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PRESS RELEASE
FOR IMMEDIATE RELEASE
CENTRAL FEDERAL CORPORATION ANNOUNCES
Fairlawn, OH - News Release Date: 10-19-2007 -
Highlights
• Total assets increased 17% on an annualized basis, or $11.3 million during the 3rd quarter of 2007 to $271.3 million at September 30, 2007, and increased 20% on an annualized basis or $35.3 million during the first nine months of 2007.
• Total assets increased $46.1 million, or 20% during the twelve months ended September 30, 2007.
• CFBank’s commercial, commercial real estate and multi-family loans increased 37% on an annualized basis, or $14.0 million during the third quarter of 2007 to $164.7 million at September 30, 2007, and increased 40% on an annualized basis or $38.3 million during the first nine months of 2007.
• Commercial, commercial real estate and multi-family loans increased $51.1 million, or 45% during the twelve months ended September 30, 2007.
• Net interest income increased 13% during the 3rd quarter of 2007 compared to the prior year quarter and 12% for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006.
• Credit losses remain low while credit quality continues to remain constant. The Bank continues to monitor loan quality and adjusts the allowance to reflect current loan characteristics and fluctuations. The Bank has no exposure to subprime lending activities.
• Current period earnings were substantially affected by the cost of an arbitration loss.
Fairlawn, Ohio – October 19, 2007 – Central Federal Corporation (Nasdaq: CFBK) announced a net loss for the 3rd quarter of 2007 of ($483,000) or ($.11) per diluted share compared to net income of $94,000, or $.02 per diluted share in the prior year quarter. The net loss for the nine months ended September 30, 2007 totaled ($314,000) or ($.07) per diluted share compared to a net loss of ($124,000), or ($.03) per diluted share for the prior year period.
The net loss for the quarter and year to date period ended September 30, 2007 was primarily due to a $511,000, or $.12 per diluted share for the current quarter and $.11 per diluted share for the current year to date period, after-tax cost of an arbitration loss and lease termination expense. The arbitration loss resulted from an unfavorable decision in a request for arbitration brought by the former President of Reserve Mortgage Services, Inc., which had been acquired by the Company in October 2004, and later merged into CFBank, for breach of the employment agreement between him and CFBank. The lease termination expense resulted from the move of CFBank’s mortgage banking operations to the Fairlawn office and negotiation of settlement of the remaining lease obligations at the former facility.
We continued to execute our strategic plan and total assets increased $35.3 million or 19.9% on an annualized basis during the nine months ended September 30, 2007 and included $38.3 million, or 40.4% annualized growth in commercial, commercial real estate and multi-family loans. During the twelve months ended September 30, 2007, total assets increased $46.1 million or 20.5% and included $51.1 million or 44.9% increase in commercial, commercial real estate and multi-family loans, which are the focus of our growth plan.
Net interest income
The flat/inverted yield curve continued to challenge our net earnings growth. Higher marginal funding expense has affected the net interest margin growth. Although loan growth positively affected gross interest income, which increased 26.9% in the 3rd quarter of 2007 compared to the prior year quarter, interest expense increased 40.2% during the same time frame resulting in a 12.6% increase in net interest income for the 3rd quarter of 2007 compared to the prior year quarter. On a year-to-date basis, gross interest income increased 31.1% during the nine months ended September 30, 2007 compared to the prior year period, and interest expense increased 50.7% in the same time frame, resulting in a 12.4% increase in net interest income for the nine months ended September 30, 2007 compared to the prior year period.
Net interest margin declined from 3.45% in the 3rd quarter of 2006 to 3.15% in the 3rd quarter of 2007. On a year-to-date basis, net interest margin declined from 3.50% for the nine months ended September 30, 2006 to 3.17% for the current year period. The 50 basis point reduction in the federal funds rate on September 18, 2007 will reduce the impact of the flat/inverted yield curve, however management of the net interest margin in the current interest rate and competitive environment will be a challenge and continued pressure on margins is possible. CFBank continues to manage the net interest margin by matching asset and liability pricing closely to its business model. The Bank is liability sensitive with substantial liabilities being repriced during the next quarter.
Provision for loan losses
CFBank continues to provide reserves for loan losses in relation to its loan growth, portfolio composition, current economic conditions and ascertainable credit risk information available each quarter. Since commercial lending began in 2003, the Bank has provided a total of $2.7 million to build the allowance for loan losses as the commercial lending portfolio has grown. To date the Bank has not incurred a loss on a commercial loan asset. The provision totaled $293,000 and $435,000 in the three and nine months ended September 30, 2007 compared to $120,000 and $702,000 for the same periods in 2006.
The Bank provided a larger loan loss provision in the current three month period than the comparable prior period due to management’s review of current facts and judgment regarding possible changes in the risk characterization of the portfolio. No significant credit problems have appeared as the portfolio has become more seasoned, which resulted in lower allocations to the allowance on loans with satisfactory risk ratings and a lower provision for loan losses for the nine months ended September 30, 2007 than the prior year period. Management continues to maintain a conservative approach to risk ratings and increases the allowance for both changes in judgment and facts until such time that the Bank can accurately establish its loan losses through actual experience.
CFBank continued to experience low levels of nonperforming loans and net loan charge-offs. Nonperforming loans decreased $136,000, or 41.0% and totaled $196,000 or 0.09% of total loans at September 30, 2007 compared to $332,000 or 0.19% of total loans at September 30, 2006. The composition of the nonperforming balances for both periods was seasoned single-family mortgage loans. For the quarter ended September 30, 2007, the bank had net (recoveries) totaling ($18,000) or (.03%) on an annualized basis of average loans compared to net charge-offs of $76,000 or 0.18% on an annualized basis of average loans during the prior year quarter.
Nonperforming loans totaled $196,000 or 0.09% of total loans at September 30, 2007 compared to $297,000 or 0.16% of total loans at December 31, 2006. Net (recoveries) totaled ($39,000) or (.03%) on an annualized basis of average loans during the nine months ended September 30, 2007 compared to net charge-offs of $165,000 or 0.14% on an annualized basis of average loans during the prior year period.
The ratio of the allowance for loan losses to total loans totaled 1.15% at September 30, 2007 and 1.13% at December 31, 2006.
Management continues to prudently monitor credit quality in the existing portfolio and analyzes potential loan opportunities carefully in order to manage credit risk while implementing a growth strategy. We believe the allowance for loan losses is adequate to absorb probable incurred credit losses in the loan portfolio at September 30, 2007, however future additions to the allowance may be necessary based on changes in client business performance, economic conditions, sudden changes in real estate values, as well as many other factors.
Noninterest expense
Noninterest expense totaled $2.6 million and $6.3 million for the quarter and nine months ended September 30, 2007, respectively, and included $774,000 pre-tax arbitration loss and lease termination expenses described previously. Salaries and employee benefits expense included $641,000 arbitration loss; occupancy and equipment expense included $100,000 lease termination expenses; and other expense included $33,000 in lease termination expenses for both the quarter and year to date period.
Noninterest expense in the 3rd quarter of 2007, not including these one-time expenses, totaled $1.8 million and increased $89,000 or 5.2% compared to $1.7 million in the prior year quarter. Noninterest expense for the nine months ended September 30, 2007, not including these expenses, totaled $5.5 million and increased $388,000, or 7.6% from the prior year period. The increase in noninterest expense in the current year periods 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 in the current year periods 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. Noninterest expenses in the current year period were also incurred for marketing, advertising and additional human resources necessary to support growth.
Balance sheet activity
Assets totaled $271.3 million at September 30, 2007 and increased $35.3 million or 14.9% from $236.0 million at December 31, 2006 due to growth in the loan portfolio, which was funded with deposits and Federal Home Loan Bank (FHLB) advances.
Net loans totaled $221.7 million at September 30, 2007 and increased $37.0 million from $184.7 million at December 31, 2006. Commercial, commercial real estate and multi-family loans totaled $164.7 million at September 30, 2007 and increased $38.3 million from $126.4 million at December 31, 2006. Mortgage loans totaled $30.6 million at September 30, 2007 and increased $485,000 from $30.1 million at December 31, 2006 as most of our mortgage loan production was originated for sale. Consumer loans decreased $1.4 million and totaled $28.9 million at September 30, 2007 compared to $30.3 million at December 31, 2006 primarily due to repayments on home equity lines of credit and auto loans.
Deposits totaled $186.5 million at September 30, 2007 and increased $18.9 million, or 11.3% from $167.6 million at December 31, 2006. The increase in deposits was due to an increase of $11.1 million in brokered certificate of deposit accounts, $5.3 million in money market accounts, $2.7 million in interest bearing checking accounts and $926,000 in noninterest bearing deposits offset by a decline of $1.2 million in traditional savings account balances.
FHLB advances totaled $50.2 million at September 30, 2007 and increased $17.7 million or 54.3% compared to $32.5 million at December 31, 2006. A $2.2 million economic development advance from the FHLB was drawn during the March 2007 quarter to fund construction of CFBank’s new Columbus regional office in Worthington, which opened in June 2007. The remaining increase in FHLB advances was used to fund loan growth.
Shareholders’ equity totaled $27.1 million at September 30, 2007 and decreased $2.0 million or 6.9% compared to $29.1 million at December 31, 2006 as a result of the net loss for the year to date period, an $830,000 treasury stock repurchase and $993,000 in dividends to shareholders.
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 our banking services and our Company is available at www.CFBankOnline.com.
Statements contained in this release that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions that such statements necessarily are based on certain assumptions which are subject to risks and uncertainties, including, but not limited to, changes in general economic and market conditions. Further information on these risk factors is included in the Company's filings with the Securities and Exchange Commission.
Mark Allio
CEO
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