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PRESS RELEASE
FOR IMMEDIATE RELEASE
CENTRAL FEDERAL CORPORATION ANNOUNCES INCREASED EARNINGS
Fairlawn, OH - News Release Date: 07-18-2008 -
Central Federal Corporation (Nasdaq: CFBK) announced that net income for the quarter ended June 30, 2008 increased $140,000 and totaled $224,000, or $.05 per diluted share, compared to net income of $84,000, or $.02 per diluted share, for the quarter ended June 30, 2007.
Net income for the six months ended June 30, 2008 increased $179,000 and totaled $348,000, or $.08 per diluted share, compared to net income of $169,000, or $.04 per diluted share, for the six months ended June 30, 2007.
Highlights
• Net income for the quarter ended June 30, 2008 increased 167% and totaled $224,000, or $.05 per diluted share, compared to $84,000, or $.02 per diluted share, for the quarter ended June 30, 2007.
• Net income for the six months ended June 30, 2008 increased 106% and totaled $348,000, or $.08 per diluted share, compared to $169,000, or $.04 per diluted share, for the six months ended June 30, 2007.
• Net interest income increased 20% during the second quarter of 2008 compared to the second quarter of 2007, and increased 17% for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.
• Net interest margin increased to 3.43% for the second quarter of 2008 from 3.12% for the second quarter of 2007, and increased to 3.30% for the six months ended June 30, 2008 from 3.18% for the six months ended June 30, 2007.
• The efficiency ratio improved to 77.27% for the second quarter of 2008 from 89.13% for the second quarter of 2007, and improved to 80.22% for the six months ended June 30, 2008 from 90.78% for the six months ended June 30, 2007.
• The ratio of noninterest expense to average assets improved to 2.70% in the second quarter of 2008 from 2.90% in the second quarter of 2007, and improved to 2.69% in the six months ended June 30, 2008 from 3.00% in the six months ended June 30, 2007.
• CFBank continues to provide for loan losses in response to current economic conditions and the effect on the loan portfolio. The ratio of the allowance for loan losses to total loans totaled 1.26% at June 30, 2008 compared to 1.15% at December 31, 2007. Nonperforming loans remained low at 0.84% of total loans at June 30, 2008, but increased from 0.21% of total loans at December 31, 2007.
Net interest income
Net interest income increased $374,000, or 20.3%, to $2.2 million for the quarter ended June 30, 2008 compared to $1.8 million for the quarter ended June 30, 2007. The increase was primarily due to a decline in the average cost of interest-bearing liabilities from 4.48% in the second quarter of 2007 to 3.20% in the second quarter of 2008, which resulted in a 20.5% decrease in interest expense. Interest income decreased 2.6% due to a decline in the average yield on interest-earning assets from 7.11% in the second quarter of 2007 to 6.33% in the second quarter of 2008. The decline in yield on interest-earning assets was partially offset by $22.7 million growth in average interest-earning assets from the second quarter of 2007 to the second quarter of 2008.
Net interest income increased $616,000, or 16.9%, to $4.3 million for the six months ended June 30, 2008 compared to $3.6 million for the six months ended June 30, 2007. The increase was primarily due to a decline in the average cost of interest-bearing liabilities from 4.43% for the six months ended June 30, 2007 to 3.58% for the six months ended June 30, 2008, which resulted in a 7.2% decrease in interest expense. Interest income increased 3.6% due to a $29.3 million increase in average interest-earning assets for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The increase in interest income caused by the increase in average interest-earning assets was partially offset by a decline in the average yield on interest-earning assets, from 7.12% for the six months ended June 30, 2007 to 6.55% for the six months ended June 30, 2008.
During the past year, the management of CFBank, through its asset/liability strategies, positioned liabilities to be more sensitive to a reduction in short-term interest rates. The reductions in the Federal Funds rate, the prime rate and other market interest rates, beginning in September 2007, resulted in larger decreases in funding costs than in asset yields. The decrease in the cost of interest-bearing liabilities resulted from both lower borrowing costs and reduced pricing on deposit accounts. The downward pressure on the yield of interest-earning assets was due to both lower interest rates on new loan originations and lower reset rates on existing adjustable rate loans. Because the decline in funding costs was greater than the decline in asset yields, the result was an increase in net interest margin to 3.43% during the quarter ended June 30, 2008, compared to 3.12% during the quarter ended June 30, 2007. The net interest margin increased to 3.30% during the six months ended June 30, 2008, compared to 3.18% during the six months ended June 30, 2007. Management of the net interest margin in the current economic and competitive environment will be a challenge and downward pressure on margins is possible. CFBank continues to manage the net interest margin by matching asset and liability pricing closely to its business model.
Noninterest income
Noninterest income totaled $217,000 for the quarter ended June 30, 2008, compared to $210,000 for the quarter ended June 30, 2007. Noninterest income totaled $408,000 for the six months ended June 30, 2008, compared to $410,000 for the six months ended June 30, 2007. Noninterest income for both the quarter and six months ended June 30, 2008 included lower net gains on sales of loans due to lower mortgage loan originations in the current year periods, offset by net gains on the sales of securities.
Provision for loan losses
Provisions for loan losses are provided in relation to loan growth, portfolio composition, current economic conditions and trends, and ascertainable credit risk information available. The provision totaled $260,000 in the quarter ended June 30, 2008 compared to $107,000 in the quarter ended June 30, 2007. The provision totaled $484,000 for the six months ended June 30, 2008 compared to $142,000 for the six months ended June 30, 2007. The increase in the provision was due to an increase in nonperforming loans and loan charge-offs. Nonperforming loans increased $1.5 million and totaled $2.0 million, or 0.84% of total loans, at June 30, 2008 compared to $488,000, or 0.21% of total loans, at December 31, 2007. The increase in nonperforming loans was due to one unsecured commercial loan, totaling $645,000, and three multi-family loans to one borrower, totaling $1.3 million and secured by apartment buildings in the Columbus, Ohio area, which were past due and on nonaccrual status at June 30, 2008. For the six months ended June 30, 2008, CFBank had net charge-offs of $220,000, or 0.19% on an annualized basis of average loans, that were principally related to one home equity line of credit on property located outside of our market area and, to a lesser extent, related to single-family mortgage loans on properties located in our market area.
The ratio of the allowance for loan losses to total loans was 1.26% at June 30, 2008 compared to 1.15% at December 31, 2007. The Company believes that the allowance for loan losses is adequate to absorb probable incurred credit losses in the loan portfolio at June 30, 2008; however, future additions to the allowance may be necessary based on factors such as changes in client business performance, economic conditions, and changes in real estate values. Management continues to diligently monitor credit quality in the existing portfolio and analyzes potential loan opportunities carefully in order to manage credit risk.
Noninterest expense
Noninterest expense for the quarter ended June 30, 2008 totaled $1,866,000 and was comparable to noninterest expense of $1,831,000 in the prior year quarter. The ratio of noninterest expense to average assets improved to 2.70% in the second quarter of 2008 compared to 2.90% in the prior year quarter. The efficiency ratio improved to 77.27% in the quarter ended June 30, 2008 from 89.13% in the prior year quarter.
Noninterest expense for the six months ended June 30, 2008 totaled $3,712,000 and was comparable to noninterest expense of $3,683,000 in the prior year period. The ratio of noninterest expense to average assets improved to 2.69% in the six months ended June 30, 2008 compared to 3.00% in the prior year period. The efficiency ratio improved to 80.22% during the six months ended June 30, 2008 from 90.78% during the prior year period.
The improvement in the ratio of noninterest expense to average assets during both the current quarter and year-to-date periods was due to cost control combined with asset growth. Noninterest expense increased only $35,000, or 1.9%, for the quarter ended June 30, 2008, and $29,000, or 0.8%, for the six months ended June 30, 2008, compared to the respective prior year periods, while assets increased $18.7 million, or 7.2%, during the 12-month period ended June 30, 2008. Cost control and asset growth also positively impacted the efficiency ratio, which also improved as a result of growth in net interest income.
Balance sheet activity
Assets totaled $278.6 million at June 30, 2008, and decreased $960,000, or 0.3%, from $279.6 million at December 31, 2007. The decline was primarily due to a decrease in the balance of securities available for sale resulting from sales, maturities and repayments.
Net loans totaled $230.8 million at June 30, 2008 and increased $348,000, or 0.2%, from $230.5 million at December 31, 2007. Commercial, commercial real estate and multi-family loans totaled $176.7 million at June 30, 2008 and increased $2.8 million, or 1.6%, from $173.9 million at December 31, 2007. Consumer loans totaled $26.3 million at June 30, 2008 and decreased $1.9 million, or 6.8%, from $28.2 million at December 31, 2007. The decrease in consumer loan balances was primarily due to repayments on auto loans. Mortgage loans totaled $30.8 million at June 30, 2008, and decreased $232,000, or 0.7%, from $31.0 million at December 31, 2007.
Deposits totaled $198.9 million at June 30, 2008 and increased $4.6 million, or 2.4%, from $194.3 million at December 31, 2007. Certificate of deposit accounts increased $2.6 million, money market account balances increased $1.2 million, traditional savings account balances increased by $728,000, noninterest bearing checking account balances increased $1.3 million and interest bearing checking account balances decreased $1.2 during the six months ended June 30, 2008. During the six months ended June 30, 2008, CFBank exercised its call option on $9.6 million in callable brokered deposit accounts which had an average cost of 5.51%. The deposits were replaced at lower current market funding rates at an annual pre-tax cost savings of approximately $165,000.
FHLB advances totaled $46.8 million at June 30, 2008 and decreased $2.7 million, or 5.4%, compared to $49.5 million at December 31, 2007. FHLB advances were repaid with funds from the increase in deposits.
Shareholders’ equity totaled $26.0 million at June 30, 2008 and decreased $1.4 million, or 5.2%, compared to $27.4 million at December 31, 2007. The decrease in equity was due to the repurchase of 275,000 shares of CFBK stock totaling $1.3 million and dividends to shareholders, offset by net income.
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.
Forward-Looking Information
Certain statements contained in this earnings release which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements. Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including: (i) changes in political, economic or other factors such as inflation rates, recessionary or expansive trends, and taxes; (ii) competitive pressures; (iii) fluctuations in interest rates; (iv) the level of defaults and prepayments on loans made by CFBank; (v) unanticipated litigation, claims or assessments; (vi) fluctuations in the cost of obtaining funds to make loans; and (vii) regulatory changes. Further information on these risk factors is included in the Company's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events.
Mark Allio
Chairman/CEO
330.576.1334
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