10-Q/A 1 form10-qa.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

Amendment No. 1

 

[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2018

 

OR

 

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 000-55553

 

Central Federal Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

Missouri   47-4884908

(State or other jurisdiction of

in Company or organization)

 

(I.R.S. Employer

Identification Number)

     
210 West 10th Street, Rolla, Missouri   65401
(Address of Principal Executive Offices)   Zip Code

 

(573) 364-1024

(Registrant’s telephone number)

 

N/A

(Former name or former address, if changed since last report)

 

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 requirements for the past 90 days.

YES [X] NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [  ] NO [  ]

 

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

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [X]
(Do not check if smaller reporting company)   Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13) (a) of the Exchange Act. [  ]

 

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

 

As of August 10, 2018, there were 1,622,220 shares of common stock outstanding.

 

 

 

   

 

 

Explanatory note

 

We are filing this Amendment No. 1 on Form 10-Q/A to amend the following table in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as originally filed with the Securities and Exchange Commission on August 13, 2018 (the “Original Form 10-Q”): Note 12 Fair Value of Financial Instruments to add the fair value of loans and deposits. No other sections were affected, but for the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended, our Original Form 10-Q.

 

 
 

 

Central Federal Bancshares, Inc.

Form 10-Q

 

Index

 

        Page
    Part I. Financial Information    
         
Item 1.   Financial Statements   3
         
    Consolidated Statements of Financial Condition as of June 30, 2018 and December 31, 2017 (unaudited)   3
         
    Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)   4
         
    Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)   5
         
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)   6
         
    Notes to Consolidated Financial Statements (unaudited)   7
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   27
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   37
         
Item 4.   Controls and Procedures   37
         
    Part II. Other Information   38
         
Item 1.   Legal Proceedings   38
         
Item 1A.   Risk Factors   38
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   38
         
Item 3.   Defaults upon Senior Securities   38
         
Item 4.   Mine Safety Disclosures   38
         
Item 5.   Other Information   38
         
Item 6.   Exhibits   39
         
    Signature Page   40

 

 2 

 

 

Part I. – Financial Information

 

Item 1. Financial Statements

 

CENTRAL FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(ROUNDED TO THOUSANDS, EXCEPT NUMBER OF SHARES)

 

   June 30, 2018   December 31, 2017 
    (Unaudited)      
ASSETS          
Cash and Due from Financial Institutions  $1,401,000   $2,049,000 
Federal Funds Sold   1,455,000    876,000 
Cash and Cash Equivalents   2,856,000    2,925,000 
Certificates of Deposit in Other Financial Institutions   2,976,000    5,699,000 
Securities Available-for-Sale at Fair Value   5,603,000    6,220,000 
Federal Home Loan Bank (FHLB) Stock, at Cost   82,000    89,000 
Loans, Net of Allowance for Loan Losses of $260,000 and $273,000 at June 30, 2018 and December 31, 2017, respectively   55,971,000    51,937,000 
Foreclosed Assets   71,000    - 
Premises and Equipment, Net   703,000    710,000 
Accrued Interest Receivable   177,000    163,000 
Other Assets   463,000    346,000 
Total Assets  $68,902,000   $68,089,000 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
LIABILITIES          
Deposits:          
Noninterest-Bearing  $3,465,000   $3,181,000 
Interest-Bearing   39,235,000    38,455,000 
Total Deposits   42,700,000    41,636,000 
Other Liabilities   166,000    135,000 
Total Liabilities   42,866,000    41,771,000 
Redeemable Common Stock Held By Employee Stock Ownership Plan (“ESOP”)   199,000    159,000 
STOCKHOLDERS’ EQUITY          
Preferred Stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding   -    - 
Common Stock, $0.01 par value; 10,000,000 shares authorized; 1,788,020 shares issued; 1,660,220 and 1,675,920 shares outstanding at June 30, 2018 and December 31, 2017, respectively   18,000    18,000 
Retained Earnings - Substantially Restricted   12,775,000    12,758,000 
Additional Paid-In Capital   16,475,000    16,464,000 
Treasury Stock, at cost; 127,800 and 112,100 shares at June 30, 2018 and December 31, 2017, respectively   (1,747,000)   (1,523,000)
Common Stock Acquired by Employee Stock          
Ownership Plan (“ESOP”)   (1,287,000)   (1,316,000)
Accumulated Other Comprehensive Income (Loss)   (198,000)   (83,000)
Total Stockholders’ Equity   26,036,000    26,318,000 
Less Maximum cash obligation related to ESOP shares   199,000    159,000 
Total Stockholders’ Equity Less Maximum Cash Obligations Related to ESOP shares   25,837,000    26,159,000 
Total Liabilities and Stockholders’ Equity  $68,902,000   $68,089,000 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 3 

 

 

central federal bancshares, inc.

consolidated statements of operations

(rounded to thousands, except per share data)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
   (Unaudited) 
INTEREST INCOME                    
Loans, Including Fees  $610,000   $565,000   $1,172,000   $1,109,000 
Securities and Other   49,000    69,000    113,000    140,000 
Total Interest Income   659,000    634,000    1,285,000    1,249,000 
INTEREST EXPENSE                    
Deposits   73,000    72,000    138,000    153,000 
Total Interest Expense   73,000    72,000    138,000    153,000 
NET INTEREST INCOME   586,000    562,000    1,147,000    1,096,000 
PROVISION FOR LOAN LOSSES   -    -    -    - 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   586,000    562,000    1,147,000    1,096,000 
NONINTEREST INCOME                    
Customer Service Fees   28,000    20,000    48,000    38,000 
Unrealized Gain (Loss) on Equity Securities   2,000    -    (15,000)   - 
Other Income   11,000    10,000    12,000    12,000 
Total Noninterest Income   41,000    30,000    45,000    50,000 
NONINTEREST EXPENSE                    
Compensation and Employee Benefits   333,000    325,000    655,000    639,000 
Data Processing and Other Outside Services   82,000    91,000    170,000    170,000 
FDIC Insurance and Regulatory Assessment   14,000    14,000    28,000    28,000 
Occupancy and Equipment   48,000    45,000    99,000    89,000 
Legal and Professional Services   60,000    128,000    154,000    235,000 
Supplies, Telephone, and Postage   9,000    16,000    18,000    26,000 
Expense (Income) from Foreclosed Assets, net   1,000    (7,000)   10,000    (16,000)
Other   29,000    27,000    56,000    54,000 
Total Noninterest Expense   576,000    639,000    1,190,000    1,225,000 
INCOME (LOSS) BEFORE INCOME TAXES   51,000    (47,000)   2,000    (79,000)
INCOME TAX EXPENSE (BENEFIT)   2,000    (16,000)   3,000    (32,000)
NET INCOME (LOSS)  $49,000   $(31,000)  $(1,000)  $(47,000)
                     
Common share data                    
Basic and diluted Income (Loss) per share  $0.03   $(0.02)  $-   $(0.03)

 

See Accompanying Notes to Consolidated Financial Statements.

 

 4 

 

 

CENTRAL FEDERAL Bancshares, Inc.

consolidated STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(rounded to thousands)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
   (Unaudited) 
NET INCOME (LOSS)  $49,000   $(31,000)  $(1,000)  $(47,000)
Other Comprehensive Income (Loss):                    
Unrealized Gains (Losses) on Debt Securities Available-for-Sale   (13,000)   95,000    (135,000)   87,000 
Income Tax (Expense) Benefit   3,000    (27,000)   38,000   (27,000)
Total Other Comprehensive Income (Loss), net of tax   (10,000)   68,000    (97,000)   60,000 
TOTAL COMPREHENSIVE INCOME (LOSS)  $39,000   $37,000   $(98,000)  $13,000 

 

See Accompanying Notes to Consolidated Financial Statements

 

 5 

 

 

CENTRAL FEDERAL Bancshares, Inc.

consolidated statements of cash flows

(rounded to thousands)

 

   Six Months Ended 
   June 30, 
   2018   2017 
   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Loss  $(1,000)  $(47,000)
Items not requiring (providing) cash:          
Net Amortization of Securities   20,000    26,000 
Provision for Loan Losses   -    - 
Depreciation   37,000    33,000 
Gain on Sale of Foreclosed Assets   -    (22,000)
ESOP Expense   40,000    37,000 
Loss on Equity Securities   15,000    - 
Net Changes in:          
Accrued Interest Receivable   (14,000)   (15,000)
Other Assets   (79,000)   23,000 
Other Liabilities   31,000    32,000 
Net Cash Provided by Operating Activities   49,000    67,000 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of Certificates of Deposit in Other Financial Institutions   -    (3,218,000)
Proceeds from Maturities of Certificates of Deposit in Other Financial Institutions   2,723,000    745,000 
Net Change in FHLB Stock   7,000    8,000 
Purchase of Securities Available-for-Sale   -    (777,000)
Proceeds from Maturities, Calls and Paydowns of Securities Available-for-Sale   447,000    557,000 
Net Increase in Loans   (4,105,000)   (2,140,000)
Purchases of Premises and Equipment   (30,000)   (100,000)
Proceeds from Sale of Foreclosed Assets   -    130,000 
Net Cash Used In Investing Activities   (958,000)   (4,795,000)
CASH FLOWS FROM FINANCING ACTIVITIES          
Net Increase (Decrease) in Deposits   1,064,000    (2,900,000)
Purchase of Treasury Stock   (224,000)   (555,000)
Net Cash Used in Financing Activities   840,000    (3,455,000)
NET CHANGE IN CASH AND CASH EQUIVALENTS   (69,000)   (8,183,000)
Cash and Cash Equivalents at Beginning of Period   2,925,000    12,199,000 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $2,856,000   $4,016,000 
           
SUPPLEMENTAL CASH FLOW DISCLOSURE          
Interest Paid on Deposits  $138,000   $148,000 
Income Taxes Paid, Net of Refunds Received  $-   $(47,000)
Noncash Investing Activities:          
Transfer of Loans to Foreclosed Assets  $71,000   $82,000 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 6 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Central Federal Bancshares, Inc. (“Central Federal Bancshares” or the “Company”) is a holding company that owns 100% of Central Federal Savings and Loan Association of Rolla (“Central Federal”). Central Federal is a community-oriented financial institution, dedicated to serving the financial service needs of customers within its market area, which generally consists of Phelps County, Missouri, although it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski and Maries. Central Federal offers a variety of loan and deposit products to meet the borrowing needs of its customers. Central Federal operates out of its office in Rolla, Missouri. Central Federal is subject to regulation, examination, and supervision by the Office of the Comptroller of the Currency, or OCC, its primary federal regulator, and the Federal Deposit Insurance Corporation, or FDIC, its deposit insurer.

 

Stock Conversion

 

On August 4, 2015, the Board of Directors of Central Federal adopted a Plan of Conversion, as subsequently amended, providing for Central Federal to convert from a federally chartered mutual savings association into a federally chartered stock savings association and operate as a wholly-owned subsidiary of a newly chartered savings and loan holding company. On January 12, 2016, Central Federal completed the conversion and now operates as a wholly-owned subsidiary of the Company. In connection with the conversion, the Company sold 1,719,250 shares of common stock in a subscription offering at $10.00 per share, including the sale of 143,042 shares to the Central Federal Savings and Loan Association Employee Stock Ownership Plan (the “ESOP”) which was established by Central Federal in connection with the conversion. In addition, the Company contributed an additional 68,770 shares of common stock, and $100,000 in cash, to the Central Federal Community Foundation, a charitable organization created by the Company and Central Federal in connection with the conversion and the related stock offering. The costs of the conversion and issuance of common stock was deferred and deducted from the proceeds of the offering. Central Federal incurred conversion costs of $1,425,000.

 

In accordance with applicable federal conversion regulations, at the time of the completion of the conversion, Central Federal established a liquidation account in an amount equal to Central Federal’s total retained earnings as of the latest balance sheet date in the final prospectus used in the conversion (which was June 30, 2015). Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of Central Federal, and only in such event. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. Central Federal may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

Principles of Consolidation

 

On January 12, 2016, Central Federal completed its conversion from the mutual to stock form of ownership and now operates as a wholly-owned subsidiary of the Company. The conversion was accounted for as a change in corporate form with the historic base of Central Federal’s assets, liabilities and equity unchanged as a result. The unaudited consolidated financial statements as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 are for the Company and Central Federal. Intercompany transactions and balances have been eliminated in the consolidation.

 

 7 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Unaudited Interim Consolidated Financial Statements

 

The interim consolidated financial statements prepared by management as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2018, and the results of operations and cash flows for the periods ended June 30, 2018 and 2017 and are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of Central Federal Bancshares, Inc. for the year ended December 31, 2017, contained in the 2017 Annual Report on Form 10-K filed with the SEC on March 28, 2018.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, valuation of foreclosed assets, valuation of deferred tax assets, and fair values of financial instruments.

 

New Accounting Standards

 

In January 2016, the FASB issued ASU 2016-01,” Recognition and Measurement of Financial Assets and Financial Liabilities,” an amendment to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The Company adopted the accounting standard during the first quarter of 2018, as required. The adoption of the standard resulted in a cumulative–effect adjustment that increased retained earnings by $18,000 with offsetting adjustment to AOCI.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this update will be effective for interim and annual periods beginning after December 15, 2019. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.

 

 8 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

Revenue Recognition Accounting Changes

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), an amendment that clarifies the principles for recognizing revenue and establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cashflows arising from the entity’s contracts to provide goods or services to customers. Most of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, investments and letters of credit. Service charges on deposit accounts, representing general services fees for monthly account maintenance, and transaction-based fee revenue is recognized when our performance is completed which is generally monthly.

 

ASU 2014-09 became effective for us on January 1, 2018 and had no material effect on how we recognize revenue or to our consolidated financial statements and disclosures.

 

Treasury Stock

 

Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first in, first out method.

 

Reclassification

 

Certain amounts in the 2017 consolidated financial statements have been reclassified to conform to the 2018 presentation. These reclassifications had no effect on net income (loss).

 

Subsequent Events

 

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were available to be issued.

 

note 2 INCOME (LOSS) per share

 

Income (loss) per share is based upon the weighted-average shares outstanding. Any shares in the ESOP that have been committed-to-be-released are considered outstanding.

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
  2018   2017   2018   2017 
Basic and Diluted Income (Loss) per Share:                
Net Income (Loss)  $49,000   $(31,000)  $(1,000)  $(47,000)
Weighted-Average Basic and Diluted Shares Outstanding   1,530,393    1,640,722    1,536,704    1,644,642 
                     
Net Income (Loss) per Share, Basic and Diluted  $0.03   $(0.02)  $(0.00)  $(0.03)

 

 9 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

note 3 Certificates of DEPOSIT IN OTHER FINANCIAL INSTITUTIONS

 

Certificates of deposit in other financial institutions are as follows:

 

   June 30, 2018   December 31, 2017 
   (Unaudited)     
Certificates of Deposit at Cost Maturing In:          
Less than One Year  $992,000   $2,481,000 
One Year to Five Years   1,984,000    3,218,000 
   $2,976,000   $5,699,000 

 

note 4 sECURITIES

 

The carrying amount and estimated fair value of available-for-sale debt securities are summarized as follows:

 

   June 30, 2018 (Unaudited) 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
                 
Mortgage Backed Securities  $4,563,000   $                      -   $(220,000)  $4,343,000 
Small Business Administration (“SBA”) Pools   881,000    -    (45,000)   836,000 
Muncipal Obligation   405,000    -    (5,000)   400,000 
Total  $5,849,000   $-   $(270,000)  $5,579,000 

 

   December 31, 2017 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
                 
Mortgage Backed Securities  $4,994,000   $-   $(111,000)  $4,883,000 
Small Business Administration (“SBA”) Pools   916,000    -    (31,000)   885,000 
Muncipal Obligation   406,000    6,000    -    412,000 
Total  $6,316,000   $6,000   $(142,000)  $6,180,000 

 

The following table indicates amortized cost and the estimated fair value of available-for-sale debt securities as of June 30, 2018 based upon contractual maturity.

 

   Amortized Cost   Fair Value 
   (Unaudited)     
Over Ten Years  $405,000   $400,000 
Mortgage Backed Securities and SBA Pools with no stated maturity date   5,444,000    5,179,000 
Total  $5,849,000   $5,579,000 

 

 10 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

note 4 sECURITIES (CONTINUED)

 

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2018 and December 31, 2017 was $5,579,000 and $5,768,000, which is approximately 100% and 93%, respectively, of the Company’s available-for-sale debt securities portfolio. These declines primarily resulted from changes in market interest rates.

 

The following tables show securities with gross unrealized losses at June 30, 2018 and December 31, 2017 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

 

   June 30, 2018 (Unaudited) 
   Less Than 12 Months   12 Months or More   Total 
       Gross       Gross       Gross 
       Unrealized       Unrealized       Unrealized 
   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses 
                         
Mortgage Backed Securities  $-   $-   $4,343,000   $(220,000)  $4,343,000   $(220,000)
Small Business Administration Pools   -    -    836,000    (45,000)   836,000    (45,000)
Muncipal Obligation   -    -    400,000    (5,000)   400,000    (5,000)
Total  $-   $-   $5,579,000   $(270,000)  $5,579,000   $(270,000)

 

   December 31, 2017 
   Less Than 12 Months   12 Months or More   Total 
       Gross       Gross       Gross 
       Unrealized       Unrealized       Unrealized 
   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses 
                         
Mortgage Backed Securities  $         665,000   $(8,000)  $4,218,000   $(103,000)  $4,883,000   $(111,000)
Small Business Administration Pools            -    -    885,000    (31,000)   885,000    (31,000)
Muncipal Obligation   -    -    -    -    -    - 
Total  $665,000   $(8,000)  $5,103,000   $(134,000)  $5,768,000   $(142,000)

 

There were no debt securities with unrealized losses which management believes were other-than-temporarily impaired at June 30, 2018 and December 31, 2017.

 

 11 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

note 4 sECURITIES (CONTINUED)

 

The carrying amount and estimated fair value of equity securities are shown below:

 

   June 30, 2018 (Unaudited) 
   Amortized
Cost
   Gross
Recognized
Gains
   Gross
Recognized
Losses
   Fair
Value
 
                 
Federal Home Loan Mortgage Corp. Stock  $15,000   $9,000   $-   $24,000 
Total  $15,000   $9,000   $-   $24,000 

 

   December 31, 2017 
   Amortized
Cost
   Gross
Recognized
Gains
   Gross
Recognized
Losses
   Fair
Value
 
                 
Federal Home Loan Mortgage Corp. Stock  $15,000   $25,000   $-   $40,000 
Total  $15,000   $25,000   $-   $40,000 

 

Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported in AOCI, net of tax. On January 1, 2018, the unrealized gain was reclassified out of AOCI and into retained earnings with subsequent changes in fair value being recognized in net income. Net losses recognized during the six months ended June 30, 2018 amounted to $15,000, all of which was unrealized as securities were still held at June 30, 2018.

 

There were no securities pledged as collateral at June 30, 2018 and December 31, 2017.

 

During the six-month period ended June 30, 2018 and 2017, the Company did not sell any securities.

 

 12 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

note 5 LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Loans are summarized as follows:

 

      June 30,2018       December 31, 2017   
   (Unaudited)     
Commercial Business  $1,526,000   $1,285,000 
Commercial and Multi-Family Real Estate   20,596,000    16,503,000 
Residential Real Estate   33,321,000    33,753,000 
Consumer and Other   800,000    683,000 
    56,243,000    52,224,000 
Allowance for Loan Losses   (260,000)   (273,000)
Net Deferred Loan Fees   (12,000)   (14,000)
Loans, Net  $55,971,000   $51,937,000 

 

Residential real estate loans at June 30, 2018 and December 31, 2017 include loans secured by one- to four-family, non-owner-occupied properties of $8,924,000 and $9,190,000, respectively.

 

At June 30, 2018 and December 31, 2017, construction loan commitments were $5,689,000 and $2,076,000, respectively. Undisbursed loans in process at June 30, 2018 and December 31, 2017 were $3,307,000 and $1,330,000, respectively.

 

The Company maintains a separate general allowance for each portfolio segment. These portfolio segments include commercial business, commercial and multi-family real estate, residential real estate, and consumer and other with risk characteristics described as follows:

 

Commercial Business: Commercial business loans generally possess a lower inherent risk of loss than other real estate portfolio segments because these loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

 

Commercial and Multi-Family Real Estate: Commercial and multi-family real estate loans generally possess a higher inherent risk of loss than other real estate portfolio segments. Adverse economic developments or an overbuilt market can impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for the properties to produce sufficient cash flow to service debt obligations.

 

Residential Real Estate: The degree of risk in residential mortgage lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of probable loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

 

Consumer and Other: The consumer and other loan portfolio segment is usually comprised of many small loans scheduled to be amortized over a specific period. Most loans are made directly for consumer purchases.

 

 13 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

note 5 loans and allowance for loan losses (continued)

 

Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

 

Although management believes the allowance for loan losses to be adequate, ultimate losses may vary from management’s estimates. At least quarterly, the board of directors reviews the adequacy of the allowance, including consideration of the relevant risks in the portfolio, current economic conditions, and other factors. If the board of directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. Central Federal is subject to periodic examination by its primary regulator, which may require additions to the allowance based on judgments regarding loan portfolio information available at the time of its examinations.

 

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three and six months ended June 30, 2018. Also presented is the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2018.

 

June 30, 2018 (Unaudited)  Commercial Business   Commercial and Multi-Family Real Estate   Residential Real Estate   Consumer and Other   Unallocated   Total 
Allowance for Loan Losses:                              
Balance April 1, 2018  $3,000   $40,000   $200,000   $4,000   $11,000   $258,000 
Provision for Loan Losses   -    21,000    (18,000)   -    (3,000)   - 
Loans Charged-Off   -    -    -    -    -    - 
Recoveries of Loans                              
Previously Charged-Off   -    -    2,000    -    -    2,000 
Balance June 30, 2018  $3,000   $61,000   $184,000   $4,000   $8,000   $260,000 
                               
Balance January 1, 2018  $3,000   $38,000   $220,000   $3,000   $9,000   $273,000 
Provision for Loan Losses   -    23,000    (23,000)   1,000    (1,000)   - 
Loans Charged-Off   -    -    (16,000)   -    -    (16,000)
Recoveries of Loans                              
Previously Charged-Off   -    -    3,000    -    -    3,000 
Balance June 30, 2018  $3,000   $61,000   $184,000   $4,000   $8,000   $260,000 
                               
Allowance for Loan Losses:                              
Ending Balance: Individually Evaluated for Impairment  $-   $-   $-   $-   $-   $- 
                               
Ending Balance: Collectively Evaluated for Impairment  $3,000   $61,000   $184,000   $4,000   $8,000   $260,000 
                               
Loans:                              
Ending Balance: Individually Evaluated for Impairment  $-   $-   $120,000   $-        $120,000 
                               
Ending Balance: Collectively Evaluated for Impairment  $1,526,000   $20,596,000   $33,201,000   $800,000        $56,123,000 

 

 

 14 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 5 LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three and six months ended June 30, 2017:

 

June 30, 2017 (Unaudited)  Commercial Business   Commercial and Multi-Family Real Estate   Residential Real Estate   Consumer and Other   Unallocated   Total 
Allowance for Loan Losses:                              
Balance April 1, 2017  $2,000   $39,000   $190,000   $3,000   $29,000   $263,000 
Provision for Loan Losses   1,000    (1,000)   1,000    -    (1,000)   - 
Loans Charged-Off   -    -    -    -    -    - 
Recoveries of Loans                              
Previously Charged-Off   -    -    1,000    -    -    1,000 
Balance June 30, 2017  $3,000   $38,000   $192,000   $3,000   $28,000   $264,000 
                               
Balance January 1, 2017  $3,000   $37,000   $181,000   $3,000   $39,000   $263,000 
Provision for Loan Losses   -    1,000    9,000    1,000    (11,000)   - 
Loans Charged-Off   -    -    -    (1,000)   -    (1,000)
Recoveries of Loans                              
Previously Charged-Off   -    -    2,000    -    -    2,000 
Balance June 30, 2017  $3,000   $38,000   $192,000   $3,000   $28,000   $264,000 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method at December 31, 2017.

 

December 31, 2017  Commercial Business   Commercial and Multi-Family Real Estate   Residential Real Estate   Consumer and Other   Unallocated   Total 
Allowance for Loan Losses:                              
Ending Balance: Individually Evaluated for Impairment  $-   $-   $19,000   $-   $-   $19,000 
                               
Ending Balance: Collectively Evaluated for Impairment  $3,000   $38,000   $201,000   $3,000   $9,000   $254,000 
Loans:                              
Ending Balance: Individually Evaluated for Impairment  $-   $-   $101,000   $-        $101,000 
                               
Ending Balance: Collectively Evaluated for Impairment  $1,285,000   $16,503,000   $33,652,000   $683,000        $52,123,000 

 

 

 15 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 5 LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 

The following tables show the loans allocated by management’s internal risk ratings:

 

    Risk Profile by Risk Rating 
June 30, 2018 (Unaudited)   Commercial Business    Commercial
and Multi-Family Real Estate
    Residential
Real Estate
    Consumer
and Other
    Total 
Risk Rating:                         
Unclassified  $1,526,000   $20,326,000   $32,459,000   $800,000   $55,111,000 
Special Mention   -    270,000    547,000    -    817,000 
Substandard   -    -    315,000    -    315,000 
Total  $1,526,000   $20,596,000   $33,321,000   $800,000   $56,243,000 

 

    Risk Profile by Risk Rating 
December 31, 2017   Commercial Business    Commercial
and Multi-Family Real Estate
    Residential
Real Estate
    Consumer
and Other
    Total 
Risk Rating:                         
Unclassified  $1,285,000   $16,349,000   $32,849,000   $683,000   $51,166,000 
Special Mention   -    154,000    620,000    -    774,000 
Substandard   -    -    284,000    -    284,000 
Total  $1,285,000   $16,503,000   $33,753,000   $683,000   $52,224,000 

 

 16 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 5 LOANS and allowance for loan losses (continued)

 

The following tables show the aging analysis of the loan portfolio by time past due:

 

    Accruing Interest           
June 30, 2018 (Unaudited)   Current    30-89
Days Past Due
    90 Days or More
Past Due
    Total
Nonaccrual
    Toal
Loans
 
                          
Commercial Business  $1,526,000   $-   $-   $-   $1,526,000 
Commercial and Multi-Family Real
Estate
   20,596,000    -    -    -    20,596,000 
Residential Real Estate   32,607,000    520,000    74,000    120,000    33,321,000 
Consumer and Other   800,000    -    -    -    800,000 
   $55,529,000   $520,000   $74,000   $120,000   $56,243,000 

 

December 31, 2017                    
                     
Commercial Business  $1,285,000   $-   $-   $-   $1,285,000 
Commercial and Multi-Family Real
Estate
   16,503,000    -    -    -    16,503,000 
Residential Real Estate   33,346,000    306,000    71,000    30,000    33,753,000 
Consumer and Other   683,000    -    -    -    683,000 
   $51,817,000   $306,000   $71,000   $30,000   $52,224,000 

 

Interest income that would have been recorded for the six months ended June 30, 2018 and 2017 had nonaccrual loans been current according to their original terms amounted to $3,000 and $1,000, respectively. There was no interest income recognized for nonaccrual loans during the six months ended June 30, 2018. Interest income recognized for the six months ended June 30,2017 was $1,000.

 

 17 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 5 LOANS and allowance for loan losses (continued)

 

The following tables present information related to impaired loans:

 

June 30, 2018 (Unaudited)  Recorded Investment   Unpaid Principal Balance  

Related

Allowance

 
             
Loans With No Related Allowance Recorded:               
Residential Real Estate  $120,000   $121,000   $       - 
Total Loans With No Related Allowance Recorded  $120,000  $121,000  $- 
                
Loans With an Allowance Recorded:               
Residential Real Estate  $-   $-   $- 
                
Total Impaired Loans:               
Residential Real Estate  $120,000   $121,000   $- 
Total  $120,000   $121,000   $- 

 

December 31, 2017  Recorded Investment   Unpaid Principal Balance   Related Allowance 
             
Loans With No Related Allowance Recorded:               
Residential Real Estate  $30,000   $32,000   $- 
Total Loans With No Related Allowance Recorded  $30,000  $32,000  $- 
                
Loans With an Allowance Recorded:               
Residential Real Estate  $71,000   $71,000   $19,000 
                
Total Impaired Loans:               
Residential Real Estate  $101,000   $103,000   $19,000 
Total  $101,000   $103,000   $19,000 

 

 18 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

NOTE 5 LOANS and allowance for loan losses (continued)

 

   Three Months Ended   Six Months Ended 
June 30, 2018 (Unaudited)  Average Recorded Investment   Interest Income Recognized   Average Recorded Investment   Interest Income Recognized 
Loans With No Related Allowance Recorded:                    
Residential Real Estate  $120,000   $1,000   $52,000   $3,000 
Total Loans With No Related Allowance Recorded  $120,000   $1,000  $52,000   $3,000 
                     
Loans With an Allowance Recorded:                    
Residential Real Estate  $-   $-   $-   $- 
                     
Total Impaired Loans:                    
Residential Real Estate  $120,000   $1,000   $52,000   $3,000 
Total  $120,000   $1,000   $52,000   $3,000 

 

June 30, 2017 (Unaudited)  Average Recorded Investment  

Interest

Income Recognized

   Average Recorded Investment   Interest Income Recognized 
Loans With No Related Allowance Recorded:                    
Residential Real Estate  $74,000   $        -   $115,000   $1,000 
Total Loans With No Related Allowance Recorded  $74,000   $-   $115,000   $1,000 
                     
Loans With an Allowance Recorded:                    
Residential Real Estate  $-   $-   $-   $- 
                     
Total Impaired Loans:                    
Residential Real Estate  $74,000   $-   $115,000   $1,000 
Total  $74,000   $-   $115,000   $1,000 

 

The Company does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in troubled debt restructurings (TDRs) or whose loans are on nonaccrual.

 

There were no loans modified in TDRs for the six months ended June 30, 2018 and 2017.

 

 19 

 

 

CENTRAL FEDERAL Bancshares, Inc.

notes to consolidated financial statements

 

Note 6 foreclosed assets

 

Activity in foreclosed assets is as follows:

 

   Six Months Ended June 30, 
   2018   2017 
   (Unaudited) 
Balance Beginning of Period  $-   $26,000 
Additions   71,000    82,000 
Proceeds from Sale, Net   -    (130,000)
Gain (Loss) on Sale   -    22,000 
Balance at End of Period  $71,000   $- 

 

note 7 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

 

In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. Central Federal’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated statements of financial condition.

 

The following financial instruments whose contract amount represents credit risk were approximately as follows:

 

   June 30, 2018   December 31, 2017 
   (Unaudited)     
Commitments to Extend Credit  $5,405,000   $3,759,000 
Standby Letters of Credit        - 
Total  $5,405,000   $3,759,000 
Range of Rates on Fixed Rate Commitments   2.25-6.25%   2.00-6.00%

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income producing commercial properties.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

 

 20 

 

 

CENTRAL FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

note 7 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (COntinued)

 

Central Federal was not required to perform on any financial guarantees and did not incur any losses on its commitments for the six months ended June 30, 2018.

 

note 8 income taxes

 

At June 30, 2018, the Company had approximately $300,000 of net operating loss carry forward that will begin to expire in 2036. In connection with the offering of common stock in 2016 the Company contributed to the Central Federal Community Foundation $100,000 in cash and common stock with a fair value of $687,700 (68,770 shares at the $10.00 offering price) for a total contribution of $787,700. For Federal income tax purposes, the deduction for charitable contributions is subject to certain annual limitations with unused contributions carried forward five years subject to the same annual limitations.

 

At June 30, 2018 and December 31, 2017, the Company had recorded a valuation allowance against the entire deferred tax asset related to this contribution carryforward. The Company has determined it is more likely than not that this deferred tax asset will not be realized.

 

note 9 stockholders’ equity and REGULATORY MATTERS

 

Central Federal is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Central Federal must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not generally applicable to savings and loan holding companies.

 

As of June 30, 2018, the most recent notification from the banking regulators categorized Central Federal as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Central Federal must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed Central Federal’s category.

 

Quantitative measures established by regulation to ensure capital adequacy require Central Federal to maintain the minimum amounts and ratios set forth in the following table. Management believes, as of June 30, 2018 and December 31, 2017, that Central Federal met all its capital adequacy requirements.

 

 21 

 

 

CENTRAL FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 9 STOCK HOLDERS’ EQUITY AND REGULATORY MATTERS (CONTINUED)

 

Applicable capital adequacy requirements and Central Federal’s capital amounts and ratios are presented in the following table.

 

   Actual   Minimum Capital
Requirement
   Minimum to be
Well Capitalized
 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
June 30, 2018 (Unaudited)                              
Total Capital to Risk Weighted Assets  $20,978,000    44.9%  $3,650,880    8.0%  $4,563,600    10.0%
                               
Tier 1 Capital to Risk Weighted Assets   20,718,000    44.3%   2,738,160    6.0%   3,650,880    8.0%
                               
Common Equity Tier 1 Capital to Risk Weighted Assets   20,718,000    44.3%   2,053,620