Attached files
| file | filename |
|---|---|
| EX-10.1 - EXHIBIT 10.1 - CF BANKSHARES INC. | c18079exv10w1.htm |
| EX-10.2 - EXHIBIT 10.2 - CF BANKSHARES INC. | c18079exv10w2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 2011
CENTRAL FEDERAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 0-25045 | 34-1877137 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 2923 Smith Road, Fairlawn, Ohio |
44333 |
|
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (330) 666-7979
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 Entry into a Material Definitive Agreement
On May 25, 2011, Central Federal Corporation (the Holding Company) and CFBank, a wholly owned
subsidiary of the Holding Company, each consented to the issuance of an Order to Cease and Desist
by the Office of Thrift Supervision (OTS), the primary regulator of the Holding Company and CFBank.
The Holding Company’s Order to Cease and Desist and CFBank’s Order to Cease and Desist
(collectively, the Orders) are formal enforcement actions initiated by the OTS based on their
regular periodic regulatory examinations of the Holding Company and CFBank. The requirements of
the Orders will remain in effect until terminated, modified or suspended by the OTS.
The Holding Company’s Order requires it, among other things, to: (i) submit a Capital Plan to OTS
that establishes a minimum tangible capital ratio commensurate with the Holding Company’s
consolidated risk profile, reduces the risk from current debt levels and addresses the Holding
Company’s cash flow needs; (ii) not pay cash dividends, redeem stock or make any other capital
distributions without prior OTS approval; (iii) not pay interest or principal on any debt or
increase any Holding Company debt or guarantee the debt of any entity without prior OTS approval;
(iv) obtain prior OTS approval for changes in directors and senior executive officers; and (v) not
enter into any new contractual arrangement related to compensation or benefits with any director or
senior executive officer without prior notification to OTS.
CFBank’s Order requires it, among other things, to: (i) have by September 30, 2011, and maintain
thereafter 8% core capital and 12% total risk-based capital, after establishing an adequate
allowance for loan and lease losses; (ii) submit a Capital and Business Plan to OTS that describes
strategies to meet these required capital ratios and contains operating strategies to achieve
realistic core earnings; (iii) submit a contingency plan providing for a merger or voluntary
dissolution of CFBank if capital does not reach the required levels; (iv) not originate any
nonresidential real estate loans or commercial loans without OTS approval; (v) adopt a revised
credit administration policy, problem asset reduction plan, management succession plan and
liquidity management policy; (vi) limit asset growth to net interest credited on deposit
liabilities absent prior OTS approval for additional growth; (vii) ) not pay cash dividends or make
any other capital distributions without prior OTS approval; (viii) obtain prior OTS approval for
changes in directors and senior executive officers; and (ix) not enter into any new contractual
arrangement related to compensation or benefits with any director or senior executive officer
without prior notification to OTS; (x) not enter into any significant arrangement or contract with
a third party service provider without prior OTS approval; and (xi) comply with the FDIC limits on
brokered deposits.
Management and the Boards of Directors of the Holding Company and CFBank are committed to taking
all necessary actions to promptly address the requirements of the Orders. The foregoing
descriptions are summaries of the Orders and are qualified in their entirety by reference to the
complete Orders, copies of which are filed herewith as Exhibit 10.1 and 10.2, and are incorporated
herein by reference.
Certain provisions of the Orders could have a material negative impact on the financial condition
and operating results of CFBank and the Holding Company, as described in Item 8.01 of this Form 8-K
Current Report.
Item 8.01 Other Events
Certain provisions of the Orders that could have a material negative impact on the financial
condition and operating results of CFBank and the Holding Company are as follows:
| 1. | Under OTS regulations, a savings association is considered to be well-capitalized if it
has 5% core capital, 6% tier 1 risk-based capital and 10% total risk-based capital, unless
the OTS imposes a higher individualized capital requirement. Because the CFBank Order
requires CFBank to have 8% core capital and 12% total risk-based capital, CFBank is no
longer considered well-capitalized under OTS’s prompt corrective action regulations and is
deemed adequately capitalized so long as it maintains 4% core capital, 4% tier 1 risk-based
capital and 8% total risk-based capital. At March 31, 2011, CFBank had 5.7% core capital,
9.3% tier 1 risk-based capital and 10.6% total risk-based capital. If CFBank capital falls
below the levels to be considered adequately capitalized, it will be subject to
substantially more regulatory scrutiny. |
| 2. | Because CFBank is no longer well-capitalized, it is prohibited from accepting or
renewing brokered deposits without FDIC approval (which is rarely given) and is subject to
market rates published by the FDIC when offering deposits to the general public. The
prohibition on brokered deposits significantly limits CFBank’s ability to participate in
the Certificate of Deposit Account Registry Service® (CDARS) program and significantly
impacts our liquidity management. In 2010, the OTS had directed CFBank to limit brokered
deposits to $74.6 million. At March 31, 2011, CFBank had $70.4 million in brokered deposits
with maturity dates from April 2011 through August 2016. As a result of the losses suffered
in 2009, 2010 and the first quarter of 2011, management had been concerned that CFBank
would be restricted from accepting or renewing brokered deposits, in addition to other
regulatory restrictions, and moved aggressively to build on-balance-sheet liquidity to deal
with scheduled brokered deposit maturities, potential retail deposit outflow and potential
decreased borrowing capacity from the Federal Home Loan Bank and the Federal Reserve Bank.
At March 31, 2010, cash and cash equivalents totaled $69.6 million and was sufficient to
cover brokered deposit maturities through July 2015. In addition, we have the ability to
seek wholesale deposits that are not considered brokered deposits. Liquidity could be
significantly impacted by the prohibition on brokered deposits and the limitations on rates
we can offer on deposits to the general public. |
| 3. | The growth and lending limitations in the CFBank Order limit our ability to make
commercial business and property loans that carry a higher yield than residential and
consumer loans. This will negatively impact our ability to improve core earnings. |
| 4. | The Holding Company’s primary source of funds is cash dividends from CFBank, which are
prohibited under the CFBank Order without OTS approval. It is not likely that any
dividends will be approved by the OTS until CFBank meets its new individual minimum capital
requirements under the Order. |
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
| Exhibit | ||||
| No. | Description | |||
| 10.1 | Order to Cease and Desist issued to the Holding Company by OTS effective May 25, 2011, and
the related Stipulation and Consent executed by the Board of Directors of Central Federal
Corporation |
|||
| 10.2 | Order to Cease and Desist issued to CFBank by OTS effective May 25, 2011, and the related
Stipulation and Consent executed by the Board of Directors of CFBank |
|||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Central Federal Corporation |
||||
| Date: May 27, 2011 | By: | /s/ Therese Ann Liutkus | ||
| Therese Ann Liutkus, CPA | ||||
| President, Treasurer and Chief Financial Officer |
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