Business context and reporting period
Central Federal Corporation, the holding company for CFBank, filed this Form 10-K for the fiscal year ended December 31, 2013. The business is a community-oriented Ohio bank, with lending concentrated in commercial, commercial real estate, and multifamily real estate loans. The filing incorporates its financial statements and full MD&A by reference; the supplied filing text does not provide a clear value for several key income-statement and cash-flow measures.
Key financial metrics
Unless otherwise noted, amounts are in millions of dollars.
| Metric | 2013 | Comparison or context |
|---|---|---|
| Total assets | $255.7 at year-end | Year-over-year comparison not stated here |
| Stockholders’ equity | $22.9 at year-end | Year-over-year comparison not stated here |
| Gross loans | $212.9 | Up $54.6, or 34.5%, from $158.3 in 2012 |
| Commercial, commercial real estate, and multifamily loans | $158.4; 77.5% of gross loans | Up 62.8% from 2012 |
| Allowance for loan losses | $5.7; 2.69% of loans | Up from $5.2; coverage of nonperforming loans was 99.85%, versus 82.39% in 2012 |
| Net charge-offs and provision | $0.004 net charge-offs; $0.496 provision | Net charge-offs were $2.0 and provision $1.1 in 2012 |
| Nonperforming loans | $5.7; 2.70% of loans | Down from $6.4 and 4.02% in 2012 |
| Nonperforming assets | $7.4; 2.88% of assets | Down from $7.9 and 3.66% in 2012; includes $1.6 of real estate owned |
| Troubled debt restructurings | $3.5 | Total nonperforming loans plus TDRs was $10.9, versus $11.6 in 2012 |
| Securities | $9.7 fair value | Available-for-sale portfolio; primarily agency mortgage securities, corporate and municipal securities |
| Average deposits | $195.6; average rate paid 0.94% | Average deposits were $193.1 and average rate 1.20% in 2012 |
| Borrowings | $10.0 FHLB advances at year-end | Also $6.5 in loan participations classified as secured borrowings; no FRB borrowings outstanding |
| Holding-company cash and equivalents | $3.3 at year-end | Management estimated liquidity could cover holding-company operating expenses for approximately three years |
Revenue, net income or loss, earnings per share, cash-flow totals, net interest margin, and actual year-end regulatory capital ratios are not stated clearly in the supplied text. The filing refers readers to the incorporated annual report for these figures.
Material changes versus the prior comparable period
- Loan growth was substantial, led by commercial real estate and multifamily lending. Commercial real estate and multifamily balances, including construction loans, increased 52.8% to $115.9 million.
- Construction loans rose to $11.5 million from $14,000 at year-end 2012. Management said additional capital enabled selective lending in this area.
- Asset quality improved on several reported measures: nonperforming loans, nonperforming assets, TDRs, and net charge-offs declined. The allowance increased in dollars, while its ratio to total loans fell as the portfolio expanded and credit quality improved.
- Average deposits edged up, while the average cost of deposits declined. Certificates of deposit remained the largest average deposit category.
- The Fairlawn property was sold in October 2013, and CFBank leased a nearby replacement location. A loan production office in Woodmere, Ohio, opened in January 2014.
Outlook, risks, contingencies, and unusual items
- Regulatory orders: The OCC terminated CFBank’s cease-and-desist order effective January 23, 2014. The bank must nevertheless maintain minimum Tier 1 leverage capital of 8% and total risk-based capital of 12%, and continue specified credit-risk and workout practices. The Federal Reserve’s order against the holding company remained in effect at filing, restricting dividends, capital distributions and certain debt actions, among other matters.
- Funding and liquidity: Year-end brokered deposits were $21.0 million, with maturities from January 2014 through August 2016; the company reported $22.7 million of cash, unpledged securities and deposits at other institutions as sufficient to cover those maturities. The holding company depends substantially on bank dividends, which were restricted and subject to regulatory approval.
- Credit concentration: Commercial, commercial real estate and multifamily loans made up 77.5% of gross loans. The filing identifies economic weakness, declining collateral values, borrower stress, and concentration in Ohio markets as risks to credit quality and earnings.
- Interest-rate swaps: The filing warns that counterparties could call certain swaps while CFBank was not considered well-capitalized under the former order. The estimated December 31, 2013 payment exposure was approximately $599,000, subject to valuation changes; the bank said no counterparty had requested payment.
- Tax assets: The company maintained a full valuation allowance against its net deferred tax asset. It reported $27.8 million of net operating loss carryforwards, but an ownership change limits use of pre-offering carryforwards to $163,000 annually; management estimated $20.5 million would expire unused.
- Internal controls: Management identified a material weakness involving controls over loan participation transactions and concluded internal control over financial reporting was not effective at December 31, 2013. Remediation included amending agreements and revising procedures; completion and effectiveness should be verified.
- Legal matters: The company reported routine litigation and proceedings but stated that it was not party to another pending proceeding management believed would materially adversely affect financial condition or operations.
- Forward-looking caution: Management provided no clear numerical financial guidance in the supplied text. It warned that actual results could differ due to economic, market, regulatory, credit, funding, and interest-rate risks.
Most important facts an investor should verify
- Consult the incorporated 2013 annual report for revenue, net income or loss, EPS, cash flows, net interest margin, and detailed liquidity and capital figures.
- Review CFBank’s actual regulatory capital ratios and confirm continued compliance with the 8% and 12% minimums after termination of its order.
- Track the Federal Reserve holding-company order, its restrictions, and any progress toward termination.
- Examine loan growth, concentrations, criticized and classified assets, TDR performance, and whether the allowance remains adequate as the portfolio expands.
- Confirm the status and effectiveness of remediation for the material weakness in loan participation accounting controls.
- Monitor brokered-deposit maturities, funding costs, holding-company liquidity, and the $599,000 swap exposure.