest-earning assets		(2,188	)		1,302			(886	)		595			3,274			3,869
Interest-bearing liabilities:
Deposits		(1,854	)		846			(1,008	)		821			1,117			1,938
FHLB advances and other borrowings		(651	)		(201	)		(852	)		61			907			968
Total interest-bearing liabilities		(2,505	)		645			(1,860	)		882			2,024			2,906
Net change in net interest income	$	317		$	657		$	974		$	(287	)	$	1,250		$	963

(1) Securities amounts are presented on a fully taxable equivalent basis.

page 16       |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

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 10% of total assets. Disclosures about our hedging activities are set forth in Note 18 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 4 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 net portfolio value (NPV), which is the difference between the estimated market value of its assets and liabilities under different interest rate scenarios. Changes in NPV are measured using instantaneous changes in interest rates, rather than linear changes in rates over a period of time. At December 31, 2008, CFBank’s NPV ratios, using interest rate shocks ranging from a 300 bp rise in rates to a 100 bp decline in rates are shown in the following table. All values are within the acceptable range established by CFBank’s Board of Directors.

NET PORTFOLIO VALUE (CFBANK ONLY)

BASIS POINT CHANGE IN RATES	NPV RATIO
+300	10.04%
+200	10.43%
+100	10.72%
+50	10.78%
0	10.89%
-50	10.89%
-100	10.90%

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.

We continue to originate substantially all fixed-rate single-family mortgage loans for sale rather than retain long-term, low fixed-rate loans in portfolio. We continue to originate commercial, commercial real estate and multi-family residential 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. Due to the current historic low level of market interest rates in 2008, the terms of some liabilities were extended to fix their cost at current low levels and to protect net interest margin should interest rates rise. During the flat/inverted yield curve that existed during 2006 and much of 2007, we maintained a shorter duration of liabilities and benefited from repricing as interest rates fell, which increased net interest margin in 2008. In 2006, we issued $9.7 million in callable brokered certificates of deposit, which improved net interest margin when the call options were exercised in 2008 when short-term interest rates fell.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT       |      page 17

LIQUIDITY AND CAPITAL RESOURCES

In general terms, liquidity is a measurement of 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 and the requirements of its own deposit and loan customers. Management believes that CFBank’s liquidity is sufficient.

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, a line of credit with a commercial bank, use of brokered deposits and the ability to obtain deposits by offering above-market interest rates.

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 temporarily increased deposit insurance coverage from $100,000 to $250,000 per depositor through December 31, 2009. CFBank is a participant in the FDIC’s Temporary Liquidity Guarantee Program that provides unlimited deposit insurance coverage, through December 31, 2009, for noninterest-bearing transaction accounts. And, as discussed in the “Deposits” section of this Annual Report, CFBank is also a participant in CDARS. Based on our historical experience with deposit retention, current retention strategies and participation in programs offering additional FDIC insurance protection, we believe that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of existing deposits will remain with CFBank.

At December 31, 2008, CFBank exceeded all of its regulatory capital requirements to be considered well-capitalized. Tier 1 capital level was $25.2 million, or 9.2% of adjusted total assets, which exceeded the required level of $13.7 million, or 5.0%. Tier 1 risk-based capital level was $25.2 million, or 10.5% of risk-weighted assets, which exceeded the required level of $14.4 million, or 6.0%. Risk-based capital was $27.7 million, or 11.6% of risk-weighted assets, which exceeded the required level of $24.0 million, or 10.0%.

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 the steps necessary to minimize any detrimental effects on profitability.

page 18       |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

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 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 position or results of operations. We believe that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are 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. One critical accounting policy relates to determining the adequacy of the allowance for loan losses. CFBank’s Allowance for Loan Losses Policy provides a thorough, disciplined and consistently applied process that incorporates management’s current judgments about the credit quality of the loan portfolio into determination of the allowance for loan losses in accordance with U.S. generally accepted accounting principles and supervisory guidance. Management estimates the appropriate allowance balance by evaluating past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated value of collateral, economic conditions, and other factors. We believe that an adequate allowance for loan losses has been established. Additional information regarding this policy is included in the previous sections captioned “Provision for Loan Losses” and in Notes 1 and 3 to our consolidated financial statements.

Another critical accounting policy relates to valuation of the deferred tax asset for net operating losses. At year-end 2008, the Company had net operating loss carryforwards of approximately $2.9 million which expire at various dates from 2024 to 2028. No valuation allowance has been recorded against the deferred tax asset for net operating losses because the benefit is more likely than not to be realized. Additional information is included in Notes 1 and 12 to our consolidated financial statements.

Another critical accounting policy relates to fair value of financial instruments. Fair values of financial instruments 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 4 to our consolidated financial statements.

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, 2008, there were 4,101,537 shares of common stock outstanding and 533 shareholders, excluding persons or entities holding stock in nominee or street name through various brokerage firms.

The following table shows the quarterly reported high and low trade prices of the common stock and cash dividends per common share declared during 2008 and 2007.

	HIGH		LOW		DIVIDENDS
2008
First quarter	$	4.94	$	3.75	$	0.05
Second quarter		5.08		3.54		0.05
Third quarter		3.90		3.07		0.05
Fourth quarter		4.10		2.35		0.05
2007
First quarter	$	7.72	$	6.81	$	0.09
Second quarter		7.00		6.22		0.09
Third quarter		7.00		5.21		0.05
Fourth quarter		6.75		3.75		0.05

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT       |      page 19

FINANCIAL STATEMENTS

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, 2008.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

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

Mark S. Allio
Chairman of the Board, President and Chief Executive Officer

Therese Ann Liutkus, CPA
Treasurer and Chief Financial Officer

March 11, 2009

page 20      |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors and Shareholders
Central Federal Corporation
Fairlawn, Ohio

We have audited the accompanying consolidated balance sheets of Central Federal Corporation as of December 31, 2008 and 2007 and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. 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 audit 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, 2008 and 2007 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

Crowe Horwath LLP

Columbus, Ohio
March 11, 2009

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 21

CONSOLIDATED BALANCE SHEETS

	DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007
Assets
Cash and cash equivalents	$	4,177		$	3,894
Securities available for sale		23,550			28,398
Loans held for sale		284			457
Loans, net of allowance of $3,119 and $2,684		233,922			230,475
Federal Home Loan Bank stock		2,109			1,963
Loan servicing rights		112			157
Foreclosed assets, net		—			86
Premises and equipment, net		5,246			5,717
Bank owned life insurance		3,892			3,769
Deferred tax asset		1,598			1,995
Accrued interest receivable and other assets		2,891			2,671
	$	277,781		$	279,582
Liabilities and shareholders’ equity
Deposits
Noninterest bearing	$	14,557		$	12,151
Interest bearing		193,090			182,157
Total deposits		207,647			194,308
Federal Home Loan Bank advances		29,050			49,450
Advances by borrowers for taxes and insurance		167			154
Accrued interest payable and other liabilities		2,687			3,136
Subordinated debentures		5,155			5,155
Total liabilities		244,706			252,203
Shareholders’ equity
Preferred stock, Series A, $.01 par value, $7,225 aggregate liquidation value; 1,000,000 shares authorized; 2008 — 7,225 shares issued, 2007 — none issued		6,989			—
Common stock, $.01 par value; 6,000,000 shares authorized; 2008 — 4,660,070 shares issued, 2007 — 4,628,320 shares issued		47			46
Common stock warrants		217			—
Additional paid-in capital		27,455			27,348
Retained earnings		1,262			1,411
Accumulated other comprehensive income		350			187
Treasury stock, at cost; 2008 — 558,533 shares, 2007 — 193,533 shares		(3,245	)		(1,613	)
Total shareholders’ equity		33,075			27,379
	$	277,781		$	279,582

(See accompanying notes.)

page 22      |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF OPERATIONS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007			2006
Interest and dividend income
Loans, including fees	$	15,193		$	15,847		$	11,805
Securities		1,329			1,520			1,609
Federal Home Loan Bank stock dividends		107			138			158
Federal funds sold and other		8			18			82
		16,637			17,523			13,654
Interest expense
Deposits		6,210			7,218			5,280
Federal Home Loan Bank advances and other debt		1,391			2,151			1,193
Subordinated debentures		334			426			416
		7,935			9,795			6,889
Net interest income		8,702			7,728			6,765
Provision for loan losses		917			539			820
Net interest income after provision for loan losses		7,785			7,189			5,945
Noninterest income
Service charges on deposit accounts		544			287			232
Net gains on sales of loans		159			233			326
Loan servicing fees, net		34			49			59
Net gains (losses) on sales of securities		54			—			(5	)
Earnings on bank owned life insurance		123			123			115
Other		34			36			96
		948			728			823
Noninterest expense
Salaries and employee benefits		4,058			4,601			3,788
Occupancy and equipment		485			534			471
Data processing		686			556			492
Franchise taxes		308			293			171
Professional fees		558			358			428
Director fees		136			148			149
Postage, printing and supplies		159			162			155
Advertising and promotion		45			203			95
Telephone		91			99			109
Loan expenses		20			23			101
Foreclosed assets, net		(3	)		(30	)		8
Depreciation		683			619			506
Other		523			431			376
		7,749			7,997			6,849
Income (loss) before income taxes		984			(80	)		(81	)
Income tax expense (benefit)		261			(63	)		(44	)
Net income (loss)		723			(17	)		(37	)
Preferred stock dividends and accretion of unearned discount on preferred stock		(29	)		—			—
Net income (loss) available to common shareholders	$	694		$	(17	)	$	(37	)
Earnings (loss) per common share:
Basic	$	0.17		$	—		$	(0.01	)
Diluted	$	0.17		$	—		$	(0.01	)

(See accompanying notes.)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 23

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007			2006
Net income (loss)	$	723		$	(17	)	$	(37	)
Change in net unrealized gain (loss) on securities available for sale		300			322			(85	)
Less: Reclassification adjustment for (gains) and losses later recognized in net income		(54	)		—			5
Net unrealized gain (loss)		246			322			(80	)
Tax effect		(83	)		(110	)		27
Other comprehensive income (loss)		163			212			(53	)
Comprehensive income (loss)	$	886		$	195		$	(90	)

(See accompanying notes.)

page 24     |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

													ACCUMULATED			UNEARNED
					COMMON								OTHER			STOCK BASED						TOTAL
(DOLLARS IN THOUSANDS	PREFERRED		COMMON		STOCK		ADDITIONAL			RETAINED			COMPREHENSIVE			INCENTIVE PLAN			TREASURY			SHAREHOLDERS’
EXCEPT PER SHARE DATA)	STOCK		STOCK		WARRANTS		PAID-IN CAPITAL			EARNINGS			INCOME (LOSS)			SHARES			STOCK			EQUITY
Balance at January 1, 2006	$	—	$	23	$	—	$	12,787		$	4,315		$	28		$	(289	)	$	(783	)	$	16,081
Reclassification of unearned stock based incentive plan shares upon adoption of FAS 123R, Share Based Payment on January 1, 2006								(289	)								289						—
Comprehensive loss:
Net loss											(37	)											(37	)
Other comprehensive loss														(53	)								(53	)
Total comprehensive loss																							(90	)
Issuance of common stock in public offering, net of offering costs of $1,542 (2,300,000 shares)				23				14,535															14,558
Release of 14,556 stock based incentive plan shares								166															166
Tax benefits from dividends on unvested stock based incentive plan shares								5															5
Cash dividends declared on common stock ($.36 per share)											(1,635	)											(1,635	)
Balance at December 31, 2006	$	—	$	46	$	—	$	27,204		$	2,643		$	(25	)	$	—		$	(783	)	$	29,085

(continued on next page.)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 25

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

													ACCUMULATED			UNEARNED
					COMMON								OTHER			STOCK BASED					TOTAL
(DOLLARS IN THOUSANDS	PREFERRED		COMMON		STOCK		ADDITIONAL			RETAINED			COMPREHENSIVE			INCENTIVE PLAN		TREASURY			SHAREHOLDERS’
EXCEPT PER SHARE DATA)	STOCK		STOCK		WARRANTS		PAID-IN CAPITAL			EARNINGS			INCOME (LOSS)			SHARES		STOCK			EQUITY
Balance at January 1, 2007	$	—	$	46	$	—	$	27,204		$	2,643		$	(25	)	$	—	$	(783	)	$	29,085
Comprehensive income:
Net loss											(17	)										(17	)
Other comprehensive income														212								212
Total comprehensive income																						195
Release of 17,633 stock based incentive plan shares								152														152
Tax benefits from dividends on unvested stock based incentive plan shares								3														3
Tax effect from vesting of stock based incentive plan shares								(26	)													(26	)
Stock option expense								15														15
Purchase of 125,000 treasury shares																			(830	)		(830	)
Cash dividends declared on common stock ($.28 per share)											(1,215	)										(1,215	)
Balance at December 31, 2007		—		46		—		27,348			1,411			187			—		(1,613	)		27,379
Comprehensive income:
Net income											723											723
Other comprehensive income														163								163
Total comprehensive income																						886
Issuance of 7,225 shares preferred stock and 336,568 common stock warrants, net of offering costs of $22		6,986				217																7,203
Accretion of unearned discount on preferred stock		3									(3	)										—
Issuance of 31,750 stock based incentive plan shares				1																		1
Release of 23,417 stock based incentive plan shares								127														127
Tax benefits from dividends on unvested stock based incentive plan shares								3														3
Tax effect from vesting of stock based incentive plan shares								(45	)													(45	)
Stock option expense								22														22
Purchase of 365,000 treasury shares																			(1,632	)		(1,632	)
Preferred stock dividends											(26	)										(26	)
Cash dividends declared on common stock ($.20 per share)											(843	)										(843	)
Balance at December 31, 2008	$	6,989	$	47	$	217	$	27,455		$	1,262		$	350		$	—	$	(3,245	)	$	33,075

(See accompanying notes.)

page 26     |      CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007			2006
Cash flows from operating activities
Net income (loss)	$	723		$	(17	)	$	(37	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision for loan losses		917			539			820
Valuation (gain) loss on mortgage servicing rights		3			(3	)		(17	)
Depreciation		683			619			506
Amortization, net		(55	)		(121	)		(102	)
Net realized (gain) loss on sales of securities		(54	)		—			5
Originations of loans held for sale		(26,973	)		(37,282	)		(44,033	)
Proceeds from sale of loans held for sale		27,306			39,058			44,778
Net gain on sale of loans		(159	)		(233	)		(326	)
Loss (gain) on disposal of premises and equipment		(1	)		38			(38	)
Gain on sale of foreclosed assets		(22	)		(46	)		(15	)
FHLB stock dividend		(81	)		—			(157	)
Stock based incentive plan and stock option expense		149			167			166
Change in deferred income taxes		314			(61	)		(39	)
Net change in:
Bank owned life insurance		(123	)		(123	)		(115	)
Accrued interest receivable and other assets		(262	)		(876	)		(406	)
Accrued interest payable and other liabilities		(457	)		1,761			245
Net cash from operating activities		1,908			3,420			1,235
Cash flows from investing activities
Available-for-sale securities:
Sales		2,064			—			4,395
Maturities, prepayments and calls		10,103			7,244			5,193
Purchases		(6,917	)		(5,867	)		(8,025	)
Loan originations and payments, net		(4,401	)		(41,371	)		(48,644	)
Loans purchased		—			(5,146	)		(12,976	)
Proceeds from redemption of FHLB stock		—			850			—
Purchase of FHLB stock		(65	)		—			—
Additions to premises and equipment		(212	)		(2,278	)		(1,678	)
Proceeds from the sale of premises and equipment		1			9			39
Proceeds from the sale of foreclosed assets		231			246			233
Net cash from investing activities	$	804		$	(46,313	)	$	(61,463	)

(continued on next page.)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 27

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	YEARS ENDED DECEMBER 31,
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007			2006
Cash flows from financing activities
Net change in deposits	$	13,247		$	26,669		$	39,981
Net change in short-term borrowings from the FHLB and other debt		(32,400	)		17,000			8,525
Proceeds from FHLB advances and other debt		14,000			4,200			5,000
Repayments on FHLB advances and other debt		(2,000	)		(4,270	)		(4,000	)
Net change in advances by borrowers for taxes and insurance		13			17			24
Cash dividends paid		(860	)		(1,402	)		(1,429	)
Proceeds from issuance of preferred stock and common stock warrants		7,203			—			—
Proceeds from issuance of common stock in public offering		—			—			14,558
Purchase of treasury shares		(1,632	)		(830	)		—
Net cash from financing activities		(2,429	)		41,384			62,659
Net change in cash and cash equivalents		283			(1,509	)		2,431
Beginning cash and cash equivalents		3,894			5,403			2,972
Ending cash and cash equivalents	$	4,177		$	3,894		$	5,403
Supplemental cash flow information:
Interest paid	$	7,340		$	9,733		$	6,741
Income taxes paid		51			15			—
Supplemental noncash disclosures:
Transfers from loans to repossessed assets	$	123		$	286		$	218

(See accompanying notes.)

page 28      |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

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, its wholly-owned subsidiaries, CFBank and Ghent Road, Inc., together referred to as “the Company”. Ghent Road, Inc. was formed in 2006 and owns property. Intercompany transactions and balances are eliminated in consolidation.

The Company provides financial services through its offices in Fairlawn, Worthington, Wellsville and Calcutta, Ohio. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial and residential mortgages, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the areas.

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, 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 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 original maturities under 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.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. 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, net of tax.

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

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights released. 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, purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. 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.

Interest income on mortgage and commercial loans is discontinued at the time the loan is four payments delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged-off no later than four payments past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |      page 29

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentration of Credit Risk: Most of the Company’s primary business activity is with customers located within the Ohio counties of Columbiana, Franklin and Summit. 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.

Certain Purchased Loans: The Company purchases individual loans and groups of loans. These purchased loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses.

Allowance for Loan Losses: The allowance for loan losses 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. The general component covers loans not classified as impaired and is based on historical loss experience adjusted for current factors.

A loan is impaired when full payment under the loan terms is not expected. Commercial, multi-family residential and commercial real estate loans over $500 are individually evaluated for impairment. 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 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.

Servicing Rights: Servicing rights are recognized separately when they are acquired through sales of loans. For sales of mortgage loans prior to January 1, 2007, a portion of the cost of the loan was allocated to the servicing right based on relative fair values. The Company adopted Statement of Financial Accounting Standards (FAS) No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140 (FAS No. 156) on January 1, 2007, and for sales of mortgage loans with servicing rights retained beginning in 2007, 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. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. 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. No new loan servicing rights were recorded in 2008 or 2007.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with loan servicing fees, net on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

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 $34, $49 and $59 for the years ended December 31, 2008, 2007 and 2006, respectively. Late fees and ancillary fees related to loan servicing are not material.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. 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.

page 30      |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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 amortized over the lives of the respective leases.

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 accordance with Emerging Issues Task Force (EITF) Issue No. 06-5, Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, 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.

Long-term Assets: Premises and equipment, other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

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.

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 to help manage interest rate risk. The Company does not use derivatives for trading purposes.

The Company’s derivative transactions are considered instruments with no hedging designation (“stand-alone derivatives”). Changes in the fair value of the derivatives are reported currently in earnings, as noninterest income.

Mortgage Banking Derivatives: The Company enters into interest rate lock commitments on mortgage loans to be sold into the secondary market. These derivatives are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in gain on sale of loans.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to 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.

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 bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Deferred tax assets are recognized for net operating losses that expire primarily in 2024 and 2025, because the benefit is more likely than not to be realized.

The Company adopted the Financial Accounting Standards Board (FASB) Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), as of January 1, 2007. 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 adoption had no affect on the Company’s financial statements.

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

Benefit Plans: 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.

Earnings Per Common Share: Basic earnings per common share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Stock based incentive plan shares are considered outstanding as they are earned over the vesting period. Diluted earnings per common share includes the dilutive effect of stock based incentive plan shares and additional potential common shares issuable under stock options and stock warrants.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |      page 31

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. Legal fees with regard to loss contingencies associated with loans are expensed when they are not considered collectible from borrowers. Legal fees associated with other loss contingencies are expensed as incurred. Management does not believe there now are such matters that will have a material effect on the financial statements. See Note 23 — Arbitration Loss, Note 24 — Dispute Resolution and Note 25 — Loss Contingency.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Equity: Treasury stock is carried at cost. The carrying value of preferred stock and common stock warrants 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 unearned discount.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by CFBank to the holding company or by the holding company to shareholders. On December 5, 2008, the Company issued 7,225 shares of preferred stock to the United States Treasury Department under the Capital Purchase Program. While that preferred stock remains outstanding, dividends on the Company’s common stock are limited to a quarterly cash dividend of a maximum of $.05 per share. See Note 15 — Preferred Stock.

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 4 — 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 the estimates.

Operating Segments: While the chief decision-makers monitor the revenue streams of the Company’s various products and services, operations are managed 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. From 2005 thru 2007, internal financial information was primarily reported and aggregated in two lines of business, banking and mortgage banking. Beginning in 2008, mortgage banking activities are considered to be part of banking activities due to mortgage banking activities’ insignificant contribution to the Company’s overall performance.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards: In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The impact of adoption was not material. In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active. This FSP clarifies the application of FAS 157 in a market that is not active. The impact of adoption was not material.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). The FAS provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. FAS 159 was effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or financial liabilities.

page 32      |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In September 2006, the FASB EITF finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This Issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability is based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit, depending on the contractual terms of the underlying agreement. This Issue was effective for the Company on January 1, 2008. The impact of adoption was not material.

On November 5, 2007, the Securities and Exchange Commission (the Commission) issued Staff Accounting Bulletin (SAB) No. 109, Written Loan Commitments Recorded at Fair Value through Earnings (SAB 109). Previously, SAB No. 105, Application of Accounting Principles to Loan Commitments (SAB 105), stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 was effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The impact of adoption was not material.

In December 2007, the Commission issued SAB No. 110 which expresses their views regarding the use of a “simplified” method, as discussed in SAB No. 107, in developing an estimate of expected term of “plain vanilla” share options in accordance with FAS No. 123(R), Share-Based Payment. The Commission concluded that a company could, under certain circumstances, continue to use the simplified method for share option grants after December 31, 2007. The Company does not use the simplified method for share options and, therefore, SAB No. 110 had no impact on the Company’s consolidated financial statements.

Effect of Newly Issued But Not Yet Effective Accounting Standards: In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations (FAS 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this FAS is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. FAS 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this FAS is not expected to have a material effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 161). FAS 161 amends and expands the disclosure requirements of FAS 133, Accounting for Derivative Instruments and Hedging Activities, for derivative instruments and hedging activities. FAS 161 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this FAS is not expected to have a material effect on the Company’s consolidated financial statements.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 33

NOTE 2 — SECURITIES

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			GROSS		GROSS
	FAIR		UNREALIZED		UNREALIZED
	VALUE		GAINS		LOSSES
2008
Mortgage-backed	$	23,550	$	543	$	(13	)
Total	$	23,550	$	543	$	(13	)
2007
Federal agency	$	6,993	$	4	$	(9	)
State and municipal		1,009		—		—
Mortgage-backed		20,396		345		(56	)
Total	$	28,398	$	349	$	(65	)

Sales of available for sale securities were as follows:

	2008		2007		2006
Proceeds	$	2,064	$	—	$	4,395
Gross gains		54		—		—
Gross losses		—		—		(5	)

The tax benefit (provision) related to these net realized gains and losses was $18, $0, and ($2), respectively.

page 34     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 2 — SECURITIES (CONTINUED)

At year-end 2008, there were no debt securities contractually due at a single maturity date. The fair value of mortgage-backed securities, which are not due at a single maturity date, totaled $23,550 at December 31, 2008.

Fair value of securities pledged was as follows:

	2008		2007
Pledged as collateral for:
FHLB advances	$	13,508	$	15,401
Public deposits		3,058		7,571
Customer repurchase agreements		3,098		2,685
Interest-rate swaps		1,235		237
Total	$	20,898	$	25,894

At year-end 2008 and 2007, there were no holdings of securities of any one issuer, other than federal agencies, in an amount greater than 10% of shareholders’ equity.

Securities with unrealized losses at year-end 2008 and 2007, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

2008	LESS THAN 12 MONTHS					12 MONTHS OR MORE					TOTAL
DESCRIPTION OF SECURITIES	FAIR VALUE		UNREALIZED LOSS			FAIR VALUE		UNREALIZED LOSS			FAIR VALUE		UNREALIZED LOSS
Mortgage-backed	$	733	$	(3	)	$	1,013	$	(10	)	$	1,746	$	(13	)
Total temporarily impaired	$	733	$	(3	)	$	1,013	$	(10	)	$	1,746	$	(13	)

2007	LESS THAN 12 MONTHS				12 MONTHS OR MORE					TOTAL
DESCRIPTION OF SECURITIES	FAIR VALUE		UNREALIZED LOSS		FAIR VALUE		UNREALIZED LOSS			FAIR VALUE		UNREALIZED LOSS
Federal agency	$	—	$	—	$	4,992	$	(9	)	$	4,992	$	(9	)
Mortgage-backed		—		—		3,811		(56	)		3,811		(56	)
Total temporarily impaired	$	—	$	—	$	8,803	$	(65	)	$	8,803	$	(65	)

Unrealized losses on the above federal agency and mortgage-backed securities have not been recognized in income because the issuers of the bonds are all federal sponsored agencies and the decline in fair value is temporary and largely due to changes in market interest rates. The fair value is expected to recover as the bonds approach their maturity date and/or market rates decline.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT      |     page 35

NOTE 3 — LOANS

Loans at year-end were as follows:

	2008			2007
Commercial	$	40,945		$	35,334
Real estate:
Single-family residential		28,884			31,082
Multi-family residential		41,495			43,789
Commercial		99,652			95,088
Consumer		26,429			28,248
Subtotal		237,405			233,541
Less: Net deferred loan fees		(364	)		(382	)
Allowance for loan losses		(3,119	)		(2,684	)
Loans, net	$	233,922		$	230,475

Real estate loans include $3,052 and $6,184 construction loans at year-end 2008 and 2007.

Activity in the allowance for loan losses was as follows:

	2008			2007			2006
Beginning balance	$	2,684		$	2,109		$	1,495
Provision for loan losses		917			539			820
Loans charged-off		(497	)		(44	)		(302	)
Recoveries		15			80			96
Ending balance	$	3,119		$	2,684		$	2,109

Individually impaired loans were as follows:

	2008		2007
Period-end loans with no allocated allowance for loan losses	$	—	$	—
Period-end loans with allocated allowance for loan losses		2,257		—
Total	$	2,257	$	—
Amount of the allowance for loan losses allocated	$	514	$	—

	2008		2007		2006
Average of individually impaired loans during the year	$	1,647	$	—	$	—
Interest income recognized during impairment		3		—		—
Cash-basis interest income recognized		—		—		—

Nonaccrual loans and loans past due over 90 days still on accrual were as follows:

	2008		2007
Loans past due over 90 days still on accrual	$	348	$	97
Nonaccrual loans		2,064		391

Nonaccrual loans and loans past due over 90 days still on accrual include both smaller balance single-family mortgage and consumer loans that are collectively evaluated for impairment and individually classified impaired loans.

page 36     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 4 — FAIR VALUE

FAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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 reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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 to 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 inputs).

The fair value of derivatives is based on the present value of future cash flows using the prevailing interest rate curve. Our derivative instruments consist of interest-rate swaps. Significant fair value inputs can generally be verified and do not typically involve significant judgments by management. (Level 2 inputs).

The fair value of servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on 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 typically significant and result in a Level 3 classification of the inputs for determining fair value (Level 3 inputs).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at December 31, 2008
	Using Significant Other Observable Inputs
	(Level 2)
Assets:
Securities available for sale	$	23,550
Interest-rate swaps		929
Liabilities:
Interest-rate swaps	$	929

Assets Measured on a Non-Recurring Basis

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

	Fair Value Measurements at December 31, 2008 Using
	Significant Other		Significant
	Observable Inputs		Unobservable Inputs
	(Level 2)		(Level 3)
Loan servicing rights	$	52	$	—
Impaired loans		—		1,743

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 37

NOTE 4 — FAIR VALUE (CONTINUED)

The following represent impairment charges recognized during 2008:

Servicing rights, which are carried at lower of cost or fair value, were written down to fair value of $52, resulting in a valuation allowance of $8. A charge of $3 was included in earnings for the period.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $2,257, with a valuation allowance of $514, resulting in an additional provision for loan losses of $514 for 2008.

Fair Value of Financial Instruments

Carrying amount and estimated fair values of financial instruments at year-end were as follows:

	2008						2007
	CARRYING			FAIR			CARRYING			FAIR
	AMOUNT			VALUE			AMOUNT			VALUE
Financial assets
Cash and cash equivalents	$	4,177		$	4,177		$	3,894		$	3,894
Securities available for sale		23,550			23,550			28,398			28,398
Loans held for sale		284			287			457			466
Loans, net		233,922			239,399			230,475			230,605
FHLB stock		2,109			n/a			1,963			n/a
Accrued interest receivable		1,100			1,100			1,360			1,360
Interest-rate swaps		929			929			156			156
Financial liabilities
Deposits		(207,647	)		(210,052	)		(194,308	)		(192,422	)
FHLB advances		(29,050	)		(29,531	)		(49,450	)		(49,600	)
Subordinated debentures		(5,155	)		(5,155	)		(5,155	)		(5,155	)
Accrued interest payable		(301	)		(301	)		(301	)		(301	)
Interest-rate swaps		(929	)		(929	)		(156	)		(156	)

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

Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Fair value of loans held for sale is based on binding quotes from 3rd party investors. For fixed rate loans and for variable rate loans with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk (entry price). The fair value for fixed rate deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material.

page 38     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 5 — LOAN SERVICING

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

	2008		2007
Mortgage loans serviced for Freddie Mac	$	22,120	$	26,340

Custodial escrow balances maintained in connection with serviced loans were $322 and $402 at year-end 2008 and 2007.

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

	2008			2007			2006
Servicing rights, net of valuation allowance:
Beginning of year	$	157		$	201		$	250
Amortized to expense		(42	)		(46	)		(66	)
Change in valuation allowance		(3	)		2			17
End of year	$	112		$	157		$	201
Valuation allowance:
Beginning of year	$	5		$	7		$	24
Additions expensed		3			—			—
Reductions credited to expense		—			(2	)		(17	)
End of year	$	8		$	5		$	7

The fair value of capitalized mortgage servicing rights was $137 and $255 at year-end 2008 and 2007. Fair value at year-end 2008 was determined using a 9% discount rate and prepayments speeds ranging from 187% to 660% depending on the stratification of the specific right. Fair value at year-end 2007 was determined using a 10% discount rate and prepayment speeds ranging from 190% to 960%, depending on the stratification of the specific right.

The weighted average amortization period is 3.0 years.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 39

NOTE 6 — PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2008			2007
Land and land improvements	$	1,995		$	1,995
Buildings		3,551			3,551
Furniture, fixtures and equipment		3,024			2,904
Leasehold improvements		434			434
		9,004			8,884
Less: accumulated depreciation		(3,758	)		(3,167	)
Total	$	5,246		$	5,717

The Company leases certain office properties. Rent expense was $239, $365, and $348 for 2008, 2007 and 2006. Rent commitments under noncancelable operating leases, before considering renewal options that generally are present, were as follows.

2009	$	171
2010		154
2011		157
2012		160
2013		163
Thereafter		41
Total	$	846

The Company is a one-third owner of a limited liability company that owns and manages the office building at 2923 Smith Road, Fairlawn, Ohio 44333, where the Company’s headquarters and CFBank’s Fairlawn office are located. The Company entered into a 10 year lease with the limited liability company in March 2004 that calls for monthly payments of $11, increasing 2% annually for the life of the lease through March 2014. During 2008, the lease was amended for additional office space. The amended lease agreement calls for additional monthly payments of $3 through June 30, 2009, at which time the monthly payment is expected to be renegotiated for the remaining life of the lease. Total rent expense under this operating lease, as amended, and common area maintenance costs, was $239, $187 and $183 in 2008, 2007 and 2006. The rental commitments above relate to this amended lease.

The former President of Reserve Mortgage Services, Inc. (Reserve), which was acquired by the Company in 2004, was a 100% owner of a company that owned and managed the office building at 1730 Akron-Peninsula Road, Akron, Ohio 44313 where CFBank’s mortgage services office was located. Lease agreements were for 5 year terms expiring at various times from May 2007 through December 2009, and called for monthly rental payments of $7, increasing 3% annually for the lives of the respective leases. In 2007, CFBank’s mortgage services operations were moved to the Fairlawn office and a $100 lease termination expense was paid in settlement of the remaining future lease obligations. Total rent expense was $148, including the $100 lease termination expense in 2007, and $80 in 2006.

page 40     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 7 — DEPOSITS

Time deposits of $100 or more were $45,560 and $51,204 at year-end 2008 and 2007.

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

2009	$	83,758
2010		41,885
2011		4,050
2012		210
2013		848
Thereafter		499
Total	$	131,250

Time deposits included $67,238 and $52,189 in brokered deposits at year-end 2008 and 2007.

NOTE 8 — FEDERAL HOME LOAN BANK ADVANCES

At year end, advances from the FHLB were as follows:

	2008		2007
Maturity January 2009 at .54% floating rate	$	5,850	$	—
Maturity January 2008 at 4.00% floating rate		—		38,250
Maturities February 2009 thru July 2011, fixed at rates from 2.48% to 5.60%, averaging 3.98%		23,200		—
Maturities March 2008 thru March 2010, fixed at rates from 2.90% to 5.60%, averaging 4.89%		—		11,200
Total	$	29,050	$	49,450

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

The advances were collateralized as follows:

	2008		2007
First mortgage loans under a blanket lien arrangement	$	26,285	$	26,649
Second mortgages		462		577
Multi-family mortgage loans		17,421		15,227
Home equity lines of credit		19,271		9,918
Commercial real estate loans		61,818		62,287
Securities		13,508		15,401
Total	$	138,765	$	130,059

Based on this collateral and CFBank’s holdings of FHLB stock, CFBank is eligible to borrow up to a total of $62,346 at year-end 2008.

Payment information: Required payments over the next five years are:

2009	$	17,050
2010		6,000
2011		6,000
Total	$	29,050

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 41

NOTE 9 — OTHER BORROWINGS

CFBank has a line of credit with a commercial bank totaling $5,000. At year-end 2008 and 2007, there was no outstanding balance on the line of credit. Interest on the line accrues daily and is variable based on the bank’s federal funds rate.

	2008			2007
Commercial bank line of credit
Average daily balance during the year	$	2		$	4
Average interest rate during the year		2.71	%		5.67	%
Maximum month-end balance during the year	$	—		$	373

NOTE 10 — SUBORDINATED DEBENTURES

In December 2003, Central Federal Capital Trust I, a trust formed by the Company, closed a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1 per security. The Company issued $5,155 of subordinated debentures to the trust in exchange for ownership of all of the common security of the trust and the proceeds of the preferred securities sold by the trust. In accordance with FIN 46R, the trust is not consolidated with the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $155 and is included in other assets.

The 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. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. There are no required payments on the subordinated debentures over the next five years.

The trust preferred securities and subordinated debentures have a variable rate of interest, reset quarterly, equal to the three month London Interbank Offered Rate (LIBOR) plus 2.85%. The total rate in effect was 4.32% at year-end 2008.

page 42     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 11 — BENEFIT PLANS

Multi-employer pension plan: The Company participates in 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, 2008 totaled $365. The Company’s contribution for the plan years ending June 30, 2009, June 30, 2008 and June 30, 2007, totaled $204, $124 and $127, respectively.

401(k) Plan: A 401(k) plan allows employee contributions up to the maximum amount allowable under federal tax regulations, which are matched in an amount equal to 25% of the first 8% of the compensation contributed. Expense for 2008 and 2007 was $38 and $41, respectively. Prior to 2007 the Company match was on a discretionary basis and there was no match in 2006.

Salary Continuation Agreement: In 2004, CFBank initiated a nonqualified salary continuation agreement for the 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 $24, $92 and $73 in 2008, 2007 and 2006, respectively. The accrual is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $275 at year-end 2008 and $271 at year-end 2007.

Life Insurance Benefits: CFBank 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 $16, $22 and $16 in 2008, 2007 and 2006, respectively. The accrual is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $166 at year-end 2008 and $150 at year-end 2007.

NOTE 12 — INCOME TAXES

Income tax expense (benefit) was as follows:

	2008			2007			2006
Current federal	$	(53	)	$	(2	)	$	(5	)
Deferred federal		314			(61	)		(39	)
Total	$	261		$	(63	)	$	(44	)

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

	2008			2007			2006
Federal statutory rate times financial statement income (loss)	$	335		$	(27	)	$	(28	)
Effect of:
Bank owned life insurance income		(42	)		(42	)		(39	)
Other		(32	)		6			23
Total	$	261		$	(63	)	$	(44	)
Effective tax rate		26.5	%		78.8	%		54.3	%

(continued on next page.)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 43

NOTE 12 — INCOME TAXES (CONTINUED)

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

	2008		2007
Deferred tax assets:
Allowance for loan losses	$	848	$	912
Deferred loan fees		40		120
Post-retirement death benefits		57		51
Deferred compensation		93		92
Tax mark-to-market adjustments on securities and loans held for sale		181		96
Accrued stock awards		65		66
Net operating loss		986		1,310
Other		72		67
		2,342		2,714
Deferred tax liabilities:
Depreciation		51		106
FHLB stock dividend		400		372
Mortgage servicing rights		38		53
Prepaid expenses		52		36
Unrealized gain on securities available for sale		180		97
Other		23		55
		744		719
Net deferred tax asset	$	1,598	$	1,995

Federal income tax laws provided additional bad debt deductions through 1987, totaling $2,250. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total $765 at year-end 2008. If CFBank were liquidated or otherwise ceases to be a bank or if tax laws were to change, this amount would be expensed.

No valuation allowance has been recorded against the deferred tax asset for net operating losses because the benefit is more likely than not to be realized. At year-end 2008, the Company had net operating loss carryforwards of approximately $2.9 million which expire at various dates from 2024 to 2028.

The adoption of FIN 48 at January 1, 2007 had no impact on the Company’s financial statements. At December 31, 2007 and 2008, 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 2005. The tax years 2005-2007 remain open to federal examination.

NOTE 13 — RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2008 were as follows.

Beginning balance	$	2,680
New loans		1,739
Repayments		(1,632	)
Ending balance	$	2,787

Deposits from principal officers, directors, and their affiliates at year-end 2008 and 2007 were $1,255 and $1,583.

page 44     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 14 — STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans (the Plans) as described below. Total compensation cost that has been charged against income for those plans was $149, $167, and $166 for 2008, 2007 and 2006, respectively. The total income tax benefit for those same years was $44, $52, and $56, respectively.

The Plans, which are shareholder-approved, provide for stock option grants and restricted stock awards to directors, officers and employees. The 1999 Stock-Based Incentive Plan provided 193,887 shares for stock option grants and 77,554 shares for restricted stock awards. The 2003 Equity Compensation Plan, as amended and restated, provided an aggregate of 500,000 shares for stock option grants and restricted stock awards, of which up to 150,000 shares can be awarded in the form of restricted stock awards.

Stock Options

The Plans permit the grant of share options to directors, officers and employees for up to 693,887 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are granted with an exercise price equal to the market price of the Company’s common stock at the date of grant, generally have vesting periods ranging from 2 to 5 years, and are exercisable for 10 years from the date of grant.

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.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date. There were no options granted in 2006.

	2008			2007			2006
Risk-free interest rate		2.64	%		4.61	%		—
Expected term (years)		6			6			—
Expected stock price volatility		24	%		22	%		—
Dividend yield		5.82	%		4.66	%		—

A summary of stock option activity in the Plans for 2008 was as follows:

				WEIGHTED		WEIGHTED AVERAGE
				AVERAGE EXERCISE		REMAINING CONTRACTUAL		INTRINSIC
	SHARES			PRICE		TERM (YEARS)		VALUE
Outstanding at beginning of year		299,622		$	10.94
Granted		140,580			3.50
Exercised		—			—
Forfeited or expired		(23,825	)		10.15
Outstanding at end of year		416,377		$	8.47		6.4	$	—
Exercisable at end of year		264,655		$	11.14		4.5	$	—

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 45

NOTE 14 — STOCK-BASED COMPENSATION (CONTINUED)

Information related to the stock option Plans during each year follows:

	2008		2007		2006
Intrinsic value of options exercised	$	—	$	—	$	—
Cash received from option exercises		—		—		—
Tax benefit realized from option exercises		—		—		—
Weighted average fair value of options granted		0.40		0.99		—

As of December 31, 2008, there was $43 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 1.6 years.

Restricted Stock Awards

The Plans permit the grant of restricted stock awards to directors, officers and employees. Compensation expense is recognized over the vesting period of the shares based on the fair value of the stock at issue date. The fair value of the stock was determined using the closing share price on the date of grant and shares have vesting periods ranging from 1 to 5 years. There were 39,575 shares available to be issued under the Plans at year-end 2008. There were 32,875 shares issued in 2008, 18,250 shares issued in 2007 and no shares issued in 2006.

A summary of changes in the Company’s nonvested shares for the year follows:

				Weighted Average
	Shares			Grant-Date Fair Value
Nonvested at January 1, 2008		32,525		$	8.79
Granted		32,875			4.03
Vested		(14,692	)		8.86
Forfeited		(1,125	)		4.03
Nonvested at December 31, 2008		49,583		$	5.72

As of December 31, 2008, there was $93 of total unrecognized compensation cost related to nonvested shares granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.0 year. The total fair value of shares vested during the years ended December 31, 2008, 2007 and 2006 was $66, $106 and $123, respectively.

page 46     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 15 — PREFERRED STOCK

On December 5, 2008, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase Program, established as part of the Emergency Economic Stabilization Act of 2008, the Company issued to the U.S. Treasury Department (U.S. 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 pays quarterly dividends at a five percent annual rate, which increases to nine percent after February 14, 2013, on a liquidation preference of $1,000 per share. The Preferred Stock is redeemable, at $1,000 per share plus accrued dividends after February 15, 2011, with approval of the OTS. Prior to February 15, 2011, with the approval of the OTS, the Preferred Stock is only redeemable with the proceeds from a qualified equity offering.

The Preferred Stock has preference over the Company’s common stock with respect to the payment of dividends and distribution of the Company’s assets in the event of a liquidation or dissolution. Except in certain circumstances, the holders of Preferred Stock have no voting rights. If any quarterly dividend payable on the Preferred Stock is in arrears for six or more quarterly dividend periods (whether consecutive or not), the holders will be entitled to vote for the election of two additional directors. These voting rights terminate when the Company has paid the dividends in full.

As required under the TARP Capital Purchase Program in connection with the sale of the Preferred Stock to the U.S. Treasury, dividend payments on, and repurchases of, the Company’s outstanding preferred and common stock are subject to certain restrictions. For as long as any Preferred Stock is outstanding, no dividends may be declared or paid on the Company’s outstanding common stock until all accrued and unpaid dividends on Preferred Stock are fully paid. In addition, the U.S. Treasury’s consent is required on any increase in quarterly dividends declared on shares of common stock in excess of $.05 per share before December 5, 2011, the third anniversary of the issuance of the Preferred Stock, unless the Preferred Stock is redeemed by the Company or transferred in whole by the U.S. Treasury. Further, the U.S. Treasury’s consent is required for any repurchase of any equity securities or trust preferred securities, except for repurchases of Preferred Stock or repurchases of common shares in connection with benefit plans consistent with past practice, before December 5, 2011, the third anniversary of the issuance of the Preferred Stock, unless redeemed by the Company or transferred in whole by the U.S. Treasury.

The $7.2 million in proceeds from the sale of the Preferred Stock are currently held in short-term investments pending approval from regulators to contribute it as additional capital to CFBank, and pending the Company’s review of The American Recovery and Reinvestment Act of 2009, which was signed by President Obama on February 17, 2009. The Company will be analyzing the provisions of the new statute and considering whether to continue its participation in the Capital Purchase Program in light of the additional restrictions imposed under the new legislation.

Following is information on preferred stock and the unearned discount on preferred stock at December 31, 2008. The unearned discount is being accreted over 5 years using the level-yield method.

Series A Preferred Stock	$	7,225
Unearned discount on preferred stock		(236	)
Total preferred stock	$	6,989

NOTE 16 — COMMON STOCK WARRANTS

In connection with the issuance of the Preferred Stock, the Company also issued to the U.S. Treasury a warrant to purchase 336,568 shares of the Company’s common stock at an exercise price of $3.22 per share, which would represent an aggregate investment, if exercised for cash, of approximately $1.1 million in Company common stock. The exercise price may be 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 warrants may be exercised any time before December 5, 2018.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 47

NOTE 17 — 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. Management believes as of December 31, 2008, CFBank meets all capital adequacy requirements to which it is subject.

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. At year-end 2008 and 2007, the most recent regulatory notifications categorized CFBank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

Actual and required capital amounts and ratios are presented below at year end.

											TO BE WELL CAPITALIZED UNDER
	ACTUAL					FOR CAPITAL ADEQUACY PURPOSES					PROMPT CORRECTIVE ACTION REGULATIONS
	AMOUNT		RATIO			AMOUNT		RATIO			AMOUNT		RATIO
2008
Total Capital to risk weighted assets	$	27,737		11.6	%	$	19,163		8.0	%	$	23,954		10.0	%
Tier 1 (Core) Capital to risk weighted assets		25,168		10.5	%		9,582		4.0	%		14,372		6.0	%
Tier 1 (Core) Capital to adjusted total assets		25,168		9.2	%		10,988		4.0	%		13,735		5.0	%
Tangible Capital to adjusted total assets		25,168		9.2	%		4,120		1.5	%		N/A		N/A
2007
Total Capital to risk weighted assets	$	26,097		11.0	%	$	18,962		8.0	%	$	23,702		10.0	%
Tier 1 (Core) Capital to risk weighted assets		23,433		9.9	%		9,481		4.0	%		14,221		6.0	%
Tier 1 (Core) Capital to adjusted total assets		23,433		8.5	%		11,051		4.0	%		13,813		5.0	%
Tangible Capital to adjusted total assets		23,433		8.5	%		4,144		1.5	%		N/A		N/A

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 this test is met.

CFBank converted from a mutual to a stock institution, and a “liquidation account” was established at $14,300, which was 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.

Dividends may not reduce CFBank’s shareholder’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. During 2009, CFBank could, without prior approval, declare dividends of approximately $1,702 plus any 2009 net profits retained to the date of the dividend declaration. See Note 15 — Preferred Stock for a description of restrictions on the payment of dividends on the Company’s common stock.

page 48     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 18 — INTEREST-RATE SWAPS

The Company utilizes interest-rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. 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.

The Company has a program whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision. If the borrower prepays the loan, the yield maintenance provision will result in a prepayment penalty or benefit depending on the interest rate environment at the time of prepayment. This provision represents an embedded derivative which is required to be bifurcated from the host loan contract in accordance with FAS No. 133, Accounting for Derivatives and Hedging Activities. As the result of bifurcating the embedded derivative, the Company records the transaction with the borrower as a floating rate loan and a pay floating / receive fixed interest-rate swap. To offset the risk of the interest-rate swap with the borrower, the Company enters interest-rate swaps with outside counterparties that mirror the terms of the interest-rate swap between the Company and the borrower. Both interest-rate swaps are carried as freestanding derivatives with their changes in fair value reported in current earnings. The change in the fair value of the interest-rate swaps with borrowers was an increase of $773 and $124 in 2008 and 2007, respectively, which was offset by an equal decrease in value in each year on the interest-rate swaps with outside parties, with the result that there was no impact on income in either year.

Summary information about the interest-rate swaps between the Company and its borrowers is as follows:

	2008			2007
Notional amount	$	4,544		$	3,689
Weighted average receive rate		5.11	%		5.15	%
Weighted average pay rate		1.19	%		5.04	%
Weighted average maturity (years)		8.7			9.4
Fair value of interest-rate swaps	$	929		$	156

Summary information about the interest-rate swaps between the Company and outside parties is as follows:

	2008			2007
Notional amount	$	4,544		$	3,689
Weighted average pay rate		5.11	%		5.15	%
Weighted average receive rate		1.19	%		5.04	%
Weighted average maturity (years)		8.7			9.4
Fair value of interest-rate swaps	$	(929	)	$	(156	)

The fair value of the interest-rate swaps at December 31, 2008 and 2007 is reflected in other assets and other liabilities.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 49

NOTE 19 — 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.

	2008				2007
	FIXED RATE		VARIABLE RATE		FIXED RATE		VARIABLE RATE
Commitments to make loans	$	3,003	$	2,110	$	1,492	$	2,687
Unused lines of credit		76		23,939		72		26,468
Standby letters of credit		68		—		37		—

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 have interest rates ranging from 3.20% to 8.25% and maturities ranging from 12 months to 30 years at December 31, 2008. The fixed rate loan commitments have interest rates ranging from 5.63% to 7.75% and maturities ranging from 5 years to 30 years at December 31, 2007.

page 50     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 20 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Central Federal Corporation follows:

CONDENSED BALANCE SHEETS

	DECEMBER 31,
(DOLLARS IN THOUSANDS)	2008		2007
Assets
Cash and cash equivalents	$	10,365	$	6,125
Investment in banking subsidiary		26,272		24,767
Investment in and advances to other subsidiaries		1,004		1,065
Other assets		873		823
Total assets	$	38,514	$	32,780
Liabilities and equity
Subordinated debentures	$	5,155	$	5,155
Accrued expenses and other liabilities		284		246
Shareholders’ equity		33,075		27,379
Total liabilities and shareholders’ equity	$	38,514	$	32,780

CONDENSED STATEMENTS OF OPERATIONS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2008			2007			2006
Interest expense	$	334		$	426		$	416
Other expense		366			328			303
Loss before income tax and undistributed subsidiaries’ operations		(700	)		(754	)		(719	)
Income tax benefit		261			247			232
Effect of subsidiaries’ operations		1,162			490			450
Net income (loss)	$	723		$	(17	)	$	(37	)

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 51

NOTE 20 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2008			2007			2006
Cash flows from operating activities
Net income (loss)	$	723		$	(17	)	$	(37	)
Adjustments:
Effect of subsidiaries’ operations		(1,162	)		(490	)		(450	)
Change in other assets and other liabilities		(20	)		91			(175	)
Net cash from operating activities		(459	)		(416	)		(662	)
Cash flows from investing activities
Investments in banking subsidiary		—			—			(10,000	)
Investments in subsidiaries		(12	)		(525	)		(158	)
Net cash from investing activities		(12	)		(525	)		(10,158	)
Cash flows from financing activities
Proceeds from issuance of preferred stock and common stock warrants		7,203			—			—
Proceeds from common stock issued in public offering		—			—			14,558
Purchase of treasury stock		(1,632	)		(830	)		—
Dividends paid		(860	)		(1,402	)		(1,429	)
Net cash from financing activities		4,711			(2,232	)		13,129
Net change in cash and cash equivalents		4,240			(3,173	)		2,309
Beginning cash and cash equivalents		6,125			9,298			6,989
Ending cash and cash equivalents	$	10,365		$	6,125		$	9,298

page 52     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 21 — EARNINGS PER COMMON SHARE

The factors used in the earnings (loss) per common share computation follow.

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2008			2007			2006
Basic
Net income (loss)	$	723		$	(17	)	$	(37	)
Less: Preferred stock dividends and accretion of unearned discount on preferred stock		(29	)		—			—
Net income (loss) available to common shareholders	$	694		$	(17	)	$	(37	)
Weighted average common shares outstanding		4,200,504			4,467,750			4,452,119
Basic earnings (loss) per common share	$	0.17		$	—		$	(0.01	)
Diluted
Net income (loss) available to common shareholders	$	694		$	(17	)	$	(37	)
Weighted average common shares outstanding for basic earnings (loss) per common share		4,200,504			4,467,750			4,452,119
Add: Dilutive effects of assumed exercises of stock options and stock based incentive plan shares		1,185			—			—
Add: Dilutive effects of assumed exercises of warrants to purchase common stock		381			—			—
Average shares and dilutive potential common shares		4,202,070			4,467,750			4,452,119
Diluted earnings (loss) per common share	$	0.17		$	—		$	(0.01	)

The following potential average common shares were anti-dilutive and not considered in computing diluted earnings (loss) per common share because, in 2006, the Company had a loss from continuing operations. In 2007 and 2008, the exercise price of the options was greater than the average stock price for the periods or the fair value of the stock based incentive plan shares at the date of grant was greater than the average stock price for the periods.

	2008		2007		2006
Stock options		322,258		292,730		277,655
Stock based incentive plan shares		25,904		17,221		15,401

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 53

NOTE 22 — SEGMENT INFORMATION

From 2005 through 2007, internal financial information was primarily reported and aggregated in two lines of business, banking and mortgage banking. Beginning in 2008, mortgage banking activities were considered to be part of banking activities due to mortgage banking activities’ insignificant contribution to the Company’s overall performance.

The reportable segments for 2007 and 2006 were determined by the products and services offered, primarily distinguished between banking and mortgage banking operations. Loans, securities, deposits and servicing fees provided the revenues in the banking operation, and single-family residential mortgage loan sales provided the revenues in mortgage banking. All operations are domestic.

The accounting policies for segments were the same as those described in the summary of significant accounting policies. Segment performance was evaluated using net income. Income taxes were allocated and transactions among segments were made at fair value. Parent and Other included activities that were not directly attributed to the reportable segments, and was comprised of the Parent Company and elimination entries between all segments. Information reported internally for performance assessment follows:

	BANKING			MORTGAGE BANKING			PARENT AND OTHER			CONSOLIDATED TOTAL
2007
Net interest income (expense)	$	8,093		$	61		$	(426	)	$	7,728
Provision for loan losses		(539	)		—			—			(539	)
Net gain (loss) on sales of loans		(79	)		312			—			233
Other revenue		473			—			22			495
Depreciation and amortization		(604	)		(15	)		—			(619	)
Other expense		(5,965	)		(1,084	)		(329	)		(7,378	)
Income (loss) before income tax		1,379			(726	)		(733	)		(80	)
Income tax expense (benefit)		432			(246	)		(249	)		(63	)
Net income (loss)	$	947		$	(480	)	$	(484	)	$	(17	)
December 31, 2007
Segment assets	$	276,947		$	737		$	1,898		$	279,582
2006
Net interest income (expense)	$	7,090		$	91		$	(416	)	$	6,765
Provision for loan losses		(820	)		—			—			(820	)
Net gain (loss) on sales of loans		(90	)		416			—			326
Other revenue		471			(4	)		30			497
Depreciation and amortization		(399	)		(107	)		—			(506	)
Other expense		(5,480	)		(565	)		(298	)		(6,343	)
Income (loss) before income tax		772			(169	)		(684	)		(81	)
Income tax expense (benefit)		245			(57	)		(232	)		(44	)
Net income (loss)	$	527		$	(112	)	$	(452	)	$	(37	)
December 31, 2006
Segment assets	$	232,074		$	2,518		$	1,436		$	236,028

page 54     |     CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT

NOTE 23 — ARBITRATION LOSS

Richard J. O’Donnell, the former President of Reserve, filed for arbitration against CFBank for breach of his employment agreement and in September 2007 was awarded $662 plus 5,000 options to purchase Company stock. CFBank paid the award and the Company granted the options. CFBank was reimbursed by its insurance provider for $36 in legal fees that were part of the award. The arbitration loss of $641 (net of the insurance proceeds), which included $15 in payroll taxes related to the award, was included in salaries and employee benefits expense in the consolidated statement of operations.

NOTE 24 — DISPUTE RESOLUTION

In June 2008, CFBank and Kaleidico LLC resolved their dispute related to a residential mortgage lead generation and management system. CFBank was granted a perpetual license to the system and all upgrades.

NOTE 25 — LOSS CONTINGENCY

CFBank is currently investigating unusual return item activity involving deposit accounts for a third party payment processor. Activity in the deposit accounts began in October 2008 and was suspended by CFBank early in December 2008. No losses have been incurred to date, but the investigation is on-going and the Company cannot at this time estimate whether any amounts may be at risk with regard to the accounts. Accordingly, no amount has been accrued at December 31, 2008 for this matter.

We mourn the passing in 2008 of Columbus Development Board member John Mead.
He was an original member of the Development Board, and we will greatly miss the
advice and counsel he provided.

CENTRAL FEDERAL CORPORATION 2008 ANNUAL REPORT     |     page 55

BOARD OF DIRECTORS AND OFFICERS

CENTRAL FEDERAL
CORPORATION AND	CENTRAL FEDERAL		CFBANK COLUMBUS	CFBANK
CFBANK BOARD OF	CORPORATION	CFBANK EXECUTIVE	DEVELOPMENT	COLUMBIANA COUNTY
DIRECTORS	OFFICERS	OFFICERS	BOARD	DEVELOPMENT BOARD
Mark S. Allio Chairman, President & Chief Executive Officer Central Federal Corporation Chairman & Chief Executive Officer, CFBank David C. Vernon Director, President and Chief Executive Officer, National Bancshares Corporation and First National Bank Jeffrey W. Aldrich Former President Sterling China Co. Thomas P. Ash Director of Governmental Relations Buckeye Association of School Administrators William R. Downing President R.H. Downing Inc. Gerry W. Grace Former President Grace Services, Inc. Jerry F. Whitmer, Esq. Of Counsel Brouse McDowell	Mark S. Allio Chairman, President & Chief Executive Officer Eloise L. Mackus, Esq. Executive Vice President, General Counsel & Secretary Therese A. Liutkus, CPA Treasurer & Chief Financial Officer Laura L. Martin Assistant Secretary	Mark S. Allio Chairman & Chief Executive Officer Raymond E. Heh President & Chief Operating Officer R. Parker MacDonell President,Columbus Region Eloise L. Mackus, Esq. Executive Vice President, General Counsel & Secretary Therese A. Liutkus, CPA Treasurer & Chief Financial Officer William R. Reed Senior Credit Officer	Lou J. Briggs Former President Pro Tem Worthington City Council James J. Chester Partner, Chester Willcox and Saxbe, LLP R. Parker MacDonell President, Columbus Region CFBank Douglas S. Morgan Attorney, Calfee, Halter & Griswold LLP Louis A. Nobile, Jr. Former President Bank One, Lima NA Joseph Robertson, IV Managing Director RBC Capital Markets Brenda K. Stier-Anstine President, Marketing Works Roland Tokarski President, Quandel Group Steven J. Yakubov Interventional Cardiologist Riverside Methodist Hospital	Nicholas T. Amato Attorney Amato Law Office Vicki M. Holden Executive Director CrossRoads D. Terrence O’Hara President W.C. Bunting James J. Sabatini II Trustee St. Clair Township Co-Owner Sabatini Shoes Diana M. Spencer Vice President, Columbiana Region CFBank Joseph J. Surace Mayor Village of Wellsville Penny J. Traina Commissioner Columbiana County

CFBANK OFFICE LOCATIONS

CALCUTTA, OH	FAIRLAWN, OH	WELLSVILLE, OH	WORTHINGTON, OH
49028 Foulks Drive	2923 Smith Road	601 Main Street	7000 North High Street
Calcutta, Ohio 43920	Fairlawn, Ohio 44333	Wellsville, Ohio 43968	Worthington, Ohio 43085
330-385-4323	330-666-7979	330-532-1517	614-334-7979

CORPORATE DATA

ANNUAL REPORT

A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission will be available March 27, 2009 without charge upon written request to:

Therese A. Liutkus, CPA
Treasurer and Chief Financial Officer
Central Federal Corporation
2923 Smith Road
Fairlawn, Ohio 44333
Phone: 330-576-1209
Fax: 330-576-1339
Email: TerriLiutkus@cfbankmail.com ANNUAL MEETING

The Annual Meeting of Shareholders of Central Federal Corporation will be held at 10AM on Thursday, May 21, 2009 at the Fairlawn Country Club, 200 North Wheaton Road, Fairlawn, Ohio.

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:

Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Phone: 800-368-5948

page 56     |     

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

CFBank
Ghent Road, Inc.
Central Federal Capital Trust I

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (333-84817, 333-105515, 333-114025, 333-115943, 333-125661 and 333-152984), and Form S-3 (333-110218, 333-124323 and 333-156564) of Central Federal Corporation (formerly Grand Central Financial Corp.) of our report dated March 11, 2009, 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, 2008.

Crowe Horwath LLP

Columbus, Ohio
March 27, 2009

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certifications

I, Mark S. Allio, certify, that:

1.	I have reviewed this report on Form 10-K of Central Federal Corporation;
2.	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;
3.	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;
4.	The small business issuer’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:

a)	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;
b)	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;
c)	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
d)	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

5. 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):

a)	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
b)	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, 2009	/s/ Mark S. Allio Mark S. Allio
	Chairman of the Board, President
	and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certifications

I, Therese Ann Liutkus, certify, that:

1.	I have reviewed this report on Form 10-K of Central Federal Corporation;
2.	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;
3.	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;
4.	The small business issuer’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:

a)	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;
b)	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;
c)	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
d)	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

5. 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):

a)	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
b)	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, 2009	/s/ Therese Ann Liutkus Therese Ann Liutkus, CPA
	Treasurer and Chief Financial Officer

EX-32.1

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, 2008 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Mark S. Allio, Chairman of the Board, President and Chief Executive Officer of the Company and Therese Ann Liutkus, Treasurer and 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/ Mark S. Allio Mark S. Allio
Chairman of the Board, President
and Chief Executive Officer

/s/ Therese Ann Liutkus Therese Ann Liutkus, CPA

Treasurer and Chief Financial Officer

Date: March 27, 2009