##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO 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
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 Yes o No þ




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##### 



PagePART I. Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009
    
    
    4Consolidated Statement of Changes in Stockholders Equity for the nine months ended September 30, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 4T. Controls and Procedures
    
    
    49PART II. Other InformationItem 6. Exhibits
    
    
    50Signatures
    
    
    51Exhibit 11.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and cash equivalents
    
    $
    34,015
    
    
    $
    2,973Securities available for sale
    
    
    29,501
    
    
    
    21,241Loans held for sale
    
    
    1,875
    
    
    
    1,775Loans, net of allowance of $10,057 and $7,090
    
    
    202,709
    
    
    
    231,105Federal Home Loan Bank stock
    
    
    1,942
    
    
    
    1,942Loan servicing rights
    
    
    63
    
    
    
    88Foreclosed assets, net
    
    
    2,348
    
    
    
    Premises and equipment, net
    
    
    6,661
    
    
    
    7,003Other intangible assets
    
    
    139
    
    
    
    169Bank owned life insurance
    
    
    4,111
    
    
    
    4,017Accrued interest receivable and other assets
    
    
    3,588
    
    
    
    3,429$
    286,952
    
    
    $
    273,742LIABILITIES AND STOCKHOLDERS EQUITYDepositsNoninterest bearing
    
    $
    20,337
    
    
    $
    17,098Interest bearing
    
    
    217,390
    
    
    
    193,990Total deposits
    
    
    237,727
    
    
    
    211,088Short-term Federal Home Loan Bank advances
    
    
    
    
    
    
    2,065Long-term Federal Home Loan Bank advances
    
    
    23,942
    
    
    
    29,942Advances by borrowers for taxes and insurance
    
    
    93
    
    
    
    161Accrued interest payable and other liabilities
    
    
    3,484
    
    
    
    2,104Subordinated debentures
    
    
    5,155
    
    
    
    5,155Total liabilities
    
    
    270,401
    
    
    
    250,515Stockholders equityPreferred stock, Series A, $.01 par value; $7,225 aggregate
liquidation value, 1,000,000 shares authorized;
7,225 shares issued
    
    
    7,057
    
    
    
    7,021Common stock, $.01 par value; shares authorized;
12,000,000, shares issued; 4,680,331 in 2010 and
4,658,120 in 2009
    
    
    47
    
    
    
    47Common stock warrant
    
    
    217
    
    
    
    217Additional paid-in capital
    
    
    27,481
    
    
    
    27,517Retained earnings (accumulated deficit)
    
    
    (15,220
    )
    
    
    (9,034
    )Accumulated other comprehensive income
    
    
    214
    
    
    
    704Treasury stock, at cost; 558,533 shares
    
    
    (3,245
    )
    
    
    (3,245
    )Total stockholders equity
    
    
    16,551
    
    
    
    23,227$
    286,952
    
    
    $
    273,742
   3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and dividend incomeLoans, including fees
    
    $
    2,863
    
    
    $
    3,239
    
    
    $
    9,083
    
    
    $
    9,962Securities
    
    
    154
    
    
    
    278
    
    
    
    522
    
    
    
    863Federal Home Loan Bank stock dividends
    
    
    22
    
    
    
    26
    
    
    
    65
    
    
    
    73Federal funds sold and other
    
    
    18
    
    
    
    9
    
    
    
    41
    
    
    
    283,057
    
    
    
    3,552
    
    
    
    9,711
    
    
    
    10,926Interest expenseDeposits
    
    
    785
    
    
    
    1,125
    
    
    
    2,594
    
    
    
    3,706Short-term Federal Home Loan Bank advances and other debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Long-term Federal Home Loan Bank advances and other debt
    
    
    172
    
    
    
    249
    
    
    
    526
    
    
    
    799Subordinated debentures
    
    
    44
    
    
    
    46
    
    
    
    125
    
    
    
    1551,001
    
    
    
    1,420
    
    
    
    3,245
    
    
    
    4,661Net interest income
    
    
    2,056
    
    
    
    2,132
    
    
    
    6,466
    
    
    
    6,265Provision for loan losses
    
    
    617
    
    
    
    4,776
    
    
    
    7,303
    
    
    
    6,683Net interest income after provision for loan losses
    
    
    1,439
    
    
    
    (2,644
    )
    
    
    (837
    )
    
    
    (418
    )Noninterest incomeService charges on deposit accounts
    
    
    81
    
    
    
    97
    
    
    
    225
    
    
    
    258Net gains on sales of loans
    
    
    244
    
    
    
    170
    
    
    
    575
    
    
    
    501Loan servicing fees, net
    
    
    5
    
    
    
    8
    
    
    
    15
    
    
    
    26Net gain on sales of securities
    
    
    228
    
    
    
    
    
    
    
    468
    
    
    
    Earnings on bank owned life insurance
    
    
    28
    
    
    
    33
    
    
    
    94
    
    
    
    97Other
    
    
    1
    
    
    
    5
    
    
    
    13
    
    
    
    18587
    
    
    
    313
    
    
    
    1,390
    
    
    
    900Noninterest expenseSalaries and employee benefits
    
    
    1,113
    
    
    
    1,133
    
    
    
    3,226
    
    
    
    3,276Occupancy and equipment
    
    
    47
    
    
    
    128
    
    
    
    160
    
    
    
    412Data processing
    
    
    150
    
    
    
    148
    
    
    
    469
    
    
    
    455Franchise taxes
    
    
    75
    
    
    
    86
    
    
    
    253
    
    
    
    264Professional fees
    
    
    305
    
    
    
    152
    
    
    
    783
    
    
    
    594Director fees
    
    
    45
    
    
    
    29
    
    
    
    97
    
    
    
    80Postage, printing and supplies
    
    
    24
    
    
    
    21
    
    
    
    126
    
    
    
    133Advertising and promotion
    
    
    30
    
    
    
    12
    
    
    
    85
    
    
    
    26Telephone
    
    
    28
    
    
    
    26
    
    
    
    79
    
    
    
    78Loan expenses
    
    
    12
    
    
    
    15
    
    
    
    55
    
    
    
    47Foreclosed assets, net
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )Depreciation
    
    
    126
    
    
    
    114
    
    
    
    390
    
    
    
    350FDIC Premiums
    
    
    170
    
    
    
    111
    
    
    
    420
    
    
    
    447Amortization of intangibles
    
    
    10
    
    
    
    
    
    
    
    30
    
    
    
    Other
    
    
    85
    
    
    
    85
    
    
    
    251
    
    
    
    2602,220
    
    
    
    2,059
    
    
    
    6,425
    
    
    
    6,421Loss before income taxes
    
    
    (194
    )
    
    
    (4,390
    )
    
    
    (5,872
    )
    
    
    (5,939
    )Income tax expense
    
    
    38
    
    
    
    2,298
    
    
    
    8
    
    
    
    1,757Net loss
    
    
    (232
    )
    
    
    (6,688
    )
    
    
    (5,880
    )
    
    
    (7,696
    )Preferred stock dividends and accretion of
unearned discount on preferred stock
    
    
    (103
    )
    
    
    (102
    )
    
    
    (307
    )
    
    
    (305
    )Net loss attributable to common stockholders
    
    $
    (335
    )
    
    $
    (6,790
    )
    
    $
    (6,187
    )
    
    $
    (8,001
    )Loss per common share:Basic
    
    $
    (0.08
    )
    
    $
    (1.66
    )
    
    $
    (1.51
    )
    
    $
    (1.95
    )Diluted
    
    $
    (0.08
    )
    
    $
    (1.66
    )
    
    $
    (1.51
    )
    
    $
    (1.95
    )
   4




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Retained
    
    
    AccumulatedCommon
    
    
    Additional
    
    
    Earnings
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Stock
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Warrant
    
    
    Capital
    
    
    Deficit)
    
    
    Income
    
    
    Stock
    
    
    EquityBalance at January 1, 2010
    
    $
    7,021
    
    
    $
    47
    
    
    $
    217
    
    
    $
    27,517
    
    
    $
    (9,034
    )
    
    $
    704
    
    
    $
    (3,245
    )
    
    $
    23,227Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,880
    )
    
    
    
    
    
    
    
    
    
    
    (5,880
    )Change in unrealized gain (loss) on securities available for sale,
net of reclassification and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (490
    )
    
    
    
    
    
    
    (490
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,370
    )Accretion of discount on preferred stock
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    Release of (385) stock based incentive plan shares, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Tax effect from vesting of stock based incentive plan shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Stock option expense, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    (271
    )Balance at September 30, 2010
    
    $
    7,057
    
    
    $
    47
    
    
    $
    217
    
    
    $
    27,481
    
    
    $
    (15,220
    )
    
    $
    214
    
    
    $
    (3,245
    )
    
    $
    16,551
   5




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##### Table of Contents



Retained
    
    
    AccumulatedCommon
    
    
    Additional
    
    
    Earnings
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Stock
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Warrants
    
    
    Capital
    
    
    Deficit)
    
    
    Income
    
    
    Stock
    
    
    EquityBalance at January 1, 2009
    
    $
    6,989
    
    
    $
    47
    
    
    $
    217
    
    
    $
    27,455
    
    
    $
    1,262
    
    
    $
    350
    
    
    $
    (3,245
    )
    
    $
    33,075Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,696
    )
    
    
    
    
    
    
    
    
    
    
    (7,696
    )Change in unrealized gain (loss) on securities available for sale,
net of reclassification and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    259Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,437
    )Preferred stock offering costs
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Accretion of discount on preferred stock
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    Release of 8,509 stock based incentive plan shares, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    44Tax benefits from dividends on unvested stock based incentive plan shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Tax effect from vesting of stock based incentive plan shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    (271
    )Balance at September 30, 2009
    
    $
    7,010
    
    
    $
    47
    
    
    $
    217
    
    
    $
    27,502
    
    
    $
    (6,738
    )
    
    $
    609
    
    
    $
    (3,245
    )
    
    $
    25,402
   6




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Nine months ended September 30,2010
    
    
    2009Cash flows from operating activities
    
    $
    2,533
    
    
    $
    (955
    )Cash flows from investing activitiesAvailable-for-sale securities:Sales
    
    
    13,633
    
    
    
    Maturities, prepayments and calls
    
    
    4,291
    
    
    
    4,872Purchases
    
    
    (26,484
    )
    
    
    (3,698
    )Loan originations and payments, net
    
    
    8,853
    
    
    
    (2,518
    )Loans purchased
    
    
    
    
    
    
    (2,231
    )Proceeds from sale of portfolio loans
    
    
    10,074
    
    
    
    Proceeds from redemption of FHLB stock
    
    
    
    
    
    
    167Additions to premises and equipment
    
    
    (49
    )
    
    
    (30
    )Proceeds from the sale of premises and equipment
    
    
    
    
    
    
    1Proceeds from the sale of foreclosed assets
    
    
    
    
    
    
    28Net cash from investing activities
    
    
    10,318
    
    
    
    (3,409
    )Cash flows from financing activitiesNet change in deposits
    
    
    26,595
    
    
    
    8,220Net change in short-term borrowings from the FHLB and other debt
    
    
    (2,065
    )
    
    
    (5,850
    )Proceeds from long-term FHLB advances and other debt
    
    
    
    
    
    
    17,942Repayments on long-term FHLB advances and other debt
    
    
    (6,000
    )
    
    
    (10,200
    )Net change in advances by borrowers for taxes and insurance
    
    
    (68
    )
    
    
    (56
    )Cash dividends paid on common stock
    
    
    
    
    
    
    (205
    )Cash dividends paid on preferred stock
    
    
    (271
    )
    
    
    (251
    )Costs associated with issuance of preferred stock
    
    
    
    
    
    
    (13
    )Net cash from financing activities
    
    
    18,191
    
    
    
    9,587Net change in cash and cash equivalents
    
    
    31,042
    
    
    
    5,223Beginning cash and cash equivalents
    
    
    2,973
    
    
    
    4,177Ending cash and cash equivalents
    
    $
    34,015
    
    
    $
    9,400Supplemental cash flow information:Interest paid
    
    $
    3,167
    
    
    $
    4,691Supplemental noncash disclosures:Transfers from loans to repossessed assets
    
    $
    2,348
    
    
    $
    174Loans issued to finance the sale of repossessed assets
    
    
    
    
    
    
    162Loans transferred from held for sale to portfolio
    
    
    91
    
    
    
    1,852
   7




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Reclassifications
 Earnings (Loss) Per Common Share
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009BasicNet loss
    
    $
    (232
    )
    
    $
    (6,688
    )
    
    $
    (5,880
    )
    
    $
    (7,696
    )Less: Preferred dividends and accretion of discount on preferred stock
    
    
    (103
    )
    
    
    (102
    )
    
    
    (307
    )
    
    
    (305
    )Net loss allocated to unvested share-based payment awards
    
    
    2
    
    
    
    15
    
    
    
    17
    
    
    
    24Net loss allocated to common stockholders
    
    $
    (333
    )
    
    $
    (6,775
    )
    
    
    (6,170
    )
    
    $
    (7,977
    )Weighted average common shares outstanding
    
    
    4,092,908
    
    
    
    4,090,299
    
    
    
    4,094,698
    
    
    
    4,087,556Basic loss per common share
    
    $
    (0.08
    )
    
    $
    (1.66
    )
    
    $
    (1.51
    )
    
    $
    (1.95
    )DilutedNet loss allocated to common stockholders
    
    $
    (333
    )
    
    $
    (6,775
    )
    
    $
    (6,170
    )
    
    $
    (7,977
    )Weighted average common shares outstanding for basic loss per common share
    
    
    4,092,908
    
    
    
    4,090,299
    
    
    
    4,094,698
    
    
    
    4,087,556Add: Dilutive effects of assumed exercises of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Add: Dilutive effects of assumed exercises of stock warrant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average shares and dilutive potential common shares
    
    
    4,092,908
    
    
    
    4,090,299
    
    
    
    4,094,698
    
    
    
    4,087,556Diluted loss per common share
    
    $
    (0.08
    )
    
    $
    (1.66
    )
    
    $
    (1.51
    )
    
    $
    (1.95
    )
  8




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    
    231,702
    
    
    
    314,011
    
    
    
    255,133
    
    
    
    347,505Stock warrants
    
    
    336,568
    
    
    
    336,568
    
    
    
    336,568
    
    
    
    336,568
 Adoption of New Accounting Standards:
 , Accounting for Transfers of Financial Assets, an Amendment of
FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R)
 Improving Disclosures About Fair Value Measurements.
  9




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Effect of newly issued but not yet effective Accounting Standards
 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses
  10




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##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2010Issued by U.S. government-sponsored entities and agencies:Mortgage-backed securities  residential
    
    $
    2,032
    
    
    $
    222
    
    
    $
    
    
    
    $
    2,254Collateralized mortgage obligations
    
    
    26,954
    
    
    
    321
    
    
    
    28
    
    
    
    27,247Total
    
    $
    28,986
    
    
    $
    543
    
    
    $
    28
    
    
    $
    29,501
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2009Issued by U.S. government-sponsored entities and agencies:Mortgage-backed securities  residential
    
    $
    5,171
    
    
    $
    390
    
    
    $
    
    
    
    $
    5,561Collateralized mortgage obligations
    
    
    13,551
    
    
    
    479
    
    
    
    
    
    
    
    14,030Collateralized mortgage obligations issued by private issuers
    
    
    1,635
    
    
    
    15
    
    
    
    
    
    
    
    1,650Total
    
    $
    20,357
    
    
    $
    884
    
    
    $
    
    
    
    $
    21,241
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Proceeds
    
    $
    4,602
    
    
    $
    
    
    
    $
    13,633
    
    
    $
    Gross gains
    
    
    228
    
    
    
    
    
    
    
    468
    
    
    
    Gross losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  11




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##### Table of Contents



NOTE 2  SECURITIES (continued)
   September 30,
    
    
    December 31,2010
    
    
    2009Pledged as collateral for:FHLB advances
    
    $
    11,519
    
    
    $
    11,045Public deposits
    
    
    5,969
    
    
    
    4,038Customer repurchase agreements
    
    
    2,781
    
    
    
    3,088Interest-rate swaps
    
    
    1,586
    
    
    
    1,010Total
    
    $
    21,855
    
    
    $
    19,181
   Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossIssued by U.S. government-sponsored
agencies and entities:Collateralized mortgage obligations
    
    $
    4,522
    
    
    $
    28
    
    
    $
    
    
    
    $
    
    
    
    $
    4,522
    
    
    $
    28Total temporarily impaired
    
    $
    4,522
    
    
    $
    28
    
    
    $
    
    
    
    $
    
    
    
    $
    4,522
    
    
    $
    28
    12




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##### Table of Contents



NOTE 3  LOANS
 September 30,
    
    
    December 31,2010
    
    
    2009Commercial
    
    $
    42,814
    
    
    $
    42,769Real estate:Single-family residential
    
    
    26,062
    
    
    
    29,461Multi-family residential
    
    
    35,344
    
    
    
    37,679Commercial
    
    
    84,048
    
    
    
    96,443Construction
    
    
    5,824
    
    
    
    5,791Consumer
    
    
    18,674
    
    
    
    26,052Subtotal
    
    
    212,766
    
    
    
    238,195Less: Allowance for loan losses (ALLL)
    
    
    (10,057
    )
    
    
    (7,090
    )Loans, net
    
    $
    202,709
    
    
    $
    231,105
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Beginning balance
    
    $
    10,074
    
    
    $
    3,996
    
    
    $
    7,090
    
    
    $
    3,119Provision for loan losses
    
    
    617
    
    
    
    4,776
    
    
    
    7,303
    
    
    
    6,683Reclassification of
allowance for losses on
loan-related commitments
(1)
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    (51
    )Loans charged-off
    
    
    (702
    )
    
    
    (4,144
    )
    
    
    (4,515
    )
    
    
    (5,180
    )Recoveries
    
    
    68
    
    
    
    42
    
    
    
    179
    
    
    
    48Ending balance
    
    $
    10,057
    
    
    $
    4,619
    
    
    $
    10,057
    
    
    $
    4,619
 (1)
    
    Reclassified to accrued interest payable and other liabilities in the consolidated balance
sheet.  13




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##### Table of Contents



NOTE 3  LOANS (continued)
  September 30,
    
    
    December 31,2010
    
    
    2009Period-end loans with no allocated allowance for loan losses
    
    $
    2,842
    
    
    $
    6,964Period-end loans with allocated allowance for loan losses
    
    
    8,429
    
    
    
    6,734Total
    
    $
    11,271
    
    
    $
    13,698Amount of the allowance for loan losses allocated to individually impaired loans
    
    $
    2,980
    
    
    $
    2,033
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Average of individually impaired loans
during the period
    
    $
    11,342
    
    
    $
    7,785
    
    
    $
    11,822
    
    
    $
    5,195Interest income recognized during impairment
    
    
    10
    
    
    
    
    
    
    
    25
    
    
    
    Cash-basis interest income recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  September 30,
    
    
    December 31,2010
    
    
    2009Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    14Nonaccrual loans:Commercial
    
    $
    1,041
    
    
    $
    217Single-family residential real estate
    
    
    392
    
    
    
    426Multi-family residential real estate
    
    
    4,123
    
    
    
    4,406Commercial real estate
    
    
    4,906
    
    
    
    6,864Home equity lines of credit
    
    
    193
    
    
    
    1,307Other consumer
    
    
    21
    
    
    
    Total nonaccrual loans
    
    $
    10,676
    
    
    $
    13,220Foreclosed assets:Commercial real estate
    
    
    2,348
    
    
    
    Total nonperforming assets
    
    $
    13,024
    
    
    $
    13,234
   14




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##### Table of Contents



NOTE 3  LOANS (continued)
  September 30,
    
    
    December 31,2010
    
    
    2009Commercial
    
    $
    177
    
    
    $
    217Single-family residential real estate
    
    
    216
    
    
    
    261Multi-family residential real estate
    
    
    
    
    
    
    Commercial real estate
    
    
    
    
    
    
    854Home equity lines of credit
    
    
    
    
    
    
    496Total
    
    $
    393
    
    
    $
    1,828
    15




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##### Table of Contents



NOTE 4  FAIR VALUE
      Securities available for sale
 Derivatives
 Loan servicing rights
 Impaired loans
 Foreclosed assets
  16




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##### Table of Contents



NOTE 4  FAIR VALUE (continued)
 Assets and Liabilities Measured on a Recurring Basis
  Fair ValueMeasurements atSeptember 30, 2010Using Significant OtherObservable Inputs(Level 2)Assets:Securities available for sale:Issued by U.S. government-sponsored entities and agencies:Mortgage-backed securities  residential
    
    $
    2,254Collateralized mortgage obligations
    
    
    27,247Total securities available for sale
    
    $
    29,501Yield maintenance provisions (embedded derivatives)
    
    $
    1,079Liabilities:Interest-rate swaps
    
    $
    1,079
 Fair ValueMeasurements atDecember 31, 2009Using Significant OtherObservable Inputs(Level 2)Assets:Securities available for sale:Issued by U.S. government-sponsored entities and agencies:Mortgage-backed securities  residential
    
    $
    5,561Collateralized mortgage obligations
    
    
    14,030Collateralized mortgage obligations issued by private issuers
    
    
    1,650Total securities available for sale
    
    $
    21,241Yield maintenance provisions (embedded derivatives)
    
    $
    480Liabilities:Interest-rate swaps
    
    $
    480
  17




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##### Table of Contents



NOTE 4  FAIR VALUE (continued)
 Assets Measured on a Non-Recurring Basis
  Fair Value Measurements at September 30, 2010 UsingSignificant Other
    
    
    SignificantObservable Inputs
    
    
    Unobservable Inputs(Level 2)
    
    
    (Level 3)Loan servicing rights
    
    $
    28
    
    
    $
    Impaired loans
    
    
    
    
    
    
    5,499
 Fair Value Measurements at December 31, 2009 UsingSignificant Other
    
    
    SignificantObservable Inputs
    
    
    Unobservable Inputs(Level 2)
    
    
    (Level 3)Loan servicing rights
    
    $
    16
    
    
    $
    Impaired loans
    
    
    
    
    
    
    6,757
     18




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##### Table of Contents



NOTE 4  FAIR VALUE (continued)
  September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    34,015
    
    
    $
    34,015
    
    
    $
    2,973
    
    
    $
    2,973Securities available for sale
    
    
    29,501
    
    
    
    29,501
    
    
    
    21,241
    
    
    
    21,241Loans held for sale
    
    
    1,875
    
    
    
    1,919
    
    
    
    1,775
    
    
    
    1,804Loans, net
    
    
    202,709
    
    
    
    204,912
    
    
    
    231,105
    
    
    
    232,595FHLB stock
    
    
    1,942
    
    
    
    n/a
    
    
    
    1,942
    
    
    
    n/aAccrued interest receivable
    
    
    865
    
    
    
    865
    
    
    
    984
    
    
    
    984Yield maintenance provisions (embedded derivatives)
    
    
    1,079
    
    
    
    1,079
    
    
    
    480
    
    
    
    480Financial liabilitiesDeposits
    
    $
    (237,727
    )
    
    $
    (239,972
    )
    
    $
    (211,088
    )
    
    $
    (212,306
    )FHLB advances
    
    
    (23,942
    )
    
    
    (24,876
    )
    
    
    (32,007
    )
    
    
    (32,443
    )Subordinated debentures
    
    
    (5,155
    )
    
    
    (2,591
    )
    
    
    (5,155
    )
    
    
    (1,955
    )Accrued interest payable
    
    
    (237
    )
    
    
    (237
    )
    
    
    (160
    )
    
    
    (160
    )Interest-rate swaps
    
    
    (1,079
    )
    
    
    (1,079
    )
    
    
    (480
    )
    
    
    (480
    )
    19




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##### Table of Contents



NOTE 5  FHLB ADVANCES
  September 30,
    
    
    December 31,Rate
    
    
    2010
    
    
    2009Fixed-rate advances:Maturing January 2010
    
    
    3.19
    %
    
    $
    
    
    
    $
    5,000Maturing March 2010
    
    
    4.96
    %
    
    
    
    
    
    
    1,000Maturing March 2011
    
    
    1.90
    %
    
    
    2,200
    
    
    
    2,200Maturing April 2011
    
    
    2.88
    %
    
    
    3,000
    
    
    
    3,000Maturing July 2011
    
    
    3.85
    %
    
    
    3,000
    
    
    
    3,000Maturing April 2012
    
    
    2.30
    %
    
    
    5,000
    
    
    
    5,000Maturing June 2012
    
    
    2.05
    %
    
    
    742
    
    
    
    742Maturing January 2014
    
    
    3.12
    %
    
    
    5,000
    
    
    
    5,000Maturing May 2014
    
    
    3.06
    %
    
    
    5,000
    
    
    
    5,000Total
    
    
    
    
    
    $
    23,942
    
    
    $
    29,942
   September 30,
    
    
    December 31,2010
    
    
    2009First mortgage loans under a blanket lien arrangement
    
    $
    21,761
    
    
    $
    25,053Second mortgages
    
    
    332
    
    
    
    938Multi-family mortgage loans
    
    
    10,706
    
    
    
    12,703Home equity lines of credit
    
    
    11,923
    
    
    
    13,331Commercial real estate loans
    
    
    2,246
    
    
    
    62,313Securities
    
    
    11,519
    
    
    
    11,045Total
    
    $
    58,487
    
    
    $
    125,383
  Payment information
  September 30, 2011
    
    $
    8,200September 30, 2012
    
    
    5,742September 30, 2013
    
    
    September 30, 2014
    
    
    10,000Total
    
    $
    23,942
  20




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NOTE 6  OTHER BORROWINGS
   September 30,
    
    
    December 31,2010
    
    
    2009Commercial loans
    
    $
    13,191
    
    
    $
    18,407Commercial real estate loans
    
    
    29,748
    
    
    
    254$
    42,939
    
    
    $
    18,661
   NOTE 7  SUBORDINATED DEBENTURES
      21




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##### Table of Contents



NOTE 8  STOCK-BASED COMPENSATION
       Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Risk-free interest rate
    
    
    2.38
    %
    
    
    n/a
    
    
    
    2.38
    %
    
    
    1.64
    %Expected term (years)
    
    
    7
    
    
    
    n/a
    
    
    
    7
    
    
    
    7Expected stock price volatility
    
    
    47
    %
    
    
    n/a
    
    
    
    47
    %
    
    
    27
    %Dividend yield
    
    
    3.45
    %
    
    
    n/a
    
    
    
    3.45
    %
    
    
    3.63
    %
  22




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##### Table of Contents



NOTE 8  STOCK-BASED COMPENSATION (continued)
  Weighted AverageRemainingWeighted Average
    
    
    Contractual Term
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    (Years)
    
    
    ValueOutstanding at beginning of period
    
    
    310,361
    
    
    $
    7.89Granted
    
    
    30,000
    
    
    
    1.45Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (126,130
    )
    
    
    6.87Outstanding at end of period
    
    
    214,231
    
    
    $
    7.59
    
    
    
    6.1
    
    
    $
    Exercisable at end of period
    
    
    164,027
    
    
    $
    9.25
    
    
    
    5.1
    
    
    $
    
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average
fair value of
options granted
    
    $
    .51
    
    
    
    n/a
    
    
    $
    .51
    
    
    $
    .49
  Restricted Stock Awards
   23




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##### Table of Contents



NOTE 8  STOCK-BASED COMPENSATION (continued)
  Weighted AverageShares
    
    
    Grant-Date Fair ValueNon-vested at beginning of period
    
    
    28,733
    
    
    $
    5.35Granted
    
    
    30,000
    
    
    
    1.45Vested
    
    
    (18,526
    )
    
    
    6.08Forfeited
    
    
    (7,789
    )
    
    
    4.03Non-vested at end of period
    
    
    32,418
    
    
    $
    1.64
   24




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##### Table of Contents



NOTE 9  PREFERRED STOCK
       25




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NOTE 10  REGULATORY CAPITAL MATTERS
    To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action RegulationsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioSeptember 30, 2010Total Capital to risk
weighted assets
    
    $
    21,319
    
    
    
    10.5
    %
    
    $
    16,199
    
    
    
    8.0
    %
    
    $
    20,249
    
    
    
    10.0
    %Tier 1 (Core) Capital to risk
weighted assets
    
    
    18,732
    
    
    
    9.3
    %
    
    
    8,100
    
    
    
    4.0
    %
    
    
    12,149
    
    
    
    6.0
    %Tier 1 (Core) Capital to
adjusted total assets
    
    
    18,732
    
    
    
    6.6
    %
    
    
    11,385
    
    
    
    4.0
    %
    
    
    14,231
    
    
    
    5.0
    %Tangible Capital to
adjusted total assets
    
    
    18,732
    
    
    
    6.6
    %
    
    
    4,269
    
    
    
    1.5
    %
    
    
    N/A
    
    
    
    N/A
  26




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##### Table of Contents



NOTE 10  REGULATORY CAPITAL MATTERS (continued)
 To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action RegulationsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2009Total Capital to risk
weighted assets
    
    $
    26,978
    
    
    
    11.7
    %
    
    $
    18,417
    
    
    
    8.0
    %
    
    $
    23,021
    
    
    
    10.0
    %Tier 1 (Core) Capital to risk
weighted assets
    
    
    24,073
    
    
    
    10.5
    %
    
    
    9,208
    
    
    
    4.0
    %
    
    
    13,813
    
    
    
    6.0
    %Tier 1 (Core) Capital to
adjusted total assets
    
    
    24,073
    
    
    
    8.9
    %
    
    
    10,850
    
    
    
    4.0
    %
    
    
    13,563
    
    
    
    5.0
    %Tangible Capital to
adjusted total assets
    
    
    24,073
    
    
    
    8.9
    %
    
    
    4,069
    
    
    
    1.5
    %
    
    
    N/A
    
    
    
    N/A
   Dividend Restrictions
  27




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NOTE 11  OTHER COMPREHENSIVE INCOME (LOSS)
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Change in unrealized holding gains (losses) on
securities available for sale
    
    $
    (57
    )
    
    $
    164
    
    
    $
    (22
    )
    
    $
    393Reclassification adjustment for gains realized in income
    
    
    (228
    )
    
    
    
    
    
    
    (468
    )
    
    
    Net change in unrealized gains (losses)
    
    
    (285
    )
    
    
    164
    
    
    
    (490
    )
    
    
    393Tax effect
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    (134
    )Net of tax amount
    
    $
    (285
    )
    
    $
    108
    
    
    $
    (490
    )
    
    $
    259
  December 31,
    
    
    Current period
    
    
    September 30,2009
    
    
    change
    
    
    2010Unrealized gains (losses) on securities available for sale
    
    $
    704
    
    
    $
    (490
    )
    
    $
    214
  28




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##### Table of Contents



Forward-Looking Statements
  
    
    a continuation of current high unemployment rates and difficult economic conditions or
adverse changes in general economic conditions and economic conditions in the markets we
serve, any of which may affect, among other things, our level of nonperforming assets,
charge-offs, and provision for loan loss expense;
 
    
    changes in interest rates that may reduce net interest margin and impact funding
sources;
 
    
    changes in market rates and prices, including real estate values, which may adversely
impact the value of financial products including securities, loans and deposits;
 
    
    changes in tax laws, rules and regulations;
 
    
    various monetary and fiscal policies and regulations, including those determined by the
Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC) and the Office of
Thrift Supervision (OTS);
 
    
    competition with other local and regional commercial banks, savings banks, credit unions
and other non-bank financial institutions;
 
    
    our ability to grow our core businesses;
 
    
    technological factors which may affect our operations, pricing, products and services;
 
    
    unanticipated litigation, claims or assessments; and
 
    
    managements ability to manage these and other risks.
   Business Overview
   29




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General
       30




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Financial Condition
 General.
 Cash and cash equivalents.
 Securities.
 Loans.
 Allowance for loan losses.
    31




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32




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33




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®
    34




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September 30, 2010
    
    
    December 31, 2009(Dollars in thousands)Special mentionCommercial
    
    $
    8,995
    
    
    $
    3,892Multi-family residential real estate
    
    
    5,978
    
    
    
    3,143Commercial real estate
    
    
    8,529
    
    
    
    1,432Home equity lines of credit
    
    
    3,599
    
    
    
    3,894Total
    
    $
    27,101
    
    
    $
    12,361SubstandardCommercial
    
    $
    4,468
    
    
    $
    317Single-family residential real estate
    
    
    392
    
    
    
    426Multi-family residential real estate
    
    
    9,918
    
    
    
    5,671Commercial real estate
    
    
    10,522
    
    
    
    10,723Home equity lines of credit
    
    
    193
    
    
    
    1,307Other consumer loans
    
    
    21
    
    
    
    14Total
    
    $
    25,514
    
    
    $
    18,458
    Foreclosed assets
  35




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Deposits
 ®
    Short-term FHLB advances.
 Long-term FHLB advances.
 Stockholders equity.
   36




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##### Table of Contents



Comparison of the Results of Operations for the Three Months Ended September 30, 2010 and 2009   General.
 Net interest income. Average Balances, Interest Rates and Yields Rate/Volume
Analysis of Net Interest Income
  Interest income.
  37




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Interest expense. . Deposits
 Provision for loan losses Allowance for loan losses
  Noninterest income.
  38




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##### Table of Contents



Noninterest expense.
  Income taxes.
 Comparison of the Results of Operations for the Nine Months Ended September 30, 2010 and 2009   General.
 Net interest income.
  39




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##### Table of Contents



Interest income.
 Interest expense. Deposits
  40




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##### Table of Contents



Provision for loan losses. Allowance for loan losses
  Noninterest income.
  Noninterest expense.
  Income taxes.
  41




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##### Table of Contents



Average Balances, Interest Rates and Yields.
 For the Three Months Ended September 30,2010
    
    
    2009Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    AverageOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(Dollars in thousands)Interest-earning assets:Securities (1) (2)
    
    $
    25,771
    
    
    $
    154
    
    
    
    2.45
    %
    
    $
    23,285
    
    
    $
    278
    
    
    
    4.95
    %Loans and loans held for sale (3)
    
    
    207,682
    
    
    
    2,863
    
    
    
    5.51
    %
    
    
    235,013
    
    
    
    3,239
    
    
    
    5.51
    %Other earning assets
    
    
    28,484
    
    
    
    18
    
    
    
    0.25
    %
    
    
    14,133
    
    
    
    9
    
    
    
    0.25
    %FHLB stock
    
    
    1,942
    
    
    
    22
    
    
    
    4.53
    %
    
    
    2,053
    
    
    
    26
    
    
    
    5.07
    %Total interest-earning assets
    
    
    263,879
    
    
    
    3,057
    
    
    
    4.64
    %
    
    
    274,484
    
    
    
    3,552
    
    
    
    5.20
    %Noninterest-earning assets
    
    
    23,950
    
    
    
    
    
    
    
    
    
    
    
    14,541Total assets
    
    $
    287,829
    
    
    
    
    
    
    
    
    
    
    $
    289,025Interest-bearing liabilities:Deposits
    
    $
    218,307
    
    
    
    785
    
    
    
    1.44
    %
    
    $
    202,126
    
    
    
    1,125
    
    
    
    2.23
    %FHLB advances and other borrowings
    
    
    29,097
    
    
    
    216
    
    
    
    2.97
    %
    
    
    38,097
    
    
    
    295
    
    
    
    3.10
    %Total interest-bearing liabilities
    
    
    247,404
    
    
    
    1,001
    
    
    
    1.62
    %
    
    
    240,223
    
    
    
    1,420
    
    
    
    2.36
    %Noninterest-bearing liabilities
    
    
    23,602
    
    
    
    
    
    
    
    
    
    
    
    18,913Total liabilities
    
    
    271,006
    
    
    
    
    
    
    
    
    
    
    
    259,136Equity
    
    
    16,823
    
    
    
    
    
    
    
    
    
    
    
    29,889Total liabilities and equity
    
    $
    287,829
    
    
    
    
    
    
    
    
    
    
    $
    289,025Net interest-earning assets
    
    $
    16,475
    
    
    
    
    
    
    
    
    
    
    $
    34,261Net interest income/interest rate spread
    
    
    
    
    
    $
    2,056
    
    
    
    3.02
    %
    
    
    
    
    
    $
    2,132
    
    
    
    2.84
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %Average interest-earning assets
to average interest-bearing liabilities
    
    
    106.66
    %
    
    
    
    
    
    
    
    
    
    
    114.26
    %
 
 (1)
    
    Average balance is computed using the carrying value of securities.Average yield is computed using the historical amortized cost average balance for available for sale securities.(2)
    
    Average yields and interest earned are stated on a fully taxable equivalent basis.(3)
    
    Balance is net of the ALLL, deferred loan origination fees, undisbursed proceeds of construction loans and includes nonperforming loans.  42




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##### Table of Contents



Average Balances, Interest Rates and Yields  Continued
 For the Nine Months Ended September 30,2010
    
    
    2009Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    AverageOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(Dollars in thousands)Interest-earning assets:Securities (1) (2)
    
    $
    23,625
    
    
    $
    522
    
    
    
    3.03
    %
    
    $
    22,976
    
    
    $
    863
    
    
    
    5.19
    %Loans and loans held for sale (3)
    
    
    219,116
    
    
    
    9,083
    
    
    
    5.53
    %
    
    
    236,833
    
    
    
    9,962
    
    
    
    5.61
    %Other earning assets
    
    
    21,619
    
    
    
    41
    
    
    
    0.25
    %
    
    
    11,271
    
    
    
    28
    
    
    
    0.33
    %FHLB stock
    
    
    1,942
    
    
    
    65
    
    
    
    4.46
    %
    
    
    2,090
    
    
    
    73
    
    
    
    4.66
    %Total interest-earning assets
    
    
    266,302
    
    
    
    9,711
    
    
    
    4.87
    %
    
    
    273,170
    
    
    
    10,926
    
    
    
    5.35
    %Noninterest-earning assets
    
    
    20,027
    
    
    
    
    
    
    
    
    
    
    
    15,609Total assets
    
    $
    286,329
    
    
    
    
    
    
    
    
    
    
    $
    288,779Interest-bearing liabilities:Deposits
    
    $
    213,459
    
    
    
    2,594
    
    
    
    1.62
    %
    
    $
    201,100
    
    
    
    3,706
    
    
    
    2.46
    %FHLB advances and other borrowings
    
    
    29,319
    
    
    
    651
    
    
    
    2.96
    %
    
    
    37,690
    
    
    
    955
    
    
    
    3.38
    %Total interest-bearing liabilities
    
    
    242,778
    
    
    
    3,245
    
    
    
    1.78
    %
    
    
    238,790
    
    
    
    4,661
    
    
    
    2.60
    %Noninterest-bearing liabilities
    
    
    23,190
    
    
    
    
    
    
    
    
    
    
    
    18,220Total liabilities
    
    
    265,968
    
    
    
    
    
    
    
    
    
    
    
    257,010Equity
    
    
    20,361
    
    
    
    
    
    
    
    
    
    
    
    31,769Total liabilities and equity
    
    $
    286,329
    
    
    
    
    
    
    
    
    
    
    $
    288,779Net interest-earning assets
    
    $
    23,524
    
    
    
    
    
    
    
    
    
    
    $
    34,380Net interest income/interest rate spread
    
    
    
    
    
    $
    6,466
    
    
    
    3.09
    %
    
    
    
    
    
    $
    6,265
    
    
    
    2.75
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.07
    %Average interest-earning assets
to average interest-bearing liabilities
    
    
    109.69
    %
    
    
    
    
    
    
    
    
    
    
    114.40
    %
 
 (1)
    
    Average balance is computed using the carrying value of securities.Average yield is computed using the historical amortized cost average balance for available for sale securities.(2)
    
    Average yields and interest earned are stated on a fully taxable equivalent basis.(3)
    
    Balance is net of the ALLL, deferred loan origination fees, undisbursed proceeds of construction loans and includes nonperforming loans.  43




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##### Table of Contents



Rate/Volume Analysis of Net Interest Income.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2010Compared to Three Months Ended
    
    
    Compared to Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2009Increase (decrease)
    
    
    
    
    
    
    Increase (decrease)due to
    
    
    
    
    
    
    due toRate
    
    
    Volume
    
    
    Net
    
    
    Rate
    
    
    Volume
    
    
    Net(Dollars in thousands)Interest-earning assets:Securities (1)
    
    $
    (306
    )
    
    $
    182
    
    
    $
    (124
    )
    
    $
    (383
    )
    
    $
    42
    
    
    $
    (341
    )Loans and loans held for sale
    
    
    5
    
    
    
    (381
    )
    
    
    (376
    )
    
    
    (143
    )
    
    
    (736
    )
    
    
    (879
    )Other earning assets
    
    
    
    
    
    
    9
    
    
    
    9
    
    
    
    (12
    )
    
    
    25
    
    
    
    13FHLB stock
    
    
    (3
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (8
    )Total interest-earning assets
    
    
    (304
    )
    
    
    (191
    )
    
    
    (495
    )
    
    
    (541
    )
    
    
    (674
    )
    
    
    (1,215
    )Interest-bearing liabilities:Deposits
    
    
    (865
    )
    
    
    525
    
    
    
    (340
    )
    
    
    (1,457
    )
    
    
    345
    
    
    
    (1,112
    )FHLB advances and other borrowings
    
    
    (12
    )
    
    
    (67
    )
    
    
    (79
    )
    
    
    (109
    )
    
    
    (195
    )
    
    
    (304
    )Total interest-bearing liabilities
    
    
    (877
    )
    
    
    458
    
    
    
    (419
    )
    
    
    (1,566
    )
    
    
    150
    
    
    
    (1,416
    )Net change in net interest income
    
    $
    573
    
    
    $
    (649
    )
    
    $
    (76
    )
    
    $
    1,025
    
    
    $
    (824
    )
    
    $
    201
 (1)
    
    Securities amounts are presented on a fully taxable equivalent basis.  44




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##### Table of Contents



Critical Accounting Policies
   Determination of the allowance for loan losses.  Allowance for loan losses
 Valuation of the deferred tax asset. Income taxes Income taxes
  45




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##### Table of Contents



Fair value of financial instruments.
 Liquidity and Capital Resources
     46




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Cash and unpledged securities
    
    $
    41,661
    
    
    $
    5,033Additional borrowing capacity at the FHLB
    
    
    3,468
    
    
    
    7,720Additional borrowing capacity at the FRB
    
    
    27,558
    
    
    
    12,129Unused commercial bank line of credit
    
    
    3,000
    
    
    
    8,000Total
    
    $
    75,687
    
    
    $
    32,882
    47




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##### Table of Contents



48




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##### Table of Contents



Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
  49




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##### Table of Contents



Item 6. Exhibits.
 
  50




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##### Table of Contents



CENTRAL FEDERAL CORPORATIONDated:  November 12, 2010
    By:
    /s/ Eloise L. MackusEloise L. Mackus, Esq.Interim Chief Executive OfficerDated:  November 12, 2010
    By:
    /s/ Therese Ann LiutkusTherese Ann Liutkus, CPAPresident, Treasurer and Chief Financial Officer  51




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit3.1
    
    
    Certificate of Incorporation of the registrant (incorporated by reference to Exhibit
3.1 to the registrants Registration Statement on Form SB-2 No. 333-64089, filed with
the Commission on September 23, 1998)3.2
    
    
    Amendment to Certificate of Incorporation of the registrant (incorporated by
reference to Exhibit 3.2 to the registrants Registration Statement on Form S-2 No.
333-129315, filed with the Commission on October 28, 2005)3.3
    
    
    Second Amended and Restated Bylaws of the registrant (incorporated by reference to
Exhibit 3.3 to the registrants Form 10-K for the fiscal year ended December 31,
2007, filed with the Commission on March 27, 2008)3.4
    
    
    Amendment to Certificate of Incorporation of the registrant (incorporated by
reference to Exhibit 3.4 to the registrants Form 10-Q for the quarter ended June 30,
2009, filed with the Commission on August 14, 2009)4.1
    
    
    Form of Stock Certificate of Central Federal Corporation (incorporated by reference
to Exhibit 4.0 to the registrants Registration Statement on Form SB-2 No. 333-64089,
filed with the Commission on September 23, 1998)4.2
    
    
    Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, of Central Federal Corporation (incorporated by reference to Exhibit 3.1 to
the registrants Current Report on Form 8-K, filed with the Commission on December 5,
2008)4.3
    
    
    Warrant, dated December 5, 2008, to purchase shares of common stock of the Registrant
(incorporated by reference to Exhibit 4.1 to the registrants Current Report on Form
8-K, filed with the Commission on December 5, 2008)11.1
    
    
    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
  52