Central Federal Corp. Reports Operating Results (10-Q)
Central Federal Corp. has a market cap of $5.12 million; its shares were traded at around $1.25 with and P/S ratio of 0.32.
Highlight of Business Operations:Cash available from liquid assets and borrowing capacity increased to $56.1 million at June 30, 2010 from $32.9 million at December 31, 2009. Cash and unpledged securities increased $10.7 million through the six months ended June 30, 2010 due to the use of brokered deposits to increase on-balance-sheet liquidity and lock the cost of longer-term liabilities at low current market interest rates. As of June 30, 2010, CFBank, under the directive by the OTS as previously discussed, has the ability to obtain an additional $10.9 million in brokered deposits for liquidity and asset liability management purposes as needed. CFBanks additional borrowing capacity with the FHLB decreased to $3.4 million at June 30, 2010 from $7.7 million at December 31, 2009 primarily due to tightening in overall credit policies by the FHLB during six months ended June 30, 2010. CFBanks additional borrowing capacity at the FRB increased to $28.9 million at June 30, 2010 from $12.1 million at December 31, 2009 due to additional commercial real estate loans pledged as collateral with the FRB during the six months ended June 30, 2010. Further tightening in credit policies by the FHLB or FRB, deterioration in the credit performance of CFBanks loan portfolio, or a decline in the balances of pledged collateral, may reduce CFBanks borrowing capacity.
We rely primarily on a willingness to pay market-competitive interest rates to attract and retain retail deposits. Accordingly, rates offered by competing financial institutions affect our ability to attract and retain deposits. Deposits are obtained predominantly from the areas in which CFBank offices are located, and brokered deposits are accepted. We consider brokered deposits to be a useful element of a diversified funding strategy and an alternative to borrowings. Management regularly compares rates on brokered certificates of deposit with other funding sources in order to determine the best mix of funding sources, balancing the costs of funding with the mix of maturities. Although CFBank customers participate in the CDARS program, CDARS deposits are considered brokered deposits by regulation. Brokered deposits, including CDARS deposits, totaled $65.5 million at June 30, 2010 and $53.4 million at December 31, 2009. Current regulatory restrictions limit an institutions use of brokered deposits in situations where capital falls below well-capitalized levels and in certain situations where a well-capitalized institution is under a formal regulatory enforcement action. CFBank was well-capitalized and not subject to regulatory restrictions on the use of brokered deposits at June 30, 2010.
CFBank could raise additional deposits by offering above-market interest rates. Current regulatory restrictions limit an institutions ability to pay above-market interest rates in situations where capital falls below well-capitalized levels or in certain situations where a well-capitalized institution is under a formal regulatory enforcement action. CFBank was well-capitalized and not subject to regulatory restrictions on its ability to pay above-market interest rates at June 30, 2010. CFBank relies on competitive interest rates, customer service, and relationships with customers to retain deposits. To promote and stabilize liquidity in the banking and financial services sector, the FDIC, as included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, as previously discussed, permanently increased deposit insurance coverage from $100,000 to $250,000 per depositor. CFBank is a participant in the FDICs TLGP which provides unlimited deposit insurance coverage, through December 31, 2010, for noninterest-bearing transaction accounts. Based on our historical experience with deposit retention, current retention strategies and participation in programs offering additional FDIC insurance protection, we believe that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of existing deposits will remain with CFBank.
At June 30, 2010, the Holding Company and its subsidiaries, other than CFBank, had cash of $1.3 million available to meet cash needs. Annual debt service on the subordinated debentures is currently approximately $162,000. The subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month London Interbank Offered Rate (LIBOR) plus 2.85%. The total rate in effect was 3.14% at June 30, 2010. An increase in the three-month LIBOR would increase the debt service requirement of the subordinated debentures. Annual dividends on the preferred stock are approximately $361,000 at the current 5% level, which is scheduled to increase to 9% after February 14, 2013. Annual operating expenses are approximately $425,000. The Holding Companys available cash at June 30, 2010 is sufficient to cover cash needs, at their current level, for approximately 1.4 years.
At June 30, 2010, CFBank met the regulatory capital requirements to be considered well capitalized with a Tier 1 capital level of $18.7 million, or 6.9% of adjusted total assets, which exceeds the required level of $13.6 million, or 5.0%; Tier 1 risk-based capital level of $18.7 million, or 8.7% of risk-weighted assets, which exceeds the required level of $12.9 million, or 6.0%; and total risk-based capital of $21.5 million, or 10.0% of risk-weighted assets, which exceeds the required level of $21.4 million, or 10.0%.
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