Business Context and Reporting Period
This is Central Federal Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The company conducts substantially all banking operations through CFBank, serving Ohio markets. The filing identifies the registrant as Central Federal Corporation; this differs from the company name in the request metadata.
Amounts below are in millions of dollars unless otherwise stated.
Financial Performance and Position
| Metric | Q2 2013 / June 30, 2013 | Comparable period / prior year-end |
|---|---|---|
| Net loss | $0.554 for Q2; $1.364 for first half | $0.684 for Q2 2012; $1.423 for first half 2012 |
| Loss per common share | $(0.04) Q2; $(0.09) first half | $(0.96) Q2; $(1.99) first half 2012; per-share comparability is affected by the 2012 reverse stock split and share offering |
| Net interest income | $1.294 Q2; $2.480 first half | $1.206 Q2; $2.473 first half 2012 |
| Net interest margin | 2.44% Q2; 2.43% first half | 2.30% Q2; 2.26% first half 2012 |
| Total assets | $244.614 | $215.035 at December 31, 2012 |
| Net loans | $179.877 | $153.043 at December 31, 2012 |
| Total deposits | $204.679 | $173.508 at December 31, 2012 |
| Stockholders’ equity | $22.308 | $23.643 at December 31, 2012 |
- Q2 interest and dividend income was $1.834, down 2.9%; interest expense fell 21.0% to $0.540. Lower funding costs more than offset lower asset yields, lifting net interest income.
- Q2 provision for loan losses increased to $0.324 from $0.200. Noninterest income declined to $0.269 from $0.340, while noninterest expense declined to $1.793 from $2.030.
- First-half operating cash flow was negative $0.798 and investing cash flow negative $22.234; financing cash flow was positive $31.077, mainly from deposit growth. Cash and cash equivalents increased $8.045 to $33.197.
- At June 30, FHLB advances were $10.000 and subordinated debentures were $5.155. The company had $22.308 of equity and $222.306 of total liabilities.
- Nonperforming loans were $5.440, down from $6.356 at year-end; the allowance for loan losses was $6.065, or 3.26% of loans. First-half provision was $0.650; net recoveries were $0.178.
Material Changes, Outlook, and Risks
- Assets rose 13.8% from year-end, led by loan growth; net loans increased 17.5%. Growth included a mortgage purchase program with Northpointe: $35.8 million held at June 30, against a $45 million program limit. Management described these short-duration, presold loans as having substantially reduced credit risk.
- Management attributed improved net interest income to lower deposit costs, loan growth, and a shift toward higher-yielding loans. Loan yields continued to decline, partly reflecting repricing and the lower-yielding mortgage program. There is no specific earnings guidance in the filing.
- The company and bank remain subject to cease-and-desist orders. CFBank must maintain 8% core capital and 12% total risk-based capital, restrict certain lending and growth, and obtain regulatory approval for dividends and other capital distributions. At June 30, CFBank reported 9.19% core capital to adjusted assets and 13.17% total risk-based capital; it is not considered “well-capitalized” while the order remains in effect.
- Brokered deposits totaled $27.272, including $3.6 million of reciprocal CDARS deposits. A limited FDIC waiver allowing renewal of certain CDARS deposits ran through September 11, 2013; future waivers and customer renewals were not assured. Brokered deposit maturities through June 2017 total $27.272.
- Management said CFBank liquidity was sufficient. Cash, unpledged securities, and deposits at other financial institutions totaled $37.047; disclosed additional borrowing capacity brought total available liquidity to $67.231. The Holding Company reported $3.4 million of cash and said it expected funds to cover its needs for several years.
- CFBank’s interest-rate swaps had a $0.716 liability valuation. Because of the bank’s regulatory status, the counterparty could demand payment; a call could create additional exposure if the swaps could not be replaced. Separately, a $0.908 pension-plan funding shortfall was supported by a letter of credit, and further contributions or collateral could be required.
- The company remained unprofitable and maintained a full valuation allowance against its net deferred tax asset. Management warned that economic weakness, real-estate values, loan quality, funding constraints, regulatory actions, and the ability to return to profitability could affect results. No material change to previously disclosed risk factors was reported. Management stated disclosure controls were effective; no material internal-control changes were reported.
Important Facts for Investors to Verify
- Whether CFBank continues to meet the regulatory-order capital ratios as loan growth and losses affect capital.
- The status and renewal of the CDARS waiver, brokered-deposit maturities, and actual liquidity and borrowing availability.
- Credit quality trends, including criticized and classified loans, impaired loans, nonperforming assets, and adequacy of the allowance.
- Performance, concentration, and liquidity implications of the Northpointe mortgage purchase program.
- Whether the swap counterparty exercises its call rights and whether the pension-plan funding shortfall increases.
- The pace of expense control and progress toward sustained profitability, including implications for deferred tax assets and regulatory flexibility.