##### 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 March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from _______________ to _______________
 0-25045
 CENTRAL FEDERAL CORPORATION
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    34-1877137
(IRS Employer
Identification No.)
 
 
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o þ
  Class:
    
    Outstanding at April 30, 2007Common stock, $0.01 par value
    
    4,559,787 shares
 o þ




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##### 



PagePART I. Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006
    
    
    4Consolidated Statement of Changes in Shareholders Equity for the three months ended March 31, 2007
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2007 and 2006
    
    
    6Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis
    
    
    16Item 3. Controls and Procedures
    
    
    22PART II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24EX-11.1EX-31.1EX-31.2EX-32.1




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March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCash and cash equivalents
    
    $
    4,278
    
    
    $
    5,403Securities available for sale
    
    
    30,519
    
    
    
    29,326Loans held for sale
    
    
    1,029
    
    
    
    2,000Loans, net of allowance of $2,150 and $2,109
    
    
    190,455
    
    
    
    184,695Federal Home Loan Bank stock
    
    
    1,963
    
    
    
    2,813Loan servicing rights
    
    
    197
    
    
    
    201Premises and equipment, net
    
    
    4,535
    
    
    
    4,105Bank owned life insurance
    
    
    3,678
    
    
    
    3,646Deferred tax asset
    
    
    1,958
    
    
    
    2,044Accrued interest receivable and other assets
    
    
    2,120
    
    
    
    1,795$
    240,732
    
    
    
    236,028LIABILITIES AND SHAREHOLDERS EQUITYDepositsNon-interest bearing
    
    $
    9,872
    
    
    $
    11,114Interest bearing
    
    
    155,647
    
    
    
    156,477Total deposits
    
    
    165,519
    
    
    
    167,591Federal Home Loan Bank advances
    
    
    38,170
    
    
    
    32,520Advances by borrowers for taxes and insurance
    
    
    79
    
    
    
    137Accrued interest payable and other liabilities
    
    
    2,946
    
    
    
    1,540Subordinated debentures
    
    
    5,155
    
    
    
    5,155Total liabilities
    
    
    211,869
    
    
    
    206,943Shareholders equityPreferred stock, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 6,000,000 shares
authorized; 2007 - 4,628,320 shares issued,
2006 - 4,612,195 shares issued
    
    
    46
    
    
    
    46Additional paid-in capital
    
    
    27,249
    
    
    
    27,204Retained earnings
    
    
    2,317
    
    
    
    2,643Accumulated other comprehensive income (loss)
    
    
    34
    
    
    
    (25
    )Treasury stock, at cost (2007 - 68,533 shares,
2006 - 68,533 shares)
    
    
    (783
    )
    
    
    (783
    )Total shareholders equity
    
    
    28,863
    
    
    
    29,085$
    240,732
    
    
    $
    236,028
  3.




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Three months endedMarch 31,2007
    
    
    2006Interest and dividend incomeLoans, including fees
    
    $
    3,538
    
    
    $
    2,301Securities
    
    
    376
    
    
    
    407Federal Home Loan Bank stock dividends
    
    
    40
    
    
    
    38Federal funds sold and other
    
    
    4
    
    
    
    233,958
    
    
    
    2,769Interest expenseDeposits
    
    
    1,669
    
    
    
    1,008Federal Home Loan Bank advances and other debt
    
    
    381
    
    
    
    137Subordinated debentures
    
    
    106
    
    
    
    952,156
    
    
    
    1,240Net interest income
    
    
    1,802
    
    
    
    1,529Provision for loan losses
    
    
    35
    
    
    
    290Net interest income after provision for loan losses
    
    
    1,767
    
    
    
    1,239Noninterest incomeService charges on deposit accounts
    
    
    57
    
    
    
    51Net gains on sales of loans
    
    
    75
    
    
    
    32Loan servicing fees, net
    
    
    21
    
    
    
    14Earnings on bank owned life insurance
    
    
    32
    
    
    
    32Other
    
    
    15
    
    
    
    51200
    
    
    
    180Noninterest expenseSalaries and employee benefits
    
    
    1,063
    
    
    
    929Occupancy and equipment
    
    
    119
    
    
    
    114Data processing
    
    
    134
    
    
    
    118Franchise taxes
    
    
    69
    
    
    
    47Professional fees
    
    
    88
    
    
    
    166Director fees
    
    
    37
    
    
    
    42Postage, printing and supplies
    
    
    51
    
    
    
    50Advertising and promotion
    
    
    24
    
    
    
    20Telephone
    
    
    29
    
    
    
    26Loan expenses
    
    
    5
    
    
    
    45Foreclosed assets, net
    
    
    6
    
    
    
    10Depreciation
    
    
    143
    
    
    
    105Other
    
    
    84
    
    
    
    971,852
    
    
    
    1,769Income (loss) before income taxes
    
    
    115
    
    
    
    (350
    )Income tax expense (benefit)
    
    
    30
    
    
    
    (126
    )Net income (loss)
    
    $
    85
    
    
    $
    (224
    )Earnings (loss) per share:Basic
    
    $
    0.02
    
    
    $
    (0.05
    )Diluted
    
    $
    0.02
    
    
    $
    (0.05
    )
  4.




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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Shareholders'Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance at January 1, 2007
    
    $
    46
    
    
    $
    27,204
    
    
    $
    2,643
    
    
    $
    (25
    )
    
    $
    (783
    )
    
    $
    29,085Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Release of 4,517 stock based incentive plan shares
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Stock option expense
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Cash dividends declared ($.09 per share)
    
    
    
    
    
    
    
    
    
    
    (411
    )
    
    
    
    
    
    
    
    
    
    
    (411
    )Balance at March 31, 2007
    
    $
    46
    
    
    $
    27,249
    
    
    $
    2,317
    
    
    $
    34
    
    
    $
    (783
    )
    
    $
    28,863
  5.




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Three months endedMarch 31,2007
    
    
    2006Net income (loss)
    
    $
    85
    
    
    $
    (224
    )Change in net unrealized gain (loss) on securities
available for sale
    
    
    89
    
    
    
    (204
    )Tax effect
    
    
    (30
    )
    
    
    69Other comprehensive income (loss)
    
    
    59
    
    
    
    (135
    )Comprehensive income (loss)
    
    $
    144
    
    
    $
    (359
    )
  6.




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Three months endedMarch 31,2007
    
    
    2006Cash flows from operating activities
    
    $
    1,091
    
    
    $
    (656
    )Cash flows from investing activitiesAvailable-for-sale securities:Maturities, prepayments and calls
    
    
    934
    
    
    
    1,874Purchases
    
    
    (749
    )
    
    
    (6,379
    )Loan originations and payments, net
    
    
    (3,675
    )
    
    
    (15,884
    )Loans purchased
    
    
    (2,104
    )
    
    
    (3,708
    )Proceeds from redemption of FHLB stock
    
    
    850
    
    
    
    Additions to premises and equipment
    
    
    (573
    )
    
    
    (156
    )Proceeds from the sale of premises and equipment
    
    
    
    
    
    
    43Net cash from investing activities
    
    
    (5,317
    )
    
    
    (24,210
    )Cash flows from financing activitiesNet change in deposits
    
    
    (2,082
    )
    
    
    8,831Net change in short-term borrowings from the
Federal Home Loan Bank and other debt
    
    
    3,450
    
    
    
    1,800Proceeds from Federal Home Loan Bank
advances and other debt
    
    
    3,200
    
    
    
    Repayments on Federal Home Loan Bank
advances and other debt
    
    
    (1,000
    )
    
    
    (1,000
    )Net change in advances by borrowers for
taxes and insurance
    
    
    (58
    )
    
    
    (50
    )Cash dividends paid
    
    
    (409
    )
    
    
    (202
    )Proceeds from issuance of common stock in public offering
    
    
    
    
    
    
    14,558Net cash from financing activities
    
    
    3,101
    
    
    
    23,937Net change in cash and cash equivalents
    
    
    (1,125
    )
    
    
    (929
    )Beginning cash and cash equivalents
    
    
    5,403
    
    
    
    2,972Ending cash and cash equivalents
    
    $
    4,278
    
    
    $
    2,043Supplemental cash flow information:Interest paid
    
    $
    2,091
    
    
    $
    1,196Income taxes paid
    
    
    10
    
    
    
    Supplemental noncash disclosures:Transfers from loans to repossessed assets
    
    $
    
    
    
    $
    60
  7.




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




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Three months ended March 31,2007
    
    
    2006BasicNet income (loss)
    
    $
    85
    
    
    $
    (224
    )Weighted average common shares outstanding
    
    
    4,532,596
    
    
    
    4,223,273Basic earnings (loss) per common share
    
    $
    0.02
    
    
    $
    (0.05
    )DilutedNet income (loss)
    
    $
    85
    
    
    $
    (224
    )Weighted average common shares outstanding for
basic earnings (loss) per share
    
    
    4,532,596
    
    
    
    4,223,273Add: Dilutive effects of assumed exercises of
stock options and stock based incentive plan
shares
    
    
    42
    
    
    
    Average shares and dilutive potential common shares
    
    
    4,532,638
    
    
    
    4,223,273Diluted earnings (loss) per common share
    
    $
    0.02
    
    
    $
    (0.05
    )
  Three months ended March 31,2007
    
    
    2006Stock options
    
    
    280,389
    
    
    
    282,472Stock based incentive plan shares
    
    
    19,664
    
    
    
    20,829
 Reclassifications:
  9.




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NOTE 2  LOANS
  March 31,
    
    
    December 31,2007
    
    
    2006Commercial
    
    $
    29,803
    
    
    $
    31,913Real estate:Single-family residential
    
    
    29,587
    
    
    
    30,209Multi-family residential
    
    
    37,923
    
    
    
    47,247Commercial
    
    
    65,082
    
    
    
    47,474Consumer
    
    
    30,487
    
    
    
    30,246Subtotal
    
    
    192,882
    
    
    
    187,089Less: Net deferred loan fees
    
    
    (277
    )
    
    
    (285
    )Allowance for loan losses
    
    
    (2,150
    )
    
    
    (2,109
    )Loans, net
    
    $
    190,455
    
    
    $
    184,695
   Three months endedMarch 31,2007
    
    
    2006Beginning balance
    
    $
    2,109
    
    
    $
    1,495Provision for loan losses
    
    
    35
    
    
    
    290Loans charged-off
    
    
    (8
    )
    
    
    (70
    )Recoveries
    
    
    14
    
    
    
    15Ending balance
    
    $
    2,150
    
    
    $
    1,730
  March 31,
    
    
    December 31,2007
    
    
    2006Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    Nonaccrual loans
    
    
    296
    
    
    
    297
  10.




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NOTE 3  STOCK COMPENSATION PLANS
   Stock Options
    Three months endedMarch 31, 2007Risk-free interest rate
    
    
    4.68
    %Expected option life (years)
    
    
    6Expected stock price volatility
    
    
    23
    %Dividend yield
    
    
    4.90
    %Weighted average fair value of options granted during the period
    
    $
    1.19
 11.




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NOTE 3  STOCK COMPENSATION PLANS (continued)
  Three months ended March 31, 2007Weighted AverageRemainingWeighted Average
    
    
    Contractual TermShares
    
    
    Exercise Price
    
    
    (Years)
    
    
    Intrinsic ValueOptions outstanding, beginning of period
    
    
    273,272
    
    
    $
    11.23
    
    
    
    6.7Granted
    
    
    21,350
    
    
    
    7.35
    
    
    
    9.9Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    294,622
    
    
    $
    10.95
    
    
    
    6.7
    
    
    $
    Options exercisable, end of period
    
    
    273,272
    
    
    $
    11.23
    
    
    
    6.4
    
    
    $
    
  Three months ended March 31,2007
    
    
    2006Intrinsic value of options exercised
    
    $
    
    
    
    $
    Cash received from option exercises
    
    
    
    
    
    
    Related tax benefit realized from option exercises
    
    
    
    
    
    
    Weighted average fair value of options granted
    
    $
    1.19
    
    
    
    
  12.




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NOTE 3  STOCK COMPENSATION PLANS (continued)
 Restricted Stock Awards
   Three months ended March 31, 2007Weighted AverageGrant-Date FairShares
    
    
    ValueNonvested shares outstanding at beginning of period
    
    
    29,552
    
    
    $
    11.36Granted
    
    
    18,250
    
    
    
    7.35Vested
    
    
    (7,777
    )
    
    
    12.64Forfeited
    
    
    
    
    
    
    Nonvested shares outstanding at end of period
    
    
    40,025
    
    
    $
    9.29
  13.




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NOTE 4  FEDERAL HOME LOAN BANK ADVANCES
  March 31, 2007
    
    
    December 31, 2006Maturity April 2007 at 5.35% floating rate
    
    $
    24,700
    
    
    $
    Maturity January 2007 at 5.18% floating rate
    
    
    
    
    
    
    21,250Maturities July 2007 thru March 2010, fixed
at rates from 2.69% to 5.60%, averaging
4.51% at March 31, 2007, and maturities
March 2007 thru June 2009, fixed at rates
from 2.44% to 5.60%, averaging 4.16% at
December 31, 2006
    
    
    13,470
    
    
    
    11,270Total
    
    $
    38,170
    
    
    $
    32,520
   March 31, 2007
    
    
    December 31, 2006First mortgage loans under a blanket lien arrangement
    
    $
    26,636
    
    
    $
    30,422Second mortgage loans
    
    
    673
    
    
    
    679Multi-family mortgage loans
    
    
    13,342
    
    
    
    12,580Home equity lines of credit
    
    
    10,052
    
    
    
    10,495Commercial real estate loans
    
    
    44.092
    
    
    
    35,028Securities
    
    
    10,658
    
    
    
    10,748Total
    
    $
    105,453
    
    
    $
    99,952
  Payment information
 Required payments over the next five years are:March 31, 2008
    
    $
    28,970March 31, 2009
    
    
    3,200March 31, 2010
    
    
    6,000Total
    
    $
    38,170
 14.




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NOTE 5  SEGMENT INFORMATION
   Mortgage
    
    
    Parent
    
    
    ConsolidatedBanking
    
    
    Banking
    
    
    and Other
    
    
    TotalFor the three months ended March 31, 2007:Net interest income (expense)
    
    $
    1,885
    
    
    $
    23
    
    
    $
    (106
    )
    
    $
    1,802Provision for loan losses
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    (35
    )Net gain (loss) on sales of loans
    
    
    (30
    )
    
    
    105
    
    
    
    
    
    
    
    75Other revenue
    
    
    117
    
    
    
    
    
    
    
    8
    
    
    
    125Depreciation and amortization
    
    
    (136
    )
    
    
    (7
    )
    
    
    
    
    
    
    (143
    )Other expense
    
    
    (1,486
    )
    
    
    (129
    )
    
    
    (94
    )
    
    
    (1,709
    )Income (loss) before income tax
    
    
    315
    
    
    
    (8
    )
    
    
    (192
    )
    
    
    115Income tax expense (benefit)
    
    
    98
    
    
    
    (3
    )
    
    
    (65
    )
    
    
    30Net income (loss)
    
    $
    217
    
    
    $
    (5
    )
    
    $
    (127
    )
    
    $
    85March 31, 2007Segment assets
    
    $
    237,981
    
    
    $
    1,178
    
    
    $
    1,573
    
    
    $
    240,732
 Mortgage
    
    
    Parent
    
    
    ConsolidatedBanking
    
    
    Banking
    
    
    and Other
    
    
    TotalFor the three months ended March 31, 2006:Net interest income (expense)
    
    $
    1,605
    
    
    $
    19
    
    
    $
    (95
    )
    
    $
    1,529Provision for loan losses
    
    
    (290
    )
    
    
    
    
    
    
    
    
    
    
    (290
    )Net gain (loss) on sales of loans
    
    
    (1
    )
    
    
    33
    
    
    
    
    
    
    
    32Other revenue
    
    
    143
    
    
    
    (3
    )
    
    
    8
    
    
    
    148Depreciation and amortization
    
    
    (98
    )
    
    
    (7
    )
    
    
    
    
    
    
    (105
    )Other expense
    
    
    (1,413
    )
    
    
    (157
    )
    
    
    (94
    )
    
    
    (1,664
    )Loss before income tax
    
    
    (54
    )
    
    
    (115
    )
    
    
    (181
    )
    
    
    (350
    )Income tax benefit
    
    
    (25
    )
    
    
    (39
    )
    
    
    (62
    )
    
    
    (126
    )Net loss
    
    $
    (29
    )
    
    $
    (76
    )
    
    $
    (119
    )
    
    $
    (224
    )March 31, 2006Segment assets
    
    $
    192,362
    
    
    $
    3,206
    
    
    $
    1,094
    
    
    $
    196,662
 15.




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Forward-Looking Statements
   Business Overview
   General
  Management Strategy
 th st
 16.




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st st st st st st
  Financial Condition
 General.
 Securities.
 Loans.
 Deposits.
 FHLB advances. nd
 Shareholders equity.
 Comparison of the Results of Operations for the Three Months Ended March 31, 2007 and 2006
 General.
 17.




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Net interest income.
    18.




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Provision for loan losses.
  Noninterest income.
 Noninterest expense.
 Income taxes.
 Critical Accounting Policies
  19.




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Liquidity and Capital Resources
     20.




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21.




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Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting
 22.




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(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
  
 23.




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CENTRAL FEDERAL CORPORATIONDated: May 14, 2007
    
    By:
    
    /s/ Mark S. AllioMark S. Allio
Chairman of the Board, President and
Chief Executive OfficerDated: May 14, 2007
    
    By:
    
    /s/ Therese Ann LiutkusTherese Ann Liutkus, CPA
Treasurer and Chief Financial Officer
 24.