##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-25045
 CENTRAL FEDERAL CORPORATION
 
  Delaware
    
    34-1877137(State or Other Jurisdiction of
Incorporation or Organization)
    
    (IRS Employer
Identification No.)
 2923 Smith Road, Fairlawn, Ohio 44333
 (330) 666-7979
 
  þ o
 o þ
  Class:
Common stock, $0.01 par value
    
    Outstanding at July 31, 2006
4,543,662 shares
 o þ




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##### 



PagePART I. Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations for the three and six months ended
June 30, 2006 and 2005
    
    
    4Consolidated Statement of Changes in Shareholders Equity for the six months ended
June 30, 2006
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended
June 30, 2006 and 2005
    
    
    6Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis
    
    
    18Item 3. Controls and Procedures
    
    
    25PART II. Other InformationItem 1. Legal Proceedings
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27EX-11.1EX-31.1EX-31.2EX-32.1
  2.




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCash and cash equivalents
    
    $
    4,734
    
    
    $
    2,972Securities available for sale
    
    
    30,102
    
    
    
    30,872Loans held for sale
    
    
    
    
    
    
    178Loans, net of allowance of $1,988 and $1,495
    
    
    168,040
    
    
    
    124,026Federal Home Loan Bank stock
    
    
    2,732
    
    
    
    2,656Loan servicing rights
    
    
    238
    
    
    
    250Foreclosed assets, net
    
    
    75
    
    
    
    Premises and equipment, net
    
    
    2,875
    
    
    
    2,934Bank owned life insurance
    
    
    3,594
    
    
    
    3,531Loan sales proceeds receivable
    
    
    2,150
    
    
    
    2,241Deferred tax asset
    
    
    2,232
    
    
    
    1,978Accrued interest receivable and other assets
    
    
    2,248
    
    
    
    1,383$
    219,020
    
    
    $
    173,021LIABILITIES AND SHAREHOLDERS EQUITYDepositsNon-interest bearing
    
    $
    10,245
    
    
    $
    7,509Interest bearing
    
    
    136,423
    
    
    
    120,079Total deposits
    
    
    146,668
    
    
    
    127,588Federal Home Loan Bank advances
    
    
    36,449
    
    
    
    22,995Advances by borrowers for taxes and insurance
    
    
    112
    
    
    
    113Accrued interest payable and other liabilities
    
    
    1,280
    
    
    
    1,089Subordinated debentures
    
    
    5,155
    
    
    
    5,155Total liabilities
    
    
    189,664
    
    
    
    156,940Shareholders equityPreferred stock, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 6,000,000 shares
authorized; 2006  4,612,195 shares issued,
2005  2,312,195 shares issued
    
    
    46
    
    
    
    23Additional paid-in capital
    
    
    27,146
    
    
    
    12,787Retained earnings
    
    
    3,279
    
    
    
    4,315Accumulated other comprehensive income (loss)
    
    
    (332
    )
    
    
    28Unearned stock-based incentive plan shares
    
    
    
    
    
    
    (289
    )Treasury
stock, at cost (2006  68,533 shares,
2005  68,533 shares)
    
    
    (783
    )
    
    
    (783
    )Total shareholders equity
    
    
    29,356
    
    
    
    16,081$
    219,020
    
    
    $
    173,021
  3.




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest and dividend incomeLoans, including fees
    
    $
    2,867
    
    
    $
    1,875
    
    
    $
    5,168
    
    
    $
    3,550Securities
    
    
    438
    
    
    
    173
    
    
    
    845
    
    
    
    316Federal Home Loan Bank stock dividends
    
    
    38
    
    
    
    46
    
    
    
    76
    
    
    
    88Federal funds sold and other
    
    
    2
    
    
    
    4
    
    
    
    25
    
    
    
    823,345
    
    
    
    2,098
    
    
    
    6,114
    
    
    
    4,036Interest expenseDeposits
    
    
    1,176
    
    
    
    646
    
    
    
    2,184
    
    
    
    1,181Federal Home Loan Bank advances and other debt
    
    
    348
    
    
    
    132
    
    
    
    485
    
    
    
    296Subordinated debentures
    
    
    104
    
    
    
    78
    
    
    
    199
    
    
    
    1481,628
    
    
    
    856
    
    
    
    2,868
    
    
    
    1,625Net interest income
    
    
    1,717
    
    
    
    1,242
    
    
    
    3,246
    
    
    
    2,411Provision for loan losses
    
    
    292
    
    
    
    134
    
    
    
    582
    
    
    
    352Net interest income after provision for loan losses
    
    
    1,425
    
    
    
    1,108
    
    
    
    2,664
    
    
    
    2,059Noninterest incomeService charges on deposit accounts
    
    
    54
    
    
    
    55
    
    
    
    105
    
    
    
    96Net gains on sales of loans
    
    
    95
    
    
    
    96
    
    
    
    127
    
    
    
    307Loan servicing fees, net
    
    
    31
    
    
    
    
    
    
    
    45
    
    
    
    7Net gains (losses) on sales of securities
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    Earnings on bank owned life insurance
    
    
    31
    
    
    
    34
    
    
    
    63
    
    
    
    68Other
    
    
    11
    
    
    
    28
    
    
    
    62
    
    
    
    34217
    
    
    
    213
    
    
    
    397
    
    
    
    512Noninterest expenseSalaries and employee benefits
    
    
    906
    
    
    
    877
    
    
    
    1,835
    
    
    
    1,784Occupancy and equipment
    
    
    115
    
    
    
    120
    
    
    
    229
    
    
    
    233Data processing
    
    
    116
    
    
    
    119
    
    
    
    234
    
    
    
    243Franchise taxes
    
    
    45
    
    
    
    57
    
    
    
    92
    
    
    
    109Professional fees
    
    
    75
    
    
    
    135
    
    
    
    241
    
    
    
    231Director fees
    
    
    39
    
    
    
    42
    
    
    
    81
    
    
    
    81Postage, printing and supplies
    
    
    45
    
    
    
    35
    
    
    
    95
    
    
    
    97Advertising and promotion
    
    
    29
    
    
    
    55
    
    
    
    49
    
    
    
    98Telephone
    
    
    27
    
    
    
    30
    
    
    
    53
    
    
    
    66Loan expenses
    
    
    16
    
    
    
    10
    
    
    
    61
    
    
    
    19Foreclosed assets, net
    
    
    (7
    )
    
    
    3
    
    
    
    3
    
    
    
    7Depreciation
    
    
    119
    
    
    
    107
    
    
    
    224
    
    
    
    212Amortization of intangibles
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    62Other
    
    
    95
    
    
    
    117
    
    
    
    192
    
    
    
    1981,620
    
    
    
    1,738
    
    
    
    3,389
    
    
    
    3,440Income (loss) before income taxes
    
    
    22
    
    
    
    (417
    )
    
    
    (328
    )
    
    
    (869
    )Income tax expense (benefit)
    
    
    16
    
    
    
    (147
    )
    
    
    (110
    )
    
    
    (310
    )Net income (loss)
    
    $
    6
    
    
    $
    (270
    )
    
    $
    (218
    )
    
    $
    (559
    )Earnings (loss) per share:Basic
    
    $
    0.00
    
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.25
    )Diluted
    
    $
    0.00
    
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.25
    )
  4.




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UnearnedAccumulated Other
    
    
    Stock-basedAdditional Paid-In
    
    
    
    
    
    
    Comprehensive
    
    
    Incentive Plan
    
    
    
    
    
    
    Total ShareholdersCommon Stock
    
    
    Capital
    
    
    Retained Earnings
    
    
    Income (Loss)
    
    
    Shares
    
    
    Treasury Stock
    
    
    EquityBalance at January 1, 2006
    
    $
    23
    
    
    $
    12,787
    
    
    $
    4,315
    
    
    $
    28
    
    
    $
    (289
    )
    
    $
    (783
    )
    
    $
    16,081Reclassification of unearned stock-based
incentive plan shares upon adoption of SFAS 123R,
Share Based Payment on January 1, 2006
    
    
    
    
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (218
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (218
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (360
    )
    
    
    
    
    
    
    
    
    
    
    (360
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )Issuance of common stock in public offering, net
of offering costs of $1,542 (2,300,000 shares)
    
    
    23
    
    
    
    14,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,558Release of 9,495 stock-based incentive plan shares
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108Tax benefits from dividends on unvested
stock-based incentive plan shares
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Cash dividends declared ($.18 per share)
    
    
    
    
    
    
    
    
    
    
    (818
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (818
    )Balance at June 30, 2006
    
    $
    46
    
    
    $
    27,146
    
    
    $
    3,279
    
    
    $
    (332
    )
    
    $
    
    
    
    $
    (783
    )
    
    $
    29,356
  5.




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    6
    
    
    $
    (270
    )
    
    $
    (218
    )
    
    $
    (559
    )Change in net unrealized gain (loss) on securities
available for sale
    
    
    (346
    )
    
    
    145
    
    
    
    (550
    )
    
    
    (67
    )Less: Reclassification adjustment for gains and
(losses) later recognized in net income
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    Net unrealized gain (loss)
    
    
    (341
    )
    
    
    145
    
    
    
    (545
    )
    
    
    (67
    )Initial unrealized gain on mortgage-backed
securities received in securitization
    
    
    
    
    
    
    530
    
    
    
    
    
    
    
    530Tax effect
    
    
    116
    
    
    
    (230
    )
    
    
    185
    
    
    
    (158
    )Other comprehensive income (loss)
    
    
    (225
    )
    
    
    445
    
    
    
    (360
    )
    
    
    305Comprehensive income (loss)
    
    $
    (219
    )
    
    $
    175
    
    
    $
    (578
    )
    
    $
    (254
    )
  6.




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##### Table of Contents



Six months endedJune 30,2006
    
    
    2005Cash flows from operating activities
    
    $
    (470
    )
    
    $
    (3,077
    )Cash flows from investing activitiesAvailable-for-sale securities:Sales
    
    
    4,395
    
    
    
    Maturities, prepayments and calls
    
    
    3,257
    
    
    
    1,079Purchases
    
    
    (7,383
    )
    
    
    (4,021
    )Loan originations and payments, net
    
    
    (32,929
    )
    
    
    (19,259
    )Loans purchased
    
    
    (11,616
    )
    
    
    Additions to premises and equipment
    
    
    (165
    )
    
    
    (229
    )Proceeds from the sale of premises and equipment
    
    
    43
    
    
    
    Proceeds from the sale of foreclosed assets
    
    
    158
    
    
    
    Net cash from investing activities
    
    
    (44,240
    )
    
    
    (22,430
    )Cash flows from financing activitiesNet change in deposits
    
    
    19,072
    
    
    
    16,743Net change in short-term borrowings from the
Federal Home Loan Bank and other
    
    
    11,454
    
    
    
    (21,374
    )Proceeds from Federal Home Loan Bank
advances and other debt
    
    
    5,000
    
    
    
    Repayments on Federal Home Loan Bank
advances and other debt
    
    
    (3,000
    )
    
    
    (1,000
    )Net change in advances by borrowers for
taxes and insurance
    
    
    (1
    )
    
    
    (85
    )Cash dividends paid
    
    
    (611
    )
    
    
    (397
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    374Proceeds from issuance of common stock in public offering
    
    
    14,558
    
    
    
    Net cash from financing activities
    
    
    46,472
    
    
    
    (5,739
    )Net change in cash and cash equivalents
    
    
    1,762
    
    
    
    (31,246
    )Beginning cash and cash equivalents
    
    
    2,972
    
    
    
    32,675Ending cash and cash equivalents
    
    $
    4,734
    
    
    $
    1,429Supplemental cash flow information:Interest paid
    
    $
    2,863
    
    
    $
    1,571Income taxes paid
    
    
    
    
    
    
    Supplemental noncash disclosures:Transfers from loans to repossessed assets
    
    $
    218
    
    
    $
    Securitization of single-family residential mortgage loans
    
    
    
    
    
    
    18,497
  7.




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Share Based Payment
 Earnings Per Share
  8.




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005BasicNet income (loss)
    
    $
    6
    
    
    $
    (270
    )
    
    $
    (218
    )
    
    $
    (559
    )Weighted average common shares outstanding
    
    
    4,524,051
    
    
    
    2,202,538
    
    
    
    4,374,493
    
    
    
    2,196,163Basic earnings (loss) per common share
    
    $
    0.00
    
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.25
    )DilutedNet income (loss)
    
    $
    6
    
    
    $
    (270
    )
    
    $
    (218
    )
    
    $
    (559
    )Weighted average common shares outstanding for
basic earnings (loss) per share
    
    
    4,524,051
    
    
    
    2,202,538
    
    
    
    4,374,493
    
    
    
    2,196,163Add: Dilutive effects of assumed exercises of
stock options and stock-based incentive plan
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average shares and dilutive potential common shares
    
    
    4,524,051
    
    
    
    2,202,538
    
    
    
    4,374,493
    
    
    
    2,196,163Diluted earnings (loss) per common share
    
    $
    0.00
    
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.25
    )
  Three months ended June 30,
    
    Six months ended June 30,2006
    
    2005
    
    2006
    
    2005Stock options
    
    
    278,272
    
    
    
    270,714
    
    
    
    280,372
    
    
    
    243,556Stock-based incentive plan shares
    
    
    16,304
    
    
    
    32,917
    
    
    
    18,566
    
    
    
    28,152
 9.




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Stock-based Compensation
 Accounting for
Stock Issued to Employees Accounting for Stock-based Compensation.
 Share Based Payment Statement of Cash Flows,
    Three months ended
    
    
    Six months endedJune 30, 2005Net loss as reported
    
    $
    (270
    )
    
    $
    (559
    )Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    255
    
    
    
    300Pro forma net loss
    
    $
    (525
    )
    
    $
    (859
    )Basic loss per share as reported
    
    $
    (0.12
    )
    
    $
    (0.25
    )Pro forma basic loss per share
    
    
    (0.24
    )
    
    
    (0.39
    )Diluted loss per share as reported
    
    $
    (0.12
    )
    
    $
    (0.25
    )Pro forma diluted loss per share
    
    
    (0.24
    )
    
    
    (0.39
    )
 10.




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Three and sixmonths ended June30, 2005Risk-free interest rate
    
    
    3.84
    %Expected option life (years)
    
    
    6Expected stock price volatility
    
    
    27
    %Dividend yield
    
    
    3.45
    %Weighted average fair value of options granted during the period
    
    $
    2.28
 Reclassifications:
  11.




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##### Table of Contents



NOTE 2  LOANS
  June 30,
    
    
    December 31,2006
    
    
    2005Commercial
    
    $
    25,566
    
    
    $
    16,347Real estate:Single-family residential
    
    
    26,529
    
    
    
    23,627Multi-family residential
    
    
    44,019
    
    
    
    30,206Commercial
    
    
    38,183
    
    
    
    25,937Construction
    
    
    201
    
    
    
    Consumer
    
    
    35,793
    
    
    
    29,540Subtotal
    
    
    170,291
    
    
    
    125,657Less: Net deferred loan fees
    
    
    (263
    )
    
    
    (136
    )Allowance for loan losses
    
    
    (1,988
    )
    
    
    (1,495
    )Loans, net
    
    $
    168,040
    
    
    $
    124,026
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    1,730
    
    
    $
    1,110
    
    
    $
    1,495
    
    
    $
    978Provision for loan losses
    
    
    292
    
    
    
    134
    
    
    
    582
    
    
    
    352Loans charged-off
    
    
    (80
    )
    
    
    (8
    )
    
    
    (150
    )
    
    
    (117
    )Recoveries
    
    
    46
    
    
    
    6
    
    
    
    61
    
    
    
    29Ending balance
    
    $
    1,988
    
    
    $
    1,242
    
    
    $
    1,988
    
    
    $
    1,242
   DecemberJune 30, 2006
    
    31, 2005Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    Nonaccrual loans
    
    
    335
    
    
    
    800
  12.




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##### Table of Contents



NOTE 3  FEDERAL HOME LOAN BANK ADVANCES
  June 30, 2006
    
    
    December 31, 2005Maturity July 2006 at 5.15% floating rate
    
    $
    24,179
    
    
    $
    Maturity January 2006 at 4.33% floating rate
    
    
    
    
    
    
    12,725Maturities September 2005 thru June 2009,
fixed at rates from 2.33% to 5.60%,
averaging 4.01% at June 30, 2006, and
maturities March 2006 thru September 2008,
fixed at rates from 2.03% to 3.41%,
averaging 2.91% at December 31, 2005
    
    
    12,270
    
    
    
    10,270Total
    
    $
    36,449
    
    
    $
    22,995
   June 30, 2006
    
    
    December 31, 2005First mortgage loans under a blanket lien arrangement
    
    $
    28,112
    
    
    $
    23,308Second mortgage loans
    
    
    876
    
    
    
    783Multi-family mortgage loans
    
    
    12,152
    
    
    
    8,885Home equity lines of credit
    
    
    12,095
    
    
    
    9,109Commercial real estate loans
    
    
    29,053
    
    
    
    18,014Securities
    
    
    14,260
    
    
    
    15,689Total
    
    $
    96,548
    
    
    $
    75,788
  Payment information
 Required payments over the next five years are:June 30, 2007
    
    $
    26,179June 30, 2008
    
    
    4,270June 30, 2009
    
    
    6,000Total
    
    $
    36,449
 13.




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##### Table of Contents



NOTE 4  STOCK COMPENSATION PLANS
   Six months ended June 30, 2006Weighted AverageWeighted Average
    
    
    Grant-Date FairShares
    
    
    Exercise Price
    
    
    ValueOptions outstanding, beginning of
period
    
    
    290,872
    
    
    $
    11.32
    
    
    $
    3.68Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (12,600
    )
    
    
    13.28
    
    
    
    3.43Options outstanding, end of period
    
    
    278,272
    
    
    $
    11.24
    
    
    $
    3.70Options exercisable, end of period
    
    
    278,272
    
    
    $
    11.24
    
    
    $
    3.70
  14.




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##### Table of Contents



NOTE 4  STOCK COMPENSATION PLANS (continued)
  Outstanding
    
    ExercisableWeighted AverageRemainingContractual Life in
    
    Weighted Average
    
    
    
    
    
    Weighted AverageRange of Exercise Prices
    
    Number
    
    Years
    
    Exercise Price
    
    Number
    
    Exercise Price$9.19  $10.42
    
    
    133,640
    
    
    
    6.9
    
    
    $
    10.00
    
    
    
    133,640
    
    
    $
    10.00$11.50  $12.70
    
    
    134,000
    
    
    
    7.4
    
    
    $
    12.27
    
    
    
    134,000
    
    
    $
    12.27$13.76  $13.94
    
    
    10,632
    
    
    
    7.7
    
    
    $
    13.76
    
    
    
    10,632
    
    
    $
    13.76
   Six months ended June 30, 2006Weighted AverageGrant-Date FairShares
    
    
    ValueUnvested shares outstanding at beginning of period
    
    
    45,827
    
    
    $
    11.48Granted
    
    
    
    
    
    
    Vested
    
    
    (14,775
    )
    
    
    11.59Forfeited
    
    
    
    
    
    
    Unvested shares outstanding at end of period
    
    
    31,052
    
    
    $
    11.42
   15.




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##### Table of Contents



NOTE 5  SEGMENT INFORMATION
   Banking
    
    
    Mortgage Banking
    
    
    Parent and Other
    
    
    Consolidated TotalFor the three months ended June 30, 2006:Net interest income (expense)
    
    $
    1,792
    
    
    $
    29
    
    
    $
    (104
    )
    
    $
    1,717Provision for loan losses
    
    
    (292
    )
    
    
    
    
    
    
    
    
    
    
    (292
    )Net gain (loss) on sales of loans
    
    
    (53
    )
    
    
    148
    
    
    
    
    
    
    
    95Other revenue
    
    
    116
    
    
    
    
    
    
    
    6
    
    
    
    122Depreciation and amortization
    
    
    (100
    )
    
    
    (19
    )
    
    
    
    
    
    
    (119
    )Other expense
    
    
    (1,279
    )
    
    
    (138
    )
    
    
    (84
    )
    
    
    (1,501
    )Income (loss) before income tax
    
    
    184
    
    
    
    20
    
    
    
    (182
    )
    
    
    22Income tax expense (benefit)
    
    
    70
    
    
    
    7
    
    
    
    (61
    )
    
    
    16Net income (loss)
    
    $
    114
    
    
    $
    13
    
    
    $
    (121
    )
    
    $
    6For the three months ended June 30, 2005:Net interest income (expense)
    
    $
    1,303
    
    
    $
    16
    
    
    $
    (77
    )
    
    $
    1,242Provision for loan losses
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    (134
    )Net gain (loss) on sales of loans
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Other revenue
    
    
    98
    
    
    
    
    
    
    
    19
    
    
    
    117Depreciation and amortization
    
    
    (101
    )
    
    
    (37
    )
    
    
    
    
    
    
    (138
    )Other expense
    
    
    (1,310
    )
    
    
    (201
    )
    
    
    (89
    )
    
    
    (1,600
    )Income (loss) before income tax
    
    
    (144
    )
    
    
    (126
    )
    
    
    (147
    )
    
    
    (417
    )Income tax expense (benefit)
    
    
    (51
    )
    
    
    (47
    )
    
    
    (49
    )
    
    
    (147
    )Net income (loss)
    
    $
    (93
    )
    
    $
    (79
    )
    
    $
    (98
    )
    
    $
    (270
    )
 16.




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##### Table of Contents



NOTE 5  SEGMENT INFORMATION (continued)
 Banking
    
    
    Mortgage Banking
    
    
    Parent and Other
    
    
    Consolidated TotalFor the six months ended June 30, 2006:Net interest income (expense)
    
    $
    3,397
    
    
    $
    48
    
    
    $
    (199
    )
    
    $
    3,246Provision for loan losses
    
    
    (582
    )
    
    
    
    
    
    
    
    
    
    
    (582
    )Net gain (loss) on sales of loans
    
    
    (54
    )
    
    
    181
    
    
    
    
    
    
    
    127Other revenue
    
    
    259
    
    
    
    (3
    )
    
    
    14
    
    
    
    270Depreciation and amortization
    
    
    (198
    )
    
    
    (26
    )
    
    
    
    
    
    
    (224
    )Other expense
    
    
    (2,692
    )
    
    
    (295
    )
    
    
    (178
    )
    
    
    (3,165
    )Income (loss) before income tax
    
    
    130
    
    
    
    (95
    )
    
    
    (363
    )
    
    
    (328
    )Income tax expense (benefit)
    
    
    45
    
    
    
    (32
    )
    
    
    (123
    )
    
    
    (110
    )Net income (loss)
    
    $
    85
    
    
    $
    (63
    )
    
    $
    (240
    )
    
    $
    (218
    )June 30, 2006Segment assets
    
    $
    214,909
    
    
    $
    2,963
    
    
    $
    1,148
    
    
    $
    219,020For the six months ended June 30, 2005:Net interest income (expense)
    
    $
    2,546
    
    
    $
    12
    
    
    $
    (147
    )
    
    $
    2,411Provision for loan losses
    
    
    (352
    )
    
    
    
    
    
    
    
    
    
    
    (352
    )Net gain (loss) on sales of loans
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    307Other revenue
    
    
    185
    
    
    
    
    
    
    
    20
    
    
    
    205Depreciation and amortization
    
    
    (201
    )
    
    
    (73
    )
    
    
    
    
    
    
    (274
    )Other expense
    
    
    (2,560
    )
    
    
    (423
    )
    
    
    (183
    )
    
    
    (3,166
    )Loss before income tax
    
    
    (382
    )
    
    
    (177
    )
    
    
    (310
    )
    
    
    (869
    )Income tax benefit
    
    
    (145
    )
    
    
    (60
    )
    
    
    (105
    )
    
    
    (310
    )Net loss
    
    $
    (237
    )
    
    $
    (117
    )
    
    $
    (205
    )
    
    $
    (559
    )June 30, 2005Segment assets
    
    $
    163,000
    
    
    $
    2,013
    
    
    $
    79
    
    
    $
    165,092
 17.




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Forward-Looking Statements
   Business Overview
   Management Strategy
  
    
    Net income for the second quarter of 2006 was $6,000, up $276,000 from the prior year
quarters net loss of ($270,000).
    
    Total assets grew $22.4 million in the second quarter and $46.0 million during the
first six months of 2006 to $219.0 million.
    
    Commercial, commercial real estate and multi-family loans grew $17.5 million in the
second quarter and $35.3 million during the first six months of 2006 as a result of
record levels of originations.
    
    Net interest margin increased to 3.53% in the first six months of 2006 from 3.35% in
the prior year period despite the flattening of the yield curve.
    
    Noninterest expenses decreased 6.8% in the second quarter of 2006 compared to the
second quarter of 2005.
 18.




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Comparison of the Results of Operations for the Three and Six Months Ended June 30, 2006 and 2005
 General.
 Net interest income.
 19.




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20.




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Provision for loan losses.
  21.




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##### Table of Contents



Noninterest income.
  Noninterest expense.
  Income taxes.
  22.




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##### Table of Contents



Financial Condition
 General.
 Loans.
 Deposits.
 FHLB advances.
 Shareholders equity.
 Critical Accounting Policies
   23.




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Liquidity and Capital Resources
      24.




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##### Table of Contents



Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting
 25.




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##### Table of Contents



Election of Directors:
 Nominee
    
    For
    
    Vote WithheldJeffrey W. Aldrich
    
    
    3,541,887
    
    
    
    523,223Mark S. Allio
    
    
    3,951,653
    
    
    
    113,457
 In addition to the foregoing, the following directors continued in office after the meeting, each
until the annual meeting in the year indicated:
 Continuing Director
    
    YearThomas P. Ash
    
    
    2007William R. Downing
    
    
    2008Gerry W. Grace
    
    
    2008David C. Vernon
    
    
    2007Jerry F. Whitmer
    
    
    2007
 Ratification of the appointment of Crowe Chizek and Company LLC as independent auditors of the
Company for the year ending December 31, 2006:
 For
    
    
    4,029,626Against
    
    
    22,774Abstain
    
    
    12,710
  
  (a)
    
    ExhibitNumber
    
    Exhibit3.1*
    
    
    Certificate of Incorporation3.2*
    
    
    Bylaws4.0*
    
    
    Form of Common Stock Certificate11.1
    
    
    Statement Re: Computation of Per Share Earnings31.1
    
    
    Rule 13a-14(a) Certifications of the Chief Executive Officer31.2
    
    
    Rule 13a-14(a) Certifications of the Chief Financial Officer32.1
    
    
    Section 1350 Certifications of the Chief Executive Officer and
Chief Financial Officer
 
 *
    
    Incorporated by reference to the Exhibits included with the registrants Registration Statement
on Form SB-2 No. 333-64089, filed with the Commission on September 23, 1998 26.




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##### Table of Contents



CENTRAL FEDERAL CORPORATIONDated: August 11, 2006
    By:
    /s/ Mark S. AllioMark S. AllioChairman of the Board, President and
Chief Executive OfficerDated: August 11, 2006
    By:
    /s/ Therese Ann LiutkusTherese Ann Liutkus, CPATreasurer and Chief Financial Officer 27.