10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009

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.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	34-1877137 (I.R.S. Employer Identification No.)
2923 Smith Road, Fairlawn, Ohio (Address of Principal Executive Offices)	44333 (Zip Code)

(330) 666-7979
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share
(Title of Class) Nasdaq^® Capital Market
(Name of Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act YES o NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act YES o NO þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates as of June 30, 2009 was $9.5 million based upon the closing price as reported on the Nasdaq^® Capital Market for that date.

As of March 15, 2010, there were 4,099,587 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Rule 14a-3(b) Annual Report to Stockholders for its fiscal year ended December 31, 2009, which was filed with the Securities and Exchange Commission (the Commission) on or about March 29, 2010, and its Proxy Statement for the 2010 Annual Meeting of Stockholders to be held on May 20, 2010, which will be filed with the Commission on or about April 5, 2010, are incorporated herein by reference into Parts II and III, respectively, of this Form 10-K.

INDEX

	Page
PART I
Item 1. Business		4
Item 1A. Risk Factors		37
Item 2. Properties		41
Item 3. Legal Proceedings		41
Item 4. Reserved		41
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		41
Item 6. Selected Financial Data		42
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation		42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		42
Item 8. Financial Statements and Supplementary Data		42
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		42
Item 9A(T). Controls and Procedures		43
Item 9B. Other Information		43
PART III
Item 10. Directors, Executive Officers and Corporate Governance		43
Item 11. Executive Compensation		45
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters		45
Item 13. Certain Relationships and Related Transactions, and Director Independence		46
Item 14. Principal Accounting Fees and Services		46
PART IV
Item 15. Exhibits, Financial Statement Schedules		46
SIGNATURES		47
EXHIBIT INDEX		48

2

Forward-Looking Statements

Statements in this Form 10-K that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the Company, as defined below, or its management or Board of Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as “estimate,” “strategy,” “may,” “believe,” “anticipate,” “expect,” “predict,” “will,” “intend,” “plan,” “targeted,” and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements. The following factors could cause such differences:

• 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.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. We caution you however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. The forward-looking statements included in this report speak only as of the date of the report. We undertake no obligation to publicly release revisions to any forward-looking statements to reflect events or circumstances after the date of such statements, except to the extent required by law.

3

PART I

Item 1. Business.

General

Central Federal Corporation (the Holding Company), which was formerly known as Grand Central Financial Corp., was organized as a Delaware corporation in September 1998 as the holding company for CFBank in connection with CFBank’s conversion from a mutual to stock form of organization. CFBank is a community-oriented savings institution which was originally organized in 1892, and was formerly known as Central Federal Savings and Loan Association of Wellsville and more recently as Central Federal Bank. As used herein, the terms “we,” “us,” “our” and the “Company” refer to Central Federal Corporation and its subsidiaries, unless the context indicates to the contrary. As a savings and loan holding company, we are subject to regulation by the OTS. Reserve Mortgage Services, Inc. (Reserve), a wholly owned subsidiary of CFBank from October 2004 until May 12, 2005 when it was merged into CFBank, was acquired in October 2004 to expand CFBank’s mortgage services business. Central Federal Capital Trust I (the Trust), a wholly owned subsidiary of the Holding Company, was formed in 2003 to raise additional funding for the Company. The Company is not considered the primary beneficiary of this trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Ghent Road, Inc., a wholly owned subsidiary of the Holding Company, was formed in 2006 and owns land adjacent to CFBank’s Fairlawn, Ohio office. Smith Ghent LLC, a wholly owned subsidiary of the Holding Company owns the office building and land in Fairlawn which is leased to CFBank. The Holding Company previously was a one-third owner in Smith Ghent LLC, and acquired the remaining two-thirds interest on October 6, 2009. Currently, we do not transact any material business other than through CFBank. At December 31, 2009, assets totaled $273.7 million and stockholders’ equity totaled $23.2 million.

CFBank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. Our business model emphasizes personalized service, clients’ access to decision makers, solution-driven lending and quick execution, efficient use of technology and the convenience of online internet banking, remote deposit, corporate cash management and telephone banking. We attract retail and business deposits from the general public and use the deposits, together with borrowings and other funds, primarily to originate commercial and commercial real estate loans, single-family and multi-family residential mortgage loans and home equity lines of credit. We also invest in consumer loans, construction and land loans and securities. In 2003, we began originating more commercial, commercial real estate and multi-family mortgage loans than in the past as part of our expansion into business financial services. The majority of our customers are consumers, small businesses and small business owners. Revenues are derived principally from the generation of interest and fees on loans originated and, to a lesser extent, interest and dividends on securities. Our primary sources of funds are retail and business deposit accounts and certificates of deposit, brokered certificates of deposit and, to a lesser extent, principal and interest payments on loans and securities, Federal Home Loan Bank (FHLB) advances, other borrowings and proceeds from the sale of loans. Our principal market area for loans and deposits includes the following Ohio counties: Summit County through our office in Fairlawn, Ohio; Franklin County through our office in Worthington, Ohio; and Columbiana County through our offices in Calcutta and Wellsville, Ohio. We originate commercial and conventional real estate loans and business loans primarily throughout Ohio.

Market Area and Competition

Our primary market area is a competitive market for financial services and we face competition both in making loans and in attracting deposits. Direct competition comes from a number of financial institutions operating in our market area, many with a statewide or regional presence, and in some cases, a national presence. Many of these financial institutions are significantly larger and have greater financial resources than we do. Competition for loans and deposits comes from savings institutions, mortgage banking companies, commercial banks, credit unions, brokerage firms and insurance companies.

4

Lending Activities

Loan Portfolio Composition. The loan portfolio consists primarily of commercial, commercial real estate and multi-family mortgage loans and, to a lesser degree, mortgage loans secured by single-family residences and consumer loans. At December 31, 2009, gross loans receivable totaled $238.5 million. Commercial, commercial real estate and multi-family mortgage loans totaled $181.8 million and represented 76.2% of the gross loan portfolio at December 31, 2009 compared to 76.7% of the gross loan portfolio at December 31, 2008 and 74.6% at December 31, 2007. The slight decrease in the percentage of commercial, commercial real estate and multi-family mortgage loans in the portfolio during the current year was due to management’s decision to reduce the origination of loans to reflect the uncertainty with the economy and to prudently manage the Company’s capital. Portfolio single-family residential mortgage loans totaled $30.6 million and represented 12.9% of total gross loans at year-end 2009, compared to 12.2% of total gross loans at year-end 2008 and 13.3% at year-end 2007. The remainder of the portfolio consisted of consumer loans, which totaled $26.0 million, or 10.9% of gross loans receivable at year-end 2009.

The types of loans originated are subject to federal and state laws and regulations. Interest rates charged on loans are affected by the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. In turn, these factors are affected by, among other things, economic conditions, fiscal policies of the federal government, monetary policies of the Federal Reserve Board and legislative tax policies.

5

The following table sets forth the composition of the loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated.

	At December 31,
	2009						2008						2007						2006						2005
				Percent						Percent						Percent						Percent						Percent
	Amount			of Total			Amount			of Total			Amount			of Total			Amount			of Total			Amount			of Total
	(Dollars in thousands)
Real estate mortgage loans:
Single-family	$	30,636			12.85	%	$	28,884			12.16	%	$	31,082			13.31	%	$	30,209			16.15	%	$	23,627			18.81	%
Multi-family		37,732			15.82	%		41,495			17.48	%		43,789			18.75	%		47,247			25.25	%		30,206			24.04	%
Commercial real estate		101,350			42.49	%		99,652			41.98	%		95,088			40.71	%		47,474			25.37	%		25,937			20.64	%
Total real estate mortgage loans		169,718			71.16	%		170,031			71.62	%		169,959			72.77	%		124,930			66.77	%		79,770			63.49	%
Consumer loans:
Home equity loans		1,159			0.49	%		631			0.27	%		604			0.26	%		865			0.46	%		734			0.58	%
Home equity lines of credit		18,938			7.94	%		19,708			8.30	%		18,726			8.02	%		22,148			11.84	%		23,852			18.98	%
Automobile		4,898			2.05	%		5,084			2.14	%		7,957			3.41	%		6,448			3.45	%		4,237			3.37	%
Other		1,035			0.43	%		1,006			0.42	%		961			0.41	%		785			0.42	%		717			0.57	%
Total consumer loans		26,030			10.91	%		26,429			11.13	%		28,248			12.10	%		30,246			16.17	%		29,540			23.50	%
Commercial loans		42,755			17.93	%		40,945			17.25	%		35,334			15.13	%		31,913			17.06	%		16,347			13.01	%
Total loans receivable		238,503			100.00	%		237,405			100.00	%		233,541			100.00	%		187,089			100.00	%		125,657			100.00	%
Less:
Net deferred loan fees		(308	)					(364	)					(382	)					(285	)					(136	)
Allowance for loan losses		(7,090	)					(3,119	)					(2,684	)					(2,109	)					(1,495	)
Loans receivable, net	$	231,105					$	233,922					$	230,475					$	184,695					$	124,026

Single-family residential real estate loans include $1,064, $180, $1,445, $429, and $1,027 in construction loans at year-end 2009, 2008, 2007, 2006, and 2005, respectively.

Commercial real estate loans include $4,759, $2,872, $4,739, $3,788, and $439 in construction loans at year-end 2009, 2008, 2007, 2006 and 2005, respectively.

Multi-family real estate loans include $237 in construction loans at year-end 2006.

6

Loan Maturity. The following table shows the remaining contractual maturity of the loan portfolio at December 31, 2009. Demand loans and other loans having no stated schedule of repayments or no stated maturity are reported as due within one year. The table does not include potential prepayments or scheduled principal amortization.

	At December 31, 2009
	Real Estate
	Mortgage		Consumer		Commercial		Total Loans
	Loans(1)		Loans		Loans		Receivable
	(Dollars in thousands)
Amounts due:
Within one year	$	16,582	$	5,080	$	27,374	$	49,036
After one year:
More than one year to three years		29,265		3,231		3,873		36,369
More than three years to five years		16,604		2,236		4,860		23,700
More than five years to 10 years		73,428		1,397		5,680		80,505
More than 10 years to 15 years		9,830		2,725		898		13,453
More than 15 years		24,009		11,361		70		35,440
Total due after 2010		153,136		20,950		15,381		189,467
Total amount due	$	169,718	$	26,030	$	42,755	$	238,503

⁽¹⁾ Real estate mortgage loans include single-family, multi-family and commercial real estate loans.

The following table sets forth at December 31, 2009, the dollar amount of total loans receivable contractually due after December 31, 2010, and whether such loans have fixed interest rates or adjustable interest rates.

	Due after December 31, 2010
	Fixed		Adjustable		Total
	(Dollars in thousands)
Real estate mortgage loans(1)	$	63,114	$	90,022	$	153,136
Consumer loans		6,023		14,927		20,950
Commercial loans		4,761		10,620		15,381
Total loans	$	73,898	$	115,569	$	189,467

⁽¹⁾ Real estate mortgage loans include single-family, multi-family and commercial real estate loans.

Origination of Loans. Lending activities are conducted through our offices. In 2003, we began originating commercial, commercial real estate and multi-family mortgage loans to take advantage of opportunities for expansion into business financial services and growth in the Fairlawn and Columbus, Ohio, markets.

CFBank participates in various loan programs offered by the Small Business Administration (SBA) enabling us to provide our customers and small business owners in our markets with access to funding to support their businesses, as well as reduce credit risk associated with these loans. SBA loans totaled $3.0 million at December 31, 2009. Individual loans include SBA guarantees of up to 90%. We also participate in the State of Ohio’s GrowNOW program, which provides small business borrowers with a 3% interest rate reduction on small business loans funded through deposits from the State of Ohio at CFBank. At December 31, 2009, loans outstanding under the GrowNOW program totaled $2.2 million.

7

Commercial, commercial real estate and multi-family loans are predominantly adjustable rate loans, although we offer both fixed rate and adjustable rate loans. Fixed rates are generally limited to three to five years. CFBank also accommodates borrowers who desire fixed rate loans for longer than three to five years by utilizing interest rate swaps to protect the related fixed rate loans from changes in value due to changes in interest rates. See Note 18 to the Consolidated Financial Statements.

A majority of our single-family mortgage loan originations are fixed-rate loans. Current originations of long-term fixed-rate single-family mortgages are generally sold rather than retained in portfolio in order to minimize investment in long-term, fixed-rate assets that have the potential to expose the Company to long-term interest rate risk. Although we currently expect that most of the long-term fixed-rate mortgage loan originations will continue to be sold, primarily on a servicing-released basis, a portion of the loans may be retained for portfolio within our interest rate risk and profitability guidelines.

Single-Family Mortgage Lending. A significant lending activity has been the origination of permanent conventional mortgage loans secured by single-family residences located within and outside of our primary market area. Loan originations are obtained from our loan officers and their contacts with the local real estate industry, existing or past customers, members of the local communities, and to a lesser extent through telemarketing and purchased leads. We offer both fixed-rate and adjustable-rate mortgage (ARM) loans with maturities up to 30 years, priced competitively with current market rates. We offer several ARM loan programs with terms of up to 30 years and interest rates that adjust with a maximum adjustment limitation of 2.0% per year and a 6.0% lifetime cap. The interest rate adjustments on ARM loans currently offered are indexed to a variety of established indices and these loans do not provide for initial deep discount interest rates. We do not originate option ARM loans.

The volume and types of single-family ARM loan originations are affected by market factors such as the level of interest rates, consumer preferences, competition and the availability of funds. In recent years, demand for single-family ARM loans has been weak due to consumer preference for fixed-rate loans as a result of the low interest rate environment. Consequently, our origination of ARM loans on single-family residential properties has not been significant as compared to our origination of fixed-rate loans.

We currently sell a significant number of the single-family mortgage loans that we originate, substantially all of which are sold on a servicing released basis. All single-family mortgage loans sold are underwritten according to Federal Home Loan Mortgage Corporation (Freddie Mac) or Federal National Mortgage Association (Fannie Mae) guidelines, or are underwritten directly by the investor. A high volume of residential mortgage originations is a key component for profitability. For the year ended December 31, 2009, single-family mortgage loans originated for sale totaled $66.0 million, and increased $39.0 million, or 144.4%, compared to $27.0 million in 2008. The increase in mortgage loan production was due to low mortgage interest rates in 2009, which resulted from the Federal Reserve Board reducing interest rates to historically low levels in the fourth quarter of 2008, and management’s decision to increase CFBank’s staff of professional mortgage loan originators, who have been successful in increasing this business despite the depressed condition of the housing market. The volume of refinance activity, which is very sensitive to long-term interest rates, may be a significant factor that impacts the level of residential originations in 2010. If market mortgage rates increase or the housing market deteriorates further, mortgage production, and resultant gains on sales of loans, could decrease.

At December 31, 2009, portfolio single-family mortgage loans totaled $30.6 million, or 12.9% of total loans. Our policy is to originate single-family residential mortgage loans for portfolio in amounts up to 85% of the lower of the appraised value or the purchase price of the property securing the loan, and up to 100% of the appraised value of the property if private mortgage insurance is obtained. Mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property without our consent.

8

Portfolio single-family ARM loans, which totaled $11.9 million, or 38.7% of the single-family mortgage loan portfolio at December 31, 2009, generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Periodic and lifetime caps on interest rate increases help to reduce the credit risks associated with ARM loans, but also limit the interest rate sensitivity of such loans. CFBank requires that all ARM loans held in the loan portfolio have payments sufficient to amortize the loan over its term and the loans do not have negative principal amortization.

Commercial and Multi-Family Real Estate Lending. Origination of commercial real estate and multi-family residential mortgage loans has been a significant lending activity since 2003, when we expanded into business financial services in the Fairlawn and Columbus, Ohio, markets. Commercial real estate and multi-family residential mortgage loans totaled $139.1 million, or 58.3% of gross loans at December 31, 2009. We anticipate that commercial real estate and multi-family residential mortgage lending activities may not increase, and may potentially decline in the near term as a result of the recessionary economic conditions which began in 2008 and continued in 2009. Future lending activities are subject to a number of conditions including, but not limited to, the capital position of the CFBank, the general economy, the performance of existing loans and the availability of appropriate funding sources.

We originate commercial real estate loans that are secured by properties used for business purposes, such as manufacturing facilities, office buildings or retail facilities. We also originate multi-family residential mortgage loans that are secured by apartment buildings, condominiums, and multi-family residential houses. Commercial real estate and multi-family residential mortgage loans are secured by properties generally located in our primary market area.

Underwriting policies provide that commercial real estate and multi-family residential mortgage loans may be made in amounts up to 80% of the lower of the appraised value or purchase price of the property. An independent appraisal of the property is required on all loans greater than or equal to $250,000. In underwriting commercial real estate and multi-family residential mortgage loans, we consider the appraisal value and net operating income of the property, the debt service ratio and the property owner’s and/or guarantor’s financial strength, expertise and credit history. We offer both fixed and adjustable rate loans. Fixed rates are generally limited to three to five years, at which time they convert to adjustable rate loans. CFBank also accommodates borrowers who desire fixed rate loans for longer than three to five years by utilizing interest rate swaps to protect the related fixed rate loans from changes in value due to changes in interest rates. See Note 18 to the Consolidated Financial Statements. Adjustable rate loans are tied to various market indices and generally adjust at monthly to annual time intervals. Payments on both fixed and adjustable rate loans are based on 15 to 25 year amortization periods.

Commercial real estate and multi-family residential mortgage loans are generally considered to involve a greater degree of risk than single-family residential mortgage loans. Because payments on loans secured by commercial real estate and multi-family properties are dependent on successful operation or management of the properties, repayment of commercial real estate and multi-family loans may be subject to a greater extent to adverse conditions in the real estate market or the economy. As with single-family residential mortgage loans, adjustable rate commercial real estate and multi-family loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable rate commercial loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable rate commercial real estate and multi-family loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

9

Commercial real estate and multi-family residential mortgage loans also have larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. Some of our borrowers also have more than one commercial real estate or multi-family residential loan outstanding with us. Additionally, some loans may be collateralized by junior liens. Consequently, an adverse development involving one or more loans or credit relationships can expose us to significantly greater risk of loss compared to an adverse development involving a single-family residential mortgage loan. We seek to minimize and mitigate these risks through underwriting policies which require such loans to be qualified at origination on the basis of the property’s income and debt coverage ratio and the financial strength of the property owners and/or guarantors.

Commercial Lending. Origination of commercial loans has been a significant lending activity since 2003, when we expanded into business financial services in the Fairlawn and Columbus, Ohio, markets. Commercial loans totaled $42.8 million, or 17.9% of gross loans, at December 31, 2009. We anticipate that lending activities may not increase, and may potentially decline in the near term as a result of the recessionary economic conditions which began in 2008 and continued in 2009. Future lending activities are subject to a number of conditions including, but not limited to, the capital position of the CFBank, the general economy, the performance of existing loans and the availability of appropriate funding sources.

We make commercial loans primarily to businesses. Those loans are generally secured by business equipment, inventory, accounts receivable and other business assets. In underwriting commercial loans, we consider the net operating income of the company, the debt service ratio and the financial strength, expertise and credit history of the business owners and/or guarantors. We offer both fixed and adjustable rate commercial loans. Fixed rates are generally limited to three to five years. Adjustable rate loans are tied to various market indices and generally adjust at monthly to annual time intervals.

Commercial loans are generally considered to involve a greater degree of risk than loans secured by real estate. Because payments on commercial loans are dependent on successful operation of the business enterprise, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. We seek to minimize and mitigate these risks through underwriting policies which require such loans to be qualified at origination on the basis of the enterprise’s income and debt coverage ratio and the financial strength of the business owners and/or guarantors.

Adjustable rate commercial loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the borrowers’ payments rise, increasing the potential for default. Additionally, adjustable rate commercial loans generally do not contain periodic and lifetime caps on interest rate changes. We seek to minimize the additional risk presented by adjustable rate commercial loans through underwriting criteria that require such loans to be qualified at origination with sufficient debt coverage ratios under increasing interest rate scenarios.

Construction and Land Lending. To a lesser extent, we originate construction and land development loans in our primary market areas. Construction loans are made to finance the construction of residential and commercial properties. Construction loans are fixed or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. Our policies provide that construction loans may be made in amounts up to 80% of the appraised value of the property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction. Land development loans are evaluated on an individual basis, but generally they do not exceed 75% of the actual cost or current appraised value of the property, whichever is less. Loans on raw land generally do not exceed 65% of the actual cost or current appraised value of the property, whichever is less.

10

Construction and land financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. Construction loans totaled $5.8 million at December 31, 2009. Land loans totaled $8.8 million at December 31, 2009.

Consumer and Other Lending. The consumer loan portfolio generally consists of home equity lines of credit, automobile loans, home equity and home improvement loans and loans secured by deposits. At December 31, 2009, the consumer loan portfolio totaled $26.0 million, or 10.9% of gross loans receivable.

Home equity lines of credit comprise the majority of consumer loan balances and totaled $18.9 million at December 31, 2009. We offer a variable rate home equity line of credit with rates adjusting monthly at various margins above the prime rate of interest as disclosed in The Wall Street Journal, based on certain factors including the loan balance, election of auto-deduct payment, and the borrower’s FICO^® score. The amount of the line is based on the borrower’s credit, income and equity in the home. When combined with the balance of the prior mortgage liens, these lines generally may not exceed 89.9% of the appraised value of the property at the time of the loan commitment. These lines are secured by a subordinate lien on the underlying real estate and are, therefore, vulnerable to declines in property values in the geographic areas where the properties are located. These home equity lines of credit are retained in our portfolio.

Auto loan balances primarily represent remaining unpaid amounts on pools of loans purchased in 2005, 2006, 2007, and 2009. We originate a few automobile loans, primarily as a courtesy to our existing customers.

Delinquencies and Classified Assets. The Board of Directors monitors, through management reporting, the status of all loans 30 days or more past due, past due statistics and trends for all loans on a monthly basis. Procedures with respect to resolving delinquencies vary depending on the nature and type of the loan and period of delinquency. In general, we make every effort, consistent with safety and soundness principles, to work with the borrower to have the loan brought current. If the loan is not brought current, it then becomes necessary to take legal action and/or repossess collateral.

We maintain an internal credit rating system and loan review procedures specifically developed to monitor credit risk for commercial, commercial real estate and multi-family residential loans. Internal loan reviews for these loan types are performed annually, and loan officers maintain close contact with borrowers between annual reviews. Adjustments to loan risk ratings are based on the internal annual reviews, or any time loan officers receive information that may affect risk ratings. Additionally, we contract with an outside firm to perform an independent review of commercial, commercial real estate and multi-family residential loans at least annually. Management uses the results of this review to help determine the effectiveness of the existing policies and procedures and to provide an independent assessment of our internal loan risk rating system.

Federal regulations and CFBank’s asset classification policy require use of an internal asset classification system as a means of reporting and monitoring assets. We have incorporated the OTS internal asset classifications as a part of our credit monitoring system. In accordance with regulations, problem assets are classified as “substandard,” “doubtful” or “loss,” and the classifications are subject to review by the OTS. An asset is considered “substandard” under the regulations if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. An asset considered “doubtful” under the regulations has all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets considered “loss” under the regulations are those considered “uncollectible” and having so little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets are required to be designated “special mention” when they posses weaknesses but do not currently expose the insured institution to sufficient risk to warrant classification in one of the problem asset categories.

11

The following table presents information on criticized and classified loans as of December 31, 2009 and 2008. No loans were classified “loss” at either date. The increase in loans classified as “special mention” and “substandard” was primarily related to deterioration in the commercial, multi-family residential, commercial real estate, and home equity lines of credit portfolios due to the continued adverse economic environment that existed in 2009 and its detrimental effect on collateral values and borrowers’ ability to make timely loan payments.

	2009		2008
	(Dollars in thousands)
Special mention
Commercial	$	3,892	$	535
Multi-family residential real estate		3,143		2,852
Commercial real estate		1,432		1,221
Home equity lines of credit		3,894		—
Total	$	12,361	$	4,608
Substandard
Commercial	$	317	$	2,570
Single-family residential real estate		426		63
Multi-family residential real estate		5,671		1,264
Commercial real estate		10,723		877
Home equity lines of credit		1,307		60
Other consumer loans		14		32
Total	$	18,458	$	4,866
Doubtful
Commercial	$	—	$	646

12

All nonaccrual loans, discussed in further detail in the section titled “Nonperforming Assets,” are classified assets and included in the above table. In addition to nonaccrual loans, classified loans include the following loans and loan relationships that were identified as substandard assets and were not nonaccrual at December 31, 2009, but exhibit weaknesses that could lead to nonaccrual status in the future:

• At December 31, 2009, one commercial loan, totaling $100,000 and secured by business assets of a computer services firm in Fairlawn, was identified as a significant problem loan that is inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged. Payments on this loan are current as of December 31, 2009, and the loan is not nonaccrual at year-end 2009; however, the loan exhibits weaknesses that could lead to nonaccrual classification in the future. As a substandard asset, the loan is characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. In the first quarter of 2010, this loan was refinanced with a loan through the SBA and, as a result, is guaranteed by the SBA to 90%.

• At December 31, 2009, one multi-family loan, totaling $1.3 million and secured by a townhouse complex in Columbus, Ohio, was identified as a significant problem loan that is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. A complete documentation review has been performed and the loan is in the active process of being collected. The loan was current at December 31, 2009, and the loan was not nonaccrual at year-end 2009; however, the loan exhibits weaknesses that could lead to nonaccrual classification in the future. As a substandard asset, the loan is characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.

• At December 31, 2009, four commercial real estate loans to related borrowers, totaling $3.9 million, were identified as significant problem loans that are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged. One loan, totaling $1.1 million, is secured by an office building in Columbus, Ohio. One loan, totaling $1.3 million, is secured by a parking garage in Columbus, Ohio. Two loans, totaling $1.5 million, are secured by junior liens on four commercial properties in Columbus, Ohio. The loans are current at December 31, 2009 and were not nonaccrual at year-end 2009; however, the loans exhibit weaknesses that could lead to nonaccrual classification in the future. As substandard assets, the loans are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.

• CFBank’s home equity lines of credit portfolio includes both purchased loans and loans we originated for portfolio. In 2005 and 2006, we purchased home equity lines of credit collateralized by properties located throughout the United States, including geographic areas that have experienced significant declines in housing values, such as California, Virginia and Florida. The outstanding balance of the purchased home equity lines of credit totaled $4.6 million at December 31, 2009, and $2.8 million, or 61.5%, of the balances, are collateralized by properties in the states referenced above. The collateral values associated with loans in these states have declined from 10% to 25% since these loans were originated in 2005 and 2006. Two of the loans where loan balances exceeded collateral values were nonaccrual at December 31, 2009, and totaled $580,000. We have experienced increased write-offs in the purchased portfolio as the depressed state of the housing market and general economy has continued and, in 2009, three loans totaling $322,000 were written off. We continue to monitor collateral values and borrower FICO^® scores and, when the situation warrants, have frozen the lines of credit. Further declines in the value of properties collateralizing these loans may result in additional loan losses.

13

The following table sets forth information concerning delinquent loans in dollar amounts and as a percentage of the total loan portfolio. The amounts presented represent the total remaining principal balances of the loans rather than the actual payment amounts which are overdue.

	December 31, 2009										December 31, 2008										December 31, 2007
	60-89 Days					90 Days or More					60-89 Days					90 Days or More					60-89 Days					90 Days or More
	Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal
	of		Balance			of		Balance			of		Balance			of		Balance			of		Balance			of		Balance
	Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans
	(Dollars in thousands)
Real estate loans:
Single-family		—	$	—			6	$	426			—	$	—			3	$	63			—	$	—			5	$	332
Multi-family		—		—			8		4,406			—		—			3		1,264			—		—			—		—
Commercial		2		515			15		6,864			1		530			1		347			—		—			—		—
Consumer loans:
Home equity lines of credit		—		—			5		1,307			—		—			1		60			—		—			1		146
Automobile		3		18			1		14			1		2			—		—			—		—			1		9
Other		3		4			—		—			1		1			1		32			—		—			—		—
Commercial loans		—		—			1		217			—		—			1		646			—		—			1		1
Total delinquent loans		8	$	537			36	$	13,234			3	$	533			10	$	2,412			—	$	—			8	$	488
Delinquent loans as a percent of total loans				.23	%				5.55	%				.22	%				1.02	%				.00	%				.21	%

The table does not include delinquent loans less than 60 days past due. At December 31, 2009, 2008 and 2007, total loans past due 30 to 59 days totaled $4,000, $1,070, and $333, respectively.

	December 31, 2006										December 31, 2005
	60-89 Days					90 Days or More					60-89 Days					90 Days or More
	Number		Principal			Number		Principal			Number		Principal			Number		Principal
	of		Balance			of		Balance			of		Balance			of		Balance
	Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans
	(Dollars in thousands)
Real estate loans:
Single-family		—	$	—			5	$	288			—	$	—			10	$	800
Automobile		1		1			1		9			4		30			—		—
Other		—		—			—		—			1		2			—		—
Commercial loans		2		509			—		—			—		—			—		—
Total delinquent loans		3	$	510			6	$	297			5	$	32			10	$	800
Delinquent loans as a percent of total loans				.27	%				.16	%				.03	%				.64	%

The table does not include delinquent loans less than 60 days past due. At December 31, 2006 and 2005, total loans past due 30 to 59 days totaled $1,533 and $859, respectively.

14

Nonperforming Assets. The following table contains information regarding nonperforming loans and repossessed assets. CFBank’s policy is to stop accruing interest on loans 90 days or more past due (unless the loan principal and interest are determined by management to be fully secured and in the process of collection) and set up reserves for all previously accrued interest. At December 31, 2009, nonaccrual loans include $1.8 million in troubled debt restructurings. For the year ended December 31, 2009, the amount of additional interest income that would have been recognized on nonaccrual loans, if such loans had continued to perform in accordance with their contractual terms, was approximately $434,000. There was no interest income recognized on nonaccrual loans in 2009. At December 31, 2009, troubled debt restructurings totaled $1.3 million in loans where customers have established a sustained period of repayment performance, loans are current according to their modified terms, and repayment of the remaining contractual payments is expected. For the year ended December 31, 2009, the amount of additional interest income that would have been recognized on these troubled debt restructurings, if such loans had continued to perform in accordance with the original contract terms, was approximately $24,000. Interest income recognized on these troubled debt restructurings totaled $24,000 in 2009. There were no properties held as real estate owned (REO) at December 31, 2009.

	At December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Nonaccrual loans:
Single-family real estate	$	426		$	63		$	235		$	288		$	800
Multi-family real estate		4,406			1,264			—			—			—
Commercial real estate		6,864			—			—			—			—
Consumer		1,307			92			155			9			—
Commercial		217			646			1			—			—
Total nonaccrual loans		13,220			2,065			391			297			800
Loans past due 90 days or more and still accruing:
Single-family real estate		—			—			97			—			—
Multi-family real estate		—			—			—			—			—
Commercial real estate		—			347			—			—			—
Consumer		14			—			—			—			—
Commercial		—			—			—			—			—
Total nonperforming loans(1)		13,234			2,412			488			297			800
REO		—			—			86			—			—
Other repossessed assets		—			—			—			—			—
Total nonperforming assets(2)	$	13,234		$	2,412		$	574		$	297		$	800
Troubled debt restructurings(3)		1,310			—			—			—			—
Total nonperforming assets and troubled debt restructurings	$	14,544		$	2,412		$	574		$	297		$	800
Nonperforming loans to total loans		5.56	%		1.02	%		.21	%		.16	%		.64	%
Nonperforming assets to total assets		4.83	%		.87	%		.21	%		.13	%		.46	%

(1)	Total nonperforming loans equal nonaccrual loans and loans past due 90 days or more and still accruing.
(2)	Nonperforming assets consist of nonperforming loans and REO.
(3)	Troubled debt restructurings where customers have established a sustained period of repayment performance, loans are current according to their modified terms, and repayment of the remaining contractual payments is expected.

15

The increase in nonperforming loans was primarily related to deterioration in the multi-family residential, commercial real estate, and home equity lines of credit portfolios as a result of the sustained adverse economic conditions and its affect on collateral values and borrowers’ ability to make loan payments.

At December 31, 2009, one commercial loan, totaling $148,000 and secured by business assets of an architectural firm in Columbus, Ohio, was determined to be impaired as it was modified in a troubled debt restructuring in 2009. The loan is not on nonaccrual status at year-end 2009 because the borrower has established a sustained period of repayment performance, the loan is current according to its modified terms, and repayment of the remaining contractual payments is expected.

At December 31, 2009, two commercial real estate loans, totaling $1.2 million and secured by an office complex in Euclid, Ohio, were determined to be impaired as they were modified in a troubled debt restructuring in 2009. The loans are not on nonaccrual status at year-end 2009 because the borrower has established a sustained period of repayment performance, the loans are current according to the modified terms, and repayment of the remaining contractual payments is expected.

Nonperforming home equity lines of credit increased $1.2 million and totaled $1.3 million, or 6.90% of total home equity lines of credit, at December 31, 2009, compared to $60,000, or .30% of total home equity lines of credit, at December 31, 2008. Nonperforming home equity lines of credit included three loans from the purchased portfolio, totaling $778,000, and two loans from the portfolio originated by CFBank, totaling $529,000, at December 31, 2009.

Allowance for Loan Losses (ALLL). The ALLL totaled $7.1 million at December 31, 2009 and increased $4.0 million, or 127.3%, from $3.1 million at December 31, 2008. The increase was due to continued adverse economic conditions affecting loan performance, which resulted in an increase in nonperforming loans and loan charge-offs. The ratio of the ALLL to total loans totaled 2.98% at December 31, 2009, compared to 1.32% at December 31, 2008.

The ALLL is a valuation allowance for probable incurred credit losses. The ALLL methodology is designed as part of a thorough process that incorporates management’s current judgments about the credit quality of the loan portfolio into determination of the ALLL in accordance with generally accepted accounting principles and supervisory guidance. Management analyzes the adequacy of the ALLL quarterly through reviews of the loan portfolio, including the nature and volume of the loan portfolio and segments of the portfolio, industry and loan concentrations, historical loss experience, delinquency statistics and the level of nonperforming loans, specific problem loans, the ability of borrowers to meet loan terms, an evaluation of collateral securing loans and the market for various types of collateral, various collection strategies, current economic conditions and trends and expectations about future economic conditions and trends, and other factors that warrant recognition in providing for an adequate ALLL. See the section titled “Allowance for loan losses” in our 2009 Annual Report to Stockholders, attached as Exhibit 13.1 to this Form 10-K, for a detailed discussion of management’s methodology for determining the appropriate level of the ALLL.

The ALLL consists of general and specific components. The general component of the ALLL covers loans not classified as impaired and is based on CFBank and industry historical loss experience adjusted for current factors. Current factors considered include, but are not limited to, management’s oversight of the portfolio, including lending policies and procedures; nature, level and trend of the portfolio, including past due and nonperforming loans, loan concentrations, loan terms and other characteristics; current economic conditions and outlook; and collateral values.

16

The specific component relates to loans that are individually classified as impaired. A loan is impaired when full payment under the loan terms is not expected. Commercial, commercial real estate and multi-family residential loans are individually evaluated for impairment when 90 days delinquent and adversely classified, regardless of size. Loans over $500,000 are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. Loans for which the terms have been modified to grant concessions, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. If a loan is determined to be impaired, the loan is evaluated to determine whether an impairment loss should be recognized, either through a write-off or specific valuation allowance, so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance loans, such as consumer and single-family residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Individually impaired loans totaled $13.7 million at December 31, 2009, and increased $11.4 million, from $2.3 million, at December 31, 2008. The ALLL specifically allocated to impaired loans totaled $2.0 million at December 31, 2009 and $514,000 at December 31, 2008. The specific reserve on impaired loans is based on management’s estimate of the fair value of collateral securing the loans, or based on projected cash flows from the sale of the underlying collateral and payments from the borrowers. The amount ultimately charged-off for these loans may be different from the specific reserve, as the ultimate liquidation of the collateral and/or projected cash flows may be different from management’s estimates.

We believe the ALLL is adequate to absorb probable incurred credit losses in the loan portfolio as of December 31, 2009; however, future additions to the allowance may be necessary based on factors including, but not limited to, deterioration in client business performance, continued or deepening recessionary economic conditions, declines in borrowers’ cash flows, and market conditions which result in lower real estate values. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. Such agencies may require additional provisions for loan losses based on judgments and estimates that differ from those used by management or based on information available at the time of their review. Management and the Board continue to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. An increase in the ALLL and loan losses would occur if economic conditions and factors which affect credit quality continue to worsen or do not improve.

17

The following table sets forth activity in the ALLL for the periods indicated.

	2009			2008			2007			2006			2005
	(Dollars in thousands)
Allowance for loan losses, beginning of period	$	3,119		$	2,684		$	2,109		$	1,495		$	978
Charge-offs:
Real estate mortgage loans:
Single-family		453			73			27			159			170
Multi-family		287			—			—			—			—
Commercial real estate		1,114			—			—			—			—
Consumer loans:
Home equity lines of credit		388			360			—			77			—
Automobile		17			61			15			66			85
Other		7			3			2			—			—
Commercial		3,998			—			—			—			—
Total charge-offs		6,264			497			44			302			255
Recoveries on loans previously charged off:
Real estate mortgage loans:
Single-family		18			4			72			53			27
Commercial real estate		5			—			—			—			—
Consumer loans:
Home equity lines of credit		3			—			—			—			—
Automobile		22			11			8			43			71
Commercial		295			—			—			—			—
Total recoveries		343			15			80			96			98
Net charge-offs (recoveries)		5,921			482			(36	)		206			157
Provision for loan losses		9,928			917			539			820			674
Reclassification of allowance for loan losses on loan-related commitments		(36	)		—			—			—			—
Allowance for loan losses, end of period	$	7,090		$	3,119		$	2,684		$	2,109		$	1,495
Allowance for loan losses to total loans		2.98	%		1.32	%		1.15	%		1.13	%		1.19	%
Allowance for loan losses to nonperforming loans		53.57	%		129.31	%		550.00	%		710.10	%		186.88	%
Net charge-offs (recoveries) to the allowance for losses		83.51	%		15.45	%		-1.34	%		9.77	%		10.50	%
Net charge-offs (recoveries) to average loans		2.48	%		.21	%		-.02	%		.13	%		.14	%

The provision for loan losses totaled $9.9 million in 2009, compared to $917,000 in 2008, and $539,000 in 2007. The increase in the provision in 2009 was due to continued adverse economic conditions affecting loan performance, which resulted in an increase in nonperforming loans and loan charge-offs. The provision in 2009 was significantly impacted by a $3.3 million net charge-off related to a single commercial loan customer.

Continuing adverse economic conditions and its effect on the housing market, collateral values, businesses and consumers’ ability to pay may increase the level of charge-offs in the future. Further or continuing weakness in the housing markets in geographic regions that have experienced the largest decline in housing values may negatively impact our purchased home equity lines of credit. See “Delinquencies and Classified Assets.” Additionally, our commercial, commercial real estate and multi-family residential loan portfolios, where we have already experienced an increase in delinquent and nonperforming assets and charge-offs, may be detrimentally affected by prolonged adverse economic conditions. Further decline in these portfolios could expose us to significant losses which could materially and adversely affect the Company’s earnings and profitability. Conversely, an increase in economic activity and growth of gross domestic product could retard any further declines in the existing portfolio and strengthen our customers’ ability to repay, thus having a positive effect on the Company’s earnings.

18

The following table sets forth the ALLL in each of the categories listed at the dates indicated and the percentage of such amounts to the total ALLL and loans in each category as a percent of total loans. Although the ALLL may be allocated to specific loans or loan types, the entire ALLL is available for any loan that, in management’s judgment, should be charged off.

	At December 31,
	2009								2008								2007
			% of			Percent					% of			Percent					% of			Percent
			Allowance			of Loans					Allowance			of Loans					Allowance			of Loans
			in each			in Each					in each			in Each					in each			in Each
			Category			Category					Category			Category					Category			Category
			to Total			to Total					to Total			to Total					to Total			to Total
	Amount		Allowance			Loans			Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)
Single-family mortgage loans	$	462		6.52	%		12.85	%	$	43		1.38	%		12.16	%	$	86		3.20	%		13.31	%
Consumer loans		1,017		14.34	%		10.91	%		142		4.55	%		11.13	%		46		1.72	%		12.10	%
Commercial, commercial real estate and multi-family mortgage loans		5,611		79.14	%		76.24	%		2,934		94.07	%		76.71	%		2,552		95.08	%		74.59	%
Total allowance for loan losses	$	7,090		100.00	%		100.00	%	$	3,119		100.00	%		100.00	%	$	2,684		100.00	%		100.00	%

	At December 31,
	2006								2005
			% of			Percent					% of			Percent
			Allowance			of Loans					Allowance			of Loans
			in each			in Each					in each			in Each
			Category			Category					Category			Category
			to Total			to Total					to Total			to Total
	Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)
Single-family mortgage loans	$	110		5.22	%		16.15	%	$	57		3.81	%		18.81	%
Consumer loans		53		2.51	%		16.17	%		120		8.03	%		23.50	%
Commercial, commercial real estate and multi-family mortgage loans		1,946		92.27	%		67.68	%		1,318		88.16	%		57.69	%
Total allowance for loan losses	$	2,109		100.00	%		100.00	%	$	1,495		100.00	%		100.00	%

19

Real Estate Owned

There were no properties held as REO at December 31, 2009. Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Investment Activities

Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States Treasury (U.S. Treasury) obligations, securities of various federal agencies, certificates of deposit of insured banks and savings institutions, bankers’ acceptances and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest their assets in commercial paper, municipal bonds, investment-grade corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly.

The investment policy established by the Board of Directors is designed to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complement lending activities. The policy provides authority to invest in U.S. Treasury and federal agency securities meeting the policy’s guidelines, mortgage-backed securities guaranteed by the United States government and agencies thereof, and municipal bonds. At December 31, 2009, the securities portfolio totaled $21.2 million.

At December 31, 2009, all mortgage-backed securities and collateralized mortgage obligations in the securities portfolio were insured or guaranteed by Freddie Mac or Fannie Mae, except one collateralized mortgage obligation issued by a private issuer. The private label collateralized mortgage obligation was rated AAA at purchase. The Company monitors the security’s performance to insure the security has adequate credit support.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. As of December 31, 2009, none of the Company’s securities was in an unrealized loss position.

20

The following table sets forth certain information regarding the amortized cost and fair value of securities at the dates indicated.

	At December 31,
	2009				2008				2007
	Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
Securities available for sale:
Federal agency	$	—	$	—	$	—	$	—	$	6,998	$	6,993
State and municipal		—		—		—		—		1,009		1,009
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential		5,171		5,561		6,671		6,922		7,865		8,068
Collateralized mortgage obligations		13,551		14,030		16,349		16,628		12,242		12,328
Collateralized mortgage obligations issued by private issuers		1,635		1,650		—		—		—		—
Total securities available for sale	$	20,357	$	21,241	$	23,020	$	23,550	$	28,114	$	28,398

At year-end 2009, there were no debt securities contractually due at a single maturity date. The weighted average yield on securities available for sale at December 31, 2009 totaled 4.87%

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Sources of Funds

General. Primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans, borrowings, and funds generated from operations of CFBank. Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions and competition. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

The Holding Company, as a savings and loan holding company, has more limited funding sources than CFBank, and is significantly dependent on dividends from CFBank to provide the liquidity necessary to meet its obligations. Banking regulations limit the amount of dividends that can be paid to the Holding Company by CFBank without prior approval of the OTS. As of December 31, 2009, CFBank can pay no dividends to the Holding Company without OTS approval. Future dividend payments by CFBank to the Holding Company would be based on future earnings and OTS approval. Due to the uncertainty surrounding CFBank’s future ability to pay dividends to the Holding Company, management is exploring options to secure funding to enhance the cash position at the Holding Company.

Deposits. CFBank offers a variety of deposit accounts with a range of interest rates and terms including savings accounts, retail and business checking accounts, money market accounts and certificates of deposit. Management regularly evaluates the internal cost of funds, surveys rates offered by competitors, reviews cash flow requirements for lending and liquidity, and executes rate changes when necessary as part of its asset/liability management, profitability and growth objectives. Certificate of deposit accounts represent the largest portion of our deposit portfolio and totaled 57.6% of average deposit balances in 2009. The term of the certificates of deposit typically offered vary from seven days to five years at rates established by management. Specific terms of an individual account vary according to the type of account, the minimum balance required, the time period funds must remain on deposit and the interest rate, among other factors.

The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. CFBank participates in the Certificate of Deposit Account Registry Service^® (CDARS), a network of banks that allows us to provide our customers with FDIC insurance coverage on certificate of deposit balances up to $50 million. During the credit crisis in 2008, many CFBank customers sought the full FDIC coverage available through the CDARS program; however, balances declined during 2009 as a result of certain of these customers’ transferring their funds to our higher yielding, more liquid money market account. Balances in CDARS accounts decreased $11.0 million to $37.4 million at December 31, 2009, compared to $48.4 million at December 31, 2008 and $16.8 million at December 31, 2007. At December 31, 2009, certificate accounts maturing in less than one year totaled $93.5 million and included $34.6 million in CDARS balances. Although most of the certificate of deposit accounts are expected to be reinvested with CFBank, there is a risk that the CDARS account holders may not require the full FDIC coverage available through the CDARS program, and may select higher yielding investments outside of CFBank.

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 $45.9 million at December 31, 2009, $67.2 million at December 31, 2008 and $52.2 million at December 31, 2007. Current regulatory restrictions limit an institution’s use of brokered deposits in situations where capital levels fall 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 December 31, 2009.

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CFBank could raise additional deposits by offering above-market interest rates. Current regulatory restrictions limit an institution’s ability to pay above-market interest rates in situations where capital levels fall 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 its ability to pay above-market interest rates at December 31, 2009.

To promote and stabilize liquidity in the banking and financial services sector, the FDIC temporarily increased deposit insurance coverage from $100,000 to $250,000 per depositor through December 31, 2013. CFBank is a participant in the FDIC’s Temporary Liquidity Guarantee Program that provides unlimited deposit insurance coverage, through June 30, 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.

Certificate accounts in amounts of $100,000 or more totaled $52.6 million at December 31, 2009, maturing as follows:

			Weighted
Maturity Period	Amount		Average Rate
	(Dollars in thousands)
Three months or less	$	25,050		1.30	%
Over 3 through 6 months		9,286		2.96	%
Over 6 through 12 months		12,843		2.24	%
Over 12 months		5,376		3.04	%
Total	$	52,555

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The following table sets forth the distribution of average deposit account balances for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on month-end balances.

	For the Year ended December 31,
	2009								2008								2007
			Percent								Percent								Percent
			of Total			Average					of Total			Average					of Total			Average
	Average		Average			Rate			Average		Average			Rate			Average		Average			Rate
	Balance		Deposits			Paid			Balance		Deposits			Paid			Balance		Deposits			Paid
	(Dollars in thousands)
Interest-bearing checking accounts	$	10,650		4.92	%		.21	%	$	11,399		5.66	%		.49	%	$	10,676		6.00	%		2.17	%
Money market accounts		54,529		25.17	%		1.58	%		44,059		21.89	%		2.41	%		40,890		22.97	%		4.39	%
Savings accounts		10,516		4.85	%		.10	%		10,322		5.13	%		.33	%		10,613		5.96	%		.50	%
Certificates of deposit		124,743		57.57	%		3.07	%		121,715		60.47	%		4.16	%		104,063		58.47	%		4.93	%
Noninterest-bearing deposits:
Demand deposits		16,243		7.49	%		—			13,776		6.85	%		—			11,742		6.60	%		—
Total average deposits	$	216,681		100.00	%		2.36	%	$	201,271		100.00	%		3.31	%	$	177,984		100.00	%		4.34	%

The following table presents by various rate categories, the amount of certificate accounts outstanding at the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 2009.

	Period to Maturity from December 31, 2009								At December 31,
					Two to
	Less than		One to Two		Three		Over Three
	One Year		Years		Years		Years		2009		2008		2007
	(Dollars in thousands)
Certificate accounts:
0 to 0.99%	$	21,115	$	—	$	21	$	—	$	21,136	$	2,159	$	21
1.00 to 1.99%		26,754		5,161		68		147		32,130		11,628		23
2.00 to 2.99%		5,125		3,870		1,906		386		11,287		33,850		2,923
3.00 to 3.99%		16,890		2,808		177		33		19,908		33,297		11,434
4.00 to 4.99%		22,776		2,398		—		640		25,814		31,401		33,324
5.00% and above		854		499		196		609		2,158		18,915		66,443
Total certificate accounts	$	93,514	$	14,736	$	2,368	$	1,815	$	112,433	$	131,250	$	114,168

Borrowings. As part of our operating strategy, FHLB advances are used as an alternative to retail and brokered deposits to fund operations. The advances are collateralized primarily by single-family and multi-family mortgage loans, commercial real estate loans, home equity lines of credit, and securities, and secondarily by CFBank’s investment in the capital stock of the FHLB of Cincinnati. FHLB advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates from time to time in accordance with the policies of the FHLB. FHLB advances totaled $32.0 million at December 31, 2009. Based on the collateral pledged and CFBank’s holdings of FHLB stock, CFBank was eligible to borrow up to a total of $39.7 million at year-end 2009. CFBank’s borrowing capacity decreased from $62.4 million at December 31, 2008 primarily due to an increase in collateral maintenance requirements by the FHLB as a result of deterioration in the credit performance of the pledged loan collateral.

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In addition to access to FHLB advances, CFBank has borrowing capacity available with the Federal Reserve Bank (FRB) through the Borrower in Custody program. The borrowings are collateralized by commercial loans. Based on the collateral pledged, CFBank was eligible to borrow up to a total of $12.1 million at year-end 2009. There were no amounts outstanding from the FRB at December 31, 2009. CFBank also has $8.0 million available in unsecured lines of credit with two commercial banks. Interest on the lines accrue daily and are variable based on the lenders’ federal funds rate. There were no amounts outstanding on these lines of credit at December 31, 2009.

In 2003, we formed the Trust, which issued $5.0 million of three-month London Interbank Offered Rate plus 2.85% floating rate trust preferred securities as part of a pooled private offering of such securities. We issued $5.2 million of subordinated debentures to the Trust in exchange for ownership of all of the common stock of the Trust and the proceeds of the preferred securities sold by the Trust. The subordinated debentures mature on December 30, 2033 and may be redeemed in whole or in part, at par plus accrued and unpaid interest, any time after December 30, 2008. We have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. There are no required principal payments on the subordinated debentures over the next five years.

The following table sets forth certain information regarding short-term borrowings at or for the periods ended on the dates indicated:

	At or for the Year ended December 31,
	2009			2008			2007
	(Dollars in thousands)
Short-term FHLB advances and other borrowings:
Average balance outstanding	$	597		$	30,549		$	34,040
Maximum amount outstanding at any month-end during the period		2,065			36,950			43,850
Balance outstanding at end of period		2,065			5,850			38,250
Weighted average interest rate during the period		0.17	%		1.77	%		4.81	%
Weighted average interest rate at end of period		0.18	%		0.54	%		4.00	%

Subsidiary Activities

As of December 31, 2009, we maintained CFBank, Ghent Road, Inc., Smith Ghent LLC, and the Trust as wholly owned subsidiaries.

Personnel

As of December 31, 2009, the Company had 66 full-time and 14 part-time employees.

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Regulation and Supervision

General. CFBank is subject to regulation, examination and supervision by the OTS, as its chartering agency, and the FDIC, as the deposit insurer. CFBank is a member of the FHLB System. CFBank’s deposit accounts are insured up to applicable limits by the FDIC through the Deposit Insurance Fund (DIF). CFBank must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OTS and the FDIC to test CFBank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowances for loan losses for regulatory purposes. Legislation, including proposals to change substantially the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced in the United States Congress (Congress). Any change in such law, regulation or policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Company, and on CFBank and its operations. Under the holding company form of organization, the Company is also required to file certain reports with, and otherwise comply with the rules and regulations of, the OTS and, as a public company, the Securities and Exchange Commission (the Commission) under the federal securities laws.

Certain of the regulatory requirements applicable to the Company and CFBank are referred to below. However, the description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Report on Form 10-K does not purport to be a complete description of such statutes and regulations or their effects on CFBank or the Company.

Federal Savings Institution Regulation

Business Activities. The activities of federal savings institutions are governed by the Home Owners’ Loan Act, as amended (HOLA) and, in certain respects, the Federal Deposit Insurance Act (FDIA) and the regulations issued by the agencies to implement these statutes. These laws and regulations delineate the nature and extent of the activities in which federal associations may engage. In particular, many types of lending authority for federal associations (for example, commercial, commercial real estate loans and consumer loans) are limited to a specified percentage of the institution’s capital or assets.

Loans-to-One Borrower. Under HOLA, savings institutions are generally subject to the national bank limit on loans to one borrower. Generally, this limit is 15% of a bank’s unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus if such loan is secured by readily marketable collateral, which is defined to include certain financial instruments. At December 31, 2009, CFBank was in compliance with this regulation.

QTL Test. The HOLA requires that CFBank, as a savings association, comply with the qualified thrift lender (QTL) test. Under the QTL test, CFBank is required to maintain at least 65% of its portfolio assets in certain “qualified thrift investments” for at least nine months of the most recent twelve-month period. “Portfolio assets” means, in general, CFBank’s total assets less the sum of (i) specified liquid assets up to 20% of total assets, (ii) goodwill and other intangible assets and (iii) the value of property used to conduct CFBank’s business. CFBank may also satisfy the QTL test by qualifying as a domestic building and loan association as defined in the Internal Revenue Code of 1986, as amended. CFBank met the QTL test at December 31, 2009 and in each of the prior 12 months and, therefore, qualified as a thrift lender. If CFBank fails the QTL test, it must either operate under certain restrictions on its activities or convert to a bank charter.

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Capital Requirements. The OTS regulations require savings associations to meet three minimum capital standards: (i) a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations; (ii) a leverage ratio requirement of 3.0% of core capital to such adjusted total assets, if a savings association has been assigned the highest composite rating of 1 under the Uniform Financial Institutions Rating System; and (iii) a risk-based capital ratio requirement of 8.0% of core and supplementary capital to total risk-based assets. The minimum leverage capital ratio for a depository institution that does not have a composite rating of 1 is 4.0%, unless a higher leverage capital ratio is warranted by the particular circumstances or risk profile of the depository institution. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk weights, which range from 0% for cash and obligations issued by the United States government or its agencies to 100% for consumer and commercial loans, as assigned by the OTS capital regulation based on the risks found by the OTS to be inherent in the type of asset.

Tangible capital is defined, generally, as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related earnings and minority interests in equity accounts of fully consolidated subsidiaries, less intangibles (other than certain mortgage servicing rights) and investments in and loans to subsidiaries engaged in activities not permissible for a national bank. Core capital, or Tier 1 capital, is defined similarly to tangible capital, but core capital also includes certain qualifying supervisory goodwill and certain purchased credit card relationships. Supplementary capital currently includes cumulative and other preferred stock, mandatory convertible debt securities, subordinated debt, intermediate preferred stock and the ALLL. In addition, up to 45% of unrealized gains on available-for-sale equity securities with a readily determinable fair value may be included in tier 2 capital. The ALLL includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets, and the amount of supplementary capital that may be included as total capital cannot exceed the amount of core capital. At December 31, 2009, CFBank met each of its capital requirements.

					Excess		Capital
	Actual		Required		(Deficiency)		Actual			Required
	Capital		Capital		Amount		Percent			Percent
	(Dollars in thousands)
Tangible	$	24,073	$	4,069	$	20,004		8.9	%		1.5	%
Core (Leverage)		24,073		10,850		13,223		8.9	%		4.0	%
Risk-based		26,978		18,417		8,561		11.7	%		8.0	%

Limitation on Capital Distributions. OTS regulations impose limitations on all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. Under OTS regulations, CFBank may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of CFBank at the time of the its conversion from the mutual to stock form.

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Under OTS capital distribution regulations, an application to and the prior approval of the OTS is required before an institution makes a capital distribution if (1) the institution does not meet certain criteria for “expedited treatment” for applications under the regulations, (2) the total capital distributions by the institution for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, (3) the institution would be undercapitalized following the distribution or (4) the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution may still need to give advance notice to the OTS of the capital distribution.

At December 31, 2009, CFBank may not pay dividends without prior approval of the OTS. The Holding Company’s ability to pay dividends, repurchase common stock, service debt obligations and fund operations is dependent upon receipt of dividend payments from CFBank. Future dividend payments by CFBank to the Holding Company would be based upon future earnings and the approval of the OTS.

Branching. OTS regulations permit federally-chartered savings associations to branch nationwide under certain conditions. Generally, federal savings associations may establish interstate networks and geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment. Under the Community Reinvestment Act (the CRA), as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.

The CRA regulations establish an assessment system that bases a savings association’s rating on its actual performance in meeting community needs. In particular, the assessment system focuses on three tests: (i) a lending test, to evaluate the institution’s record of making loans in its assessment areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing and programs benefiting low- or moderate-income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. The applicability of these three tests to a particular savings association is based on its asset size.

The CRA requires the OTS, in connection with its examination of a savings association, to assess the association’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the association. The CRA also requires each institution to publicly disclose its CRA rating. CFBank’s CRA rating was “satisfactory” based on the latest assessment by the OTS as of December 2008.

Transactions with Related Parties. The authority of CFBank to engage in transactions with related parties or “affiliates” (i.e., any company that controls or is under common control with an institution, including the Holding Company and any non-savings institution subsidiaries that the Holding Company may establish) is limited by Sections 23A and 23B of the Federal Reserve Act. Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally requires that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. A savings association also is prohibited from extending credit to any affiliate engaged in activities not permitted for a bank holding company and may not purchase the securities of an affiliate (other than a subsidiary).

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Section 22(h) of the Federal Reserve Act (the FRA) restricts a savings association with respect to loans to directors, executive officers and principal stockholders. Under Section 22(h), loans to directors, executive officers and stockholders who control, directly or indirectly, 10% or more of voting securities of a savings association, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the savings association’s total unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and stockholders who directly or indirectly control 10% or more of voting securities of a stock savings association, and their respective related interests, unless such loan is approved in advance by a majority of the board of directors of the savings association. Any “interested” director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus. Furthermore, any loan, when aggregated with all other extensions of credit to that person, which exceeds $500,000 must receive prior approval by the board. Further, pursuant to Section 22(h), loans to directors, executive officers and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons except for extensions of credit made pursuant to a benefit or compensation program that is widely available to the institution’s employees and does not give preference to insiders over other employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Section 402 of the Sarbanes-Oxley Act of 2002 prohibits the extension of personal loans to directors and executive officers of issuers. The prohibition, however, does not apply to mortgages advanced by an insured depository institution, such as CFBank, which are subject to the insider lending restrictions of Section 22(h) of the FRA.

Enforcement. Under the FDIA, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring action against all “institution-affiliated parties,” including stockholders, and any attorneys, appraisers or accountants who knowingly or recklessly participate in a wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a supervisory directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance. Civil penalties apply to a wide range of violations and can amount to $25,000 per day, or $1 million or 1% of total assets, whichever is less per day in especially egregious cases. The FDIC also has the authority under the FDIA to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal and state laws also establish criminal penalties for certain violations.

Standards for Safety and Soundness. The FDIA requires each federal banking agency to prescribe standards for all insured depository institutions relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, fees and benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (Guidelines) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. The regulations under the FDIA establish deadlines for the submission and review of such safety and soundness compliance plans.

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Real Estate Lending Standards. The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that (i) are secured by real estate or (ii) are made for the purpose of financing the construction of improvements on real estate. The OTS regulations require each savings association to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying OTS guidelines, which include loan-to-value ratios for the different types of real estate loans. Associations are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The guidelines also list a number of lending situations in which exceptions to the loan-to-value standards are justified.

Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain, and is authorized to take other, supervisory actions against undercapitalized savings associations. For this purpose, a savings association would be placed in one of the following four categories based on the association’s capital: (i) well-capitalized; (ii) adequately capitalized; (iii) undercapitalized; or (iv) critically undercapitalized. When appropriate, the OTS can require corrective action by a savings association holding company under the “prompt corrective action” provision of federal law. At December 31, 2009, CFBank met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts. CFBank’s deposit accounts are insured by the FDIC, generally up to $250,000 effective until December 31, 2013. The FDIC issued a final rule establishing risk-based assessment rates that became effective April 1, 2009. Under those rules, initial assessment rates are determined by combining supervisory ratings with financial ratios, and long-term debt issuer ratings for large banks that have one or more rating assigned. Supervisory ratings are determined by regulators in areas of capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk (CAMELS). For most institutions, including CFBank, assessment rates are based on weighted average CAMELS component ratings and six financial ratios. The financial ratios are (1) the tier 1 leverage ratio; (2) loans past due 30-89 days to gross assets; (3) nonperforming assets to gross assets; (4) net loan charge-offs to gross assets; (5) net income before taxes to risk-weighted assets; and (6) the adjusted brokered deposit ratio. Future events which negatively affect any of these factors could cause an increase in FDIC premiums paid by CFBank.

On November 12, 2009, the FDIC Board of Directors approved a Notice of Proposed Rulemaking they had adopted on September 29, 2009 that required institutions to prepay, on December 31, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and all of 2010, 2011 and 2012. The assessment was based on a 5% annual growth rate in deposits from September 30, 2009, and included a 3 basis point (bp) increase in the assessment rate beginning in 2011. Based on these factors, the assessment paid by CFBank on December 31, 2009 totaled $1.4 million, and will be expensed over the coverage period.

On May 22, 2009, the FDIC announced a special assessment to restore the reserve ratio of the DIF. The special assessment was based on 5 bp of the insured institutions total regulatory assets, less Tier 1 capital as of June 30, 2009, and was collected on September 30, 2009. The amount of this special assessment paid by CFBank was $128,000.

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The increased premiums and special assessment had an adverse effect on the operating expenses and results of operations of CFBank and the Company for 2009. The level of bank closures in 2008 and 2009 may require the FDIC to increase assessments to maintain the reserve levels of the DIF in the future. Increases in assessment levels, or additional special assessments, would have an adverse effect on the operating results of CFBank and the Company.

As part of the regulatory initiatives in 2008, the FDIC implemented the Temporary Liquidity Guarantee Program to strengthen confidence and encourage liquidity in the banking system. This program is comprised of the Debt Guarantee Program (DGP) and the Transaction Account Guarantee Program (TAGP). The DGP guaranteed all newly issued senior unsecured debt (e.g., promissory notes, unsubordinated unsecured notes and commercial paper) up to prescribed limits issued by participating entities beginning on October 14, 2008 and continued through June 30, 2009. For eligible debt issued by that date, the FDIC will provide the guarantee coverage until the earlier of the maturity date of the debt or June 30, 2012. The TAGP offers full guarantee for noninterest-bearing deposit accounts held at FDIC-insured depository institutions. The unlimited deposit coverage is voluntary for eligible institutions and is in addition to the $250,000 FDIC deposit insurance per account that was included as part of the Emergency Economic Stabilization Act of 2008 (EESA). The TAGP coverage became effective on October 14, 2008 and will continue for participating institutions until June 30, 2010. CFBank is a participant in the TAGP. The additional expense related to this program was not significant to CFBank.

In addition to the assessment for deposit insurance, institutions are required to pay on bonds issued in the late 1980s by the Financing Corporation to recapitalize the predecessor to the Savings Association Insurance Fund (now a predecessor to the DIF).

In 2006, the Federal Deposit Insurance Reform Act of 2005 was signed into law. The statute increased the coverage limit for retirement accounts to $250,000. In addition, it allowed the FDIC to set the target reserve ratio between 1.15% and 1.50%. It also entitled eligible insured depository institutions that were in existence on and paid deposit insurance assessments prior to December 31, 1996, to share a one-time assessment credit based on their share of the aggregate 1996 assessment base. CFBank received a one-time assessment credit of $103,000, which was fully used to offset FDIC premiums in 2007 and 2008.

Under the Federal Deposit Insurance Reform Act of 2005, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operation or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Company does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Federal Home Loan Bank System. CFBank is a member of the FHLB of Cincinnati, which is one of the regional FHLBs composing the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions by providing a readily available, competitively priced source of funding which can be used for a wide variety of asset/liability purposes. CFBank, as a member of the FHLB of Cincinnati, is required to acquire and hold shares of capital stock in the FHLB of Cincinnati in an amount based on CFBank’s total assets and outstanding advances. The stock requirement is subject to change by the FHLB. CFBank was in compliance with the requirement with an investment in FHLB of Cincinnati stock at December 31, 2009 of $1.9 million. Any advances from a FHLB must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance.

The FHLBs are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of earnings that the FHLBs can pay as dividends to their members and could also result in the FHLBs’ imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future FHLB advances increased, CFBank’s net interest income would be adversely affected. Under the Gramm-Leach-Bliley Act (the GLB Act), membership in the FHLB is voluntary for all federally-chartered savings associations, such as CFBank. CFBank owns Class B shares which are redeemable with five-years’ notice.

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Further, there can be no assurance that the impact of recent or future legislation on the FHLB System will not also cause a decrease in the value of the FHLB stock held by CFBank. Asset quality risks and the application of certain accounting rules may negatively affect the capital levels of certain members of the FHLB System. If events occur that cause substantial doubt about the ultimate recoverability of our investment in FHLB stock, we could incur an impairment loss that would cause our earnings and stockholders’ equity to be reduced by the after-tax amount of the impairment charge.

Federal Reserve System. CFBank is subject to provisions of the FRA and the regulations of the Federal Reserve (FR) pursuant to which depositary institutions may be required to maintain reserves against their deposit accounts and certain other liabilities. Currently, reserves must be maintained against transaction accounts, primarily negotiable order of withdrawal accounts (generally known as “NOW” accounts) and regular checking accounts. Effective January 1, 2009, the FR regulations required that reserves be maintained in the amount of 3.0% of the aggregate of transaction accounts up to $44.4 million. The aggregate transaction accounts in excess of $44.4 million were subject to a reserve ratio of $1.023 million plus 10.0%. The FR regulations exempted $10.3 million of otherwise reservable balances from the reserve requirements, which exemption is adjusted by the FR at the end of each year. CFBank was in compliance with the foregoing reserve requirements during 2009. Effective December 31, 2009, reserves in the amount of 3% of aggregate transaction accounts up to $55.2 million must be maintained, and transaction accounts in excess of the $55.2 million are subject to a reserve ratio of $1.335 million plus 10%. The FR regulations exempt $10.7 million of otherwise reservable balances from the reserve requirements. Prior to October 1, 2008, required and excess reserve balances on deposit with the FRB did not earn interest. Because required reserves may be maintained in the form of vault cash, these reserves may reduce CFBank’s interest-earning assets. The balances maintained to meet the reserve requirements imposed by the FR may be used to satisfy liquidity requirements imposed by the OTS. FHLB System members are also authorized to borrow from the FRB discount window.

Privacy Regulations. The OTS issued regulations implementing the privacy protection provisions of the GLB Act. The regulations generally require that CFBank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to any customer at the time of establishing the customer relationship and annually thereafter. In addition, CFBank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. CFBank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

The USA PATRIOT Act. The USA PATRIOT Act of 2001 was enacted on October 26, 2001 and was renewed in substantially the same form on March 9, 2006. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. That statute contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. It also requires United States financial institutions to adopt policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. CFBank has adopted policies and procedures to meet those requirements.

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Holding Company Regulation

The Holding Company is a savings and loan holding company regulated by the OTS and, as such, is registered with and subject to OTS examination and supervision, as well as certain reporting requirements. In addition, the OTS has enforcement authority over the Holding Company and any of our non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings institution. Unlike bank holding companies, federal savings and loan holding companies are not subject to any regulatory capital requirements or to supervision by the FR System.

Permissible Activities of the Holding Company. Because the Holding Company acquired CFBank prior to May 4, 1999, it is permitted to engage in the following non-financial activities under the GLB Act: (i) furnishing or performing management services for a savings institution subsidiary; (ii) conducting an insurance agency or escrow business; (iii) holding, managing or liquidating assets owned or acquired from a savings institution subsidiary; (iv) holding or managing properties used or occupied by a savings institution subsidiary; (v) acting as trustee under a deed of trust; (vi) any other activity (a) that the FR, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956 (the BHC Act), unless the Director of the OTS, by regulation, prohibits or limits any such activity for savings and loan holding companies, or (b) in which multiple savings and loan holding companies were authorized by regulation to directly engage in on March 5, 1987; (vii) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such holding company is approved by the Director of the OTS; and (viii) any activity permissible for financial holding companies under Section 4(k) of the BHC Act.

Permissible activities which are deemed to be financial in nature or incidental thereto under said section 4(k) include: (i) lending, exchanging, transferring, investing for others or safeguarding money or securities; (ii) insurance activities or providing and issuing annuities, and acting as principal, agent or broker; (iii) financial, investment or economic advisory services; (iv) issuing or selling instruments representing interests in pools of assets that a bank is permitted to hold directly; (v) underwriting, dealing in or making a market in securities; (vi) activities previously determined by the FR to be closely related to banking; (vii) activities that bank holding companies are permitted to engage in outside of the United States; and (viii) portfolio investments made by an insurance company.

Restrictions Applicable to All Savings and Loan Holding Companies. As a savings and loan holding company, the Holding Company is prohibited by federal law from, directly or indirectly, acquiring: (i) control (as defined under HOLA) of another savings institution (or a holding company parent) without prior OTS approval; (ii) through merger, consolidation or purchase of assets, another savings institution or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company) without prior OTS approval; or (iii) control of any depository institution not insured by the FDIC (except through a merger with and into the holding company’s savings institution subsidiary that is approved by the OTS).

A savings and loan holding company also may not acquire as a separate subsidiary an insured institution that has a principal office outside of the state where the principal office of its subsidiary institution is located, except (i) in the case of certain emergency acquisitions approved by the FDIC, (ii) if such holding company controls a savings institution subsidiary that operated a home or branch office in such additional state as of March 5, 1987 or (iii) if the laws of the state in which the savings institution to be acquired is located specifically authorize a savings institution chartered by that state to be acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located or by a holding company that controls such a state-chartered association.

If the savings institution subsidiary of a federal savings and loan holding company fails to meet the QTL test set forth in Section 10(m) of the HOLA and regulations of the OTS, the holding company must register with the FR as a bank holding company under the BHC Act within one year of the savings institution’s failure to so qualify.

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Prohibitions Against Tying Arrangements. Federal savings banks are subject to the prohibitions of 12 U.S.C. §1972 on certain tying arrangements. A depository institution is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Securities Laws. The Company’s common stock is registered with the Commission under Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and, accordingly, we are subject to the reporting, proxy solicitation, and other requirements of the federal securities laws, including the Exchange Act.

Sarbanes-Oxley Act. As a public company, we are subject to the Sarbanes-Oxley Act, which implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing. The Sarbanes-Oxley Act includes a requirement that companies establish and maintain a system of internal control over financial reporting and that a company’s management provide an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to its independent accountants and that such accountants provide an attestation report with respect to management’s assessment of the effectiveness of the company’s internal control over financial reporting.

The independent auditor attestation requirement of the internal control rules becomes applicable to the Company as a “non-accelerated filer” for the year ending December 31, 2010, and costs associated with this attestation will be borne by the Company.

Emergency Economic Stabilization Act of 2008. EESA was enacted in October 2008. Pursuant to EESA, the U.S. Treasury has authority to, among other things, invest in financial institutions and purchase mortgages, mortgage-backed securities and certain other financial instruments from financial institutions, in an aggregate amount up to $700 billion, for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase Program, established as part of EESA, the U.S. Treasury announced a plan to invest up to $250 billion in certain eligible financial institutions in the form of non-voting, senior preferred stock (the Preferred Stock) initially paying quarterly dividends at a 5% annual rate. When the U.S. Treasury made such preferred investments in any company, it also received a 10-year warrant to acquire common shares having an aggregate market price of 15% of the amount of the senior preferred investment. Under the TARP Capital Purchase Program, dividend payments on, and repurchases of, a participating company’s outstanding preferred and common stock are subject to certain restrictions. For more information on these restrictions and the Company’s TARP Capital Purchase Program transaction, see Notes 15 and 16 to the Consolidated Financial Statements.

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For the period during which the U.S. Treasury holds equity securities issued under the TARP programs, companies participating in the programs must also comply with the standards for executive compensation and corporate governance enacted as part of EESA, as amended by the American Recovery and Reinvestment Act of 2009 (the ARRA) and the Interim Final Rule promulgated by the Secretary of the U.S. Treasury under 31 C.F.R. Part 30 (collectively, the TARP Compensation Standards). The TARP Compensation Standards, which generally apply to the institution’s most highly compensated employee(s) and/or senior executive officers (depending on the level of TARP funds received), include limitations on deductibility of compensation and on bonuses and incentive compensation, prohibit golden parachute payments, require recovery of bonuses and other incentive compensation paid under certain circumstances, and require compensation arrangements to be structured so as to avoid incentives to take excessive risks in managing the institution. The TARP Compensation Standards also require that stockholders of publicly-traded institutions that participate in the TARP programs be given a non-binding, advisory vote on the compensation paid by the institution to its named executive officers and require that a publicly-traded institution’s chief executive officer and chief financial officer provide to the Commission a certificate of compliance with all of the executive compensation requirements that are part of the legislation. The legislation permits the U.S. Treasury to seek to apply the TARP Compensation Standards retroactively to TARP participants, like the Company, whose transactions predated the enactment of the ARRA. It also includes a provision that would permit such a participant to repay the funds received by it from the U.S. Treasury rather than become subject to the ARRA requirements.

Quotation on Nasdaq^®. Our common stock is quoted on the Nasdaq^® Capital Market. In order to maintain such quotation, we are subject to certain corporate governance requirements, including: (i) a majority of our Board of Directors must be composed of independent directors; (ii) we are required to have an audit committee composed of at least three directors, each of whom is an independent director, as such term is defined by both the rules of the Nasdaq^® Capital Market and by Exchange Act regulations; (iii) our nominating committee and compensation committee must also be composed entirely of independent directors; and (iv) each of our audit committee and nominating committee must have a publicly available written charter.

Federal and State Taxation

Federal Taxation

General. We report income on a calendar year, consolidated basis using the accrual method of accounting, and we are subject to federal income taxation in the same manner as other corporations, with some exceptions discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company and CFBank. We are subject to a maximum federal income tax rate of 34% for 2009. At year-end 2009, the Company had net operating loss carryforwards of approximately $7.7 million which expire at various dates from 2024 to 2029. See Note 12 to the Consolidated Financial Statements for additional information.

Distributions. Under the Small Business Job Protection Act of 1996, if CFBank makes “non-dividend distributions” to the Company, such distributions will be considered to have been made from CFBank’s unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from CFBank’s supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in CFBank’s taxable income. Non-dividend distributions include distributions in excess of CFBank’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of CFBank’s current or accumulated earnings and profits will not be so included in CFBank’s taxable income.

The amount of additional taxable income triggered by a non-dividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if CFBank makes a non-dividend distribution to the Holding Company, approximately one and one-half times the amount of such distribution (but not in excess of the amount of the reserves described in the previous paragraph) would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. CFBank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

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Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes a tax on alternative minimum taxable income (AMTI) at a rate of 20%. AMTI is federal taxable income before net operating loss adjusted by certain tax preference amounts. AMTI is increased by an amount equal to 75% of the amount by which the Company’s adjusted current earnings exceed its AMTI. Only 90% of AMTI can be offset by alternative minimum tax net operating loss carryovers. The Company currently has alternative minimum tax net operating losses totaling $2.4 million that originated in tax year 2004, $324,000 that originated in tax year 2005, and $4.7 million that originated in tax year 2009.

Ohio Taxation

The Holding Company and Ghent Road, Inc. are subject to the Ohio corporate franchise tax, which is a tax measured by both net earnings and net worth. In general, the tax liability is the greater of 5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or 0.4% times taxable net worth. The minimum tax is either $50 or $1,000 per year based on the size of the corporation, and maximum tax liability as measured by net worth is limited to $150,000 per year.

A special litter tax also applies to all corporations, including the Holding Company and Ghent Road, Inc., subject to the Ohio corporate franchise tax. This litter tax does not apply to “financial institutions.” If the franchise tax is paid on the net income basis, the litter tax is equal to 0.11% of the first $50,000 of computed Ohio taxable income and 0.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax is paid on the net worth basis, the litter tax is equal to 0.014% times taxable net worth.

Certain holding companies will qualify for complete exemption from the net worth tax if certain conditions are met. The Holding Company will most likely meet these conditions, and thus, calculate its Ohio franchise tax on the net income basis only. When the Holding Company files as a qualifying holding company, Ghent Rd., Inc. must make an adjustment to its net worth computation.

CFBank is a “financial institution” for State of Ohio tax purposes. As such, CFBank is subject to the Ohio corporate franchise tax on “financial institutions,” which is imposed annually at a rate of 1.3% of CFBank’s apportioned book net worth, determined in accordance with U.S. generally accepted accounting principles, less any statutory deductions. As a “financial institution,” CFBank is not subject to any tax based upon net income or net profits imposed by the State of Ohio.

Delaware Taxation

As a Delaware corporation not earning income in Delaware, the Company is exempted from Delaware corporate income tax, but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

Available Information

Our website address is www.CFBankonline.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after we electronically file such reports with the Commission. These reports can be found on our website under the caption “Investor Relations — SEC Filings.” Investors also can obtain copies of our filings from the Commission’s website at www.sec.gov.

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Item 1A. Risk Factors.

The continuation of the current economic slowdown or further deterioration of economic conditions in Ohio could hurt our business.

We lend primarily to consumers and businesses in Ohio. Businesses and consumers are affected by economic, regulatory and political trends which all may impact the borrower’s ability to repay loans. In addition, approximately 80% of our loans are secured by real estate and changes in the market for real estate can result in inadequate collateral to secure a loan. Over the past two years, the sustained economic slowdown has, in many cases, negatively affected real estate values. This has resulted in increases in nonperforming assets and loan charge-offs. If these economic trends continue or worsen, additional borrowers could default on their loans, resulting in continued high levels of loan charge-offs and decreased profitability.

The allowance for loan losses may not be adequate to cover actual losses.

The ALLL is maintained to provide for probable incurred credit losses. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the ALLL, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our ALLL may not be sufficient to cover probable losses in our loan portfolio, resulting in additions to our allowance. Further, federal regulatory agencies, as an integral part of their examination process, review our loans and ALLL and could require an increase in the allowance. The additions to our ALLL would be made through increased provision for loan losses, which would reduce our income and could materially and adversely affect the Company’s earnings and profitability.

The level of commercial real estate and multi-family loans in our portfolios may expose us to increased lending risks and additional loan losses.

Commercial real estate and multi-family residential loans totaled $139.1 million, or 58.3% of the loan portfolio, at December 31, 2009. Because payments on loans secured by commercial real estate and multi-family properties are dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent than other types of loans to adverse conditions in the real estate market or the economy. These loans also have larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. Some of our borrowers also have more than one commercial real estate or multi-family residential loan outstanding with us. Additionally, nonperforming loans in these categories totaled $11.3 million at December 31, 2009, and increased substantially in 2009 as a result of the continuing adverse economic environment. Further decline in the quality of these loans could expose us to significant losses which could materially and adversely affect the Company’s earnings and profitability.

Our business is subject to interest rate risk and variations in market interest rates may negatively affect our financial performance.

Management is unable to accurately predict future market interest rates, which are affected by many factors, including, but not limited to: inflation; recession; changes in employment levels; changes in the money supply; and domestic and international disorder and instability in domestic and foreign financial markets. Changes in the interest rate environment may reduce the Company’s profits. Net interest income is a significant component of our net income, and consists of the difference, or “spread”, between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Although certain interest-earning assets and interest-bearing liabilities may have similar maturities or periods to which they reprice, they may react in different degrees to changes in market interest rates. In addition, residential

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mortgage loan origination volumes are affected by market interest rates on loans; rising interest rates generally are associated with a lower volume of loan originations, while falling interest rates are usually associated with higher loan originations. Our ability to generate gains on sales of mortgage loans is significantly dependent on the level of originations. Cash flows are affected by changes in market interest rates. Generally, in rising interest rate environments, loan prepayment rates are likely to decline, and in falling interest rate environments, loan prepayment rates are likely to increase. A majority of our commercial, commercial real estate and multi-family residential real estate loans are adjustable rate loans and an increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest on and principal of their obligations, especially borrowers with loans that have adjustable rates of interest. Changes in interest rates, prepayment speeds and other factors may also cause the value of our loans held for sale to change. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, loan volume, asset quality, value of loans held for sale and cash flows, as well as the market value of our securities portfolio and overall profitability.

We face strong competition from other financial institutions, financial service companies and other organizations offering services similar to those offered by us, which could result in our not being able to sustain or grow our loan and deposit businesses.

We conduct our business operations primarily in Summit, Columbiana, and Franklin Counties, Ohio, and makes loans generally throughout Ohio. Increased competition within these markets may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include other savings associations, national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization, and financial intermediaries not subject to bank regulatory restrictions, have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to sustain the current loan and deposit levels or continue our loan and deposit growth, and our business, financial condition and prospects may be negatively affected.

We rely, in part, on external financing to fund our operations, and any lack of availability of such funds in the future could adversely impact our business strategies and future prospects.

We rely on deposits, advances from the FHLB and other borrowings to fund our operations. 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. If CFBank’s capital levels fall below well-capitalized levels, regulatory restrictions can limit our ability to use brokered deposits and above-market pricing of deposits to increase funding. CFBank’s borrowing capacity decreased in 2009 primarily due to deterioration in the credit performance of CFBank’s loan portfolio, which resulted in an increase in collateral maintenance requirements by the FHLB. Future tightening in overall credit policies by the FHLB or FRB, deterioration in the credit performance of CFBank’s loan portfolio, or a decline in the balances of pledged collateral, may further reduce CFBank’s borrowing capacity. We also have previously issued junior subordinated debentures to raise additional capital to fund our operations. We may seek additional debt or equity capital in the future to achieve our long-term business objectives. The sale of equity or convertible debt securities in the future may be dilutive to our existing stockholders. Debt refinancing arrangements may require us to pledge some of our assets and enter into covenants that would restrict our ability to incur further indebtedness. Additional financing sources, if sought, might be unavailable to us or, if available, could be on unfavorable terms. If additional financing sources are unavailable, or not available on reasonable terms, our business strategies and future prospects could be adversely impacted.

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We are subject to extensive regulation that could have adverse effects.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. We believe that we are in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Any change in the laws or regulations applicable to the Company, or in banking regulators’ supervisory policies or examination procedures, whether by the OTS, the FDIC, the FHLB System, the FRB System, the Congress or other federal or state regulators, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

CFBank’s ability to pay dividends is subject to regulatory limitations which, to the extent the Holding Company requires such dividends in the future, may affect the Holding Company’s ability to service its debt, pay its obligations as they become due, and pay dividends.

The Holding Company is a separate legal entity from its subsidiaries and does not have significant operations of its own. The Holding Company’s principal source of funds for dividend payments is dividends received from CFBank. The availability of dividends from CFBank is limited by various statutes and regulations. It is possible, depending upon the financial condition of CFBank and other factors, that the OTS, as CFBank’s primary regulator, could assert that the payment of dividends or other payments by CFBank are an unsafe or unsound practice. In the event CFBank is unable to pay dividends to the Holding Company, the Holding Company may not be able to service its debt, pay its obligations as they become due, or pay dividends on its common stock. Consequently, the inability to receive dividends from CFBank could adversely affect the Company’s financial condition, results of operations and prospects.

Our participation in the U.S. Treasury’s TARP Capital Purchase Program, which includes restrictions on the ability to pay dividends or repurchase outstanding common stock, as well as restrictions on executive compensation, may act to depress the market value of the Company’s common stock and hinder our ability to attract and retain well-qualified executives.

Pursuant to the terms of the Securities Purchase Agreement between the Company and the U.S. Treasury, the ability to declare or pay dividends on any of the Company’s common stock is limited to $0.05 per share per quarter. Specifically, the Company is unable to declare or pay dividends on common stock if the Company is in arrears on the payment of dividends on the Preferred Stock issued to the U.S. Treasury. In addition, the ability to repurchase outstanding common stock is restricted. The approval of the U.S. Treasury generally is required for the Company to make any stock repurchase (other than purchases of common stock in connection with the administration of any employee benefit plan in the ordinary course of business and consistent with past practice) unless all of the Preferred Stock has been redeemed or transferred by the U.S. Treasury to unaffiliated third parties. Further, outstanding common stock may not be repurchased if the Company is in arrears on the payment of Preferred Stock dividends. The restriction on the Company’s ability to pay dividends may depress the market price of the Company’s common stock.

As a participant under the TARP Capital Purchase Program, the Company must comply with the executive compensation and corporate governance standards imposed by the ARRA and the TARP Compensation Standards for as long as the U.S. Treasury holds any securities acquired from the Company pursuant to the Securities Purchase Agreement or upon exercise of the warrant issued to the U.S. Treasury as part of our participation in the TARP Capital Purchase Program (the “Warrant”), excluding any period during which the U.S. Treasury holds only the Warrant. In addition, the restrictions on the Company’s ability to compensate senior executives in relationship to executive compensation at companies that are not recipients of TARP funds may limit the Company’s ability to recruit and retain senior executives.

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The Company’s participation in the U.S. Treasury’s TARP Capital Purchase Program could adversely affect the Company’s financial condition and results of operations.

The U.S. Treasury’s ability to change the terms, rules or requirements of the TARP Capital Purchase Program could adversely affect the Company’s financial condition and results of operations.

If we are unable to redeem the Preferred Stock after five years, the cost of this capital will increase substantially.

If we are unable to redeem the Preferred Stock prior to February 13, 2013, the cost of this capital will increase substantially on that date, from 5.0% per annum to 9.0% per annum. Depending on the Company’s financial condition at the time, this increase in the annual dividend rate on the Preferred Stock could have a material negative effect on liquidity and results of operations.

The Preferred Stock reduces net income available to holders of the Company’s common stock and earnings per share of common stock, and the Warrant issued to the U.S. Treasury may be dilutive to holders of the Company’s common stock.

While the additional capital raised through participation in the U.S. Treasury’s TARP Capital Purchase Program provides further funding for our business, our participation has increased the number of diluted outstanding common shares and carries a preferred dividend. The dividends declared and the accretion of discount on the Preferred Stock reduces the net income available to holders of the Company’s common stock and earnings per common share. The Preferred Stock will also receive preferential treatment in the event of the Company’s liquidation, dissolution or winding up. Additionally, the ownership interest of the existing holders of the Company’s common stock will be diluted to the extent the Warrant, issued to the U.S. Treasury in conjunction with the sale to the U.S. Treasury of the Preferred Stock, is exercised. The common stock underlying the Warrant represented approximately 8.2% of total common shares outstanding as of March 15, 2010. Although the U.S. Treasury has agreed not to vote any of the common stock it receives upon exercise of the Warrant, a transferee of any portion of the Warrant, or of any common stock acquired upon exercise of the Warrant, is not bound by this restriction.

If we fail to continue to meet all applicable continued listing requirements of the Nasdaq^® Capital Market and Nasdaq^® determines to delist our common stock, the market liquidity and market price of our common stock could decline, and our ability to access the capital markets could be negatively affected.

Our common stock is listed on the Nasdaq^® Capital Market. To maintain that listing, we must satisfy minimum financial and other continued listing requirements. For example, Nasdaq^® rules require that we maintain a minimum closing bid price of $1.00 per share for our common stock. Recently, our common stock has from time to time closed below the minimum bid price, and may fall below this requirement in the future. If our stock price falls below a$1.00 closing bid price for at least 30 consecutive trading days, or we fail to meet other requirements for continued listing on the Nasdaq^® Capital Market, and we are unable to cure the events of noncompliance in a timely or effective manner, our common stock could be delisted from the Nasdaq^® Capital Market. Any such delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease. In addition, the delisting of our common stock could materially adversely affect our access to the capital markets. Any limitation on market liquidity or reduction in the price of our common stock as a result of that delisting could adversely affect our ability to raise capital on terms acceptable to us, or at all.

40

Item 2. Properties.

We conduct our business through four offices located in Summit, Columbiana, and Franklin Counties, Ohio. The net book value of the Company’s properties totaled $6.5 million at December 31, 2009. Ghent Road, Inc. owned land located adjacent to the Fairlawn, Ohio office held for future development that totaled $702,000 at year-end 2009. All properties are owned. Smith Ghent LLC owns the Fairlawn office and leases it to CFBank.

Location

Administrative/Home Office:

2923 Smith Rd

Fairlawn, Ohio 44333

Branch Offices:

601 Main Street

Wellsville, Ohio 43968

49028 Foulks Drive

East Liverpool, Ohio 43920

7000 N. High St

Worthington, Ohio 43085

Item 3. Legal Proceedings.

We may, from time to time, be involved in various legal proceedings in the normal course of business. Periodically, there have been various claims and lawsuits involving CFBank, such as claims to enforce liens, condemnation proceedings on properties in which CFBank holds security interests, claims involving the making and servicing of real property loans and other issues incident to our business.

We are not a party to any other pending legal proceeding that management believes would have a material adverse effect on our financial condition or operations, if decided adversely to us.

No tax shelter penalty was assessed against the Company or any of our subsidiaries by the Internal Revenue Service in calendar year 2009 or at any other time in connection with any transaction deemed by the Internal Revenue Service to be abusive or to have a significant tax avoidance purpose.

Item 4. Reserved.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

During the fiscal quarter ended December 31, 2009, the Company did not repurchase or sell any of its securities.

41

The market information required by Item 201(a), the stockholders information required by Item 201(b) and the dividend information required by Item 201(c) of Regulation S-K are incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act; the information appears under the caption “Market Prices and Dividends Declared” on page 24 and in “Note 17 — Regulatory Capital Matters” at page 53 therein, respectively.

The equity compensation plan information required by Item 201(d) of Regulation S-K is set forth herein under Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 6 Selected Financial Data.

Information required by Item 301 of Regulation S-K is incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act; the information appears under the caption “Selected Financial and Other Data” at page 4 therein.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Information required by Item 303 of Regulation S-K is incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” at page 4 therein.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information required by Item 305 of Regulation S-K is incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act; the information appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” at page 4 therein.

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements required by Article 8 of Regulation S-X are incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act. The consolidated financial statements appear under the caption “Financial Statements” at page 25 therein and include the following:

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

42

Item 9A(T). Controls and Procedures.

Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-14(c). Management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act.

Management’s Report on Internal Control Over Financial Reporting. Information required by Item 308T of Regulation S-K is incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the information appears under the caption “Management’s Report on Internal Control over Financial Reporting” at page 25 therein.

Changes in internal control over financial reporting. We made no significant changes in our internal controls or in other factors that could significantly affect these controls in the fourth quarter of 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors. Information required by Item 401 of Regulation S-K with respect to our directors and committees of the Board of Directors is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “PROPOSAL 1. ELECTION OF DIRECTORS.”

43

Executive Officers of the Registrant

	Age at
	December 31,		Position held with the Holding Company
Name	2009		and/or Subsidiaries
Mark S. Allio		55	Chairman, President and Chief Executive Officer, Holding Company; Chairman and Chief Executive Officer, CFBank; Director and President, Ghent Road, Inc.; President, Smith Ghent LLC
Raymond E. Heh		67	President and Chief Operating Officer, CFBank
Eloise L. Mackus		59	Executive Vice President, General Counsel and Secretary, Holding Company and CFBank; Director and Secretary, Ghent Road Inc.; Secretary, Smith Ghent LLC
Therese Ann Liutkus		50	Treasurer and Chief Financial Officer, Holding Company and CFBank; Director and Treasurer, Ghent Road Inc.; Treasurer, Smith Ghent LLC

Mark S. Allio, Chairman, President and Chief Executive Officer of the Holding Company and Chairman and Chief Executive Officer of CFBank, joined us in February 2005 and has more than 30 years of banking and banking-related experience, including service as President and Chief Executive Officer of Rock Bank in Livonia, Michigan, an affiliate of Quicken Loans, Inc., from April 2003 to December 2004. He was previously President of Third Federal Savings, MHC in Cleveland, Ohio, a multi-billion dollar thrift holding company from January 2000 to December 2002 and Chief Financial Officer of Third Federal from 1988 through 1999.

Raymond E. Heh, President and Chief Operating Officer, joined CFBank in June 2003. Formerly, Mr. Heh held numerous positions at Bank One Akron NA including Chairman, President and CEO. He was with Bank One Akron NA for 18 years and has over 40 years of experience in the commercial banking industry. Mr. Heh is a graduate of The Pennsylvania State University.

Eloise L. Mackus is Executive Vice President, General Counsel and Secretary of the Holding Company and CFBank and has over 20 years of banking and banking-related experience. Prior to joining us in July 2003, Ms. Mackus practiced in law firms in Connecticut and Ohio and was the Vice President and General Manager of International Markets for The J. M. Smucker Company. Ms. Mackus completed a bachelor’s degree at Calvin College and a juris doctorate at The University of Akron School of Law.

Therese Ann Liutkus joined the Holding Company and CFBank as Chief Financial Officer in November 2003. Prior to that time, Ms. Liutkus was Chief Financial Officer of First Place Financial Corp. and First Place Bank for six years, and she has more than 20 years of banking experience. Ms. Liutkus is a certified public accountant and has a bachelor’s degree in accounting from Cleveland State University.

44

Compliance with Section 16(a) of the Exchange Act. Information required by Item 405 of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “ADDITIONAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS — SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.” Copies of Section 16 reports, Forms 3, 4 and 5, are available on our website, www.CFBankonline.com under the caption “Investor Relations — Section 16 Filings.”

Code of Ethics. We have adopted a Code of Ethics and Business Conduct, which meets the requirements of Item 406 of Regulation S-K and applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer. Since the Company’s inception in 1998, we have had a code of ethics. We require all directors, officers and other employees to adhere to the Code of Ethics and Business Conduct in addressing the legal and ethical issues encountered in conducting their work. The Code of Ethics and Business Conduct requires that our employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. All employees are required to attend annual training sessions to review the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is available on our website, www.CFBankonline.com under the caption “Investor Relations — Corporate Governance.” Disclosures of amendments to or waivers with regard to the provisions of the Code of Ethics and Business Conduct also will be posted on the Company’s website.

Corporate Governance. Information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “PROPOSAL 1. ELECTION OF DIRECTORS.”

Item 11. Executive Compensation.

Information required by Item 402 of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “COMPENSATION OF EXECUTIVE OFFICERS.”

Information required by Item 407 (e)(4) and (e)(5) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS — COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE” and “COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and Management. Information required by Item 403 of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “STOCK OWNERSHIP.”

Related Stockholder Matters — Equity Compensation Plan Information. Information required by Item 201(d) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “EQUITY COMPENSATION PLAN INFORMATION,” and to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rule 14a-3(b) and (c) of the Exchange Act, where the information appears under the caption “Note 14 — Stock-Based Compensation” at page 50 therein.

45

See Part II, Item 8, Financial Statements, Notes 1 and 14, for a description of the principal provisions of our equity compensation plans. The information required by Item 8 is incorporated by reference to our 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the financial statements appear under the caption “Financial Statements” at page 25 therein.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information required by Items 404 and 407(a) of Regulation S-K is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “ADDITIONAL INFORMATION ABOUT DIRECTORS AND OFFICERS — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”

Item 14. Principal Accounting Fees and Services.

Information required by Item 9(e) of Schedule 14A pursuant to this Item 14 is incorporated by reference to our definitive Proxy Statement for our 2010 Annual Meeting of Stockholders filed with the Commission on or about April 5, 2010, under the caption “PROPOSAL 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.”

PART IV

Item 15. Exhibits, Financial Statement Schedules

See Exhibit Index at page 49 of this Report on Form 10-K.

46

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CENTRAL FEDERAL CORPORATION
 

/s/ Mark S. Allio  

Mark S. Allio 

Chairman, President and Chief Executive Officer 

Date: March 29, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Mark S. Allio Mark S. Allio	Chairman of the Board, President and Chief Executive Officer (principal executive officer)	March 29, 2010
/s/ Therese Ann Liutkus Therese Ann Liutkus, CPA	Treasurer and Chief Financial Officer (principal accounting and financial officer)	March 29, 2010
/s/ Jeffrey W. Aldrich Jeffrey W. Aldrich	Director	March 29, 2010
/s/ Thomas P. Ash Thomas P. Ash	Director	March 29, 2010
/s/ William R. Downing William R. Downing	Director	March 29, 2010
/s/ Gerry W. Grace Gerry W. Grace	Director	March 29, 2010
/s/ Jerry F. Whitmer Jerry F. Whitmer	Director	March 29, 2010

47

EXHIBIT INDEX

Exhibit No.			Description of Exhibit
	3.1		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)
	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)
	10.1	*	1999 Stock-Based Incentive Plan (as Amended and Restated) (incorporated by reference to Appendix A to the registrant’s Definitive Proxy Statement filed with the Commission on March 21, 2000)
	10.2	*	Central Federal Corporation 2009 Equity Compensation Plan (incorporated by reference to Appendix A to the registrant’s Definitive Proxy Statement filed with the Commission on March 31, 2009)
	10.3		Letter Agreement, dated December 5, 2008, including Securities Purchase Agreement — Standard Terms, between the Registrant and the United States Department of the Treasury (incorporated by reference to Exhibit 10.1 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 Earnings
	13.1		Annual Report to Security Holders for the Fiscal Year Ended December 31, 2009
	21.1		Subsidiaries of the Registrant
	23.1		Consent of Independent Registered Public Accounting Firm
	31.1		Rule 13a-14(a) Certifications of the Chief Executive Officer
	31.2		Rule 13a-14(a) Certifications of the Chief Financial Officer
	32.1		Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer
	99.1		31 C.F.R. Section 30.15 Certification of Principal Executive Officer
	99.2		31 C.F.R. Section 30.15 Certification of Principal Financial Officer

* Management contract or compensation plan or arrangement identified pursuant to Item 15 of Form 10-K

48

EX-11.1

Exhibit 11.1

Computation of Per Share Earnings

The information regarding Computation of Per Share Earnings is incorporated by reference to the Company’s 2009 Annual Report to Stockholders distributed to stockholders and furnished to the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the computation appears under the caption “Note 21 — Earnings (Loss) Per Common Share” at page 58 therein.

EX-13.1

Exhibit 13.1

Annual Report to Security Holders for the Fiscal Year ended December 31, 2009

2009 Annual Report

TABLE OF CONTENTS

3	MESSAGE TO STOCKHOLDERS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4	Selected Financial and Other Data
6	Forward-Looking Statements
6	General
7	Financial Condition
12	Comparison of Results of Operations for 2009 and 2008
17	Comparison of Results of Operations for 2008 and 2007
21	Quantitative and Qualitative Disclosures about Market Risk
22	Liquidity and Capital Resources
23	Impact of Inflation
23	Critical Accounting Policies
24	Market Prices and Dividends Declared
	FINANCIAL STATEMENTS
25	Management’s Report on Internal Control Over Financial Reporting
26	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
27	Consolidated Financial Statements
33	Notes to Consolidated Financial Statements
61	BOARD OF DIRECTORS AND OFFICERS
61	CFBANK OFFICE LOCATIONS
	CORPORATE DATA
61	Annual Report
61	Annual Meeting
61	Stockholder Services

|   page 1

MESSAGE TO STOCKHOLDERS

Dear Fellow Stockholders:

The values of my childhood call me to speak openly and honestly, regardless of the message. After all, good news and bad news travel at the same speed. Unfortunately, this annual report to stockholders is a limited way to communicate, without the more immediate contact that leads to the best understanding of our business. During the coming year, we will find ways to keep you informed as frequently as possible, because even though we live in an electronic world, information regarding small community banks is still relatively inefficient.

Here are the facts. First, the financial tsunami of the 2008 and 2009 “Great Recession” reached our financial shores in September 2009. The rapid decline in the U.S. economy and, more importantly, in the Ohio economy, led to a sudden wave of negative factors which directly and immediately resulted in business contractions, higher vacancy rates and lower valuations for both residential and commercial real estate. Add to that the impact of higher unemployment, which directly affected consumers’ ability to meet their obligations and indirectly affected their confidence in the economic future. As a result of these negative factors and their effect on consumers, our Company provided a $9.9 million increase in the allowance for loan losses and wrote off $5.9 million in loan balances. Second, operating expenses increased over the previous year due to a 529% increase in FDIC insurance premiums and higher professional fees associated with problem loans. And third, due to the detrimental effect of the current economic condition on our performance, and uncertainty regarding how future economic conditions will affect our future performance, we recorded a $4.3 million valuation allowance to reduce our net deferred tax asset to zero, amplifying the loss even further. Going forward we will recognize the tax benefits as we recognize future taxable income.

Through it all, the Company remains well capitalized and core earnings continue to improve. CFBank’s core earnings — if we exclude the credit write-offs and the increase in non-controllable expense such as FDIC insurance and certain professional fees — were approximately $2 million for 2009.

As investors, we must all focus on the results of the Company, but also look inside the Company to determine if the basic premise of the business is relevant. To this I would answer in the affirmative. I believe our business model is not only well accepted, but is also substantially relevant for the future. Here is why. During 2009 and despite hardships, the Company remained well capitalized and originated over $105 million in new loans. The mortgage team’s first full year of operations resulted in a 304% increase in gains on sales of loans, which totaled $642,000. Our core controllable noninterest expense actually decreased during the year by $244,000. We will continue to be stewards of the financial resources provided to our Company.

Going forward, what should we as investors in community banks consider? First and foremost is a determination whether the Company has the capital and financial resources to weather the existing financial storm. As stated, we continue to remain well capitalized and generate core earnings to support the Company. Second, we, as investors, need to determine if the factors that led to the recession have ended or if the economy will continue a downward trend and, thus, affect our Company. Finally, as this storm recedes, are we poised to continue building for the future? Since I have not been given the ability to predict the future, all I can say is that we believe we are prepared for the future economic climate. We have diligently managed CFBank’s interest rate risk position and are poised for changes in upward movements of the U.S. Treasury yield curve. Our business plan remains relevant. I believe our niche focus and sense of urgency in execution will be attractions to many business and individual customers. Our belief in the viability of our niche position has resulted in our recent characterization of that position to consumers as “banking reinvented.” We have dedicated professionals at our Company who daily perform their duties without employment contracts or excessive compensation packages, and who are passionate about meeting the banking needs of our commercial and individual customers. We will be successful over the long-term.

There remain substantial challenges ahead for all banks. As of September 30, 2009, the FDIC Deposit Insurance Fund balance was a negative $8.243 billion. I estimate that, based on the total of all insured deposits as of that date, the FDIC must assess insurance premiums on all banks in the amount of $75 billion to absorb the deficit and have a fund balance of 1.25% of insurable deposits. This alone will temper the growth in core earnings over the coming years. Also, higher capital ratio requirements will challenge bank management to create reasonable returns without taking on additional volatility and risk. Our plan is to continue to focus on our niche business model, and add noninterest income to create returns without the need for additional capital.

In summary, 2009 was extremely difficult on you, as a stockholder, as well as us, as managers and stewards. Our goal is to survive, then to thrive. We have accomplished the former and will execute on the latter. Along the way, we have been reinventing banking.

Mark S. Allio
Chairman, President and CEO

|   page 3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL AND OTHER DATA

The information in the following tables should be read in conjunction with our consolidated financial statements, the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report.

SELECTED FINANCIAL CONDITION DATA:

	AT DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009		2008		2007		2006		2005
Total assets	$	273,742	$	277,781	$	279,582	$	236,028	$	173,021
Cash and cash equivalents		2,973		4,177		3,894		5,403		2,972
Securities available for sale		21,241		23,550		28,398		29,326		30,872
Loans held for sale		1,775		284		457		2,000		2,419
Loans, net(1)		231,105		233,922		230,475		184,695		124,026
Allowance for loan losses		7,090		3,119		2,684		2,109		1,495
Nonperforming assets		13,234		2,412		574		297		800
Foreclosed assets		—		—		86		—		—
Other intangible assets		169		—		—		—		—
Deposits		211,088		207,647		194,308		167,591		127,588
FHLB advances		32,007		29,050		49,450		32,520		22,995
Subordinated debentures		5,155		5,155		5,155		5,155		5,155
Total stockholders’ equity		23,227		33,075		27,379		29,085		16,081

SUMMARY OF OPERATIONS:

	FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009			2008		2007			2006			2005
Total interest income	$	14,446		$	16,637	$	17,523		$	13,654		$	8,691
Total interest expense		5,947			7,935		9,795			6,889			3,723
Net interest income		8,499			8,702		7,728			6,765			4,968
Provision for loan losses		9,928			917		539			820			674
Net interest income after provision for loan losses		(1,429	)		7,785		7,189			5,945			4,294
Noninterest income:
Net gain (loss) on sale of securities		—			54		—			(5	)		—
Other		1,377			894		728			828			866
Total noninterest income		1,377			948		728			823			866
Impairment loss on goodwill and intangibles		—			—		—			—			1,966
Noninterest expense		8,262			7,749		7,997			6,849			6,861
Income (loss) before income taxes		(8,314	)		984		(80	)		(81	)		(3,667	)
Income tax expense (benefit)		1,577			261		(63	)		(44	)		(377	)
Net income (loss)	$	(9,891	)	$	723	$	(17	)	$	(37	)	$	(3,290	)
Net income (loss) available to common stockholders	$	(10,298	)	$	694	$	(17	)	$	(37	)	$	(3,290	)

(See footnotes on next page.)

page 4   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

SELECTED FINANCIAL RATIOS AND OTHER DATA:

	AT OR FOR THE YEAR ENDED DECEMBER 31,
	2009			2008			2007			2006			2005
Performance Ratios: (2) (10)
Return on average assets		(3.45	%)		0.26	%		(0.01	%)		(0.02	%)		(2.02	%)
Return on average equity		(32.95	%)		2.68	%		(0.06	%)		(0.12	%)		(17.71	%)
Average yield on interest-earning assets (3)		5.34	%		6.41	%		7.23	%		6.84	%		5.87	%
Average rate paid on interest-bearing liabilities		2.50	%		3.38	%		4.50	%		4.00	%		2.75	%
Average interest rate spread (4)		2.84	%		3.03	%		2.73	%		2.84	%		3.12	%
Net interest margin, fully taxable equivalent (5)		3.14	%		3.35	%		3.19	%		3.39	%		3.35	%
Interest-earning assets to interest-bearing liabilities		114.20	%		110.90	%		111.47	%		115.83	%		109.46	%
Efficiency ratio (6)		83.60	%		80.75	%		94.57	%		90.20	%		151.30	%
Noninterest expense to average assets		2.88	%		2.79	%		3.08	%		3.20	%		5.43	%
Common stock dividend payout ratio		n/m			125.00	%		n/m			n/m			n/m
Capital Ratios: (2)
Equity to total assets at end of period		8.48	%		11.91	%		9.79	%		12.32	%		9.29	%
Average equity to average assets		10.47	%		9.72	%		10.81	%		13.89	%		11.43	%
Tangible capital ratio (9)		8.90	%		9.20	%		8.50	%		9.80	%		6.90	%
Core capital ratio (9)		8.90	%		9.20	%		8.50	%		9.80	%		6.90	%
Total risk-based capital ratio (9)		11.70	%		11.60	%		11.00	%		12.60	%		10.10	%
Asset Quality Ratios: (2)
Nonperforming loans to total loans (7)		5.56	%		1.02	%		0.21	%		0.16	%		0.64	%
Nonperforming assets to total assets (8)		4.83	%		0.87	%		0.21	%		0.13	%		0.46	%
Allowance for loan losses to total loans		2.98	%		1.32	%		1.15	%		1.13	%		1.19	%
Allowance for loan losses to nonperforming loans (7)		53.57	%		129.31	%		550.00	%		710.10	%		186.88	%
Net charge-offs (recoveries) to average loans		2.48	%		0.21	%		(0.02	%)		0.13	%		0.14	%
Per Share Data:
Basic earnings (loss) per common share	$	(2.51	)	$	0.16		$	—		$	(0.01	)	$	(1.47	)
Diluted earnings (loss) per common share		(2.51	)		0.16			—			(0.01	)		(1.47	)
Dividends declared per common share		—			0.20			0.28			0.36			0.36
Tangible book value per common share at end of period		3.91			6.36			6.17			6.40			7.17

(1)	Loans, net represents gross loans receivable net of the allowance for loan losses, loans in process and deferred loan origination fees.
(2)	Asset quality ratios and capital ratios are end-of-period ratios. All other ratios are based on average monthly balances during the indicated periods.
(3)	Calculations of yield are presented on a taxable equivalent basis using the federal income tax rate of 34%.
(4)	The average interest rate spread represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.
(5)	The net interest margin represents net interest income as a percent of average interest-earning assets.
(6)	The efficiency ratio equals noninterest expense (excluding amortization of intangibles) divided by net interest income plus noninterest income (excluding gains or losses on securities transactions).
(7)	Nonperforming loans consist of nonaccrual loans and other loans 90 days or more past due.
(8)	Nonperforming assets consist of nonperforming loans, other repossessed assets and real estate owned (REO).
(9)	Regulatory capital ratios of CFBank.
(10)	Performance ratios for the year ended December 31, 2005 were significantly affected by the pre-tax $2.0 million impairment loss on goodwill and intangibles.

Following are affected performance ratios for 2005 excluding this charge:

Return on average assets	(0.86	%)
Return on average equity	(7.27	%)
Efficiency ratio	117.60	%
Ratio of noninterest expense to average assets	4.20	%

Reconciliation of GAAP net loss to loss excluding the impairment loss on goodwill and intangibles:

GAAP net loss	$	(3,290	)
Impairment loss on goodwill and intangibles, net of tax		1,893
Loss excluding impairment loss on goodwill and intangibles	$	(1,397	)
Diluted loss per common share	$	(0.63	)

n/m — not meaningful

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 5

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the Company or its management or Board of Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as “estimate,” “strategy,” “may,” “believe,” “anticipate,” “expect,” “predict,” “will,” “intend,” “plan,” “targeted,” and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements. The following factors could cause such differences:

• 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.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. We caution you however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. The forward-looking statements included in this report speak only as of the date of the report. We undertake no obligation to publicly release revisions to any forward-looking statements to reflect events or circumstances after the date of such statements, except to the extent required by law.

Other risks are detailed in our filings with the Securities and Exchange Commission, including our Form 10-K filed for 2009, all of which are difficult to predict and many of which are beyond our control.

GENERAL

Central Federal Corporation (hereafter referred to, together with its subsidiaries, as the Company and individually as the Holding Company) is a savings and loan holding company incorporated in Delaware in 1998. Substantially all of our business is the operation of our principal subsidiary, CFBank, a federally chartered savings association formed in Ohio in 1892.

CFBank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. Our business model emphasizes personalized service, clients’ access to decision makers, solution-driven lending and quick execution, efficient use of technology and the convenience of online internet banking, remote deposit, corporate cash management and telephone banking. We attract deposits from the general public and use the deposits, together with borrowings and other funds, primarily to originate commercial and commercial real estate loans, single-family and multi-family residential mortgage loans and home equity lines of credit. The majority of our customers are consumers, small businesses and small business owners.

Our principal market area for loans and deposits includes the following Ohio counties: Summit County through our office in Fairlawn, Ohio; Franklin County through our office in Worthington, Ohio; and Columbiana County through our offices in Calcutta and Wellsville, Ohio. We originate commercial and residential real estate loans and business loans primarily throughout Ohio.

Our net income is dependent primarily on net interest income, which is the difference between the interest income earned on loans and securities and the cost of funds, consisting of interest paid on deposits and borrowed funds. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. Net income is also affected by, among other things, loan fee income, provisions for loan losses, service charges, gains on loan sales, operating expenses, and franchise and income taxes. Operating expenses principally consist of employee compensation and benefits, occupancy, FDIC insurance premiums, and other general and administrative expenses. In general, results of operations are significantly affected by general economic and competitive conditions, changes in market interest rates and real estate values, government policies, and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may also materially impact our performance.

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GENERAL (CONTINUED)

As a result of the current economic recession, which has included failures of financial institutions, investments in banks and other companies by the United States government, and government-sponsored economic stimulus packages, one area of public and political focus is how and the extent to which financial institutions are regulated by the government. The current regulatory environment may result in new or revised regulations that could have a material adverse impact on our performance.

The significant volatility and disruption in capital, credit and financial markets experienced in 2008 continued to have a detrimental affect on our national and local economies in 2009. These effects include declining real estate values; continued tightening in the availability of credit; illiquidity in certain securities markets; increasing loan delinquencies, foreclosures, personal and business bankruptcies and unemployment rates; declining consumer confidence and spending; significant loan charge-offs and write-downs of asset values by financial institutions and government-sponsored agencies; and a reduction of manufacturing and service business activity and international trade. These conditions also adversely affected the stock market generally, and have contributed to significant declines in the trading prices of financial institution stocks. We do not expect these difficult market conditions to improve in the short term, and a continuation or worsening of these conditions could increase their adverse effects.

Adverse effects of these conditions include increases in loan delinquencies and charge-offs; increases in our loan loss reserves based on general economic factors; increases to our specific loan loss reserves due to the impact of these conditions on specific borrowers or the collateral for their loans; declines in the value of our securities portfolio; increases in our cost of funds due to increased competition and aggressive deposit pricing by local and national competitors with liquidity needs; attrition of our core deposits due to this aggressive deposit pricing and/or consumer concerns about the safety of their deposits; increases in regulatory and compliance costs; and declines in the trading price of our common stock.

Other than as discussed above and noted in the following narrative, we are not aware of any market or institutional trends, other events, or uncertainties that are expected to have a material effect on liquidity, capital resources or operations. We are not aware of any current recommendations by regulators which would have a material effect if implemented, except as described above and in the following narrative.

Management’s discussion and analysis represents a review of our consolidated financial condition and results of operations. This review should be read in conjunction with our consolidated financial statements and related notes.

FINANCIAL CONDITION

General. Assets totaled $273.7 million at December 31, 2009 and decreased $4.1 million, or 1.5%, from $277.8 million at December 31, 2008. The decrease was primarily due to a $2.8 million decrease in net loan balances as a result of net loan charge-offs and an increase in the allowance for loan losses (ALLL), and a $1.6 million decrease in the deferred tax asset due to a valuation allowance recorded in 2009 to reduce the value to zero.

ASSET BALANCES

Securities available for sale. Securities available for sale totaled $21.2 million at December 31, 2009 and decreased $2.4 million, or 9.8%, from $23.6 million at December 31, 2008. The decline was due to repayments and scheduled maturities in excess of purchases. Fluctuations in the market value of securities held by the Company relates primarily to changes in interest rates.

Loans. Net loans totaled $231.1 million at December 31, 2009 and decreased $2.8 million, or 1.2%, from $233.9 million at December 31, 2008. Commercial, commercial real estate and multi-family loans totaled $181.8 million at December 31, 2009 and decreased $255,000, or .1%, from $182.1 million at December 31, 2008. The slight decrease in commercial, commercial real estate and multi-family loans was due to loan payoffs, repayments and charge-offs in excess of originations, which totaled $33.7 million during 2009. Mortgage loans totaled $30.6 million at December 31, 2009 and increased $1.7 million, or 6.1%, from $28.9 million at December 31, 2008. The increase in mortgage loans was due to an increase in loans originated for portfolio and $1.9 million in loans transferred from loans held for sale to portfolio. Consumer loans totaled $26.0 million at December 31, 2009 and decreased $399,000, or 1.5%, from $26.4 million at December 31, 2008. The decrease was due to repayments of auto and home equity lines of credit, partially offset by the purchase of $2.2 million in auto loans.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 7

FINANCIAL CONDITION (CONTINUED)

LOAN PORTFOLIO COMPOSITION

Allowance for loan losses. The ALLL totaled $7.1 million at December 31, 2009 and increased $4.0 million, or 127.3%, from $3.1 million at December 31, 2008. The increase was due to continued adverse economic conditions affecting loan performance which resulted in an increase in nonperforming loans and loan charge-offs. The ratio of the ALLL to total loans totaled 2.98% at December 31, 2009, compared to 1.32% at December 31, 2008. For additional information regarding nonperforming loans and loan charge-offs, see the section titled “Provision for loan losses”.

The ALLL is a valuation allowance for probable incurred credit losses. The ALLL methodology is designed as part of a thorough process that incorporates management’s current judgments about the credit quality of the loan portfolio into a determination of the ALLL in accordance with generally accepted accounting principles and supervisory guidance. Management analyzes the adequacy of the ALLL quarterly through reviews of the loan portfolio, including the nature and volume of the loan portfolio and segments of the portfolio; industry and loan concentrations; historical loss experience; delinquency statistics and the level of nonperforming loans; specific problem loans; the ability of borrowers to meet loan terms; an evaluation of collateral securing loans and the market for various types of collateral; various collection strategies; current economic conditions and trends and expectations about future economic conditions and trends; and other factors that warrant recognition in providing for an adequate ALLL. Based on the variables involved and the fact that management must make judgments about outcomes that are uncertain, the determination of the ALLL is considered to be a critical accounting policy. See the “Critical Accounting Policies” section of this Annual Report for additional discussion.

The ALLL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when full payment under the loan terms is not expected. Commercial, commercial real estate and multi-family residential loans are individually evaluated for impairment when 90 days delinquent and adversely classified, regardless of size. Loans over $500,000 are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. Loans for which the terms have been modified to grant concessions, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. If a loan is determined to be impaired, the loan is evaluated to determine whether an impairment loss should be recognized, either through a write-off or specific valuation allowance, so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance loans, such as consumer and single-family residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Individually impaired loans totaled $13.7 million at December 31, 2009, and increased $11.4 million, from $2.3 million, at December 31, 2008. The ALLL specifically allocated to impaired loans totaled $2.0 million at December 31, 2009 and $514,000 at December 31, 2008. The specific reserve on impaired loans is based on management’s estimate of the fair value of collateral securing the loans, or based on projected cash flows from the sale of the underlying collateral and payments from the borrowers. The amount ultimately charged-off for these loans may be different from the specific reserve, as the ultimate liquidation of the collateral and/or projected cash flows may be different from management’s estimates.

The general component of the ALLL covers loans not classified as impaired and is based on historical loss experience adjusted for current factors. Current factors considered include, but are not limited to, management’s oversight of the portfolio, including lending policies and procedures; nature, level and trend of the portfolio, including past due and nonperforming loans, loan concentrations, loan terms and other characteristics; current economic conditions and outlook; collateral values; and other items. During 2009, management updated its methodology for calculating the general component of the ALLL to improve the analysis relative to historical loss rates. CFBank began building the commercial, commercial real estate and multi-family residential loan portfolios in 2003, and no losses were experienced in these loan portfolios until 2009. Given the short nature of this loss history, and the current depressed economic environment, management believes the updated methodology improves its ability to estimate probable incurred losses in these portfolios. The updated methodology also provides a more detailed analysis of large groups of smaller balance loans, such as single-family residential and consumer loans.

Under the updated methodology, the loan portfolio is segregated by loan type and internal loan risk ratings. Commercial loans are segregated by secured and unsecured amounts. Commercial real estate loans are segregated by permanent mortgages on commercial real estate, land loans, and construction loans. Multi-family residential real estate loans are segregated by permanent mortgages on multi-family real estate, and construction loans. Single-family residential loans are segregated by first liens, junior liens, and construction loans. Consumer loans are segregated by home equity lines of credit (which are further segregated by loans originated by CFBank, and loans purchased), auto loans (which are further segregated by loans originated by CFBank, and loans purchased), credit cards, loans on deposits, and other consumer loans. These individual segments are then further segregated by internal loan risk ratings.

page 8   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

FINANCIAL CONDITION (CONTINUED)

The general ALLL is calculated based on CFBank’s loan balances and actual historical payment default rates for individual loans with payment defaults. For loans with no actual payment default history, industry estimates of payment default rates are applied, based on the applicable property types in the state where the collateral is located. Results are then scaled based on CFBank’s internal loan risk ratings, increasing the probability of default on loans with higher risk ratings, and industry loss rates are applied based on loan type. Industry estimates of payment default rates and industry loss rates are based on information compiled by the FDIC.

Industry information is adjusted based on management’s judgment regarding items specific to CFBank, and the current factors discussed previously. The adjustment process is dynamic, as current experience adds to the historical information, and economic conditions and outlook migrate over time. Specifically, industry information is adjusted by comparing the historical payment default rates (CFBank historical default rates and industry estimates of payment default rates) against the current rate of payment default to determine if the current level is high or low to historical rates, or rising or falling in light of the current economic outlook. Industry information is adjusted by comparison to CFBank’s historical one year loss rates, as well as the trend in those loss rates, past due, nonaccrual and classified loans. This adjustment process is performed for each segment of the portfolio. CFBank has experienced an increasing trend in loan charge-offs and past due, nonaccrual and classified loans, and the industry information was adjusted to reflect CFBank’s portfolio performance, as well as to reflect a continued adverse economic outlook. See Note 1 to our consolidated financial statements for more information regarding nonaccrual and charge-off accounting policies.

The updated methodology offers a more detailed segregation of the loan portfolio, which was not segregated into as many groupings with the previous methodology. The updated methodology applies a dual factor rate (the probability of default and the loss given default) to arrive at probable losses, compared to a single factor rate (historical losses on single-family residential loans and estimates based on industry losses for commercial, commercial real estate and multi-family residential loans) under the previous methodology. The updated methodology considers individual loan performance, compared to portfolio performance under the previous methodology. Management believes that the loan-level detail used by the updated methodology results in a better estimate of the ALLL. Quantifying the effect of the update in methodology is not practical.

All lending activity involves risks of loan losses. Certain types of loans, such as option ARM products, junior lien mortgages, high loan-to-value ratio mortgages, interest only loans, subprime loans, and loans with initial teaser rates, can have a greater risk of non-collection than other loans. CFBank has not engaged in subprime lending, or used option ARM products, or loans with initial teaser rates.

Unsecured commercial loans may present a higher risk of non-collection than secured commercial loans. Unsecured commercial loans totaled $3.9 million, or 9.1% of the commercial loan portfolio at December 31, 2009. The unsecured loans are primarily lines of credit to small businesses in CFBank’s market area and are guaranteed by the small business owners. None of the unsecured loans are 30 days or more delinquent or nonperforming at December 31, 2009.

One of the more notable recessionary effects nationwide has been the reduction in real estate values. Real estate values in Ohio did not experience the dramatic increase prior to the recession that many other parts of the country did and, as a result, the declines have not been as significant, comparatively. However, real estate is the collateral on a substantial portion of the Company’s loans, and it is critical to determine the impact of any declining values in the allowance determination. For individual loans evaluated for impairment, current appraisals were obtained wherever practical, or if not available, estimated declines in value were considered in the evaluation process. Within the real estate loan portfolios, in the aggregate, including single-family, multi-family and commercial real estate, more than 90% of the portfolio has loan-to-value ratios of 85% or less, allowing for some decline in real estate values without exposing the Company to loss. Declining collateral values and a continued adverse economic outlook have been considered in the ALLL at December 31, 2009, however, sustained recessionary pressure and declining real estate values in excess of management’s estimates, particularly with regard to commercial real estate and multi-family real estate, may expose the Company to additional losses.

Home equity lines of credit include both purchased loans and loans we originated for portfolio. In 2005 and 2006, we purchased home equity lines of credit collateralized by properties located throughout the United States, including geographic areas that have experienced significant declines in housing values, such as California, Virginia and Florida. The outstanding balance of the purchased home equity lines of credit totaled $4.6 million at December 31, 2009, and $2.8 million, or 61.5%, of the balances are collateralized by properties in these states. The collateral values associated with loans in these states have declined from 10% to 25% since these loans were originated in 2005 and 2006. As a result, balances on those loans exceeded collateral values by $580,000 at year-end 2009. We have experienced increased write-offs in the purchased portfolio as the depressed state of the housing market and general economy has continued and, in 2009, three loans totaling $322,000 were written off. We continue to monitor collateral values and borrower FICO^® scores and, when the situation warrants, have frozen the lines of credit.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 9

FINANCIAL CONDITION (CONTINUED)

Management’s loan review process is an integral part of identifying problem loans and determining the ALLL. We maintain an internal credit rating system and loan review procedures specifically developed to monitor credit risk for commercial, commercial real estate and multi-family residential loans. Credit reviews for these loan types are performed annually, and loan officers maintain close contact with borrowers between annual reviews. Adjustments to loan risk ratings are based on the annual reviews, or any time loan officers receive information that may affect risk ratings. Additionally, an independent review of commercial, commercial real estate and multi-family residential loans is performed at least annually. Management uses the results of this review to help determine the effectiveness of the existing policies and procedures, and to provide an independent assessment of our internal loan risk rating system.

We believe the ALLL is adequate to absorb probable incurred credit losses in the loan portfolio as of December 31, 2009; however, future additions to the allowance may be necessary based on factors including, but not limited to, deterioration in client business performance, continued or deepening recessionary economic conditions, declines in borrowers’ cash flows, and market conditions which result in lower real estate values. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. Such agencies may require additional provisions for loan losses based on judgments and estimates that differ from those used by management, or information available at the time of their review. Management continues to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. An increase in the ALLL and loan losses would occur if economic conditions and factors which affect credit quality, real estate values and general business conditions continue to worsen or do not improve.

Premises and equipment. Premises and equipment, net, totaled $7.0 million at December 31, 2009 and increased $1.8 million, or 33.5% from $5.2 million at December 31, 2008. The increase was primarily due to the purchase of the remaining two-thirds interest in Smith-Ghent LLC, which included $2.2 million related to Company’s headquarters building in Fairlawn, partially offset by current year depreciation.

Deposits. Deposits totaled $211.1 million at December 31, 2009 and increased $3.5 million, or 1.7%, from $207.6 million at December 31, 2008. The increase was due to an $18.9 million increase in money market account balances, a $2.5 million increase in noninterest bearing checking account balances, a $508,000 increase in interest bearing checking accounts, and a $309,000 increase in savings accounts. Certificate of deposit accounts decreased $18.8 million during 2009.

DEPOSIT BALANCES

Money market account balances increased $18.9 million in 2009 due to competitive rates offered by CFBank and the transfer of maturing certificate of deposit balances by customers seeking increased liquidity and higher yields. Noninterest bearing checking account balances increased $2.5 million in 2009 as a result of management’s continued focus on building complete banking relationships with commercial clients.

CFBank is a participant in the Certificate of Deposit Account Registry Service^® (CDARS), a network of banks that allows us to provide our customers with FDIC insurance coverage on certificate of deposit balances up to $50 million. Customer balances in the CDARS program decreased $11.0 million and totaled $37.4 million at December 31, 2009. The current year decrease in CDARS account balances was a result of customers transferring these funds into more liquid accounts, including the money market account. CDARS balances are considered brokered deposits by regulations. Not considering CDARS deposits, brokered deposits totaled $8.8 million at December 31, 2009 and decreased $15.0 million, or 63.2%, from $23.8 million at December 31, 2008. The decrease in brokered deposits was based on CFBank’s asset liability management strategies and a decrease in CFBank’s funding requirements for loan growth in 2009. We expect to continue to use the CDARS program and other brokered deposits as funding sources depending on market conditions, demand by our customers, pricing, liquidity and asset liability management considerations.

CFBank is a participant in the FDIC’s Transaction Account Guarantee Program. Under that program, through June 30, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to, and separate from, the coverage available under the FDIC’s general deposit insurance rules.

FHLB advances. Short-term FHLB advances totaled $2.1 million at December 31, 2009 and decreased $3.8 million, from $5.9 million at December 31, 2008. Short-term advances were repaid with funds from the increase in deposits and cash flows from the securities portfolio. Long-term FHLB advances totaled $29.9 million at December 31, 2009 and increased $6.7 million, or 29.1% from $23.2 million at December 31, 2008. The increase in long-term FHLB advances resulted from management’s decision, as part of the Company’s asset liability management program, to use these advances to extend the terms of liabilities and fix their cost at the current low interest rates to protect net interest margin should interest rates rise.

page 10   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

FINANCIAL CONDITION (CONTINUED)

Collateral pledged to the FHLB includes single-family mortgage loans under a blanket lien arrangement, second mortgage loans, multi-family mortgage loans, commercial real estate loans, home equity lines of credit and securities. Based on the collateral pledged and CFBank’s holdings of FHLB stock, CFBank is eligible to borrow up to a total of $39.7 million at year-end 2009. CFBank’s borrowing capacity decreased from $62.4 million at December 31, 2008 primarily due to deterioration in the credit performance of the pledged loan portfolios, which resulted in an increase in collateral maintenance requirements by the FHLB. See the “Liquidity and Capital Resources” section of this Annual Report.

Subordinated debentures. Subordinated debentures totaled $5.2 million at year-end 2009 and 2008. These debentures were issued in 2003 in exchange for the proceeds of a $5.0 million trust preferred securities offering issued by a trust formed by the Company.

Stockholders’ equity. Stockholders’ equity totaled $23.2 million at December 31, 2009 and decreased $9.8 million, or 29.8%, compared to $33.1 million at December 31, 2008. The decrease was due to the current year net loss, partially offset by a $354,000 increase in the market value of the securities portfolio.

The Company is a participant in the Troubled Asset Relief Program (TARP) Capital Purchase Program and issued $7.2 million of preferred stock to the United States Department of the Treasury (U.S. Treasury) on December 5, 2008. The preferred stock pays cumulative dividends of 5%, which increases to 9% after February 14, 2013. In conjunction with the issuance of the preferred stock, the Company also issued the U.S. Treasury a warrant to purchase 336,568 shares of Company common stock at an exercise price of $3.22 per share. The Company’s participation in this program is subject to certain terms and conditions, including limits on the payment of dividends on the Company’s common stock to a quarterly cash dividend of $0.05 per share, and limits on the Company’s ability to repurchase its common stock. The Company is also subject to the standards for compensation and corporate governance established under the American Recovery and Reinvestment Act of 2009 (the ARRA), and the Interim Final Rule promulgated by the Secretary of the U.S. Treasury under 31 C.F.R. Part 30 (collectively, the TARP Compensation Standards). The company is in compliance with the terms and conditions and the TARP Compensation Standards. See Notes 15 and 16 to our consolidated financial statements for more information regarding the preferred stock and warrant.

In March 2009, the Company’s Board of Directors voted to suspend the Company’s quarterly dividend on its common stock from the previous level of $.05 per share. The Board’s decision to suspend the quarterly cash dividend allows for preservation of capital during the current economic environment, allows for use of capital in execution of our banking model, and positions the Company for future growth.

With the capital provided by the TARP Capital Purchase Plan, we intend to continue to make financing available to businesses and consumers in our existing market areas. Since receipt of the TARP Capital Purchase Plan proceeds in December 2008 and through December 31, 2009, we have originated loans totalling $108.9 million, or 15 times the amount of TARP Capital Purchase Plan funds received.

OTS regulations require savings institutions to maintain certain minimum levels of regulatory capital. Additionally, the regulations establish a framework for the classification of savings institutions into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a core (Tier 1) capital ratio of at least 5.0% (based on adjusted total assets); a core (Tier 1) risk-based capital ratio of a least 6.0%; and a total risk-based capital ratio of at least 10.0%. CFBank had capital ratios above the well-capitalized levels at year-end 2009 and 2008. See the “Liquidity and Capital Resources” section of this Annual Report for a discussion of dividends as a source of funding for the Company and dividend restrictions imposed on CFBank by the OTS.

CFBANK CAPITAL RATIOS

Well-capitalized

The current economic environment has resulted in discussion by regulators and others about a possible need for higher capital requirements for financial institutions, including CFBank. No final regulations have been issued in this regard, however, an increase in regulatory capital requirements could have a material and adverse impact on the Company and CFBank.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 11

COMPARISON OF RESULTS OF OPERATIONS FOR 2009 AND 2008

General. Net loss totaled $9.9 million, or $2.51 per diluted common share, in 2009, compared to net income of $723,000, or $.16 per diluted common share, in 2008. The net loss for 2009 was primarily due to a $9.9 million provision for loan losses and a $4.3 million valuation allowance related to the deferred tax asset.

The $9.9 million provision for loan losses was recorded in response to continuing adverse economic conditions affecting loan performance, which resulted in an increase in nonperforming loans and loan charge-offs. Nonperforming loans increased $10.8 million, and totaled $13.2 million at December 31, 2009, compared to $2.4 million at December 31, 2008. Net loan charge-offs increased $5.4 million, and totaled $5.9 million during 2009, compared to $482,000 in 2008. The net loan charge-offs reduced the Company’s near term estimates of future taxable income and the amount of the deferred tax asset, primarily related to net operating loss carryforwards, considered realizable. The Company recorded a $4.3 million valuation allowance to reduce the carrying amount of the deferred tax asset to zero at December 31, 2009.

Net interest income. Net interest income is a significant component of net income, and consists of the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. The tables titled “Average Balances, Interest Rates and Yields” and “Rate/ Volume Analysis of Net Interest Income” provide important information on factors impacting net interest income and should be read in conjunction with this discussion of net interest income.

Net interest margin decreased to 3.14% during 2009, compared to 3.35% during 2008. The decrease was due to a decline in asset yields greater than the decline in funding costs. Yield on interest-earning assets decreased 107 basis points (bp) in 2009 due to an increase in nonperforming loans and downward repricing on adjustable-rate assets, as well as lower pricing on new loan production, in response to low market interest rates. Cost of interest-bearing liabilities decreased 88 bp due to a decline in both deposit and borrowing costs, which reflected the sustained low market interest rate environment that existed in 2009. Management has extended the terms of some liabilities to fix their cost at the current low rates and to protect net interest margin should interest rates rise. Additional downward pressure on net interest margin could occur if the level of nonperforming loans continues to increase, or downward repricing on existing interest-earning assets and current loan production caused by sustained low market interest rates continues to be greater than the decrease in funding costs.

NET INTEREST INCOME

Net interest income decreased $203,000, or 2.3%, to $8.5 million in 2009, compared to $8.7 million in 2008. The decrease was due to a 13.2% decrease in interest income partially offset by a 25.1% decrease in interest expense. Interest income decreased due to a decline in the average yield on interest earning assets to 5.34% in 2009, from 6.41% in 2008. The decrease in income caused by the lower yield was partially offset by an $11.3 million increase in average interest-earning assets in 2009 due to growth in average loan balances and other interest-earning assets, primarily short-term cash investments. The average cost of interest-bearing liabilities decreased to 2.50% in 2009, from 3.38% in 2008, due to continued low short-term interest rates in 2009. The decrease in expense caused by the lower cost was partially offset by a $3.1 million increase in the average balance of interest — bearing liabilities in 2009 due to deposit growth.

Interest income decreased $2.2 million, or 13.2%, to $14.4 million in 2009, compared to $16.6 million in 2008. The decrease was due to lower income on loans and securities. Interest income on loans decreased $2.0 million, or 13.1%, to $13.2 million in 2009, compared to $15.2 million in 2008, due to lower yields on loans partially offset by an increase in average loan balances. The average yield on loans decreased 98 bp to 5.58% in 2009, compared to 6.56% in 2008, due to an increase in nonperforming loans, lower market rates on new originations and downward repricing on adjustable-rate loans. Average loan balances increased $4.9 million, or 2.1%, and totaled $236.4 million in 2009, compared to $231.5 million in 2008, due to growth in commercial, commercial real estate, and single-family residential real estate loans as a result of lower loan payoffs in 2009. Interest income on securities decreased $209,000, or 15.7%, and totaled $1.1 million in 2009, compared to $1.3 million in 2008, due to decreases in both the average balance of securities and the yield on securities. The average balance of securities decreased $3.3 million and totaled $22.7 million in 2009, compared to $26.0 million in 2008, due to maturities and repayments in excess of purchases.

page 12   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

COMPARISON OF RESULTS OF OPERATIONS FOR 2009 AND 2008 (CONTINUED)

The average yield on securities decreased 7 bp to 5.13% in 2009, compared to 5.20% in 2008, due to current year securities purchases at lower yields.

Interest expense decreased $2.0 million, or 25.1%, to $5.9 million in 2009, compared to $7.9 million in 2008. The decrease was due to a decline in the cost of both deposits and borrowings and a decline in average borrowing balances, partially offset by an increase in average deposit balances. Interest expense on deposits decreased $1.5 million, or 23.9%, to $4.7 million in 2009, compared to $6.2 million in 2008, due to a decrease in the cost of deposits, partially offset by an increase in average deposit balances. The average cost of deposits decreased 95 bp, to 2.36% in 2009, compared to 3.31% in 2008, due to low short-term market interest rates positively impacting the cost of both existing and new deposits. Average deposit balances increased $12.9 million, or 6.9%, to $200.4 million in 2009, compared to $187.5 million in 2008, primarily due to growth in money market accounts. Interest expense on FHLB advances and other borrowings, including subordinated debentures, decreased $501,000, or 29.0%, to $.1.2 million in 2009, compared to $1.7 million in 2008, due to a decrease in both the cost and average balance of borrowings. The average cost of FHLB advances and other borrowings decreased 38 bp, to 3.29% in 2009, compared to 3.67% in 2008, due to lower short-term interest rates during 2009. The average balance of FHLB advances and other borrowings decreased $9.8 million, to $37.2 million in 2009, compared to $47.0 million in 2008, due to the repayment of FHLB advances with funds from the increase in deposits and cash flows from the securities portfolio.

Provision for loan losses. The provision for loan losses totaled $9.9 million in 2009, compared to $917,000 in 2008. The increase in the provision in 2009 was due to continued adverse economic conditions affecting loan performance, which resulted in an increase in nonperforming loans and loan charge-offs. The provision in 2009 was significantly impacted by a $3.3 million net charge-off related to a single commercial loan customer.

Nonperforming loans, which are nonaccrual loans and loans 90 days past due still accruing interest, increased $10.8 million and totaled $13.2 million, or 5.56% of total loans, at December 31, 2009, compared to $2.4 million, or 1.02% of total loans, at December 31, 2008. The increase in nonperforming loans was primarily related to deterioration in the multi-family residential, commercial real estate, and home equity lines of credit portfolios. The following table presents information regarding the number and balance of nonperforming loans at year-end 2009 and 2008:

	AT DECEMBER 31,
	2009				2008
(DOLLARS IN THOUSANDS)	NUMBER OF LOANS		BALANCE		NUMBER OF LOANS		BALANCE
Commercial		1	$	217		1	$	646
Single-family residential real estate		6		426		1		63
Multi-family residential real estate		8		4,406		1		1,264
Commercial real estate		15		6,864		1		348
Home equity lines of credit		5		1,307		1		60
Other consumer loans		1		14		1		31
Total		36	$	13,234		6	$	2,412

Nonaccrual loans include some loans that were modified and identified as troubled debt restructurings, where concessions had been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate, payment extensions, principal forgiveness, and other actions intended to maximize collection. Troubled debt restructurings included in nonaccrual loans totaled $1.8 million at December 31, 2009. There were no troubled debt restructurings at December 31, 2008.

Individually impaired loans totaled $13.7 million at December 31, 2009, compared to $2.3 million at December 31, 2008. Individually impaired loans are included in nonperforming loans, except for $1.3 million in troubled debt restructurings where customers have established a sustained period of repayment performance, loans are current according to their modified terms, and repayment of the remaining contractual payments is expected. The amount of the ALLL specifically allocated to individually impaired loans totaled $2.0 million at December 31, 2009, compared to $514,000 at December 31, 2008.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 13

COMPARISON OF RESULTS OF OPERATIONS FOR 2009 AND 2008 (CONTINUED)

We have incorporated the OTS internal asset classifications as a part of our credit monitoring system and internal loan risk rating system. In accordance with regulations, problem assets are classified as “substandard,” “doubtful” or “loss,” and the classifications are subject to review by the OTS. An asset is considered “substandard” under the regulations if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. An asset considered “doubtful” under the regulations has all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets considered “loss” under the regulations are those considered “uncollectible” and having so little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets are required to be designated “special mention” when they posses weaknesses but do not currently expose the insured institution to sufficient risk to warrant classification in one of these problem asset categories.

The increase in loans classified “special mention” and “substandard” was primarily related to deterioration in the commercial, multi-family residential, commercial real estate, and home equity lines of credit portfolios due to the continued adverse economic environment that existed in 2009 and its detrimental effect on collateral values and the ability of borrowers to make loan payments. The following table presents information on classified and criticized loans as of December 31, 2009 and 2008. No loans were classified “loss” at either date.

	AT DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009		2008
Special mention
Commercial	$	3,892	$	535
Multi-family residential real estate		3,143		2,852
Commercial real estate		1,432		1,221
Home equity lines of credit		3,894		—
Total	$	12,361	$	4,608
Substandard
Commercial	$	317	$	2,570
Single-family residential real estate		426		63
Multi-family residential real estate		5,671		1,264
Commercial real estate		10,723		877
Home equity lines of credit		1,307		60
Other consumer loans		14		32
Total	$	18,458	$	4,866
Doubtful
Commercial	$	—	$	646

page 14   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

COMPARISON OF RESULTS OF OPERATIONS FOR 2009 AND 2008 (CONTINUED)

Management’s loan review, assignment of risk ratings and classification of assets, includes the identification of substandard loans where accrual of interest continues because the loans are under 90 days delinquent and/or the loans are well secured, a complete documentation review had been performed, and the loans are in the active process of being collected, but the loans exhibit some type of weakness that could lead to nonaccrual status in the future. At December 31, 2009, in addition to the nonperforming loans discussed previously, one commercial loan, totaling $100,000, four commercial real estate loans, totaling $3.9 million, and one multi-family residential real estate loan, totaling $1.3 million, were classified as substandard. At December 31, 2008, in addition to the nonperforming loans discussed previously, seven commercial loans, totaling $2.6 million, and one commercial real estate loan, totaling $530,000, were classified as substandard.

Net charge-offs totaled $5.9 million, or 2.48% of average loans in 2009, compared to $482,000, or 0.21% of average loans in 2008. The increase in net charge-offs in 2009 was primarily in the commercial and commercial real estate portfolios. Net commercial loan charge-offs included $3.3 million related to a single commercial loan customer. The following table presents information regarding net charge-offs for 2009 and 2008:

	AT DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009		2008
Commercial	$	3,703	$	—
Single-family residential real estate		435		69
Multi-family residential real estate		287		—
Commercial real estate		1,109		—
Home equity lines of credit		385		360
Other consumer loans		2		53
Total	$	5,921	$	482

ALLOWANCE FOR LOAN LOSSES

Noninterest income. Noninterest income totaled $1.4 million and increased $429,000, or 45.3%, in 2009, compared to $948,000 in 2008. The increase was due to a $483,000 increase in net gains on sales of loans and a $208,000 gain on the Company’s purchase of the remaining two-thirds interest in Smith-Ghent LLC. These increases were partially offset by a $199,000 decrease in service charges on deposit accounts. Noninterest income in 2008 also included $54,000 in net gains on sales of securities. There were no security sales in 2009.

Net gains on the sales of loans totaled $642,000 and increased $483,000, or 303.8%, in 2009, compared to $159,000 in 2008. The increase was due to a 144.4% increase in mortgage loans originated for sale, which totaled $66.0 million in 2009, compared to $27.0 million in 2008, and a positive change in CFBank’s internal pricing policies. The increase in mortgage loan production was due to low mortgage interest rates in 2009, which resulted from the Federal Reserve Board reducing rates to historically low levels in the fourth quarter of 2008, and management’s decision to increase CFBank’s staff of professional mortgage loan originators, who have been successful in increasing this business despite the depressed condition of the housing market. If market mortgage rates increase, or the housing market deteriorates further, mortgage production, and resultant gains on sales of loans, could decrease.

The $208,000 net gain on acquisition was due to recognition, at fair value, of the Company’s one-third ownership interest in Smith-Ghent LLC, which was held prior to its purchase of the remaining two-thirds interest in October 2009.

Service charges on deposit accounts totaled $345,000 and decreased $199,000, or 36.6%, in 2009, compared to $544,000 in 2008. In 2008, service charges on deposit accounts included increased income during the fourth quarter from deposit accounts of a third party payment processor. These accounts were not active in 2009.

Noninterest expense. Noninterest expense increased $513,000, or 6.6%, and totaled $8.3 million in 2009, compared to $7.7 million in 2008. The increase in noninterest expense was primarily due to an increase in FDIC premiums, salaries and employee benefits and professional fees, partially offset by a decrease in depreciation expense.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 15

COMPARISON OF RESULTS OF OPERATIONS FOR 2009 AND 2008 (CONTINUED)

FDIC premiums totaled $541,000 in 2009 and increased $455,000, from $86,000 in 2008. The increase was due to higher quarterly assessment rates, an increase in deposit balances, and a $128,000 special assessment to restore the reserve ratio of the Deposit Insurance Fund (DIF), as announced on May 22, 2009 by the FDIC Board of Directors. A one-time FDIC credit issued to CFBank as a result of the Federal Deposit Insurance Reform Act of 2005 reduced premiums in 2008.

On November 12, 2009, the FDIC Board of Directors approved a Notice of Proposed Rulemaking that required institutions to prepay, on December 31, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and all of 2010, 2011 and 2012. The assessment was based on a 5% annual growth rate in deposits from September 30, 2009, and included a 3 bp increase in the assessment rate beginning in 2011. The assessment paid by CFBank on December 31, 2009 totaled $1.4 million, and will be expensed over the coverage period.

The FDIC issued a final rule establishing risk-based assessment rates that became effective April 1, 2009. Under those rules, initial assessment rates are determined by combining supervisory ratings with financial ratios, and long-term debt issuer ratings for large banks that have one or more ratings assigned. Supervisory ratings are determined by regulators in areas of capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk (CAMELS). For most institutions, including CFBank, assessment rates are based on weighted average CAMELS component ratings and six financial ratios. The financial ratios are (1) the tier 1 leverage ratio; (2) loans past due 30-89 days/gross assets; (3) nonperforming assets/gross assets; (4) net loan charge-offs/gross assets; (5) net income before taxes/risk-weighted assets; and (6) the adjusted brokered deposit ratio. Future events which negatively affect any of these factors could cause an increase in FDIC premiums paid by CFBank.

Salaries and employee benefits expense totaled $4.2 million and increased $108,000, or 2.7%, in 2009, compared to $4.1 million in 2008. The increase was due to increased staffing levels, salary adjustments and medical benefits expense reduced by elimination of bonuses.

Professional fees totaled $769,000 and increased $211,000, or 37.8%, in 2009, compared to $558,000 in 2008. The increase was due to $99,000 higher legal fees related to nonperforming loans and $142,000 in legal and forensic accounting services related to the investigation of unusual return item activity involving deposit accounts for a third party payment processor. The increases were partially offset by a $36,000 decrease in consulting fees related to the Company’s implementation of the internal control reporting requirements of Section 404 of the Sarbanes-Oxley Act.

Depreciation expense totaled $483,000 and decreased $200,000 in 2009, compared to $683,000 in 2008. The decrease was due to assets fully depreciated at December 31, 2008.

The ratio of noninterest expense to average assets increased to 2.88% in 2009, from 2.79% in 2008. The efficiency ratio increased to 83.60% in 2009, from 80.75% in 2008. The increase in both ratios was due to the increase in noninterest expense in 2009.

NONINTEREST EXPENSE / AVERAGE ASSETS

Income taxes. Income taxes totaled $1.6 million in 2009, compared to $261,000 in 2008. The increase in the income tax expense was due to a $4.3 million valuation allowance against the deferred tax asset, discussed previously.

page 16   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

COMPARISON OF RESULTS OF OPERATIONS FOR 2008 AND 2007

General. Net income totaled $723,000, or $.16 per diluted common share, and increased $740,000 for the year ended December 31, 2008, compared to a net loss of $17,000, or $.00 per diluted common share, for 2007. The net loss for 2007 was primarily due to a $511,000 after-tax cost of an arbitration loss and lease termination expense. Additional information on the arbitration loss and the lease termination expense is included in Note 24 to our consolidated financial statements.

Net interest income. Net interest margin increased to 3.35% during 2008, compared to 3.19% during 2007. The margin was positively impacted by reductions in the Federal Funds rate, the prime rate and other market interest rates, beginning in September 2007 and continuing through December 2008, which resulted in larger decreases in funding costs than in asset yields.

Net interest income increased $974,000, or 12.6%, to $8.7 million in 2008, compared to $7.7 million in 2007. The increase was due to a 19.0% decrease in interest expense offset by a 5.1% decrease in interest income. The average cost of interest-bearing liabilities decreased to 3.38% in 2008, from 4.50% in 2007, due to lower short-term interest rates in 2008. The decrease in expense caused by the lower cost was partially offset by a $17.0 million increase in the average balance of interest-bearing liabilities in 2008 due to deposit growth. Interest income decreased 5.1% primarily due to a decline in the average yield on interest earning assets to 6.41% in 2008, from 7.23% in 2007. The decrease in income caused by the lower yield was partially offset by a $17.6 million increase in average interest-earning assets in 2008 due to growth in loan balances.

Interest income decreased $886,000, or 5.1%, to $16.6 million in 2008, compared to $17.5 million in 2007. The decrease was due to lower income on loans and securities. Interest income on loans decreased $654,000, or 4.1%, to $15.2 million in 2008, compared to $15.8 million in 2007, due to lower yields on loans partially offset by an increase in average loan balances. The average yield on loans decreased 98 bp to 6.56% in 2008, compared to 7.54% in 2007, due to lower market rates on new originations and downward repricing on variable-rate loans. Average loan balances increased $21.3 million, or 10.2%, and totaled $231.5 million in 2008, compared to $210.2 million in 2007, due to growth in commercial, commercial real estate and multi-family mortgage loans. Interest income on securities decreased $191,000, or 12.6%, and totaled $1.3 million in 2008, compared to $1.5 million in 2007, due to a decrease in the average balance of securities partially offset by an increase in the average yield on securities. The average balance of securities decreased $3.9 million and totaled $26.0 million in 2008, compared to $29.9 million in 2007, due to sales, maturities and prepayments. The average yield on securities increased 11 bp to 5.20% in 2008, compared to 5.09% in 2007, due to prepayments on mortgage-backed securities owned at a discount.

Interest expense decreased $1.9 million, or 19.0%, to $7.9 million in 2008, compared to $9.8 million in 2007. The decrease was due to a decline in the cost of both deposits and borrowings, partially offset by an increase in average deposit balances. Interest expense on deposits decreased $1.0 million, or 14.0%, to $6.2 million in 2008, compared to $7.2 million in 2007, due to a decrease in the average cost of deposits, partially offset by an increase in average deposit balances. The average cost of deposits decreased 103 bp, to 3.31% in 2008, compared to 4.34% in 2007, due to a decline in short-term market interest rates during 2008. Average deposit balances increased $21.3 million, or 12.8%, to $187.5 million in 2008, compared to $166.2 million in 2007, due to growth in certificate of deposit accounts. Interest expense on FHLB advances and other borrowings, including subordinated debentures, decreased $852,000, or 33.1%, to $.1.7 million in 2008, compared to $2.6 million in 2007, due to a decrease in both the average cost and average balance of borrowings. The average cost of FHLB advances and other borrowings decreased 135 bp, to 3.67% in 2008, compared to 5.02% in 2007, due to lower short-term interest rates during 2008. The average balance of FHLB advances and other borrowings decreased $4.3 million, to $47.0 million in 2008, compared to $51.3 million in 2007, due to the repayment of FHLB advances with funds from the increase in deposits and cash flows from the securities portfolio.

Provision for loan losses. The provision for loan losses totaled $917,000 in 2008, compared to $539,000 in 2007. The increase in 2008 was primarily due to an increase in nonperforming loans and net loan charge-offs.

Nonperforming loans increased $1.9 million and totaled $2.4 million, or 1.02% of total loans, at December 31, 2008, compared to $488,000, or 0.21% of total loans, at December 31, 2007. The increase in nonperforming loans included: one commercial loan, totaling $646,000, and three multi-family loans to one borrower, totaling $1.3 million, which were past due and on nonaccrual status at December 31, 2008; and one commercial real estate loan totaling $347,000, which was 90 days past maturity and still accruing interest at December 31, 2008, as the borrower continued to make monthly payments on the loan. The amount of the ALLL specifically allocated to nonperforming loans totaled $514,000 at December 31, 2008.

Net charge-offs totaled $481,000, or 0.21% of average loans, in 2008, compared to net recoveries of $36,000, or 0.02% of average loans, in 2007. Net charge-offs in 2008 related to home equity lines of credit, single-family mortgages and auto loans.

At December 31, 2008, in addition to the nonperforming loans discussed previously, seven commercial loans and one commercial real estate loan, totaling $2.6 million and $530,000, respectively, were classified as substandard. At December 31, 2007, four commercial loans and one multi-family loan, totaling $2.1 million and $1.3 million, respectively, were classified as substandard.

The ratio of the ALLL to total loans was 1.32% at December 31, 2008, compared to 1.15% at December 31, 2007.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 17

COMPARISON OF RESULTS OF OPERATIONS FOR 2008 AND 2007 (CONTINUED)

Noninterest income. Noninterest income totaled $948,000 and increased $220,000 in 2008, compared to $728,000 in 2007. The increase was primarily due to a $257,000 increase in service charges on deposit accounts related to a third party payment processor. These accounts were active only during the fourth quarter of 2008. Noninterest income also included $54,000 in net gains on sales of securities in 2008, and $74,000 lower net gains on sales of loans due to fewer mortgage loan originations in 2008. Mortgage loans originated for sale totaled $27.0 million in 2008, compared to $37.3 million in 2007.

Noninterest expense. Noninterest expense decreased $248,000, or 3.1%, and totaled $7.7 million in 2008, compared to $8.0 million in 2007. The decrease in noninterest expense in 2008 was due to a $543,000 decrease in salaries and employee benefits and $49,000 decrease in occupancy and equipment expense. In 2007, these expense categories included $741,000 of the arbitration loss and lease termination expense. Salaries and employee benefits in 2008 included approximately $98,000 additional expense related to the addition of five mortgage originators and one mortgage management staff position. Occupancy and equipment expense in 2008 included a $67,000 increase in real estate tax expense related to our Worthington office and a $23,000 increase in rent expense primarily related to additional space in the Fairlawn office, offset by a $61,000 decline in rent expense associated with the former mortgage location. Advertising and promotion expenses decreased $158,000 as a result of management’s decision to reduce these activities in 2008. Data processing expenses increased $130,000 in 2008, and included costs associated with increased check clearing activity related to the third party payment processor, referred to in the “Noninterest income” section of this Annual Report. Professional fees increased $200,000 in 2008 due to legal fees associated with nonperforming loans and costs related to selection of a new core processing system, which was tentatively planned for implementation in 2009 to improve operational efficiency and support the requirements of our business banking strategy, but cancelled due to general economic conditions in 2009. Gains on sales of foreclosed assets, included in foreclosed assets, net, decreased $27,000 in 2008. Depreciation increased $64,000 in 2008 due to expense related to the Worthington office building.

FDIC insurance premiums, included in other noninterest expense, increased $65,000 and totaled $86,000 in 2008, compared to $21,000 in 2007. FDIC premiums were reduced by a $103,000 one-time assessment credit issued by the FDIC under the Federal Insurance Reform Act of 2005, which offset $74,000 in premiums in 2007 and $29,000 in premiums in 2008, at which time it was fully utilized.

The ratio of noninterest expense to average assets improved to 2.79% in 2008, from 3.08% in 2007. The efficiency ratio improved to 80.75% in 2008, compared to 94.57% in 2007.

Income taxes. Income taxes totaled $261,000 in 2008, compared to a tax benefit of $63,000 associated with the loss in 2007.

page 18   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

AVERAGE BALANCES, INTEREST RATES AND YIELDS

The following table presents, for the periods indicated, the total dollar amount of fully taxable equivalent interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Average balances are computed using month-end balances.

	FOR THE YEARS ENDED DECEMBER 31,
	2009								2008								2007
	Average			Interest		Average			Average			Interest		Average			Average			Interest		Average
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
(DOLLARS IN THOUSANDS)	Balance			Paid		Rate			Balance			Paid		Rate			Balance			Paid		Rate
Interest-earning assets:
Securities (1) (2)	$	22,692		$	1,120		5.13	%	$	25,951		$	1,329		5.20	%	$	29,864		$	1,520		5.09	%
Loans and loans held for sale (3)		236,409			13,197		5.58	%		231,539			15,193		6.56	%		210,169			15,847		7.54	%
Other earning assets		10,251			32		0.31	%		513			8		1.56	%		350			18		5.14	%
FHLB stock		2,053			97		4.72	%		2,064			107		5.18	%		2,105			138		6.56	%
Total interest-earning assets		271,405			14,446		5.34	%		260,067			16,637		6.41	%		242,488			17,523		7.23	%
Noninterest-earning assets		15,243								17,409								17,098
Total assets	$	286,648							$	277,476							$	259,586
Interest-bearing liabilities:
Deposits	$	200,438			4,723		2.36	%	$	187,495			6,210		3.31	%	$	166,242			7,218		4.34	%
FHLB advances and other borrowings		37,214			1,224		3.29	%		47,013			1,725		3.67	%		51,295			2,577		5.02	%
Total interest-bearing liabilities		237,652			5,947		2.50	%		234,508			7,935		3.38	%		217,537			9,795		4.50	%
Noninterest-bearing liabilities		18,976								16,009								13,997
Total liabilities		256,628								250,517								231,534
Equity		30,020								26,959								28,052
Total liabilities and equity	$	286,648							$	277,476							$	259,586
Net interest-earning assets	$	33,753							$	25,559							$	24,951
Net interest income/interest rate spread				$	8,499		2.84	%				$	8,702		3.03	%				$	7,728		2.73	%
Net interest margin							3.14	%							3.35	%							3.19	%
Average interest-earning assets to average interest- bearing liabilities		114.20	%							110.90	%							111.47	%

(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.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 19

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase and decrease related to changes in balances and/or changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the prior rate) and (ii) changes in rate (i.e., changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

	YEAR ENDED DECEMBER 31, 2009									YEAR ENDED DECEMBER 31, 2008
	COMPARED TO YEAR ENDED DECEMBER 31, 2008									COMPARED TO YEAR ENDED DECEMBER 31, 2007
	INCREASE (DECREASE) DUE TO									INCREASE (DECREASE) DUE TO
(DOLLARS IN THOUSANDS)	RATE			VOLUME			NET			RATE			VOLUME			NET
Interest-earning assets:
Securities (1)	$	(20	)	$	(189	)	$	(209	)	$	29		$	(220	)	$	(191	)
Loans and loans held for sale		(2,311	)		315			(1,996	)		(2,173	)		1,519			(654	)
Other earning assets		(11	)		35			24			(16	)		6			(10	)
FHLB stock		(9	)		(1	)		(10	)		(28	)		(3	)		(31	)
Total interest-earning assets		(2,351	)		160			(2,191	)		(2,188	)		1,302			(886	)
Interest-bearing liabilities:
Deposits		(1,892	)		405			(1,487	)		(1,854	)		846			(1,008	)
FHLB advances and other borrowings		(166	)		(335	)		(501	)		(651	)		(201	)		(852	)
Total interest-bearing liabilities		(2,058	)		70			(1,988	)		(2,505	)		645			(1,860	)
Net change in net interest income	$	(293	)	$	90		$	(203	)	$	317		$	657		$	974

(1) Securities amounts are presented on a fully taxable equivalent basis.

page 20   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and interest rates. We have not engaged in and, accordingly, have no risk related to trading accounts, commodities, or foreign exchange. Our hedging policy allows hedging activities, such as interest-rate swaps, up to 10% of total assets. Disclosures about our hedging activities are set forth in Note 18 to our consolidated financial statements. The Company’s market risk arises primarily from interest rate risk inherent in our lending, investing, deposit gathering and borrowing activities. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated and the resulting net positions are identified. Disclosures about fair value are set forth in Note 4 to our consolidated financial statements.

Management actively monitors and manages interest rate risk. The primary objective in managing interest rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on our net interest income and capital. We measure the effect of interest rate changes on CFBank’s net portfolio value (NPV), which is the difference between the estimated market value of its assets and liabilities under different interest rate scenarios. The change in the NPV ratio is a long-term measure of what might happen to the market value of financial assets and liabilities over time if interest rates changed instantaneously and the Company did not change existing strategies. At December 31, 2009, CFBank’s NPV ratios, using interest rate shocks ranging from a 300 bp rise in rates to a 100 bp decline in rates are shown in the following table. All values are within the acceptable range established by CFBank’s Board of Directors.

NET PORTFOLIO VALUE (CFBANK ONLY)

BASIS POINT CHANGE IN RATES	NPV RATIO
+300		10.72	%
+200		11.29	%
+100		11.70	%
+50		11.82	%
0		11.99	%
-50		12.01	%
-100		12.05	%

In evaluating CFBank’s exposure to interest rate risk, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, the table indicates results based on changes in the level of interest rates, but not changes in the shape of the yield curve. CFBank also has exposure to changes in the shape of the yield curve. Although certain assets and liabilities may have similar maturities or periods to which they reprice, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. The ability of many borrowers to service their debt may decrease when interest rates rise. As a result, the actual effect of changing interest rates may differ materially from that presented in the foregoing table.

We continue to originate substantially all fixed-rate single-family mortgage loans for sale rather than retain long-term, low fixed-rate loans in portfolio. We continue to originate commercial, commercial real estate and multi-family residential mortgage loans for our portfolio, which, in many cases, have adjustable interest rates. Many of these loans have interest-rate floors, which protect income to CFBank should rates continue to fall. Due to the current historic low level of market interest rates in 2008 and 2009, the terms of some liabilities were extended to fix their cost at low levels and to protect net interest margin should interest rates rise. During the flat/inverted yield curve that existed during 2006 and much of 2007, we maintained a shorter duration of liabilities and benefited from repricing as interest rates fell, which increased net interest margin in 2008. In 2006, we issued $9.7 million in callable brokered certificates of deposit, which improved net interest margin when the call options were exercised in 2008 when short-term interest rates fell.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 21

LIQUIDITY AND CAPITAL RESOURCES

In general terms, liquidity is a measurement of an enterprise’s ability to meet cash needs. The primary objective in liquidity management is to maintain the ability to meet loan commitments and to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of funds are deposits; amortization, prepayments and sales of loans; maturities, sales and principal receipts of securities available for sale; borrowings; and operations. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

CFBank is required by regulation to maintain sufficient liquidity to ensure its safe and sound operation. Thus, adequate liquidity may vary depending on CFBank’s overall asset/liability structure, market conditions, the activities of competitors and the requirements of its own deposit and loan customers. Management believes that CFBank’s liquidity is sufficient.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets, primarily cash, short-term investments and other assets that are widely traded in the secondary market, based on our ongoing assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities and the objective of our asset/liability management program. In addition to liquid assets, we have other sources of liquidity available including, but not limited to, access to advances from the FHLB, borrowings from the Federal Reserve Bank (FRB), lines of credit with two commercial banks, use of brokered deposits, and the ability to obtain deposits by offering above-market interest rates.

The following table summarizes CFBank’s cash available from liquid assets and borrowing capacity at December 31, 2009 and 2008.

	AT DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009		2008
Cash and unpledged securities	$	5,033	$	6,828
Additional borrowing capacity at the FHLB		7,720		33,314
Additional borrowing capacity at the FRB		12,129		—
Unused commercial bank lines of credit		8,000		5,000
Total	$	32,882	$	45,142

Cash available from liquid assets and borrowing capacity decreased from $45.1 million at December 31, 2008 to $32.9 million at December 31, 2009. CFBank’s additional borrowing capacity with the FHLB decreased from $33.3 million at December 31, 2008 to $7.7 million at December 31, 2009 primarily due to deterioration in the credit performance of CFBank’s loan portfolio, which resulted in an increase in collateral maintenance requirements by the FHLB. Future tightening in overall credit policies by the FHLB or FRB, deterioration in the credit performance of CFBank’s loan portfolio, or a decline in the balances of pledged collateral, may further reduce CFBank’s borrowing capacity.

In addition to the sources of funds listed above, CFBank has the ability to use brokered deposits to raise additional funds. Brokered deposits totaled $45.9 million at December 31, 2009, and $67.2 million at December 31, 2008. Brokered deposits included customer deposits in the CDARS program of $37.4 million and $48.4 million at December 31, 2009 and 2008, respectively. Management intends to continue to use brokered deposits, including the CDARS program, as a funding source. Current regulatory restrictions limit an institution’s use of brokered deposits in situations where capital levels fall below well-capitalized levels.

CFBank could raise additional deposits by offering above-market interest rates. Current regulatory restrictions limit an institution’s ability to pay above-market interest rates in situations where capital levels fall below well-capitalized levels. 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 temporarily increased deposit insurance coverage from $100,000 to $250,000 per depositor through December 31, 2013. CFBank is a participant in the FDIC’s Temporary Liquidity Guarantee Program that provides unlimited deposit insurance coverage, through June 30, 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.

The Holding Company, as a savings and loan holding company, has more limited sources of liquidity than CFBank. In addition to its existing liquid assets, it can raise funds in the securities markets through debt or equity offerings, receive dividends from its subsidiaries, or sell assets. Cash can be used by the Holding Company to make acquisitions or investments in subsidiaries, and to fund quarterly interest payments on its subordinated debentures, dividends to common shareholders, dividends on the preferred stock issued to the U.S. Treasury, and operating expenses.

page 22   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

At December 31, 2009, the Holding Company had cash of $1.8 million available to meet cash needs. Annual debt service on the subordinated debentures is currently approximately $160,000. 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 3.10% at year-end 2009. 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 in 2009 were approximately $425,000. The Holding Company’s available cash at December 31, 2009 is sufficient to cover cash needs, at their current level, for approximately 2 years.

Banking regulations limit the amount of dividends that can be paid to the Holding Company by CFBank without prior approval of the OTS. Generally, CFBank may pay dividends without prior approval as long as the dividend is not more than the total of the current calendar year-to-date earnings plus any earnings from the previous two years not already paid out in dividends, and as long as CFBank would remain well capitalized after the dividend payment. As of December 31, 2009, CFBank can pay no dividends to the Holding Company without OTS approval. Future dividend payments by CFBank to the Holding Company would be based upon future earnings and the approval of the OTS. The Holding Company is significantly dependent on dividends from CFBank to provide the liquidity necessary to meet its obligations. In view of the uncertainty surrounding CFBank’s future ability to pay dividends to the Holding Company, management is exploring additional sources of funding to support its working capital needs. In the current economic environment, however, there can be no assurance that it will be able to do so or, if it can, what the cost of doing so will be.

At December 31, 2009, CFBank exceeded all of its regulatory capital requirements to be considered well-capitalized. Tier 1 capital level was $24.1 million, or 8.9% of adjusted total assets, which exceeded the required level of $13.6 million, or 5.0%. Tier 1 risk-based capital level was $24.1 million, or 10.5% of risk-weighted assets, which exceeded the required level of $13.8 million, or 6.0%. Total risk-based capital was $27.0 million, or 11.7% of risk-weighted assets, which exceeded the required level of $23.0 million, or 10.0%.

IMPACT OF INFLATION

The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which presently require us to measure financial position and results of operations primarily in terms of historical dollars. Changes in the relative value of money due to inflation are generally not considered. In our opinion, changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate. While interest rates are generally influenced by changes in the inflation rate, they do not move concurrently. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as changes in monetary and fiscal policy. A financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its ability to perform in a volatile economic environment. In an effort to protect performance from the effects of interest rate volatility, we review interest rate risk frequently and take the steps necessary to minimize any detrimental effects on profitability.

CRITICAL ACCOUNTING POLICIES

We follow financial accounting and reporting policies that are in accordance with U. S. generally accepted accounting principles and conform to general practices within the banking industry. These policies are presented in Note 1 to our consolidated financial statements. Some of these accounting policies are considered to be critical accounting policies, which are those policies that are both most important to the portrayal of the Company’s financial condition and results of operation, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Application of assumptions different than those used by management could result in material changes in our financial position or results of operations. These policies, current assumptions and estimates utilized, and the related disclosure of this process, are determined by management and routinely reviewed with the Audit Committee of the Board of Directors. We believe that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements were appropriate given the factual circumstances at the time.

We have identified accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand our financial statements. The following discussion details the critical accounting policies and the nature of the estimates made by management.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 23

CRITICAL ACCOUNTING POLICIES (CONTINUED)

Determination of the allowances for loan losses. The ALLL represents management’s estimate of probable incurred credit losses in the loan portfolio at each balance sheet date. The allowance consists of general and specific components. The general component covers loans not classified as impaired and is based on historical loss experience adjusted for current factors. Current factors considered include, but are not limited to, management’s oversight of the portfolio, including lending policies and procedures; nature, level and trend of the portfolio, including performing loans, trends in past due and nonperforming loans, loan concentrations, loan terms and other characteristics; current economic conditions and outlook; collateral values; and other items. The specific component of the ALLL relates to loans that are individually classified as impaired. Nonperforming loans exceeding policy thresholds are regularly reviewed to identify impairment. A loan is impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts contractually due. Determining whether a loan is impaired and whether there is an impairment loss requires judgment and estimates, and the eventual outcomes may differ from estimates made by management. The determination of whether a loan is impaired includes review of historical data, judgments regarding the ability of the borrower to meet the terms of the loan, an evaluation of the collateral securing the loan and estimation of its value, net of selling expenses, if applicable, various collection strategies, and other factors relevant to the loan or loans. Impairment is measured based on the fair value of collateral, less costs to sell, if the loan is collateral dependent, or alternatively, the present value of expected future cash flows discounted at the loan’s effective rate, if the loan is not collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment loss is recorded. As a result, determining the appropriate level for the ALLL involves not only evaluating the current financial situation of individual borrowers or groups of borrowers, but also current predictions about future events that could change before an actual loss is determined. Based on the variables involved and the fact that management must make judgments about outcomes that are inherently uncertain, the determination of the ALLL is considered to be a critical accounting policy. Additional information regarding this policy is included in the section titled “Allowance for loan losses” and in Notes 1, 3 and 4 to our consolidated financial statements.

Valuation of the deferred tax asset. Another critical accounting policy relates to valuation of the deferred tax asset, which includes the benefit of loss carryforwards which expire in varying amounts in future periods. At year-end 2009, the Company had net operating loss carry- forwards of approximately $7.7 million which expire at various dates from 2024 to 2029. Realization is dependent on generating sufficient future taxable income prior to expiration of the loss carryforwards. The Company’s net loss in 2009 reduced management’s near term estimate of future taxable income, and reduced the amount of the net deferred tax asset considered realizable. A $4.3 million valuation allowance was recorded in 2009, reducing the amount of the net deferred tax asset to zero. Additional information is included in Notes 1 and 12 to our consolidated financial statements.

Fair value of financial instruments. Another critical accounting policy relates to fair value of financial instruments, which are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Additional information is included in Notes 1 and 4 to our consolidated financial statements.

MARKET PRICES AND DIVIDENDS DECLARED

The common stock of Central Federal Corporation trades on the Nasdaq^® Capital Market under the symbol “CFBK.” As of December 31, 2009, there were 4,099,587 shares of common stock outstanding and 523 record holders.

The following table shows the quarterly reported high and low sales prices of the common stock and cash dividends per common share declared during 2009 and 2008.

	HIGH		LOW		DIVIDENDS
2009
First quarter	$	3.45	$	2.00	$	—
Second quarter		3.50		2.26		—
Third quarter		3.00		1.85		—
Fourth quarter		2.60		1.05		—
2008
First quarter	$	4.94	$	3.75	$	0.05
Second quarter		5.08		3.54		0.05
Third quarter		3.90		3.07		0.05
Fourth quarter		4.10		2.35		0.05

As a participant in the TARP Capital Purchase Program, the Company is subject to certain terms and conditions, including limits on the payment of dividends on the Company’s common stock. Additional information is contained in the section titled “Stockholders’ equity” and in Note 15 to our consolidated financial statements.

page 24   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

FINANCIAL STATEMENTS

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Central Federal Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2009.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

This annual report does not contain an audit report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Mark S. Allio
Chairman of the Board, President and Chief Executive Officer

Therese Ann Liutkus, CPA
Treasurer and Chief Financial Officer

March 15, 2010

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 25

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

Crowe Horwath LLP
Member Horwath International

The Board of Directors and Stockholders
Central Federal Corporation
Fairlawn, Ohio

We have audited the accompanying consolidated balance sheets of Central Federal Corporation as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Central Federal Corporation as of December 31, 2009 and 2008 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

Crowe Horwath LLP

Cleveland, Ohio
March 15, 2010

page 26   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

CONSOLIDATED BALANCE SHEETS

	DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2009			2008
Assets
Cash and cash equivalents	$	2,973		$	4,177
Securities available for sale		21,241			23,550
Loans held for sale		1,775			284
Loans, net of allowance of $7,090 and $3,119		231,105			233,922
Federal Home Loan Bank stock, at cost		1,942			2,109
Loan servicing rights		88			112
Premises and equipment, net		7,003			5,246
Other intangible assets		169			—
Bank owned life insurance		4,017			3,892
Deferred tax asset		—			1,598
Accrued interest receivable and other assets		3,429			2,891
	$	273,742		$	277,781
Liabilities and Stockholders’ Equity
Deposits
Noninterest bearing	$	17,098		$	14,557
Interest bearing		193,990			193,090
Total deposits		211,088			207,647
Short-term Federal Home Loan Bank advances		2,065			5,850
Long-term Federal Home Loan Bank advances		29,942			23,200
Advances by borrowers for taxes and insurance		161			167
Accrued interest payable and other liabilities		2,104			2,687
Subordinated debentures		5,155			5,155
Total liabilities		250,515			244,706
Stockholders’ equity
Preferred stock, Series A, $.01 par value; $7,225 aggregate liquidation value, 1,000,000 shares authorized; 7,225 shares issued		7,021			6,989
Common stock, $.01 par value; shares authorized; 12,000,000 in 2009 and 6,000,000 in 2008, shares issued; 4,658,120 in 2009 and 4,660,070 in 2008		47			47
Common stock warrant		217			217
Additional paid-in capital		27,517			27,455
Retained earnings (accumulated deficit)		(9,034	)		1,262
Accumulated other comprehensive income		704			350
Treasury stock, at cost; 558,533 shares		(3,245	)		(3,245	)
Total stockholders’ equity		23,227			33,075
	$	273,742		$	277,781

(See accompanying notes.)

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 27

CONSOLIDATED STATEMENTS OF OPERATIONS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2009			2008			2007
Interest and dividend income
Loans, including fees	$	13,197		$	15,193		$	15,847
Securities		1,120			1,329			1,520
Federal Home Loan Bank stock dividends		97			107			138
Federal funds sold and other		32			8			18
		14,446			16,637			17,523
Interest expense
Deposits		4,723			6,210			7,218
Short-term Federal Home Loan Bank advances and other debt		1			541			1,639
Long-term Federal Home Loan Bank advances and other debt		1,027			850			512
Subordinated debentures		196			334			426
		5,947			7,935			9,795
Net interest income		8,499			8,702			7,728
Provision for loan losses		9,928			917			539
Net interest income after provision for loan losses		(1,429	)		7,785			7,189
Noninterest income
Service charges on deposit accounts		345			544			287
Net gains on sales of loans		642			159			233
Loan servicing fees, net		36			34			49
Net gains on sales of securities		—			54			—
Earnings on bank owned life insurance		125			123			123
Net gain on acquisition		208			—			—
Other		21			34			36
		1,377			948			728
Noninterest expense
Salaries and employee benefits		4,166			4,058			4,601
Occupancy and equipment		481			485			534
Data processing		616			687			558
Franchise taxes		346			308			293
Professional fees		769			558			358
Director fees		108			136			148
Postage, printing and supplies		162			159			162
Advertising and promotion		52			45			203
Telephone		103			91			99
Loan expenses		82			20			23
Foreclosed assets, net		(1	)		(3	)		(30	)
Depreciation		483			683			619
FDIC premiums		541			86			21
Amortization of intangibles		6			—			—
Other		348			436			408
	$	8,262		$	7,749		$	7,997
Income (loss) before income taxes	$	(8,314	)	$	984		$	(80	)
Income tax expense (benefit)		1,577			261			(63	)
Net income (loss)		(9,891	)		723			(17	)
Preferred stock dividends and accretion of discount on preferred stock		(407	)		(29	)		—
Net income (loss) available to common stockholders	$	(10,298	)	$	694		$	(17	)
Earnings (loss) per common share:
Basic	$	(2.51	)	$	0.16		$	—
Diluted	$	(2.51	)	$	0.16		$	—

(See accompanying notes.)

page 28   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

										RETAINED			ACCUMULATED
					COMMON					EARNINGS			OTHER						TOTAL
	PREFERRED		COMMON		STOCK		ADDITIONAL			(ACCUMULATED			COMPREHENSIVE			TREASURY			STOCKHOLDERS’
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	STOCK		STOCK		WARRANT		PAID-IN CAPITAL			DEFICIT)			INCOME (LOSS)			STOCK			EQUITY
Balance at January 1, 2007	$	—	$	46	$	—	$	27,204		$	2,643		$	(25	)	$	(783	)	$	29,085
Comprehensive income:
Net loss											(17	)								(17	)
Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects														212						212
Total comprehensive income																				195
Release of 17,633 stock based incentive plan shares								152												152
Tax benefits from dividends on unvested stock based incentive plan shares								3												3
Tax effect from vesting of stock based incentive plan shares								(26	)											(26	)
Stock option expense								15												15
Purchase of 125,000 treasury shares																	(830	)		(830	)
Cash dividends declared on common stock ($.28 per share)											(1,215	)								(1,215	)
Balance at December 31, 2007		—		46		—		27,348			1,411			187			(1,613	)		27,379
Comprehensive income:
Net income											723									723
Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects														163						163
Total comprehensive income																				886
Issuance of 7,225 shares preferred stock and 336,568 common stock warrants, net of offering costs of $22		6,986				217														7,203
Accretion of discount on preferred stock		3									(3	)								—
Issuance of 31,750 stock based incentive plan shares				1																1
Release of 23,417 stock based incentive plan shares								127												127
Tax benefits from dividends on unvested stock based incentive plan shares								3												3
Tax effect from vesting of stock based incentive plan shares								(45	)											(45	)
Stock option expense								22												22
Purchase of 365,000 treasury shares																	(1,632	)		(1,632	)
Preferred stock dividends											(26	)								(26	)
Cash dividends declared on common stock ($.20 per share)											(843	)								(843	)
Balance at December 31, 2008	$	6,989	$	47	$	217	$	27,455		$	1,262		$	350		$	(3,245	)	$	33,075

(continued on next page.)

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 29

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

											RETAINED			ACCUMULATED
						COMMON					EARNINGS			OTHER					TOTAL
	PREFERRED			COMMON		STOCK		ADDITIONAL			(ACCUMULATED			COMPREHENSIVE		TREASURY			STOCKHOLDERS’
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	STOCK			STOCK		WARRANT		PAID-IN CAPITAL			DEFICIT)			INCOME (LOSS)		STOCK			EQUITY
Balance at January 1, 2009	$	6,989		$	47	$	217	$	27,455		$	1,262		$	350	$	(3,245	)	$	33,075
Comprehensive loss:
Net loss												(9,891	)							(9,891	)
Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects															354					354
Total comprehensive loss																				(9,537	)
Preferred stock offering costs		(13	)																	(13	)
Accretion of discount on preferred stock		45										(45	)							—
Release of 11,921 stock based incentive plan shares									55											55
Forfeiture of 1,950 stock based incentive plan shares												2								2
Tax benefits from dividends on unvested stock based incentive plan shares									1											1
Tax effect from vesting of stock based incentive plan shares									(20	)										(20	)
Stock option expense									26											26
Preferred stock dividends												(362	)							(362	)
Balance at December 31, 2009	$	7,021		$	47	$	217	$	27,517		$	(9,034	)	$	704	$	(3,245	)	$	23,227

(See accompanying notes.)

page 30   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2009			2008			2007
Net income (loss)	$	(9,891	)	$	723		$	(17	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision for loan losses		9,928			917			539
Valuation (gain) loss on mortgage servicing rights		(4	)		3			(3	)
Depreciation		483			683			619
Amortization, net		(38	)		(55	)		(121	)
Net realized (gain) loss on sales of securities		—			(54	)		—
Originations of loans held for sale		(66,024	)		(26,973	)		(37,282	)
Proceeds from sale of loans held for sale		63,312			27,306			39,058
Net gain on sale of loans		(642	)		(159	)		(233	)
Valuation loss on loans transferred from held for sale to portfolio		5			—			—
Net gain on acquisition		(208	)		—			—
Loss (gain) on disposal of premises and equipment		—			(1	)		38
Gain on sale of foreclosed assets		(1	)		(22	)		(46	)
FHLB stock dividends		—			(81	)		—
Stock-based compensation expense		83			149			167
Change in deferred income taxes (net of change in valuation allowance)		1,579			314			(61	)
Net change in:
Bank owned life insurance		(125	)		(123	)		(123	)
Accrued interest receivable and other assets		(542	)		(262	)		(876	)
Accrued interest payable and other liabilities		(442	)		(457	)		1,761
Net cash from operating activities		(2,527	)		1,908			3,420
Cash flows from investing activities
Available-for-sale securities:
Sales		—			2,064			—
Maturities, prepayments and calls		6,419			10,103			7,244
Purchases		(3,698	)		(6,917	)		(5,867	)
Loan originations and payments, net		(4,403	)		(4,401	)		(41,371	)
Loans purchased		(2,231	)		—			(5,146	)
Proceeds from redemption of FHLB stock		167			—			850
Purchase of FHLB stock		—			(65	)		—
Additions to premises and equipment		(40	)		(212	)		(2,278	)
Proceeds from the sale of premises and equipment		1			1			9
Proceeds from the sale of foreclosed assets		28			231			246
Net cash used in acquisition		(675	)		—			—
Net cash from investing activities	$	(4,432	)	$	804		$	(46,313	)

(continued on next page.)

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 31

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2009			2008			2007
Cash flows from financing activities
Net change in deposits	$	3,363		$	13,247		$	26,669
Net change in short-term borrowings from the FHLB and other debt		(3,785	)		(32,400	)		17,000
Proceeds from long-term FHLB advances and other debt		17,942			14,000			4,200
Repayments on long-term FHLB advances and other debt		(11,200	)		(2,000	)		(4,270	)
Net change in advances by borrowers for taxes and insurance		(6	)		13			17
Cash dividends paid on common stock		(205	)		(860	)		(1,402	)
Cash dividends paid on preferred stock		(341	)		—			—
Proceeds from issuance of preferred stock and common stock warrant		—			7,203			—
Costs associated with issuance of preferred stock		(13	)		—			—
Purchase of treasury shares		—			(1,632	)		(830	)
Net cash from financing activities		5,755			(2,429	)		41,384
Net change in cash and cash equivalents		(1,204	)		283			(1,509	)
Beginning cash and cash equivalents		4,177			3,894			5,403
Ending cash and cash equivalents	$	2,973		$	4,177		$	3,894
Supplemental cash flow information:
Interest paid	$	6,095		$	7,340		$	9,733
Income taxes paid		—			51			15
Supplemental noncash disclosures:
Transfers from loans to repossessed assets	$	174		$	123		$	286
Loans issued to finance the sale of repossessed assets		162			—			—
Loans transferred from held for sale to portfolio		1,852			—			—

(See accompanying notes.)

page 32   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Central Federal Corporation, its wholly-owned subsidiaries, CFBank, Ghent Road, Inc., and Smith Ghent LLC, together referred to as “the Company”. Ghent Road, Inc. was formed in 2006 and owns property. Prior to October 2009, the Company owned a one-third interest in Smith Ghent LLC, which owns the Company’s headquarters in Fairlawn. The Company purchased the remaining two-thirds interest in October 2009. Intercompany transactions and balances are eliminated in consolidation.

CFBank provides financial services through its offices in Fairlawn, Worthington, Wellsville and Calcutta, Ohio. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial and residential mortgages, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the customer’s geographic areas.

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, (GAAP), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, loan servicing rights, deferred tax assets, and fair values of financial instruments are particularly subject to change.

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions and borrowings with original maturities under 90 days.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights released. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right when mortgage loans held for sale are sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, adjusted for purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged-off no later than 90 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 33

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentration of Credit Risk: Most of the Company’s primary business activity is with customers located within the Ohio counties of Columbiana, Franklin, Summit and contiguous counties. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economies within these counties. Although these counties are the Company’s primary market area for loans, the Company originates residential and commercial real estate loans throughout the United States.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers loans not classified as impaired and is based on historical loss experience adjusted for current factors.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified to grant concessions, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Commercial, multi-family residential and commercial real estate loans are evaluated for impairment when they are over 90 days past due and adversely classified. All other loans over $500 are individually evaluated for impairment when they are 90 days past due or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

Servicing Rights: Servicing rights are recognized separately when they are acquired through sales of loans. When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If it is later determined that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with loan servicing fees, net on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement as loan servicing fees, net is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Loan servicing fees, net totaled $36, $34 and $49 for the years ended December 31, 2009, 2008 and 2007, respectively. Late fees and ancillary fees related to loan servicing are not material.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at lower of cost or fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 3 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 2 to 25 years. Leasehold improvements are amortized over the lives of the respective leases.

page 34   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Federal Home Loan Bank (FHLB) stock: CFBank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Bank Owned Life Insurance: CFBank purchased life insurance policies on certain directors and employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Intangible Assets: Intangible assets consist of identified intangibles from the purchase of the remaining two-thirds interest in Smith Ghent LLC in October 2009. The intangible asset was initially measured at fair value and is being amortized on a straight-line method over the estimated life of 4.5 years.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company’s derivatives consist mainly of interest-rate swap agreements, which are used as part of its asset liability management to help manage interest rate risk. The Company does not use derivatives for trading purposes. The derivative transactions are considered instruments with no hedging designation (“stand-alone derivatives”). Changes in the fair value of the derivatives are reported currently in earnings, as noninterest income.

Mortgage Banking Derivatives: CFBank enters into interest rate lock commitments on mortgage loans to be sold into the secondary market. These derivatives are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in gain on sale of loans.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the required service period for each separately vesting portion of the award.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance of $4,312 was recorded in 2009 to reduce the carrying amount of the Company’s net deferred tax asset to zero. See Note 12 — Income Taxes.

The Company adopted guidance issued by the Financial Accounting Standards Board (FASB) with respect to accounting for uncertainty in income taxes as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no affect on the Company’s financial statements.

The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other expense.

Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Supplemental retirement plan expense allocates the benefits over years of service.

Earnings Per Common Share: Basic earnings per common share is net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and warrant.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Equity: Treasury stock is carried at cost. The carrying value of preferred stock and the common stock warrant is based on allocation of issuance proceeds, net of issuance costs, in proportion to their relative fair values. Preferred stock is carried net of the discount established through the allocation of proceeds.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 35

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by CFBank to the Holding Company or by the Holding Company to stockholders. On December 5, 2008, the Company issued 7,225 shares of preferred stock to the United States Department of the Treasury (U.S. Treasury) under the Troubled Asset Relief Program (TARP) Capital Purchase Program. While that preferred stock remains outstanding, dividends on the Company’s common stock are limited to a quarterly cash dividend of a maximum of $.05 per share. See Note 15 — Preferred Stock.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 4 — Fair Value. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments: While the chief decision-makers monitor the revenue streams of the Company’s various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. From 2005 thru 2007, internal financial information was primarily reported and aggregated in two lines of business, banking and mortgage banking. Beginning in 2008, mortgage banking activities are considered to be part of banking activities due to the level of mortgage banking activities’ contribution to the Company’s overall performance.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards:

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (Accounting Standards Codification (ASC) 820-10). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157, which is currently ASC 820-10. This FSP delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this pronouncement did not have a material impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (ASC 805). ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. ASC 805 was effective for fiscal years beginning on or after December 15, 2008. There was no impact on the Company’s results of operations or financial position upon adoption. However, the Company accounted for its acquisition of the controlling interest in Smith Ghent LLC in accordance with ASC 805.

In June 2008, the FASB issued FSP EITF 03-6-1 — Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (ASC 260-10). This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, included in the earnings allocation in computing earnings per share (EPS) under the two-class method. ASC 260-10 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This FSP was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented were to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to the provisions of this FSP. Adoption of this pronouncement reduced the Company’s basic and diluted income (loss) per common share by $.01 for 2008 and by less than $.01 for 2009 and 2007.

In April 2009, the FASB issued FSP No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (OTTI) (ASC 320-10), which amended existing guidance for determining whether impairment is other-than-temporary for debt securities. The FSP requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to other factors, which is recognized in other comprehensive income and 2) OTTI related to credit loss, which must be recognized in the income statement. The credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. Additionally, disclosures about OTTI for debt and equity securities were expanded. ASC 320-10 was effective for interim and annual reporting periods ending June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this pronouncement by the Company on April 1, 2009 did not have a material impact on its results of operations or financial position.

page 36   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (ASC 820-10). This FSP emphasizes that the objective of a fair value measurement does not change even when market activity for the asset or liability has decreased significantly. Fair value is the price that would be received for an asset sold or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When observable transactions or quoted prices are not considered orderly, then little, if any, weight should be assigned to the indication of the asset or liability’s fair value. Adjustments to those transactions or prices would be needed to determine the appropriate fair value. The FSP, which was applied prospectively, was effective for interim and annual reporting periods ending after June 15, 2009, with early adoption for periods ending after March 15, 2009. The adoption of this pronouncement by the Company at June 30, 2009 did not have a material impact on its results of operations or financial position.

Effect of Newly Issued But Not Yet Effective Accounting Standards:

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (ASC 810). The new accounting requirement amends previous guidance relating to the transfers of financial assets and eliminates the concept of a qualifying special-purpose entity. ASC 810 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. ASC 810 must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. Additionally, the disclosure provisions of ASC 810 were also amended and apply to transfers that occurred both before and after the effective date of ASC 810. The adoption of ASC 810 is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (ASC 810), which amended guidance for consolidation of variable interest entities by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and has (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. SFAS No. 167 also requires additional disclosures about an enterprise’s involvement in variable interest entities. SFAS No. 167 will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. The adoption of SFAS No. 167 is not expected to have a material effect on the Company’s consolidated financial statements.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 37

NOTE 2 — SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at December 31, 2009 and 2008 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED			FAIR
	COST		GAINS		LOSSES			VALUE
2009
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential	$	5,171	$	390	$	—		$	5,561
Collateralized mortgage obligations		13,551		479		—			14,030
Collateralized mortgage obligations issued by private issuers		1,635		15		—			1,650
Total	$	20,357	$	884	$	—		$	21,241
2008
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential	$	6,671	$	254	$	(3	)	$	6,922
Collateralized mortgage obligations		16,349		289		(10	)		16,628
Total	$	23,020	$	543	$	(13	)	$	23,550

The proceeds from sales and calls of securities and the associated gains in 2008 are listed below:

	2008
Proceeds	$	2,064
Gross gains		54
Gross losses		—

There were no proceeds from sales and calls of securities in 2009 or 2007. The tax benefit related to the gains in 2008 was $18.

At year-end 2009 and 2008, there were no debt securities contractually due at a single maturity date. The amortized cost and fair value of mortgage-backed securities and collateralized mortgage obligations, which are not due at a single maturity date, totaled $20,357 and $21,241 at December 31, 2009, and $23,020 and $23,550 at December 31, 2008.

page 38   |      CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 2 — SECURITIES (CONTINUED)

Fair value of securities pledged was as follows:

	2009		2008
Pledged as collateral for:
FHLB advances	$	11,045	$	13,508
Public deposits		4,038		3,058
Customer repurchase agreements		3,088		3,098
Interest-rate swaps		1,010		1,235
Total	$	19,181	$	20,899

At year-end 2009 and 2008, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table summarizes securities with unrealized losses at December 31, 2008 aggregated by major security type and length of time in a continuous unrealized loss position. There were no securities with unrealized losses at December 31, 2009.

	LESS THAN 12 MONTHS					12 MONTHS OR MORE					TOTAL
2008			UNREALIZED					UNREALIZED					UNREALIZED
DESCRIPTION OF SECURITIES	FAIR VALUE		LOSS			FAIR VALUE		LOSS			FAIR VALUE		LOSS
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential	$	568	$	(3	)	$	—	$	—		$	568	$	(3	)
Collateralized mortgage obligations		165		—			1,013		(10	)		1,178		(10	)
Total temporarily impaired	$	733	$	(3	)	$	1,013	$	(10	)	$	1,746	$	(13	)

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

As of December 31, 2009, the Company’s securities portfolio consisted of $21,241 of securities, none of which were in an unrealized loss position. The Company’s securities portfolio included one private-label collateralized mortgage obligation at December 31, 2009, which was rated AAA at purchase. The Company monitors the security’s performance to insure it has adequate credit support.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT      |   page 39

NOTE 3 — LOANS

Loans at year-end were as follows:

	2009			2008
Commercial	$	42,755		$	40,945
Real estate:
Single-family residential		30,636			28,884
Multi-family residential		37,732			41,495
Commercial		101,350			99,652
Consumer		26,030			26,429
Subtotal		238,503			237,405
Less: Net deferred loan fees		(308	)		(364	)
Allowance for loan losses		(7,090	)		(3,119	)
Loans, net	$	231,105		$	233,922

Commercial real estate loans include $4,759 and $2,872 in construction loans at December 31, 2009 and December 31, 2008. Single-family residential real estate loans include $1,064 and $180 in construction loans at December 31, 2009 and December 31, 2008.

Activity in the allowance for loan losses was as follows:

	2009			2008			2007
Beginning balance	$	3,119		$	2,684		$	2,109
Provision for loan losses		9,928			917			539
Reclassification of allowance for losses on loan related commitments (1)		(36	)		—			—
Loans charged-off		(6,264	)		(497	)		(44	)
Recoveries		343			15			80
Ending balance	$	7,090		$	3,119		$	2,684

(1) Reclassified to accrued interest payable and other liabilities in the consolidated balance sheet.

Individually impaired loans were as follows:

	2009		2008
Period-end loans with no allocated allowance for loan losses	$	6,964	$	—
Period-end loans with allocated allowance for loan losses		6,734		2,257
Total	$	13,698	$	2,257
Amount of the allowance for loan losses allocated	$	2,033	$	514

	2009		2008		2007
Average of individually impaired loans during the year	$	7,341	$	1,647	$	—
Interest income recognized during impairment		—		3		—
Cash-basis interest income recognized		—		—		—

page 40   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 3 — LOANS (CONTINUED)

Nonaccrual loans and loans past due over 90 days still on accrual were as follows:

	2009		2008
Loans past due over 90 days still on accrual	$	14	$	348
Nonaccrual loans:
Commercial	$	217	$	646
Single-family residential real estate		426		63
Multi-family residential real estate		4,406		1,264
Commercial real estate		6,864		—
Home equity lines of credit		1,307		60
Other consumer		—		31
Total nonaccrual loans	$	13,220	$	2,064

Nonaccrual loans and loans past due over 90 days still on accrual include both smaller balance single-family mortgage and consumer loans that are collectively evaluated for impairment and individually classified impaired loans.

Nonaccrual loans include loans that were modified and identified as troubled debt restructurings, where concessions had been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate, payment extensions, principal forgiveness, and other actions intended to maximize collection. At December 31, 2009, nonaccruing troubled debt restructurings were as follows:

	2009
Commercial	$	217
Single-family residential real estate		261
Commercial real estate		854
Home equity lines of credit		496
Total	$	1,828

There were no troubled debt restructurings at December 31, 2008. The Company has allocated $511 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of December 31, 2009.

Nonaccrual loans at December 31, 2009 do not include $1,310 in troubled debt restructurings where customers have established a sustained period of repayment performance, loans are current according to their modified terms, and repayment of the remaining contractual payments is expected. These loans are included in impaired loans totals.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 41

NOTE 4 — FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of asset and liability:

Securities available for sale: The fair value of securities available for sale is determined using pricing models that vary based on asset class and include available trade, bid, and other market information or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Derivatives: The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2).

Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Loan servicing rights: Fair value is based on a valuation model that calculates the present value of estimated future net servicing income (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2009
	USING SIGNIFICANT OTHER OBSERVABLE INPUTS
	(LEVEL 2)
Assets:
Securities available for sale:
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential	$	5,561
Collateralized mortgage obligations		14,030
Collateralized mortgage obligations issued by private issuers		1,650
Total securities available for sale	$	21,241
Yield maintenance provisions (embedded derivatives)	$	480
Liabilities:
Interest-rate swaps	$	480

page 42   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 4 — FAIR VALUE (CONTINUED)

	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2008
	USING SIGNIFICANT OTHER OBSERVABLE INPUTS
	(LEVEL 2)
Assets:
Securities available for sale:
Issued by U.S. government-sponsored agencies:
Mortgage-backed securities — residential	$	6,922
Collateralized mortgage obligations		16,628
Total securities available for sale	$	23,550
Yield maintenance provisions (embedded derivatives)	$	929
Liabilities:
Interest-rate swaps	$	929

Assets Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2009 USING:
	SIGNIFICANT OTHER OBSERVABLE INPUTS		SIGNIFICANT UNOBSERVABLE INPUTS
	(LEVEL 2)		(LEVEL 3)
Loan servicing rights	$	16	$	—
Impaired loans		—		6,757

	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2008 USING:
	SIGNIFICANT OTHER OBSERVABLE INPUTS		SIGNIFICANT UNOBSERVABLE INPUTS
	(LEVEL 2)		(LEVEL 3)
Loan servicing rights	$	52	$	—
Impaired loans		—		1,743

The following represent impairment charges recognized during 2009:

Impaired loan servicing rights, which are carried at fair value, were carried at $16, which was made up of the amortized cost of $20, net of a valuation allowance of $4 at December 31, 2009. Impaired loan servicing rights were carried at their fair value of $52, which was made up of the amortized cost of $60, net of a valuation allowance of $8 at December 31, 2008. Decreases in the valuation allowance were $4 and $3 in 2009 and 2008.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $8,790, with a valuation allowance of $2,033 at December 31, 2009, resulting in an additional provision for loan losses of $1,519 for the year ended December 31, 2009. Impaired loans had a carrying amount of $2,257, with a valuation allowance of $514 at December 31, 2008, resulting in an additional provision for loan losses of $514 for the year ended December 31, 2008.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |    page 43

NOTE 4 — FAIR VALUE (CONTINUED)

Fair Value of Financial Instruments

Carrying amount and estimated fair values of financial instruments at year-end were as follows:

	2009						2008
	CARRYING			FAIR			CARRYING			FAIR
	AMOUNT			VALUE			AMOUNT			VALUE
Financial assets
Cash and cash equivalents	$	2,973		$	2,973		$	4,177		$	4,177
Securities available for sale		21,241			21,241			23,550			23,550
Loans held for sale		1,775			1,804			284			287
Loans, net		231,105			232,595			233,922			239,399
FHLB stock		1,942			n/a			2,109			n/a
Accrued interest receivable		984			984			1,100			1,100
Yield maintenance provisions (embedded derivatives)		480			480			929			929
Financial liabilities
Deposits	$	(211,088	)	$	(212,306	)	$	(207,647	)	$	(210,052	)
FHLB advances		(32,007	)		(32,443	)		(29,050	)		(29,531	)
Subordinated debentures		(5,155	)		n/a			(5,155	)		n/a
Accrued interest payable		(160	)		(160	)		(301	)		(301	)
Interest-rate swaps		(480	)		(480	)		(929	)		(929	)

The methods and assumptions used to estimate fair value are described as follows.

Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. Fair value of loans held for sale is based on binding quotes from third party investors. For fixed rate loans or deposits and for variable rate loans with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of FHLB advances are based on current rates for similar financing. It was not practicable to determine the fair value of subordinated debentures because there is no active market for this debt. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The method for determining the fair values for derivatives (interest-rate swaps and yield maintenance provisions) was described previously. The fair value of off-balance-sheet items is not considered material.

page 44   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 5 — LOAN SERVICING

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year-end were as follows:

	2009		2008
Mortgage loans serviced for Freddie Mac	$	19,280	$	22,120

Custodial escrow balances maintained in connection with serviced loans were $272 and $322 at year-end 2009 and 2008.

Activity for mortgage servicing rights and the related valuation allowance follows:

	2009			2008			2007
Servicing rights, net of valuation allowance:
Beginning of year	$	112		$	157		$	201
Additions		5			—			—
Amortized to expense		(33	)		(42	)		(46	)
Change in valuation allowance		4			(3	)		2
End of year	$	88		$	112		$	157
Valuation allowance:
Beginning of year	$	8		$	5		$	7
Additions expensed		—			3			—
Reductions credited to operations		(4	)		—			(2	)
End of year	$	4		$	8		$	5

The fair value of capitalized mortgage servicing rights was $131 and $137 at year-end 2009 and 2008. Fair value at year-end 2009 was determined using a 9% discount rate and prepayment speeds ranging from 170% to 379% depending on the stratification of the specific right. Fair value at year-end 2008 was determined using a 9% discount rate and prepayment speeds ranging from 187% to 660%, depending on the stratification of the specific right.

The weighted average amortization period is 3.8 years.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 45

NOTE 6 — PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2009			2008
Land and land improvements	$	2,381		$	1,995
Buildings		5,367			3,551
Furniture, fixtures and equipment		3,031			3,024
Leasehold improvements		417			434
		11,196			9,004
Less: accumulated depreciation		(4,193	)		(3,758	)
	$	7,003		$	5,246

The Company leases certain office properties. Rent expense was $212, $239, and $365 for 2009, 2008 and 2007.

The Company was a one-third owner of Smith Ghent LLC, an Ohio limited liability company that owns and manages the office building at 2923 Smith Road, Fairlawn, Ohio 44333, where the Company’s headquarters and CFBank’s Fairlawn office are located. In October 2009, the Company purchased the remaining two-thirds interest, making Smith Ghent LLC a wholly owned subsidiary of the Company. The Company entered into a 10 year lease with Smith Ghent LLC in March 2004 that provided for monthly payments of $11, increasing 2% annually for the life of the lease through March 2014. During 2008, the lease was amended for additional office space and provided for additional monthly payments of $3 through June 30, 2009, at which time the monthly payment continued on a month-to-month basis. Since the purchase of the remaining two-thirds interest in Smith Ghent LLC, both rent expense paid by CFBank and rental income to Smith Ghent LLC are eliminated in consolidation. Total rent expense under this operating lease, as amended, and common area maintenance costs, was $212, $239, and $187 in 2009, 2008 and 2007.

Reserve Mortgage Services, Inc. (Reserve) was acquired by the Company in 2004. The former President of Reserve was a 100% owner of a company that owned and managed the office building at 1730 Akron-Peninsula Road, Akron, Ohio where CFBank’s mortgage services office was located. Lease agreements were for 5 year terms expiring at various times from May 2007 through December 2009, and called for monthly rental payments of $7, increasing 3% annually for the lives of the respective leases. In 2007, CFBank’s mortgage services operations were moved to the Fairlawn office and a $100 lease termination expense was paid in settlement of the remaining future lease obligations. Total rent expense was $148, including the $100 lease termination expense in 2007.

NOTE 7 — DEPOSITS

Time deposits of $100 or more were $52,555 and $45,560 at year-end 2009 and 2008.

Scheduled maturities of time deposits for the next five years were as follows:

2010	$	93,514
2011		14,736
2012		2,368
2013		837
2014		479
Thereafter		499
Total	$	112,433

Time deposits included $45,861 and $67,238 in brokered deposits at year-end 2009 and 2008.

page 46   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 8 — FEDERAL HOME LOAN BANK ADVANCES

At year end, long-term advances from the FHLB were as follows:

	Rate			2009		2008
Fixed-rate advances
Maturing February 2009		5.18	%	$	—	$	2,200
Maturing June 2009		5.60	%		—		5,000
Maturing September 2009		2.48	%		—		3,000
Maturing October 2009		4.45	%		—		1,000
Maturing January 2010		3.19	%		5,000		5,000
Maturing March 2010		4.96	%		1,000		1,000
Maturing March 2011		1.90	%		2,200		—
Maturing April 2011		2.88	%		3,000		3,000
Maturing July 2011		3.85	%		3,000		3,000
Maturing April 2012		2.30	%		5,000		—
Maturing June 2012		2.05	%		742		—
Maturing January 2014		3.12	%		5,000		—
Maturing May 2014		3.06	%		5,000		—
Total				$	29,942	$	23,200

Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances.

The advances were collateralized as follows:

	2009		2008
First mortgage loans under a blanket lien arrangement	$	25,053	$	26,285
Second mortgages		938		462
Multi-family mortgage loans		12,703		17,421
Home equity lines of credit		13,331		19,271
Commercial real estate loans		62,313		61,818
Securities		11,045		13,508
Total	$	125,383	$	138,765

Based on this collateral and CFBank’s holdings of FHLB stock, CFBank is eligible to borrow up to a total of $39,727 at year-end 2009. CFBank’s borrowing capacity decreased from $62,364 at December 31, 2008 primarily due to deterioration in the credit performance of CFBank’s loan portfolio, which resulted in an increase in collateral maintenance requirements by the FHLB.

Payments over the next five years are as follows:

2010	$	8,065
2011		8,200
2012		5,742
2014		10,000
Total	$	32,007

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 47

NOTE 9 — OTHER BORROWINGS

CFBank has lines of credit with two commercial banks totaling $8.0 million. At year-end 2009 and 2008, there was no outstanding balance on these lines of credit. Interest on these lines accrue daily and is variable based on the federal funds rate, and the prime rate as published in the Wall Street Journal.

	2009			2008			2007
Commercial bank lines of credit
Average daily balance during the year	$	—		$	2		$	4
Average interest rate during the year		1.67	%		2.71	%		5.67	%
Maximum month-end balance during the year	$	—		$	—		$	373
Weighted average interest rate at year-end		2.00	%		2.00	%		4.88	%

At year-end 2009, CFBank had borrowing capacity with the Federal Reserve Bank totaling $12,129, and there was no outstanding balance. Commercial loans, totaling $18,407, and commercial real estate loans, totaling $254, were pledged as collateral with the Federal Reserve Bank at year-end 2009.

NOTE 10 — SUBORDINATED DEBENTURES

In December 2003, Central Federal Capital Trust I, a trust formed by the Company, closed a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1 per security. The Company issued $5,155 of subordinated debentures to the trust in exchange for ownership of all of the common security of the trust and the proceeds of the preferred securities sold by the trust. The Company is not considered the primary beneficiary of this trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $155 and is included in other assets.

The Company may redeem the subordinated debentures, in whole or in part, in a principal amount with integral multiples of $1, on or after December 30, 2008 at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on December 30, 2033. The subordinated debentures are also redeemable in whole or in part from time to time, upon the occurrence of specific events defined within the trust indenture. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. There are no required principal payments on the subordinated debentures over the next five years.

The trust preferred securities and subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month London Interbank Offered Rate plus 2.85%. The total rate in effect was 3.10% at year-end 2009 and 4.32% at year-end 2008.

NOTE 11 — BENEFIT PLANS

Multi-employer pension plan: The Company participates in a multi-employer contributory trusteed pension plan. The retirement benefits to be provided by the plan were frozen as of June 30, 2003 and future employee participation in the plan was stopped. The plan was maintained for all eligible employees and the benefits were funded as accrued. The cost of funding was charged directly to operations. The unfunded liability at June 30, 2009 totaled $232 and at June 30, 2008 was $365. The Company’s contribution for the plan years ending June 30, 2010, June 30, 2009 and June 30, 2008, totaled $120, $204 and $124.

401(k) Plan: A 401(k) plan allows employee contributions up to the maximum amount allowable under federal tax regulations, which are matched in an amount equal to 25% of the first 8% of the compensation contributed. Expense for 2009, 2008 and 2007 was $40, $38 and $41.

Salary Continuation Agreement: In 2004, CFBank initiated a nonqualified salary continuation agreement for the former Chairman Emeritus. Benefits provided under the plan are unfunded, and payments are made by CFBank. Under the plan, CFBank pays him, or his beneficiary, a benefit of $25 annually for 20 years, beginning 6 months after his retirement date, which was February 28, 2008. The expense related to this plan totaled $17, $24 and $92 in 2009, 2008 and 2007. The accrual is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $267 at year-end 2009 and $275 at year-end 2008.

Life Insurance Benefits: CFBank entered into agreements with certain employees, former employees and directors to provide life insurance benefits which are funded through life insurance policies purchased and owned by CFBank. The expense related to these benefits totaled $6, $16 and $22 in 2009, 2008 and 2007. The accrual for CFBank’s obligation under these agreements is included in accrued interest payable and other liabilities in the consolidated balance sheets and totaled $172 at year-end 2009 and $166 at year-end 2008.

page 48   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 12 — INCOME TAXES

Income tax expense (benefit) was as follows:

	2009			2008			2007
Current federal	$	(201	)	$	(53	)	$	(2	)
Deferred federal		1,778			314			(61	)
Total	$	1,577		$	261		$	(63	)

Effective tax rates differ from federal statutory rate of 34% applied to income (loss) before income taxes due to the following:

	2009			2008			2007
Federal statutory rate times financial statement income (loss)	$	(2,827	)	$	335		$	(27	)
Effect of:
Bank owned life insurance income		(43	)		(42	)		(42	)
Increase in deferred tax valuation allowance		4,312			—			—
Other		135			(32	)		6
	$	1,577		$	261		$	(63	)
Effective tax rate		-19.0	%		26.5	%		78.8	%

Year-end deferred tax assets and liabilities were due to the following:

	2009		2008
Deferred tax assets:
Allowance for loan losses	$	1,732	$	848
Deferred loan fees		94		40
Post-retirement death benefits		58		57
Deferred compensation		91		93
Other deferred income		74		—
Tax mark-to-market adjustments on securities and loans held for sale		312		181
Accrued stock awards		44		65
Net operating loss		2,615		986
Other		127		72
		5,147		2,342
Deferred tax liabilities:
Depreciation		85		51
FHLB stock dividend		366		400
Mortgage servicing rights		30		38
Prepaid expenses		53		52
Unrealized gain on securities available for sale		301		180
Other		—		23
Deferred tax valuation allowance		4,312		—
		5,147		744
Net deferred tax asset	$	—	$	1,598

A valuation allowance of $4,312 was recorded in 2009 to reduce the carrying amount of the Company’s net deferred tax asset to zero.

At year-end 2009, the Company had net operating loss carryforwards of approximately $7,692 which expire at various dates from 2024 to 2029.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 49

NOTE 12 — INCOME TAXES (CONTINUED)

Federal income tax laws provided additional bad debt deductions through 1987, totaling $2,250. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total $765 at year-end 2009. If CFBank were liquidated or otherwise ceases to be a bank or if tax laws were to change, this amount would be expensed.

At December 31, 2009 and 2008, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months.

The Company is subject to U.S. federal income tax and is no longer subject to federal examination for years prior to 2006.

NOTE 13 — RELATED PARTY TRANSACTIONS

Loans to principal officers, directors and their affiliates during 2009 were as follows:

Beginning balance	$	2,787
Repayments		(485	)
Ending balance	$	2,302

Deposits from principal officers, directors and their affiliates at year-end 2009 and 2008 were $1,346 and $1,255.

NOTE 14 — STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans (the Plans) as described below. Total compensation cost that has been charged against income for the Plans was $81, $149, and $167 for 2009, 2008 and 2007, respectively. The total income tax benefit was $19, $44, and $52, respectively.

The Plans, which are stockholder-approved, provide for stock option grants and restricted stock awards to directors, officers and employees. The 1999 Stock-Based Incentive Plan, which expired July 13, 2009, provided 193,887 shares for stock option grants and 77,554 shares for restricted stock awards. The 2003 Equity Compensation Plan (2003 Plan) as amended and restated, provided an aggregate of 500,000 shares for stock option grants and restricted stock awards, of which up to 150,000 shares could be awarded in the form of restricted stock awards. The 2009 Equity Compensation Plan, which was approved by stockholders on May 21, 2009, replaced the 2003 Plan and provides 1,000,000 shares, plus any remaining shares available to grant or that are later forfeited or expire under the 2003 Plan, that may be issued as stock option grants, stock appreciation rights or restricted stock awards.

Stock Options

The Plans permit the grant of stock options to directors, officers and employees for up to 1,693,887 shares of common stock. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally have vesting periods ranging from one to five years, and are exercisable for ten years from the date of grant.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date.

	2009			2008			2007
Risk-free interest rate		1.64	%		2.64	%		4.61	%
Expected term (years)		7			6			6
Expected stock price volatility		27	%		24	%		22	%
Dividend yield		3.63	%		5.82	%		4.66	%

page 50   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 14 — STOCK-BASED COMPENSATION (CONTINUED)

A summary of stock option activity in the Plans for 2009 follows:

						WEIGHTED
						AVERAGE
				WEIGHTED		REMAINING
				AVERAGE EXERCISE		CONTRACTUAL
	SHARES			PRICE		TERM (YEARS)		INTRINSIC VALUE
Outstanding at beginning of year		416,377		$	8.47
Granted		800			2.75
Exercised		—			—
Forfeited or expired		(106,816	)		10.10
Outstanding at end of year		310,361		$	7.89		6.4	$	—
Exercisable at end of year		217,906		$	9.66		5.5	$	—

Information related to the stock option Plans during each year follows. There were no stock options exercised in 2009, 2008 or 2007.

	2009		2008		2007
Weighted average fair value of options granted	$	.49	$	.40	$	.99

As of December 31, 2009, there was $14 of total unrecognized compensation cost related to nonvested stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.2 years. Substantially all of the 92,455 nonvested stock options at December 31, 2009 are expected to vest.

Restricted Stock Awards

The Plans permit the grant of restricted stock awards to directors, officers and employees. Compensation is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock was determined using the closing share price on the date of grant and shares have vesting periods ranging from one to five years. There were 1,092,788 shares available to be issued under the Plans at December 31, 2009. There were no shares issued in 2009, 32,875 shares issued in 2008 and 18,250 shares issued in 2007.

A summary of changes in the Company’s nonvested restricted shares for the year follows:

				WEIGHTED AVERAGE
NONVESTED SHARES	SHARES			GRANT-DATE FAIR VALUE
Nonvested at January 1, 2009		49,583		$	5.72
Granted		—			—
Vested		(18,900	)		6.04
Forfeited		(1,950	)		7.96
Nonvested at December 31, 2009		28,733		$	5.35

As of December 31, 2009, there was $23 of total unrecognized compensation cost related to nonvested shares granted under the Plans. The cost is expected to be recognized over a weighted-average period of .9 years. The total fair value of shares vested during the years ended December 31, 2009, 2008 and 2007 was $56, $66 and $106, respectively.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 51

NOTE 15 — PREFERRED STOCK

On December 5, 2008, in connection with the TARP Capital Purchase Program, established as part of the Emergency Economic Stabilization Act of 2008, the Company issued to the U.S. Treasury 7,225 shares of Central Federal Corporation Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Preferred Stock) for $7,225. The Preferred Stock initially pays quarterly dividends at a five percent annual rate, which increases to nine percent after February 14, 2013, on a liquidation preference of $1,000 per share.

The Preferred Stock has preference over the Company’s common stock with respect to the payment of dividends and distribution of the Company’s assets in the event of a liquidation or dissolution. Except in certain circumstances, the holders of Preferred Stock have no voting rights. If any quarterly dividend payable on the Preferred Stock is in arrears for six or more quarterly dividend periods (whether consecutive or not), the holders will be entitled to vote for the election of two additional directors. These voting rights terminate when the Company has paid the dividends in full.

As required under the TARP Capital Purchase Program in connection with the sale of the Preferred Stock to the U.S. Treasury, dividend payments on, and repurchases of, the Company’s outstanding preferred and common stock are subject to certain restrictions. For as long as any Preferred Stock is outstanding, no dividends may be declared or paid on the Company’s outstanding common stock until all accrued and unpaid dividends on Preferred Stock are fully paid. In addition, the U.S. Treasury’s consent is required on any increase in quarterly dividends declared on shares of common stock in excess of $.05 per share before December 5, 2011, the third anniversary of the issuance of the Preferred Stock, unless the Preferred Stock is redeemed by the Company or transferred in whole by the U.S. Treasury. Further, the U.S. Treasury’s consent is required for any repurchase of any equity securities or trust preferred securities, except for repurchases of Preferred Stock or repurchases of common shares in connection with benefit plans consistent with past practice, before December 5, 2011, the third anniversary of the issuance of the Preferred Stock, unless redeemed by the Company or transferred in whole by the U.S. Treasury.

As a recipient of funding under the TARP Capital Purchase Program, the Company must comply with the executive compensation and corporate governance standards imposed by the American Recovery and Reinvestment Act of 2009 for as long as the U.S. Treasury holds the above securities.

Following is information on preferred stock and the unearned discount on preferred stock at year-end 2009 and 2008. The unearned discount is being accreted over 5 years using the level-yield method.

	2009			2008
Series A Preferred Stock	$	7,225		$	7,225
Unearned discount on preferred stock		(204	)		(236	)
Total preferred stock	$	7,021		$	6,989

NOTE 16 — COMMON STOCK WARRANT

In connection with the issuance of the Preferred Stock, the Company also issued to the U.S. Treasury a warrant to purchase 336,568 shares of the Company’s common stock at an exercise price of $3.22 per share, which would represent an aggregate investment, if exercised for cash, of approximately $1.1 million in Company common stock. The exercise price may be paid either by withholding a number of shares of common stock issuable upon exercise of the warrant equal to the value of the aggregate exercise price of the warrant, determined by reference to the market price of the Company’s common stock on the trading day on which the warrant is exercised or, if agreed to by the Company and the warrant holder, by the payment of cash equal to the aggregate exercise price. The warrant may be exercised any time before December 5, 2018.

page 52   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 17 — REGULATORY CAPITAL MATTERS

CFBank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2009, CFBank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2009 and 2008, the most recent regulatory notifications categorized CFBank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

Actual and required capital amounts and ratios are presented below at year end.

											TO BE WELL CAPITALIZED
						FOR CAPITAL					UNDER PROMPT CORRECTIVE
	ACTUAL					ADEQUACY PURPOSES					ACTION REGULATIONS
	AMOUNT		RATIO			AMOUNT		RATIO			AMOUNT		RATIO
2009
Total 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
2008
Total Capital to risk weighted assets	$	27,737		11.6	%	$	19,163		8.0	%	$	23,954		10.0	%
Tier 1 (Core) Capital to risk weighted assets		25,168		10.5	%		9,582		4.0	%		14,372		6.0	%
Tier 1 (Core) Capital to adjusted total assets		25,168		9.2	%		10,988		4.0	%		13,735		5.0	%
Tangible Capital to adjusted total assets		25,168		9.2	%		4,120		1.5	%		N/A		N/A

The Qualified Thrift Lender test requires at least 65% of assets be maintained in housing-related finance and other specified areas. If this test is not met, limits are placed on growth, branching, new investments, FHLB advances and dividends, or CFBank must convert to a commercial bank charter. Management believes that this test is met.

CFBank converted from a mutual to a stock institution in 1998, and a “liquidation account” was established at $14,300, which was net worth reported in the conversion prospectus. The liquidation account represents a calculated amount for the purposes described below, and it does not represent actual funds included in the consolidated financial statements of the Company. Eligible depositors who have maintained their accounts, less annual reductions to the extent they have reduced their deposits, would receive a distribution from this account if CFBank liquidated. Dividends may not reduce CFBank’s shareholder’s equity below the required liquidation account balance.

Dividend Restrictions: The Holding Company’s principal source of funds for dividend payments is dividends received from CFBank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. During 2010, CFBank must have approval prior to any dividend payments. See Note 15 — Preferred Stock for a description of restrictions on the payment of dividends on the Company’s common stock.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 53

NOTE 18 — DERIVATIVE INSTRUMENTS

CFBank utilizes interest-rate swaps as part of its asset liability management strategy to help manage its interest rate risk position, and does not use derivatives for trading purposes. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements. CFBank was party to interest-rate swaps with a combined notional amount of $7,987 at December 31, 2009 and $4,544 at December 31, 2008.

The objective of the interest-rate swaps is to protect the related fixed rate commercial real estate loans from changes in fair value due to changes in interest rates. CFBank has a program whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision, which will be invoked in the event of prepayment of the loan, and is expected to exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded derivative which is bifurcated from the host loan contract and, as such, the swaps and embedded derivatives are not designated as hedges. Accordingly, both instruments are carried at fair value and changes in fair value are reported in current period earnings. CFBank currently does not have any derivatives designated as hedges. The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other liabilities, respectively, in the consolidated balance sheet. Changes in the fair value of the yield maintenance provisions and interest-rate swaps are reported currently in earnings, as other noninterest income or other noninterest expense, in the consolidated statements of operations. The cash flows on the yield maintenance provisions and interest-rate swaps are reflected in cash flows from operations.

Contingent Features: The counterparty to CFBank’s interest-rate swaps is exposed to credit risk whenever the interest-rate swaps are in a liability position. At year-end 2009, CFBank has $1,010 in securities posted as collateral for these derivatives. Should the liability increase, CFBank will be required to post additional collateral. Additionally, CFBank’s interest-rate swap instruments contain provisions that require CFBank to remain well capitalized under regulatory capital standards. CFBank was well capitalized at December 31, 2009. If CFBank’s capital would fall below well-capitalized levels, the counterparty to the interest-rate swap instruments could request immediate payment. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2009 totaled $480 and is reflected in other liabilities in the consolidated balance sheet.

Summary information about the derivative instruments is as follows:

	2009			2008
Notional amount	$	7,987		$	4,544
Weighted average pay rate on interest-rate swaps		4.09	%		5.11	%
Weighted average receive rate on interest-rate swaps		0.24	%		1.19	%
Weighted average maturity (years)		7.9			8.7
Fair value of interest-rate swaps	$	(480	)	$	(929	)
Fair value of yield maintenance provisions	$	480		$	929

The following tables set forth the fair value of derivative instruments at December 31, 2009 and December 31, 2008.

Fair values of asset derivative instruments

	2009			2008
	BALANCE SHEET			BALANCE SHEET
	LOCATION	FAIR VALUE		LOCATION	FAIR VALUE
Derivatives not designated as hedging instruments
Yield maintenance provisions (embedded derivatives)	Other assets	$	480	Other assets	$	929
Total asset derivatives		$	480		$	929

page 54   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 18 — DERIVATIVE INSTRUMENTS (CONTINUED)

Fair values of liability derivative instruments

	2009			2008
	BALANCE SHEET			BALANCE SHEET
	LOCATION	FAIR VALUE		LOCATION	FAIR VALUE
Derivatives not designated as hedging instruments
Interest-rate swaps	Other liabilities	$	480	Other liabilities	$	929
Total liability derivatives		$	480		$	929

The following table sets forth the gain (loss) recognized in income for years ended December 31, 2009 and 2008.

	LOCATION OF GAIN (LOSS)
	RECOGNIZED IN INCOME ON
	DERIVATIVES	2009			2008
Derivatives not designated as hedging instruments
Yield maintenance provisions (embedded derivatives)	Other noninterest income	$	(449	)	$	772
Interest-rate swaps	Other noninterest income		449			(772	)
Total		$	—		$	—

NOTE 19 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year end were as follows.

	2009				2008
	FIXED RATE		VARIABLE RATE		FIXED RATE		VARIABLE RATE
Commitments to make loans	$	4,727	$	3,583	$	3,003	$	2,110
Unused lines of credit		76		32,735		76		23,939
Standby letters of credit		128		—		68		—

Commitments to make loans are generally made for periods of 60 days or less, except for construction loan commitments, which are typically for a period of one year, and loans under a specific drawdown schedule, which are based on the individual contracts. The fixed rate loan commitments had interest rates ranging from 4.00% to 7.75% and maturities ranging from 2 months to 30 years at December 31, 2009. The fixed rate loan commitments had interest rates ranging from 3.20% to 8.25% and maturities ranging from 12 months to 30 years at December 31, 2008.

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 55

NOTE 20 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Central Federal Corporation follows:

CONDENSED BALANCE SHEETS

	DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009		2008
Assets
Cash and cash equivalents	$	1,807	$	10,365
Investment in banking subsidiary		24,786		26,272
Investment in and advances to other subsidiaries		1,863		1,004
Other assets		2		873
Total assets	$	28,458	$	38,514
Liabilities and Equity
Subordinated debentures	$	5,155	$	5,155
Accrued expenses and other liabilities		76		284
Stockholders’ equity		23,227		33,075
Total liabilities and stockholders’ equity	$	28,458	$	38,514

CONDENSED STATEMENTS OF OPERATIONS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009			2008			2007
Interest income	$	20		$	—		$	—
Other income		208			—			—
Interest expense		196			334			426
Other expense		425			366			328
Loss before income tax and undistributed subsidiaries’ operations		(393	)		(700	)		(754	)
Income tax (expense) benefit		(346	)		261			247
Effect of subsidiaries’ operations		(9,152	)		1,162			490
Net income (loss)	$	(9,891	)	$	723		$	(17	)

page 56   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 20 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

	YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2009			2008			2007
Cash flows from operating activities
Net income (loss)	$	(9,891	)	$	723		$	(17	)
Adjustments:
Effect of subsidiaries’ operations		9,152			(1,162	)		(490	)
Net gain on acquisition		(208	)		—			—
Stock-based compensation expense		2			—			—
Change in other assets and other liabilities		848			(20	)		91
Net cash from operating activities		(97	)		(459	)		(416	)
Cash flows from investing activities
Investments in banking subsidiary		(7,225	)		—			—
Investments in other subsidiaries		(677	)		(12	)		(525	)
Net cash from investing activities		(7,902	)		(12	)		(525	)
Cash flows from financing activities
Proceeds from issuance of preferred stock and common stock warrant		—			7,203			—
Costs associated with issuance of preferred stock		(13	)		—			—
Purchase of treasury stock		—			(1,632	)		(830	)
Dividends paid		(546	)		(860	)		(1,402	)
Net cash from financing activities		(559	)		4,711			(2,232	)
Net change in cash and cash equivalents		(8,558	)		4,240			(3,173	)
Beginning cash and cash equivalents		10,365			6,125			9,298
Ending cash and cash equivalents	$	1,807		$	10,365		$	6,125

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 57

NOTE 21 — EARNINGS (LOSS) PER COMMON SHARE

The factors used in the earnings (loss) per common share computation follow.

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)	2009			2008			2007
Basic
Net income (loss)	$	(9,891	)	$	723		$	(17	)
Less: Preferred dividends and accretion of discount on preferred stock		(407	)		(29	)		—
Less: Net (income) loss allocated to unvested share-based payment awards		27			(4	)		—
Net income (loss) allocated to common stockholders	$	(10,271	)	$	690		$	(17	)
Weighted average common shares outstanding		4,088,904			4,200,504			4,467,750
Basic earnings (loss) per common share	$	(2.51	)	$	0.16		$	—
Diluted
Net income (loss) allocated to common stockholders	$	(10,271	)	$	690		$	(17	)
Weighted average common shares outstanding for basic earnings (loss) per common share		4,088,904			4,200,504			4,467,750
Add: Dilutive effects of assumed exercises of stock options		—			1,185			—
Add: Dilutive effects of assumed exercise of stock warrant		—			381			—
Average shares and dilutive potential common shares		4,088,904			4,202,070			4,467,750
Diluted income (loss) per common share	$	(2.51	)	$	0.16		$	—

The following potential average common shares were anti-dilutive and not considered in computing diluted earnings (loss) per common share because, with respect to the years ended December 31, 2009 and 2007, the Company had a loss from continuing operations and, with respect to the year ended December 31, 2008, the exercise price of the options was greater than the average stock price for the period.

	2009		2008		2007
Stock options		310,361		322,258		292,730
Stock warrant		336,568		—		—

page 58   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

NOTE 22 — OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related tax effects were as follows:

	2009		2008			2007
Unrealized holding gains on securities available for sale	$	354	$	300		$	322
Reclassification adjustment for gains realized in income		—		(54	)		—
Net unrealized gains		354		246			322
Tax effect		—		(83	)		(110	)
Net of tax amount	$	354	$	163		$	212

The following is a summary of the accumulated other comprehensive income balances, net of tax:

	BALANCE AT		CURRENT PERIOD		BALANCE AT
	DECEMBER 31, 2008		CHANGE		DECEMBER 31, 2009
Unrealized gains (losses) on securities available for sale	$	350	$	354	$	704

NOTE 23 — SEGMENT INFORMATION

From 2005 through 2007, internal financial information was primarily reported and aggregated in two lines of business, banking and mortgage banking. Beginning in 2008, mortgage banking activities were considered to be part of banking activities due to the level of mortgage banking activities’ contribution to the Company’s overall performance.

The reportable segments for 2007 were determined by the products and services offered, primarily distinguished between banking and mortgage banking operations. Commercial and consumer loans, securities, deposits and servicing fees provided the revenues in the banking operation, and single-family residential mortgage loan sales provided the revenues in mortgage banking. All operations are domestic.

The accounting policies for segments were the same as those described in the summary of significant accounting policies. Segment performance was evaluated using net income. Income taxes were allocated and transactions among segments were made at fair value. Parent and Other included activities that were not directly attributed to the reportable segments, and was comprised of the Parent Company and elimination entries between all segments. Information reported internally for performance assessment follows:

	BANKING			MORTGAGE BANKING			PARENT AND OTHER			CONSOLIDATED TOTAL
2007
Net interest income (expense)	$	8,093		$	61		$	(426	)	$	7,728
Provision for loan losses		(539	)		—			—			(539	)
Net gain (loss) on sales of loans		(79	)		312			—			233
Other revenue		473			—			22			495
Depreciation and amortization		(604	)		(15	)		—			(619	)
Other expense		(5,965	)		(1,084	)		(329	)		(7,378	)
Income (loss) before income tax		1,379			(726	)		(733	)		(80	)
Income tax expense (benefit)		432			(246	)		(249	)		(63	)
Net income (loss)	$	947		$	(480	)	$	(484	)	$	(17	)
December 31, 2007
Segment assets	$	276,947		$	737		$	1,898		$	279,582

CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT     |   page 59

NOTE 24 — ARBITRATION LOSS

The former President of Reserve filed for arbitration against CFBank for breach of his employment agreement and in September 2007 was awarded $662 plus 5,000 options to purchase Company stock. CFBank paid the award and the Company granted the options. CFBank was reimbursed by its insurance provider for $36 in legal fees that were part of the award. The arbitration loss of $641 (net of the insurance proceeds), which included $15 in payroll taxes related to the award, was included in salaries and employee benefits expense in the consolidated statement of operations.

NOTE 25 — LOSS CONTINGENCY

CFBank investigated unusual return item activity involving deposit accounts for a third party payment processor from December 2008 through June 2009. The investigation is complete and the matter was resolved. No losses were incurred.

page 60   |     CENTRAL FEDERAL CORPORATION 2009 ANNUAL REPORT

BOARD OF DIRECTORS AND OFFICERS

CENTRAL FEDERAL
CORPORATION AND	CENTRAL FEDERAL	CFBANK COLUMBUS		CFBANK COLUMBIANA
CFBANK BOARD OF	CORPORATION	DEVELOPMENT	CFBANK EXECUTIVE	REGION DEVELOPMENT
DIRECTORS	OFFICERS	BOARD	OFFICERS	BOARD
Mark S. Allio Chairman, President & Chief Executive Officer, Central Federal Corporation Chairman & Chief Executive Officer, CFBank Jeffrey W. Aldrich Former President Sterling China Co. Thomas P. Ash Director of Governmental Relations Buckeye Association of School Administrators William R. Downing President R.H. Downing Inc. Gerry W. Grace Former President Grace Services, Inc. Jerry F. Whitmer, Esq. Of Counsel Brouse McDowell	Mark S. Allio Chairman, President & Chief Executive Officer Eloise L. Mackus, Esq. Executive Vice President, General Counsel & Secretary Therese A. Liutkus, CPA Treasurer & Chief Financial Officer Laura L. Martin Assistant Secretary	Lou J. Briggs Former President Pro Tem Worthington City Council James J. Chester Partner, Chester Willcox and Saxbe, LLP Douglas S. Morgan Attorney Hahn Loeser David L. Royer Continental Real Estate Companies Joseph Robertson, IV Managing Director RBC Capital Markets Brenda K. Stier-Anstine President Marketing Works Roland Tokarski President Quandel Group Steven J. Yakubov Interventional Cardiologist Riverside Methodist Hospital	Mark S. Allio Chairman & Chief Executive Officer Raymond E. Heh President & Chief Operating Officer Eloise L. Mackus, Esq. Executive Vice President, General Counsel & Secretary Therese A. Liutkus, CPA Treasurer & Chief Financial Officer William R. Reed Senior Credit Officer	Nicholas T. Amato Attorney Amato Law Office Vicki M. Holden Executive Director CrossRoads D. Terrence O’Hara President W.C. Bunting James J. Sabatini II Trustee St. Clair Township Co-Owner Sabatini Shoes Diana M. Spencer Vice President, Columbiana Region CFBank Joseph J. Surace Mayor Village of Wellsville Penny J. Traina Commissioner Columbiana County

CFBANK OFFICE LOCATIONS

CALCUTTA, OHIO	FAIRLAWN, OHIO	WELLSVILLE, OHIO	WORTHINGON, OHIO
49028 Foulks Drive	2923 Smith Road	601 Main Street	7000 North High Street
Calcutta, Ohio 43920	Fairlawn, Ohio 44333	Wellsville, Ohio 43968	Worthington, Ohio 43085
330-385-4323	330-666-7979	330-532-1517	614-334-7979

CORPORATE DATA

ANNUAL REPORT

A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission will be available March 29, 2010 without charge upon written request to:

Therese A. Liutkus, CPA
Treasurer and Chief Financial Officer
Central Federal Corporation
2923 Smith Road
Fairlawn, Ohio 44333
Phone: 330-576-1209
Fax: 330-576-1339
Email: TerriLiutkus@cfbankmail.com

ANNUAL MEETING

The Annual Meeting of Stockholders of Central Federal Corporation will be held at 10 a.m. on Thursday, May 20, 2010 at the Fairlawn Country Club, 200 North Wheaton Road, Fairlawn, Ohio.

STOCKHOLDER SERVICES

Registrar and Transfer Company serves as transfer agent for Central Federal Corporation shares. Communications regarding change of address, transfer of shares or lost certificates should be sent to:

Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Phone: 800-368-5948

|   page 61

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

CFBank
Ghent Road, Inc.
Smith Ghent LLC
Central Federal Capital Trust I

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (333-84817, 333-105515, 333-114025, 333-115943, 333-125661, 333-152984 and 333-163102), and Form S-3 (333-110218, 333-124323 and 333-156564) of Central Federal Corporation (formerly Grand Central Financial Corp.) of our report dated March 15, 2010, related to the consolidated financial statements of Central Federal Corporation included in this annual report on Form 10-K for the year ended December 31, 2009.

Crowe Horwath LLP

Cleveland, Ohio
March 29, 2010

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certifications

I, Mark S. Allio, certify, that:

1.	I have reviewed this report on Form 10-K of Central Federal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2010	/s/ Mark S. Allio
	Mark S. Allio
	Chairman of the Board, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certifications

I, Therese Ann Liutkus, certify, that:

1.	I have reviewed this report on Form 10-K of Central Federal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2010	/s/ Therese Ann Liutkus
	Therese Ann Liutkus, CPA
	Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350 Certifications

In connection with the Annual Report of Central Federal Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Mark S. Allio, Chairman of the Board, President and Chief Executive Officer of the Company and Therese Ann Liutkus, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Mark S. Allio  

Mark S. Allio 

Chairman of the Board, President and
Chief Executive Officer 

/s/ Therese Ann Liutkus  

Therese Ann Liutkus, CPA 

Treasurer and Chief Financial Officer 

Date: March 29, 2010

EX-99.1

Exhibit 99.1

31 C.F.R. Section 30.15 Certifications

I, Mark S. Allio, certify, based on my knowledge, that:

(i) The compensation committee of Central Federal Corporation has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury and ending with the last day of the TARP recipient’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to Central Federal Corporation;

(ii) The compensation committee of Central Federal Corporation has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Central Federal Corporation, and during that same applicable period has identified any features of the employee compensation plans that pose risks to Central Federal Corporation and has limited those features to ensure that Central Federal Corporation is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of Central Federal Corporation to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of Central Federal Corporation will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of Central Federal Corporation will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in

(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Central Federal Corporation;

(B) Employee compensation plans that unnecessarily expose Central Federal Corporation to risks; and

(C) Employee compensation plans that could encourage the manipulation of reported earnings of Central Federal Corporation to enhance the compensation of an employee;

(vi) Central Federal Corporation has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) Central Federal Corporation has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to an SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(viii) Central Federal Corporation has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(ix) The board of directors of Central Federal Corporation has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under Section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury; this policy has been provided to Treasury and its primary regulatory agency; Central Federal Corporation and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) Central Federal Corporation will permit a non-binding shareholder resolution in compliance with any applicable Federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xi) Central Federal Corporation will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under Section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) Central Federal Corporation will disclose whether Central Federal Corporation, the board of directors of Central Federal Corporation, or the compensation committee of Central Federal Corporation has engaged during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) Central Federal Corporation has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under Section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xiv) Central Federal Corporation has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Central Federal Corporation and Treasury, including any amendments;

(xv) Central Federal Corporation has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 U.S.C. 1001.)

Dated: March 29, 2010

/s/ Mark S. Allio Mark S. Allio

Chairman of the Board, President
and Chief Executive Officer

EX-99.2

Exhibit 99.2

31 C.F.R. Section 30.15 Certifications

I, Therese Ann Liutkus, certify, based on my knowledge, that:

(i) The compensation committee of Central Federal Corporation has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury and ending with the last day of the TARP recipient’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to Central Federal Corporation;

(ii) The compensation committee of Central Federal Corporation has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Central Federal Corporation, and during that same applicable period has identified any features of the employee compensation plans that pose risks to Central Federal Corporation and has limited those features to ensure that Central Federal Corporation is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of Central Federal Corporation to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of Central Federal Corporation will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of Central Federal Corporation will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in

(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Central Federal Corporation;

(B) Employee compensation plans that unnecessarily expose Central Federal Corporation to risks; and

(C) Employee compensation plans that could encourage the manipulation of reported earnings of Central Federal Corporation to enhance the compensation of an employee;

(vi) Central Federal Corporation has required that bonus payments, as defined in the regulations and guidance established under Section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) Central Federal Corporation has prohibited any golden parachute payment, as defined in the regulations and guidance established under Section 111 of EESA, to an SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(viii) Central Federal Corporation has limited bonus payments to its applicable employees in accordance with Section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(ix) The board of directors of Central Federal Corporation has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under Section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury; this policy has been provided to Treasury and its primary regulatory agency; Central Federal Corporation and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) Central Federal Corporation will permit a non-binding shareholder resolution in compliance with any applicable Federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xi) Central Federal Corporation will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under Section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) Central Federal Corporation will disclose whether Central Federal Corporation, the board of directors of Central Federal Corporation, or the compensation committee of Central Federal Corporation has engaged during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) Central Federal Corporation has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under Section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xiv) Central Federal Corporation has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Central Federal Corporation and Treasury, including any amendments;

(xv) Central Federal Corporation has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 U.S.C. 1001.)

Dated: March 29, 2010

/s/ Therese Ann Liutkus Therese Ann Liutkus, CPA

Treasurer and Chief Financial Officer