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| 8-K - FORM 8-K - CF BANKSHARES INC. | c14698e8vk.htm |
Exhibit 99
PRESS RELEASE
FOR IMMEDIATE RELEASE:
|
March 30, 2011 | |
For Further Information:
|
Eloise L. Mackus, CEO | |
| Phone: 330.576.1208 | ||
| Fax: 330.666.7959 |
CENTRAL FEDERAL CORPORATION ANNOUNCES 2010 PERFORMANCE
Fairlawn, Ohio — March 30, 2011 — Central Federal Corporation (Nasdaq: CFBK) announced a net
loss of $6.9 million, or $1.77 per diluted common share, for the year ended December 31, 2010
compared to a net loss of $9.9 million, or $2.51 per diluted common share, for the year ended
December 31, 2009. The net loss for 2010 was primarily due to an $8.5 million provision for loan
losses, while the net loss for 2009 was primarily related to a $9.9 million provision for loan
losses and a $4.3 million valuation allowance related to the deferred tax asset.
The net loss totaled $990,000, or $0.26 per diluted common share, for the quarter ended December
31, 2010, compared to a net loss of $2.2 million, or $0.56 per diluted common share, for the
quarter ended December 31, 2009. The net loss for the quarter ended December 31, 2010 was
primarily due to a $1.2 million provision for loan losses, while the net loss for the prior year
quarter was primarily related to a $3.2 million provision for loan losses.
The level of the provision for loan losses during 2010 and 2009 was primarily a result of adverse
economic conditions in our market area that continued to negatively impact our borrowers, our loan
performance and our loan quality, and resulted in a sustained high level of nonperforming loans and
loan charge-offs.
The $3.0 million decrease in the net loss for the year ended December 31, 2010, as compared to 2009
was primarily due to a $1.4 million decrease in the provision for loan losses and a $1.4 million
decrease in income tax expense. The prior year period included a $4.3 million charge to reduce the
carrying amount of the deferred tax asset to zero. The $1.2 million decrease in the net loss for
the quarter ended December 31, 2010 was due to a $2.0 million decrease in the provision for loan
losses, partially offset by a $370,000 increase in income tax expense. The decrease in the
provision for loan losses in both the quarter and year ended December 31, 2010 was primarily due to
a $3.2 million decrease in nonperforming loans and a $41.2 million decrease in net loan balances
compared to the prior year.
Eloise L. Mackus, CEO commented, “We have had challenges, both regulatory and economic, which were
a direct result of the condition of our asset quality. Until these challenges have
been fully resolved, CFBank can expect further regulatory scrutiny. There may be additional adverse
consequences resulting from our legacy credit issues. The need for further improvement is critical,
but our team has shown the ability to face these challenges.”
Jerry F. Whitmer, Chairman of the Board, added, “Bringing our capital ratios to levels that both we
and our regulators find satisfactory may require additional capital, and the Board of Directors is
looking at available alternatives. We thank Central Federal Corporation’s stockholders for their
patience and support.”
Net interest income
Net interest income totaled $2.0 million for the quarter ended December 31, 2010 and decreased
$266,000, or 11.9%, compared to the quarter ended December 31, 2009. The decrease in net interest
income was due to a 17.4% decrease in interest income partially offset by a 27.1% decrease in
interest expense. Interest income decreased due to a decline in both the average yield and average
balance of interest-earning assets. The average yield on interest-earning assets decreased to
4.45% in the fourth quarter of 2010, compared to 5.29% in the fourth quarter of 2009, due to a
decrease in higher-yielding loan balances and an increase in lower yielding securities and other
interest-earning asset balances, primarily short-term cash investments, that resulted from the
determination to increase on-balance-sheet liquidity during 2010. The average balance of interest
earning assets decreased $5.2 million primarily due to a decline in average loan balances partially
offset by an increase in other interest-earning assets, primarily short-term cash investments, as
well as an increase in the average balance of securities. The average cost of interest-bearing
liabilities decreased to 1.56% in the fourth quarter of 2010, from 2.20% in the fourth quarter of
2009, due to continued low market interest rates in 2010. The decrease in expense that resulted
from the lower cost of interest-bearing liabilities was partially offset by a $6.3 million increase
in the average balance of interest-bearing liabilities in the fourth quarter of 2010, primarily due
to deposit growth. Net interest margin totaled 3.01% in the fourth quarter of 2010, compared to
3.36% in the fourth quarter of 2009.
Net interest income totaled $8.4 million for the year ended December 31, 2010 and decreased
$65,000, or .8%, compared to the year ended December 31, 2009. The decrease in net interest income
was due to a 12.7% decrease in interest income partially offset by a 29.7% decrease in interest
expense. Interest income decreased due to a decline in both the average yield and average balance
of interest-earning assets. The average yield on interest-earning assets declined to 4.76% in 2010,
from 5.32% in 2009 due to a decrease in higher yielding loan balances and an increase in lower
yielding securities and other interest-earning asset balances, primarily short-term cash
investments, that resulted from the determination to increase on-balance-sheet liquidity during
2010. The average balance of interest-earning assets decreased $6.5 million, primarily due to a
decline in average loan balances partially offset by an increase in other interest-earning assets,
primarily short-term cash investments, as well as an increase in the average balance of securities.
The average cost of interest-bearing liabilities decreased to 1.73% in 2010, from 2.50% in 2009,
due to continued low market interest rates in 2010. The decrease in expense that resulted from the
lower cost of interest-bearing liabilities was partially offset by a $4.6 million increase in the
average balance of interest-bearing liabilities in 2010, primarily due to deposit growth. Net
interest margin totaled 3.18% for the year ended December 31, 2010, compared to 3.13% for the year
ended December 31, 2009. Net interest income decreased despite the increase in net interest margin
due to an $11.1 million decrease in net interest-earning assets in 2010.
Interest income decreased $614,000, or 17.4%, to $2.9 million for the quarter ended December 31,
2010, compared to $3.5 million for the prior year quarter. The decrease in interest income was
primarily due to a decrease in average loan balances and a decrease in the average yield on
securities, partially offset by an increase in the average balance of securities and short-term
cash investments in the fourth quarter of 2010 compared to the prior year quarter. Average loan
balances decreased $36.9 million, or 15.6%, and totaled $199.1 million in the fourth quarter of
2010, compared to $236.0 million in the fourth quarter of 2009. The decrease was due to the sale
of $10.1 million in loans, $5.8 million in net loan write-offs, $4.5 million transferred to
foreclosed assets and repayments and loan payoffs in excess of current production since the fourth
quarter of 2009. The average yield on securities decreased to 1.87% in the fourth quarter of 2010,
compared to 4.93% in the fourth quarter of 2009. The decrease in yield was due to current year
purchases at lower current market yields. The decrease in interest income caused by the decrease in
average loan balances and decrease in the yield on securities was partially offset by an increase
in the average balance of securities and short-term cash
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investments. The average balance of securities increased $7.9 million, or 36.3%, and totaled $29.8 million for
the fourth quarter of 2010, compared to $21.8 million in the fourth quarter of 2009. The increase
in the average balance of securities was due to current period purchases in excess of repayments
and maturities. The average balance of short-term cash investments increased $23.8 million, or
330.7%, and totaled $31.0 million for the fourth quarter of 2010, compared to $7.2 million for the
fourth quarter of 2009. The increase in securities and short-term cash investments was a result of
management’s decision to strengthen on-balance-sheet liquidity in 2010.
Interest income decreased $1.8 million, or 12.7%, to $12.6 million in 2010, compared to $14.4
million in 2009. The decrease in interest income was primarily due to a decrease in average loan
balances and yield and a decrease in the average yield on securities, partially offset by an
increase in the average balance of securities and short-term cash investments in 2010 compared to
the prior year. Average loan balances decreased $22.6 million, or 9.5%, and totaled $214.7 million
in 2010, compared to $237.3 million in 2009. The decrease in the average balance of loans was due
to the sale of $10.1 million in loans, $5.8 million in net loan write-offs, $4.5 million
transferred to foreclosed assets and principal repayments and loan payoffs greater than
originations for the year ended December 31, 2010. The average yield on loans decreased to 5.50%
in 2010, compared to 5.56% in 2009. The decrease in average yield on loans was due to a $2.9
million increase in average nonperforming loans, from $8.4 million in 2009 to $11.3 million in
2010. The average yield on securities decreased to 2.69% in 2010, compared to 5.13% in 2009, due
to current year securities purchases at lower market rates. The average balance of securities
increased $2.5 million, or 11.0%, and totaled $25.2 million in 2010, compared to $22.7 million in
2009, due to purchases in excess of sales, maturities and repayments. The average balance of
short-term cash investments increased $13.7 million, or 133.0%, and totaled $24.0 million in 2010,
compared to $10.3 million in 2009. The increase in securities and short-term cash investments was a
result of management’s decision to strengthen on-balance-sheet liquidity.
Interest expense decreased $348,000, or 27.1%, to $938,000 for the quarter ended December 31, 2010,
compared to $1.3 million for the prior year quarter. The decrease in interest expense was due to a
decline in the average cost of deposits and a decline in both the average cost and average balance
of borrowings, partially offset by an increase in average deposit balances. The average cost of
deposits decreased to 1.37% in the fourth quarter of 2010, compared to 2.05% in the fourth quarter
of 2009, due to the positive impact of low short-term market interest rates on the cost of both
existing and new deposits. Average deposit balances increased $12.9 million, or 6.5%, to $211.4
million in the fourth quarter of 2010, from $198.5 million in the fourth quarter of 2009, primarily
due an increase in certificate of deposit account balances offset by a decrease in money market
deposit account balances. The average cost of Federal Home Loan Bank (FHLB) advances and other
borrowings decreased to 2.94% in the fourth quarter of 2010, compared to 3.01% in the fourth
quarter of 2009, due to maturities of higher cost advances and lower short-term interest rates
during 2010. The average balance of FHLB advances and other borrowings decreased $6.7 million, or
18.7%, to $29.1 million in the fourth quarter of 2010, from $35.8 million in the fourth quarter of
2009, due to repayment of FHLB advances with funds from the increase in deposits.
Interest expense decreased $1.7 million, or 29.7%, to $4.2 million in 2010, compared to $5.9
million in 2009. The decrease in interest expense was due to a decline in the average cost of
deposits and a decline in both the average cost and average balance of borrowings, partially offset
by an increase in average deposit balances. The average cost of deposits decreased to 1.56% in
2010, compared to 2.36% in 2009, due to the positive impact of low short-term market interest rates
on the cost of both existing and new deposits. Average deposit balances increased $12.5 million,
or 6.2%, to $212.9 million in 2010, compared to $200.4 million in 2009, primarily due to growth in
certificate of deposit account balances. The average cost of FHLB advances and other borrowings
decreased to 2.96% in 2010, compared to 3.29% in 2009, due
to maturities of higher cost advances and lower short-term interest rates during 2010. The average
balance of FHLB advances and other borrowings decreased $7.9 million, or 21.2%, to $29.3 million in
2010, compared to $37.2 million in 2009, due to the repayment of FHLB advances with funds from the
increase in deposits.
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Noninterest income
Noninterest income totaled $404,000 and decreased $73,000, or 15.3%, for the quarter ended December
31, 2010, compared to $477,000 for the quarter ended December 31, 2009. Noninterest income in the
fourth quarter of 2009 was positively impacted by a $208,000 net gain on acquisition due to
recognition, at fair value, of the Company’s one-third ownership interest in Smith Ghent LLC which
was held prior to its purchase of the remaining two-thirds interest in October 2009. There was no
such gain in 2010. Service charges on deposit accounts decreased $18,000 in the fourth quarter of
2010, primarily due to a decline in non-sufficient funds (NSF) fees. These decreases in noninterest
income were partially offset by a $150,000 increase in net gain on sales of loans in the fourth
quarter of 2010.
Noninterest income totaled $1.8 million, and increased $417,000, or 30.3%, for the year ended
December 31, 2010, compared to $1.4 million for the year ended December 31, 2009. The increase was
primarily due to $468,000 in gains on sales of securities in 2010. There were no gains on sales of
securities in 2009. The sales proceeds were reinvested in securities with a 0% total risk-based
capital requirement. The gains on sales positively impacted CFBank’s core capital ratio, and the
reinvestment in 0% risk-weighted assets had a positive impact on CFBank’s total risk-based capital
ratio. Investment in these securities, however, had a negative impact on interest income due to low
current market interest rates. The increase in noninterest income due to gains on sales of
securities was partially offset by a $51,000 decline in service charges on deposit accounts, due to
a decline in NSF fees and deposit account-related processing fees, and a $224,000 decline in other
income primarily due to the 2009 gain on the acquisition of the remaining interest in Smith Ghent
LLC, with no similar transaction in 2010.
The largest recurring component of noninterest income is net gains on sales of loans. Net gains on
sales of loans totaled $291,000 for the fourth quarter of 2010, and increased $150,000, or 106.4%,
compared to $141,000 for the fourth quarter of 2009. The increase was primarily due to a 57.3%
increase in mortgage loans originated for sale, which totaled $22.5 million in the fourth quarter
of 2010, compared to $14.3 million in the fourth quarter of 2009. Net gains on sales of loans
totaled $866,000 for the year ended December 31, 2010, and increased $224,000, or 34.9%, compared
to $642,000 in 2009. The increase was primarily due to a 20.6% increase in mortgage loans
originated for sale, which totaled $79.6 million in 2010, compared to $66.0 million in 2009. The
increase in mortgage loan production was due to continued low mortgage interest rates in 2010 and
the success of CFBank’s staff of mortgage loan originators in increasing this business despite the
depressed condition of the housing market. CFBank’s mortgage professionals continue to gain market
share by building relationships with local realtors and individual borrowers.
Provision for loan losses
A provision for loan losses is provided based on management’s estimate of probable incurred credit
losses in the loan portfolio and the resultant allowance for loan losses (ALLL) required. Based on
review of the loan portfolio as of December 31, 2010, the provision for loan losses totaled $1.2
million and $8.5 million for the quarter and year ended December 31, 2010, respectively. This
compares to a provision of $3.2 million and $9.9 million for the quarter and year ended December
31, 2009, respectively. The level of the provision for loan losses during 2010 and 2009 was
primarily a result of adverse economic conditions that continued to negatively impact our
borrowers, our loan performance and our loan quality, and resulted in a sustained high level of
nonperforming loans and loan charge-offs.
4
Nonperforming loans, which are nonaccrual loans and loans at least 90 days past due but still
accruing interest, decreased $3.1 million, or 24.0%, and totaled $10.1 million at December 31,
2010, compared to $13.2 million at December 31, 2009. The decrease in nonperforming loans was
primarily due to $6.2 million in loan charge-offs, $4.5 million in commercial and commercial real
estate properties transferred to foreclosed assets, and, to a lesser extent, loan payments and
proceeds from the sale of the underlying collateral of various loans, partially offset by $6.8
million in additional loans that became nonperforming during 2010. Nonperforming loans totaled
5.02% of total loans at December 31, 2010, compared to 5.54% of total loans at December 31, 2009.
Individually impaired loans totaled $10.7 million at December 31, 2010, and decreased $3.0 million,
or 21.6%, from $13.7 million at December 31, 2009. The amount of the ALLL specifically allocated
to individually impaired loans totaled $2.9 million at December 31, 2010, compared to $2.0 million
at December 31, 2009. Impaired loans totaling $839,000 at December 31, 2010 are not included in
nonperforming loans as they are troubled debt restructurings where the borrowers have established a
sustained period of repayment performance, the loans are current according to their modified terms,
and repayment of the remaining contractual payments is expected.
Net charge-offs totaled $1.5 million, or 2.85% of average loans on an annualized basis for the
quarter ended December 31, 2010, compared to $789,000, or 1.32% of average loans on an annualized
basis for the quarter ended December 31, 2009. Net charge-offs totaled $5.8 million, or 2.63% of
average loans on an annualized basis for the year ended December 31, 2010, compared to $5.9
million, or 2.47% of average loans on an annualized basis for the year ended December 31, 2009.
The net charge-offs in both the current and prior year periods were primarily related to
commercial, commercial real estate, and home equity lines of credit and to a lesser extent,
single-family and multi-family residential loans.
The ratio of the ALLL to total loans totaled 4.87% at December 31, 2010, compared to 2.97% at
December 31, 2009. The ratio of the ALLL to nonperforming loans totaled 97.03% at December 31,
2010, compared to 53.57% at December 31, 2009.
Noninterest expense
Noninterest expense for the quarter ended December 31, 2010 totaled $2.0 million and increased
$166,000, or 9.0%, compared to the quarter ended December 31, 2009. The increase in noninterest
expense during the quarter ended December 31, 2010 was primarily due to an increase in salaries and
employee benefits, professional fees and FDIC premiums. Salaries and employee benefits increased
$95,000, and totaled $985,000 for the three months ended December 31, 2010, compared to $890,000 in
the prior year quarter. Salaries and employee benefits expense in the fourth quarter of 2009 was
positively impacted by the reversal of $128,000 in incentive compensation expense which had been
accrued in earlier quarters of 2009 and not paid. There was no incentive compensation accrued or
paid in the fourth quarter of 2010. Professional fees increased $37,000, and totaled $212,000 for
the quarter ended December 31, 2010, compared to $175,000 in the prior year quarter. The increase
was primarily related to increased legal costs associated with nonperforming loans compared to the
prior year quarter. FDIC premiums increased $67,000 and totaled $161,000 for the quarter ended
December 31 2010, compared $94,000 in the prior year quarter. The increase was primarily related to
a higher assessment rate and an increase in deposit balances compared to the prior year quarter.
The ratio of noninterest expense to average assets increased to 2.86% for the quarter ended
December 31, 2010, compared to 2.63% for the quarter ended December 31, 2009. The increase in the
ratio of noninterest expense to average assets in the current year quarter was due to the increase
in noninterest expense. The efficiency ratio increased to 84.19% for the quarter ended December
31, 2010, compared to 67.69% for the quarter ended December 31,
2009. The increase in the efficiency ratio was due to a decrease in net interest income and
noninterest income and an increase in noninterest expense during the current year quarter.
5
Noninterest expense for the year ended December 31, 2010 totaled $8.4 million and increased
$170,000, or 2.1%, compared to the year ended December 31, 2009. The increase in noninterest
expense for the year ended December 31, 2010 was primarily due to an increase in professional fees
and advertising and promotion expenses, partially offset by a decrease in occupancy and equipment
expense. Professional fees increased $226,000, or 29.4%, and totaled $995,000 in 2010, compared to
$769,000 in 2009. The increase was primarily related to legal costs associated with nonperforming
loans, which totaled $475,000 in 2010, compared to $227,000 in 2009. Management expects that
professional fees associated with nonperforming loans may continue at current levels or increase as
we continue our workout efforts related to nonperforming and other loans with credit issues.
Advertising and promotion expense increased $55,000, or 105.8%, and totaled $107,000 in 2010,
compared to $52,000 in 2009. The increase was due to costs associated with enhancement of marketing
and presentation materials related to CFBank’s products and services. Occupancy and equipment
expense decreased $278,000, or 57.8%, and totaled $203,000 in 2010, compared to $481,000 in 2009.
The decrease was due to the elimination of rent expense for the Company’s Fairlawn office as a
result of the October 2009 acquisition of the remaining interest in Smith Ghent LLC, which owns the
Fairlawn office building.
The ratio of noninterest expense to average assets increased to 2.96% in 2010, from 2.88% in 2009
due to an increase in noninterest expense and decrease in average assets in 2010. The efficiency
ratio increased to 85.98% in 2010, from 83.60% in 2009 due to an increase in noninterest expense
and decrease in net interest income and noninterest income (excluding gains on sales of securities)
in 2010.
Income taxes
Income tax expense totaled $190,000 and $198,000, respectively, for the quarter and year ended
December 31, 2010. This compares to an income tax expense (benefit) of ($180,000) and $1.6 million,
respectively, for the same prior year periods. Income tax expense decreased for the year ended
December 31, 2010 due to a $2.3 million charge related to the valuation allowance against the
deferred tax asset in 2010, compared to $4.3 million in 2009.
Balance sheet activity
Assets totaled $275.2 million at December 31, 2010 and increased $1.5 million, or .5%, from $273.7
million at December 31, 2009. The increase was primarily due to a $31.3 million increase in cash
and cash equivalents, a $7.6 million increase in securities available for sale, and a $4.5 million
increase in foreclosed assets, partially offset by a $41.2 million decrease in net loan balances.
Cash and cash equivalents totaled $34.3 million at December 31, 2010 and increased $31.3 million
from $3.0 million at December 31, 2009. The increase in cash and cash equivalents was a result of
building on-balance-sheet liquidity. The increase in liquidity was accomplished primarily through
the issuance of brokered deposits, which also served to lock-in the cost of longer-term liabilities
at low current market interest rates. As a result of the losses suffered in 2010 and 2009,
management was concerned that CFBank would be restricted from accepting brokered deposits and moved
aggressively to build liquidity to deal with increasing nonperforming assets and potential retail
deposit outflow. During the year ended December 31, 2010, $34.6 million in brokered deposits were
issued with an average life of 36 months at an average cost of 1.83%. Liquidity was also increased
through proceeds from the sales of a $4.3 million auto loan portfolio and $5.8 million in
commercial real estate and multi-family loans.
6
Securities available for sale totaled $28.8 million at December 31, 2010 and increased $7.6
million, or 35.6%, from $21.2 million at December 31, 2009. The increase was due to purchases
during the current year period exceeding sales, maturities and repayments. A portion of the
proceeds from the issuance of brokered deposits and sales of loans used to increase
on-balance-sheet liquidity were invested in securities available for sale, which offered higher
yields than overnight cash investments.
Net loans totaled $190.8 million at December 31, 2010 and decreased $41.2 million, or 17.8%, from
$232.0 million at December 31, 2009. Commercial, commercial real estate and multi-family loans,
including construction loans, totaled $156.8 million at December 31, 2010 and decreased $25.5
million, or 14.0%, from $182.3 million at December 31, 2009. The decrease was primarily in
commercial real estate loan balances, including the related construction loans, which decreased
$18.3 million due to the sale of $4.1 million in loans, the transfer of $3.5 million to foreclosed
assets, $3.0 million in net charge-offs and principal repayments and payoffs in excess of current
year originations. Commercial loans declined by $4.7 million primarily due to the transfer of $1.0
million to foreclosed assets, $1.5 million in net charge-offs and principal repayments and payoffs
in excess of current year originations. Multi-family loans declined by $2.5 million primarily
related to the sale of $1.7 million in loans. Single-family residential mortgage loans, including
construction loans, totaled $25.6 million at December 31, 2010 and decreased $5.0 million, or
16.4%, from $30.6 million at December 31, 2009. The decrease in mortgage loans was due to current
period principal repayments in excess of loans originated for portfolio. Consumer loans totaled
$18.1 million at December 31, 2010 and decreased $8.1 million, or 30.8%, from $26.2 million at
December 31, 2009. The decrease was due to the sale of a $4.3 million auto loan portfolio and
repayments of auto loans and home equity lines of credit.
The ALLL totaled $9.8 million at December 31, 2010 and increased $2.7 million, or 37.6%, from $7.1
million at December 31, 2009. The ratio of the ALLL to total loans totaled 4.87% at December 31,
2010, compared to 2.97% at December 31, 2009. The increase in the ALLL was due to continued adverse
economic conditions affecting loan performance which resulted in continued high levels of
nonperforming loans and loan charge-offs. See “Provision for Loan Losses” above for additional
information.
Foreclosed assets totaled $4.5 million at December 31, 2010. There were no foreclosed assets at
December 31, 2009. Foreclosed assets at year-end 2010 included $2.3 million related to
approximately 42 acres of undeveloped land located in Columbus, Ohio that had been previously
financed for development purposes, $967,000 related to a commercial building near Cleveland, Ohio
that is currently 100% occupied, and $194,000 related to a condominium in Akron, Ohio that is
currently vacant and listed for sale. In addition to these properties, foreclosed assets also
included $1.0 million in inventory from a jewelry manufacturer in Fairlawn, Ohio which was sold in
March 2011. An $800,000 charge-off was recorded when the inventory was acquired in December 2010.
The sale in March 2011 resulted in no additional loss.
Deposits totaled $227.4 million at December 31, 2010 and increased $16.3 million, or 7.7%, from
$211.1 million at December 31, 2009. The increase was due to a $16.4 million increase in
certificate of deposit account balances and a $3.3 million increase in noninterest bearing checking
account balances, partially offset by a $3.5 million decrease in money market account balances.
Certificate of deposit account balances totaled $128.8 million at December 31, 2010 and increased
$16.4 million, or 14.6%, from $112.4 million at December 31, 2009. The increase was primarily due
to a $14.6 million increase in brokered deposits. CFBank has been a participant in the Certificate
of Deposit Account Registry Service® (CDARS), a network of banks that allows us to provide our
customers with FDIC insurance coverage on certificate of deposit account balances up to $50
million. CDARS balances are considered brokered deposits by regulation. Brokered deposits,
including CDARS balances, totaled $68.0 million at December
31, 2010, and increased $14.6 million, or 27.4%, from $53.4 million at December 31, 2009. During
2010, $34.6 million in brokered deposits were issued with an average life of 36 months at an
average cost of 1.83%. The increase in brokered deposits was based on CFBank’s determination to
build on-balance-sheet liquidity and lock-in the cost of longer-term liabilities at low current
market interest rates.
7
Customer balances in the CDARS program totaled $29.2 million at December 31, 2010 and decreased
$7.9 million, or 21.3%, from $37.1 million at December 31, 2009. Customer balances in the CDARS
program represented 42.9% of total brokered deposits at December 31, 2010 and 69.5% at December 31,
2009. The decrease was due to customers seeking higher short-term yields than management was
willing to offer in the CDARS program based on CFBank’s asset/liability management strategies.
Noninterest bearing checking account balances totaled $20.4 million at December 31, 2010 and
increased $3.3 million, or 19.3%, from $17.1 million at December 31, 2009. The increase was a
result of our continued success in building complete banking relationships with commercial clients.
Money market account balances totaled $56.8 million at December 31, 2010 and decreased $3.5
million, or 5.8%, from $60.3 million at December 31, 2009. The decrease was due to customers
seeking higher yields on these short-term funds than management was willing to offer based on
CFBank’s asset/liability management strategies.
Short-term FHLB advances, which totaled $2.1 million at December 31, 2009, were repaid in 2010 with
funds provided by the increase in on-balance-sheet liquidity. There were no outstanding short-term
borrowings at December 31, 2010. Long-term FHLB advances totaled $23.9 million at December 31,
2010 and decreased $6.0 million, or 20.0%, from $29.9 million at December 31, 2009. The decrease
was due to repayment of maturing advances. These advances were not renewed due to a reduction in
CFBank’s borrowing capacity with the FHLB, which resulted from tightening of overall credit
policies by the FHLB during the current year and increased collateral requirements as a result of
the credit performance of CFBank’s loan portfolio. The maturing advances were repaid with funds
provided by the increase in on-balance-sheet liquidity.
Stockholders’ equity totaled $16.0 million at December 31, 2010 and decreased $7.2 million, or
31.2%, compared to $23.2 million at December 31, 2009. The decrease was due to a $6.9 million net
loss and $410,000 in dividends on preferred stock for 2010.
About Central Federal Corporation and CFBank
Central Federal Corporation is the holding company for CFBank, a federally chartered savings
association formed in Ohio in 1892. CFBank has four full-service banking offices in Fairlawn,
Calcutta, Wellsville and Worthington, Ohio. Additional information about CFBank’s banking services
and the Company is available at www.CFBankOnline.com
8
Forward-Looking Information
Statements in this earnings release and in other communications by the Company, as defined below,
that are not statements of historical fact are forward-looking statements which are made in good
faith by us pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995. 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, as defined below, management or Boards 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:
| • | a continuation of current high unemployment rates and difficult economic conditions or
adverse 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; |
| • | our ability to maintain sufficient liquidity to continue to fund our operations; |
| • | changes in market rates and prices, including real estate values, which may adversely
impact the value of financial products including securities, loans and deposits; |
| • | the possibility of other-than-temporary impairment of securities held in the Company’s
securities portfolio; |
| • | results of examinations of the Company and Bank by the regulators, including the
possibility that the regulators may, among other things, require the Company to increase
its allowance for loan losses or write-down assets; |
| • | the uncertainties arising from the Company’s participation in the Troubled Asset Relief
Program (TARP) Capital Purchase Program, including the impacts on employee recruitment and
retention and other business and practices, and uncertainties concerning the potential
redemption by us of the United States Department of the Treasury’s (U.S. Treasury’s)
preferred stock investment under the program, including the timing of, regulatory approvals
for, and conditions placed upon, any such redemption; |
| • | 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), the Office of the
Controller of the Currency (OCC) 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, except to the extent required
by law.
9
Consolidated Statements of Operations
($ in thousands, except share data)
(unaudited)
($ in thousands, except share data)
(unaudited)
| Three months ended | Year ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2010 | 2009 | % change | 2010 | 2009 | % change | |||||||||||||||||||
Total interest income |
$ | 2,906 | $ | 3,520 | -17 | % | $ | 12,617 | $ | 14,446 | -13 | % | ||||||||||||
Total interest expense |
938 | 1,286 | -27 | % | 4,183 | 5,947 | -30 | % | ||||||||||||||||
Net interest income |
1,968 | 2,234 | -12 | % | 8,434 | 8,499 | -1 | % | ||||||||||||||||
Provision for loan losses |
1,165 | 3,245 | -64 | % | 8,468 | 9,928 | -15 | % | ||||||||||||||||
Net interest income (loss) after provision for loan losses |
803 | (1,011 | ) | -179 | % | (34 | ) | (1,429 | ) | -98 | % | |||||||||||||
Noninterest income |
||||||||||||||||||||||||
Service charges on deposit accounts |
69 | 87 | -21 | % | 294 | 345 | -15 | % | ||||||||||||||||
Net gain on sales of loans |
291 | 141 | 106 | % | 866 | 642 | 35 | % | ||||||||||||||||
Net gain on sale of securities |
— | — | n/m | 468 | — | n/m | ||||||||||||||||||
Other |
44 | 249 | -82 | % | 166 | 390 | -57 | % | ||||||||||||||||
Noninterest income |
404 | 477 | -15 | % | 1,794 | 1,377 | 30 | % | ||||||||||||||||
Noninterest expense |
||||||||||||||||||||||||
Salaries and employee benefits |
985 | 890 | 11 | % | 4,211 | 4,166 | 1 | % | ||||||||||||||||
Occupancy and equipment |
43 | 69 | -38 | % | 203 | 481 | -58 | % | ||||||||||||||||
Data processing |
156 | 161 | -3 | % | 625 | 616 | 1 | % | ||||||||||||||||
Franchise taxes |
85 | 82 | 4 | % | 338 | 346 | -2 | % | ||||||||||||||||
Professional fees |
212 | 175 | 21 | % | 995 | 769 | 29 | % | ||||||||||||||||
Director fees |
40 | 28 | 43 | % | 137 | 108 | 27 | % | ||||||||||||||||
Postage, printing and supplies |
25 | 29 | -14 | % | 151 | 162 | -7 | % | ||||||||||||||||
Advertising and promotion |
22 | 26 | -15 | % | 107 | 52 | 106 | % | ||||||||||||||||
Telephone |
27 | 25 | 8 | % | 106 | 103 | 3 | % | ||||||||||||||||
Loan expenses |
28 | 35 | -20 | % | 83 | 82 | 1 | % | ||||||||||||||||
Foreclosed assets, net |
3 | — | n/m | 4 | (1 | ) | n/m | |||||||||||||||||
Depreciation |
118 | 133 | -11 | % | 508 | 483 | 5 | % | ||||||||||||||||
FDIC premiums |
161 | 94 | 71 | % | 581 | 541 | 7 | % | ||||||||||||||||
Amortization of intangibles |
10 | 6 | n/m | 40 | 6 | n/m | ||||||||||||||||||
Other |
92 | 88 | 5 | % | 343 | 348 | -1 | % | ||||||||||||||||
Noninterest expense |
2,007 | 1,841 | 9 | % | 8,432 | 8,262 | 2 | % | ||||||||||||||||
Loss before income taxes |
(800 | ) | (2,375 | ) | -66 | % | (6,672 | ) | (8,314 | ) | -20 | % | ||||||||||||
Income tax expense (benefit) |
190 | (180 | ) | -206 | % | 198 | 1,577 | n/m | ||||||||||||||||
Net loss |
$ | (990 | ) | $ | (2,195 | ) | -55 | % | $ | (6,870 | ) | $ | (9,891 | ) | -31 | % | ||||||||
Net loss attributable to common stockholders |
$ | (1,093 | ) | $ | (2,297 | ) | -52 | % | $ | (7,280 | ) | $ | (10,298 | ) | -29 | % | ||||||||
Share Data |
||||||||||||||||||||||||
Basic loss per common share |
$ | (0.26 | ) | $ | (0.56 | ) | -53 | % | $ | (1.77 | ) | $ | (2.51 | ) | -30 | % | ||||||||
Diluted loss per common share |
$ | (0.26 | ) | $ | (0.56 | ) | -53 | % | $ | (1.77 | ) | $ | (2.51 | ) | -30 | % | ||||||||
Average common shares outstanding — basic |
4,095,064 | 4,092,903 | 4,094,790 | 4,088,904 | ||||||||||||||||||||
Average common shares outstanding — diluted |
4,095,064 | 4,092,903 | 4,094,790 | 4,088,904 | ||||||||||||||||||||
n/m — not meaningful
10
Consolidated Statements of Financial Condition
($ in thousands)
(unaudited)
($ in thousands)
(unaudited)
| December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||
| 2010 | 2010 | 2010 | 2010 | 2009 | ||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 34,275 | $ | 34,015 | $ | 13,406 | $ | 23,707 | $ | 2,973 | ||||||||||
Securities available for sale |
28,798 | 29,501 | 24,282 | 23,238 | 21,241 | |||||||||||||||
Loans held for sale |
1,953 | 1,875 | 10,069 | 1,586 | 1,775 | |||||||||||||||
Loans |
200,525 | 213,509 | 219,096 | 231,701 | 239,093 | |||||||||||||||
Less allowance for loan losses |
(9,758 | ) | (10,057 | ) | (10,074 | ) | (7,396 | ) | (7,090 | ) | ||||||||||
Loans, net |
190,767 | 203,452 | 209,022 | 224,305 | 232,003 | |||||||||||||||
Federal Home Loan Bank stock |
1,942 | 1,942 | 1,942 | 1,942 | 1,942 | |||||||||||||||
Loan servicing rights |
57 | 63 | 72 | 82 | 88 | |||||||||||||||
Foreclosed assets, net |
4,509 | 2,348 | 2,348 | — | — | |||||||||||||||
Premises and equipment, net |
6,016 | 6,661 | 6,783 | 6,887 | 7,003 | |||||||||||||||
Assets held for sale |
535 | — | — | — | — | |||||||||||||||
Other intangible assets |
129 | 139 | 149 | 159 | 169 | |||||||||||||||
Bank owned life insurance |
4,143 | 4,111 | 4,083 | 4,050 | 4,017 | |||||||||||||||
Accrued interest receivable and other assets |
2,108 | 2,845 | 2,945 | 2,648 | 2,531 | |||||||||||||||
Total assets |
$ | 275,232 | $ | 286,952 | $ | 275,101 | $ | 288,604 | $ | 273,742 | ||||||||||
Liabilities and Stockholders’ Equity |
||||||||||||||||||||
Deposits |
||||||||||||||||||||
Noninterest bearing |
$ | 20,392 | $ | 20,337 | $ | 20,687 | $ | 20,171 | $ | 17,098 | ||||||||||
Interest bearing |
206,989 | 217,390 | 205,568 | 214,563 | 193,990 | |||||||||||||||
Total deposits |
227,381 | 237,727 | 226,255 | 234,734 | 211,088 | |||||||||||||||
Short-term Federal Home Loan Bank advances |
— | — | — | — | 2,065 | |||||||||||||||
Long-term Federal Home Loan Bank advances |
23,942 | 23,942 | 23,942 | 23,942 | 29,942 | |||||||||||||||
Advances by borrowers for taxes and insurance |
213 | 93 | 48 | 75 | 161 | |||||||||||||||
Accrued interest payable and other liabilities |
2,552 | 3,484 | 2,549 | 1,953 | 2,104 | |||||||||||||||
Subordinated debentures |
5,155 | 5,155 | 5,155 | 5,155 | 5,155 | |||||||||||||||
Total liabilities |
259,243 | 270,401 | 257,949 | 265,859 | 250,515 | |||||||||||||||
Stockholders’ equity |
15,989 | 16,551 | 17,152 | 22,745 | 23,227 | |||||||||||||||
Total liabilities and stockholders’ equity |
$ | 275,232 | $ | 286,952 | $ | 275,101 | $ | 288,604 | $ | 273,742 | ||||||||||
11
Consolidated Financial Highlights
($ in thousands except per share data)
(unaudited)
($ in thousands except per share data)
(unaudited)
| At or for the three months ended | At or for the year ended | |||||||||||||||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | |||||||||||||||||||||||
| 2010 | 2010 | 2010 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Earnings (loss) |
||||||||||||||||||||||||||||
Net interest income |
$ | 1,968 | $ | 2,056 | $ | 2,181 | $ | 2,229 | $ | 2,234 | $ | 8,434 | $ | 8,499 | ||||||||||||||
Provision for loan losses |
$ | 1,165 | $ | 617 | $ | 5,938 | $ | 748 | $ | 3,245 | $ | 8,468 | $ | 9,928 | ||||||||||||||
Noninterest income |
$ | 404 | $ | 587 | $ | 293 | $ | 510 | $ | 477 | $ | 1,794 | $ | 1,377 | ||||||||||||||
Noninterest expense |
$ | 2,007 | $ | 2,220 | $ | 2,099 | $ | 2,106 | $ | 1,841 | $ | 8,432 | $ | 8,262 | ||||||||||||||
Net loss |
$ | (990 | ) | $ | (232 | ) | $ | (5,553 | ) | $ | (95 | ) | $ | (2,195 | ) | $ | (6,870 | ) | $ | (9,891 | ) | |||||||
Net loss attributable to common stockholders |
$ | (1,093 | ) | $ | (335 | ) | $ | (5,655 | ) | $ | (197 | ) | $ | (2,297 | ) | $ | (7,280 | ) | $ | (10,298 | ) | |||||||
Basic loss per common share |
$ | (0.26 | ) | $ | (0.08 | ) | $ | (1.38 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | (1.77 | ) | $ | (2.51 | ) | |||||||
Diluted loss per common share |
$ | (0.26 | ) | $ | (0.08 | ) | $ | (1.38 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | (1.77 | ) | $ | (2.51 | ) | |||||||
Performance Ratios (annualized) |
||||||||||||||||||||||||||||
Return on average assets |
(1.41 | %) | (.32 | %) | (7.74 | %) | (0.13 | %) | (3.13 | %) | (2.41 | %) | (3.45 | %) | ||||||||||||||
Return on average equity |
(24.31 | %) | (5.52 | %) | (106.84 | %) | (1.62 | %) | (35.45 | %) | (35.52 | %) | (32.95 | %) | ||||||||||||||
Average yield on interest-earning assets |
4.45 | % | 4.64 | % | 4.86 | % | 5.12 | % | 5.29 | % | 4.76 | % | 5.32 | % | ||||||||||||||
Average rate paid on interest-bearing liabilities |
1.56 | % | 1.62 | % | 1.82 | % | 1.91 | % | 2.20 | % | 1.73 | % | 2.50 | % | ||||||||||||||
Average interest rate spread |
2.89 | % | 3.02 | % | 3.04 | % | 3.21 | % | 3.09 | % | 3.03 | % | 2.82 | % | ||||||||||||||
Net interest margin, fully taxable equivalent |
3.01 | % | 3.12 | % | 3.23 | % | 3.39 | % | 3.36 | % | 3.18 | % | 3.13 | % | ||||||||||||||
Efficiency ratio |
84.19 | % | 91.51 | % | 84.44 | % | 83.87 | % | 67.69 | % | 85.98 | % | 83.60 | % | ||||||||||||||
Noninterest expense to average assets |
2.86 | % | 3.09 | % | 2.92 | % | 2.97 | % | 2.63 | % | 2.96 | % | 2.88 | % | ||||||||||||||
Capital |
||||||||||||||||||||||||||||
Core capital ratio (1) |
6.59 | % | 6.58 | % | 6.87 | % | 8.44 | % | 8.87 | % | 6.59 | % | 8.87 | % | ||||||||||||||
Total risk-based capital ratio (1) |
10.68 | % | 10.53 | % | 10.01 | % | 12.22 | % | 11.72 | % | 10.68 | % | 11.72 | % | ||||||||||||||
Tier 1 risk-based capital ratio (1) |
9.41 | % | 9.25 | % | 8.73 | % | 10.97 | % | 10.46 | % | 9.41 | % | 10.46 | % | ||||||||||||||
Tangible capital ratio (1) |
6.59 | % | 6.58 | % | 6.87 | % | 8.44 | % | 8.87 | % | 6.59 | % | 8.87 | % | ||||||||||||||
Equity to total assets at end of period |
5.81 | % | 5.77 | % | 6.23 | % | 7.88 | % | 8.48 | % | 5.81 | % | 8.48 | % | ||||||||||||||
Tangible equity to tangible assets |
5.77 | % | 5.72 | % | 6.18 | % | 7.83 | % | 8.43 | % | 5.77 | % | 8.43 | % | ||||||||||||||
Book value per common share |
$ | 2.16 | $ | 2.30 | $ | 2.47 | $ | 3.83 | $ | 3.95 | $ | 2.16 | $ | 3.95 | ||||||||||||||
Tangible book value per common share |
$ | 2.13 | $ | 2.27 | $ | 2.43 | $ | 3.79 | $ | 3.91 | $ | 2.13 | $ | 3.91 | ||||||||||||||
Period-end market value per common share |
$ | 0.51 | $ | 0.95 | $ | 1.54 | $ | 1.19 | $ | 1.50 | $ | 0.51 | $ | 1.50 | ||||||||||||||
Period-end common shares outstanding |
4,127,798 | 4,121,798 | 4,092,839 | 4,098,671 | 4,099,587 | 4,127,798 | 4,099,587 | |||||||||||||||||||||
Average basic common shares outstanding |
4,095,064 | 4,092,908 | 4,095,993 | 4,095,217 | 4,092,903 | 4,094,790 | 4,088,904 | |||||||||||||||||||||
Average diluted common shares outstanding |
4,095,064 | 4,092,908 | 4,095,993 | 4,095,217 | 4,092,903 | 4,094,790 | 4,088,904 | |||||||||||||||||||||
Asset Quality |
||||||||||||||||||||||||||||
Nonperforming loans |
$ | 10,057 | $ | 10,676 | $ | 10,705 | $ | 14,066 | $ | 13,234 | $ | 10,057 | $ | 13,234 | ||||||||||||||
Nonperforming loans to total loans |
5.02 | % | 5.02 | % | 4.90 | % | 6.09 | % | 5.54 | % | 5.02 | % | 5.54 | % | ||||||||||||||
Nonperforming assets to total assets |
5.29 | % | 4.54 | % | 4.74 | % | 4.87 | % | 4.83 | % | 5.29 | % | 4.83 | % | ||||||||||||||
Allowance for loan losses to total loans |
4.87 | % | 4.73 | % | 4.61 | % | 3.20 | % | 2.97 | % | 4.87 | % | 2.97 | % | ||||||||||||||
Allowance for loan losses to nonperforming loans |
97.03 | % | 94.20 | % | 94.11 | % | 52.58 | % | 53.57 | % | 97.03 | % | 53.57 | % | ||||||||||||||
Net charge-offs |
$ | 1,474 | $ | 634 | $ | 3,272 | $ | 430 | $ | 789 | $ | 5,810 | $ | 5,921 | ||||||||||||||
Annualized net charge-offs to average loans |
2.85 | % | 1.17 | % | 5.81 | % | 0.73 | % | 1.32 | % | 2.63 | % | 2.47 | % | ||||||||||||||
Average Balances |
||||||||||||||||||||||||||||
Loans |
$ | 196,732 | $ | 205,734 | $ | 217,323 | $ | 227,812 | $ | 234,059 | $ | 211,900 | $ | 235,022 | ||||||||||||||
Assets |
$ | 280,407 | $ | 287,829 | $ | 287,152 | $ | 284,005 | $ | 280,357 | $ | 284,848 | $ | 286,648 | ||||||||||||||
Stockholders’ equity |
$ | 16,287 | $ | 16,823 | $ | 20,789 | $ | 23,472 | $ | 24,770 | $ | 19,343 | $ | 30,020 | ||||||||||||||
| (1) | Regulatory capital ratios of CFBank |
12