Filed Pursuant to Rule 424(b)(1)

Registration No. 333-129315

PROSPECTUS

2,000,000 Shares

Common Stock

        We are Central Federal Corporation, a Delaware corporation and the holding company for CFBank, a federally-chartered savings association located in the State of Ohio.

      We are offering for sale 2,000,000 shares of our common stock in an underwritten public offering. The offering is being made only in the States of California, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, Wisconsin, the Commonwealths of Massachusetts and Virginia, where the common stock has been registered or qualified for sale. Our common stock is traded on the Nasdaq^® Capital Market under the symbol “CFBK.” The last reported sale price for our common stock was $7.75 per share on January 10, 2006.

      Investing in our common stock involves risks. Before making an investment decision, we urge you to read carefully the “Risk Factors” beginning on page 6.

      Neither the Securities and Exchange Commission nor the Office of Thrift Supervision or any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

      The securities offered by this prospectus are not savings accounts or deposits, and they are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

Ryan Beck & Co.

The date of this prospectus is January 10, 2006

TABLE OF CONTENTS

	•	Management — In 2003, we began to put in place a strong senior management team with extensive banking experience in the geographical and product markets we serve. We believe it is unusual for a community bank to have a management team as experienced as ours. There has been significant industry consolidation in our markets in recent years, and we believe a substantial segment of the market is eager to do business with experienced bankers who provide exemplary service and prompt decisions.
	•	Growth Markets — With the change in management, we also adopted an ambitious growth plan to reposition the bank. In 2003, we began a transition from our historical role as a thrift with an emphasis on making single family mortgage loans in Columbiana County to a balanced community bank. As part of the transition, we have opened additional offices in Franklin and Summit Counties, Ohio, where higher population and median income levels offer far greater potential for growth and profitability. Along with our expansion into growth markets, we are shifting our focus to more fully serving the more profitable commercial and commercial real estate loan markets. We are also enhancing our mortgage loan capabilities. We intend to consider every reasonable channel to originate loans, including the internet and other technology.
	•	Customer Service — We intend to differentiate ourselves from our competitors by providing excellent customer service, including prompt credit decisions. We provide personalized banking services, as we strive to meet the individual financial needs and objectives of our customers and offer appropriate services to meet those needs and objectives. We pride ourselves on giving our customers ready access to decision makers, and we limit the number of accounts served by each of our officers so that our customers can receive personal attention, and we can fully develop our business relationship with each customer. We also provide courier service for deposits, and we believe that we are a leader in our markets in utilizing technology to enhance the level of convenience for our customers.
	•	Asset Quality — Historically, we have had excellent asset quality, which we will be careful to maintain, as we expand our lending activities. We have a team of very experienced lenders, and we believe we have developed a stronger credit review process than would typically be seen at a community bank. With an increased legal lending limit as a result of this offering, we plan to significantly increase our loan portfolio while maintaining superior asset quality through conservative underwriting practices. Historically, we have experienced a very low level of charge-offs and past due loans.

Securities Offered for Sale		2,000,000 shares of common stock
Shares of Common Stock Outstanding after the Offering (assuming the underwriter’s over-allotment option is not exercised)		4,243,662 shares
Offering Price		$7.00 per share
Market for the Common Stock		Our common stock is quoted on the Nasdaq® Capital Market under the symbol “CFBK.”
Dividend Policy		We pay a quarterly dividend of $0.09 per share of common stock, and we intend to continue that practice. However, we reserve the right to change the amount of our dividend or suspend or end the payment of the dividend at any time.
Use of Proceeds		We intend to downstream a substantial portion of the proceeds to the bank, where they may be used for, among other things, expanding commercial lending operations. Proceeds retained by us may be used for general corporate purposes.
Purchases by Officers and Directors		Certain of our officers and directors have indicated an interest in purchasing an aggregate of approximately 100,000 shares in the offering.
Risk Factors		Investment in our common stock involves certain risks, including the risk of loss of principal. You should read the “Risk Factors” section beginning on page 6 before deciding to purchase our common stock.

RISK FACTORS

      You should consider carefully the following risk factors before deciding whether to invest in our common stock. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks you should also refer to the other information contained in this prospectus, including our financial statements and related notes.

Risks Related to the Banking Industry

Changes in economic and political conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline.

      Our success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. In addition, substantially all of our loans are to individuals and businesses in Ohio. Consequently, any decline in the economy of this market area could have an adverse impact on our earnings.

Changes in interest rates could adversely affect our results of operations and financial condition.

      Our earnings depend substantially on our interest rate spread, which is the difference between (i) the rates we earn on loans, securities and other earning assets and (ii) the interest rates we pay on deposits and other borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. As market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits, which will result in a decrease of our net interest income. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” at page 22.

We operate in a highly regulated environment, and changes in laws and regulations to which we are subject may adversely affect our results of operations.

      The bank operates in a highly regulated environment and is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”). The laws and regulations to which we are subject are intended to protect our depositors, not our investors. Applicable laws and regulations may change, and there is no assurance that such changes will not adversely affect our business. As a holding company, we also are subject to regulation and oversight by the OTS. Such regulation and supervision govern the activities in which an institution and its holding companies may engage and are intended primarily for the protection of the bank and its depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations

governing savings and loan holding companies, could have a material impact on the bank, the holding company and our operations.

Risks Related to Our Business

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

      In our market area, the bank encounters significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions. Many of the bank’s competitors have substantially greater resources and lending limits than the bank and may offer services that we do not or cannot provide. Our profitability depends upon our continued ability to compete successfully in our market area.

The loss of key members of our senior management team could adversely affect our business.

      We believe that our success depends largely on the efforts and abilities of our senior management. Their experience and industry contacts significantly benefit us. The competition for qualified personnel in the financial services industry is intense, and the loss of any of our key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect our business. We cannot assure you that we will be able to retain our existing key personnel or attract additional qualified personnel.

We have opened new offices, and we have hired a number of experienced employees, which has reduced our profitability in the near term.

      We opened two new offices in Fairlawn and Columbus, Ohio in 2003 and we have increased our personnel and other costs in anticipation of growth. We may expand further by opening additional offices. The expense associated with building and staffing new offices has significantly increased our noninterest expense, with compensation and occupancy costs constituting the largest amount of increased costs. Losses have been incurred from the new offices as the expenses associated with them are largely fixed and are typically greater than the income earned as the offices builds up their customer base. There can be no assurance that our office expansion will result in increased earnings, or that it will result in increased earnings within a reasonable period of time. We expect that the success of our expansion strategy will depend largely on the ability of our staff to market the deposit and loan products offered at the offices.

Our loan portfolio includes loans with a higher risk of loss, and our non-residential loan portfolio is not seasoned.

      We originate commercial mortgage loans, commercial loans, consumer loans, and residential mortgage loans primarily within our market area. Commercial mortgage, commercial, and consumer loans may expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate. These loans also have greater credit risk than residential real estate for the following reasons:

      Prior to our new management team joining in 2003, we originated primarily one-to four-family residential loans. While we believe that we have adhered to sound underwriting procedures with regard to our commercial real estate, commercial and consumer loans, the portfolio has grown rapidly in the last two years. Typically, unseasoned portfolios exhibit a greater risk of loss.

If our actual loan losses exceed our allowance for loan losses, our net income will decrease.

      Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectibility 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 our loans. Because we must use assumptions regarding individual loans and the economy, our current allowance for loan losses may not be sufficient to cover actual loan losses, and increases in the allowance may be necessary. We may need to significantly increase our provision for losses on loans if one or more of our larger loans or credit relationships becomes delinquent or if we continue to expand our commercial real estate and commercial lending. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize loan charge-offs. Material additions to our allowance would materially decrease our net income. We cannot assure you that our monitoring procedures and policies will reduce certain lending risks or that our allowance for loan losses will be adequate to cover actual losses.

If we foreclose on collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues.

      We may have to foreclose on collateral property to protect our investment and may thereafter own and operate such property, in which case we will be exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) supply of and demand for rental units or properties; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating a real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment, or we may be required to dispose of the real property at a loss. The foregoing expenditures and costs could adversely affect our ability to generate revenues, resulting in reduced levels of profitability.

Environmental liability associated with commercial lending could have a material adverse effect on our business, financial condition and results of operations.

      In the course of our business, we may acquire, through foreclosure, commercial properties securing loans that are in default. There is a risk that hazardous substances could be discovered on those properties. In this event, we could be required to remove the substances from and remediate

the properties at our cost and expense. The cost of removal and environmental remediation could be substantial. We may not have adequate remedies against the owners of the properties or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on our business, financial condition and operating results.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud, and, as a result, investors and depositors could lose confidence in our financial reporting, which could adversely affect our business, the trading price of our stock and our ability to attract additional deposits.

      Beginning with our annual report for the fiscal year ending December 31, 2007, we will have to include in our annual reports filed with the Securities and Exchange Commission (the “Commission”) a report of our management regarding internal control over financial reporting. As a result, we recently have begun to document and evaluate our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and Commission rules and regulations, which require an annual management report on our internal control over financial reporting, including, among other matters, management’s assessment of the effectiveness of internal control over financial reporting and an attestation report by our independent auditors addressing these assessments. Accordingly, management has retained outside consultants to assist us in (i) assessing and documenting the adequacy of our internal control over financial reporting, (ii) improving control processes, where appropriate, and (iii) verifying through testing that controls are functioning as documented. If we fail to identify and correct any significant deficiencies in the design or operating effectiveness of our internal control over financial reporting or fail to prevent fraud, current and potential stockholders and depositors could lose confidence in our financial reporting, which could adversely affect our business, financial condition and results of operations, the trading price of our stock and our ability to attract additional deposits.

A breach of information security could negatively affect our business.

      We depend on data processing, communication and information exchange on a variety of computing platforms and networks and over the internet. We cannot be certain all of our systems are entirely free from vulnerability to attack, despite safeguards we have installed. Additionally, we rely on a variety of third-party service providers for our data and communications needs. If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. These costs or losses could materially exceed our amount of insurance coverage, if any, which would adversely affect our business.

Risks Related to this Offering

The price of our common stock may be volatile, which may result in losses for investors.

      The market price for shares of our common stock has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:

      The market price of our common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

Management has discretionary use of the proceeds from this offering, and you may not agree with the uses we choose to make of the offering proceeds.

      Management will have broad discretion to use the net proceeds we receive from this offering for general corporate purposes. We have not specified uses of the net proceeds. All determinations concerning the use of the net proceeds will be made by our management. Accordingly, there is a greater degree of uncertainty concerning the return on any investments we may make, than would be the case if specific investments were identified, and there is no assurance that you will agree with the uses we choose to make of these net proceeds.

Our return on equity is low compared to other companies. This could hurt the price of our common stock.

      Net earnings divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. Our return on average equity amounted to -8.60% and -12.34% in 2004 and 2003 respectively. Our return on average equity amounted to -18.22% for the nine months ended September 30, 2005. Moreover, we have experienced net losses of $2,627,000, $1,662,000 and $2,374,000 for the nine months ended September 30, 2005, and the years ended December 31, 2004 and 2003, respectively. We expect our return on equity to remain low as we attempt to increase net earnings and due to the increased equity from the offering. Until we can increase our net interest income and other income, we expect our return on equity to be below the industry average, which may negatively impact the value of our stock.

Our common stock is thinly traded, and thus your ability to sell shares or purchase additional shares of our common stock will be limited, and the market price at any time may not reflect true value.

      Your ability to sell shares of our common stock or purchase additional shares largely depends upon the existence of an active market for the common stock. Our common stock is quoted on the Nasdaq^® Capital Market, but the volume of trades on any given day is light, and you may be unable to find a buyer for shares you wish to sell or a seller of additional shares you wish to purchase. We cannot assure you that an active trading market for our common stock will develop, or if it develops, that it will continue. In addition, a fair valuation of the purchase or sales price of a share of common stock also depends upon active trading, and thus the price you receive for a thinly traded stock, such as our common stock, may not reflect its true value.

Future sales or additional issuances of our capital stock may depress prices of shares of our common stock or otherwise dilute the book value of shares then outstanding.

      Sales of a substantial amount of our capital stock in the public market or the issuance of a significant number of shares could adversely affect the market price for shares of our common stock. As of September 30, 2005, we were authorized to issue up to 6,000,000 shares of common stock, of which 2,243,662 shares were outstanding, 300,872 shares were reserved for issuance pursuant to options granted under our stock option plans and an additional 10,000 shares were available for granting options or shares of restricted stock under these plans. We also were authorized to issue up to 1,000,000 shares of preferred stock, none of which is outstanding or reserved for issuance. Accordingly, without further stockholder approval, we may issue up to 3,445,466 additional shares of common stock and up to 1,000,000 shares of preferred stock, which obviously may affect the market price for shares of our common stock.

Our charter documents, Delaware law and federal regulations may inhibit a takeover, prevent a transaction you may favor or limit our growth opportunities, which could cause the market price of our common stock to decline.

      Certain provisions of our charter documents, Delaware law and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of our company. In addition, we must obtain approval from the OTS before acquiring control of any other company.

We may not be able to pay dividends in the future in accordance with past practice.

      We pay a quarterly dividend to stockholders. However, we are dependent primarily upon the bank for our earnings and funds to pay dividends on our common stock. The payment of dividends also is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on the bank’s earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors (the “Board”).

FORWARD-LOOKING STATEMENTS

      This prospectus contains “forward-looking statements” which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to (i) general and local economic conditions, (ii) changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition, (iii) changes in accounting principles, policies, or guidelines, (iv) changes in legislation or regulation; and (v) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services.

      Any or all of our forward-looking statements in this prospectus and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We do not intend to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results.

USE OF PROCEEDS

      We anticipate that our net proceeds from the sale of our common stock in this offering, assuming the underwriter does not exercise its option to cover over-allotments, will be approximately $12.6 million, after deducting offering expenses and underwriting commissions, estimated to be $1.4 million.

      We intend to use the net proceeds for general corporate purposes. A substantial portion of the proceeds will be downstreamed to the bank. We also may expand our commercial lending operations. Although we may explore acquisitions, we are not presently engaged in any negotiations, and we have no specific acquisition plans or objectives. Management has not yet determined the amount of proceeds to be used for each purpose, or the priority of purposes. Pending use of proceeds for these purposes, it is likely they will be invested in short-term investment securities.

MARKET FOR OUR COMMON STOCK AND DIVIDENDS

      Market Information and Dividends. Our common stock is quoted on the Nasdaq^® Capital Market under the symbol “CFBK.” At September 30, 2005, there were 2,243,662 shares of common stock outstanding and approximately 568 holders of record. The last reported sales price of our common stock on January 10, 2006 was $7.75 per share. The table below shows the high and low sales prices per share for our common stock by calendar quarter for the years indicated and the dividend paid in each quarter.

      Holders of our common stock are entitled to receive cash dividends when and if declared by the Board from funds legally available for that purpose. Our ability to pay cash dividends is limited to an amount equal to the surplus (i.e., the excess of our net assets over paid-in-capital) or, if there is no surplus, our net earnings for the current and/or immediately preceding fiscal year. The primary source of funds for any cash dividends payable to our stockholders would be the dividends received from CFBank. The payment of cash dividends by the bank is determined by the Board (which also constitutes the bank’s board of directors) and is dependent upon a number of factors, including the bank’s capital requirements, applicable regulatory limitations, results of operations and financial condition. See “Regulation and Supervision” and “Description of Our Common Stock” for a description of the restrictions on our payment of dividends under federal banking laws and the Delaware General Corporation Law.

      Equity Compensation Plan Information. The following table sets forth information about the common stock that may be issued upon exercise of options, warrants and rights under all of our equity compensation plans as of September 30, 2005.

CAPITALIZATION

      The following table sets forth our consolidated capitalization as of September 30, 2005 on an actual basis and on a pro forma basis to give effect to the shares to be issued in this offering. We have assumed that the net offering proceeds will be $12.6 million, after deducting estimated offering expenses and underwriting commissions of approximately $1.4 million, and assuming no exercise of the underwriter’s over-allotment option. You should read this information together with our consolidated financial statements and related notes, which are included in this prospectus.

Pro Forma Consolidated Capitalization (unaudited)

SELECTED CONSOLIDATED FINANCIAL INFORMATION

      The information in the following table 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, as contained in this prospectus.

      The information as of and for the nine months ended September 30, 2005 and 2004 is unaudited, but, in the opinion of management, this information is accurate and contains all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition and results of operations for those periods. The results of operations for the nine-month period ended September 30, 2005 are not necessarily indicative of the results to be expected for the final quarter of 2005 or for any other period.

(See footnotes on page 19)

(See footnotes on page 19)

n/m — not meaningful

SUPPLEMENTARY CONSOLIDATED FINANCIAL INFORMATION

Central Federal Corporation

Selected Quarterly Financial Data

(unaudited)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

General

      Central Federal Corporation (formerly known as Grand Central Financial Corp.) was formed as a savings and loan holding company as a result of the conversion of CFBank (formerly known as Central Federal Savings and Loan Association of Wellsville and, more recently as Central Federal Bank) from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association in December of 1998.

      We are a community-oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. We attract deposits from the general public and use such 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.

      Our results of operations are dependent primarily on net interest income, which is the difference (“spread”) between the interest income earned on loans and securities and the cost of funds, consisting of interest paid on deposits and borrowed funds. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. Our 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. Our operating expenses principally consist of employee compensation and benefits, occupancy and other general and administrative expenses. Our results of operations are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may also materially impact us.

Critical Accounting Policies

      We follow financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America and conform to general practices within the banking industry. These policies are presented in Note 1 to our audited consolidated financial statements. Some of these accounting policies are considered to be critical accounting policies, which are those policies that 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. Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

      We have identified accounting polices that are critical accounting policies and an understanding of these policies is necessary to understand our financial statements. One critical accounting policy relates to determining the adequacy of the allowance for loan losses. Our Allowance for Loan Losses Policy provides a thorough, disciplined and consistently applied process that incorporates management’s current judgments about the credit quality of the loan portfolio into determination of the allowance for loan losses in accordance with generally accepted accounting principles and supervisory guidance. 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. Management believes that

an adequate allowance for loan losses has been established. Additional information regarding this policy is included in the section below captioned “Provision for Loan Losses” and in Notes 1 and 4 to our audited consolidated financial statements.

      Another critical accounting policy relates to the valuation of the deferred tax asset for net operating losses. Net operating losses totaling $2.8 million and $2.5 million expire in 2023 and 2024, respectively. No valuation allowance has been recorded against the deferred tax asset for net operating losses because the benefit is more likely than not to be realized. As we continue our strategy to expand into business financial services and focus on growth, the resultant increase in interest-earning assets is expected to increase profitability. Additional information is included in Notes 1 and 14 to our audited consolidated financial statements.

      Another critical accounting policy relates to the valuation of goodwill and the assessment of impairment. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill totaling $1.7 million resulted from the acquisition of Reserve Mortgage Services, Inc. (“Reserve”) in 2004 and represented the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. We expected Reserve’s performance to be accretive to earnings, but lower than projected loan origination and sales volumes have resulted in losses. Management does not believe that volumes will achieve a sufficient level to support the recorded goodwill. As a result, we recorded non-cash after-tax impairment loss of $1.9 million or $.86 per diluted share in the quarter ended September 30, 2005 to write-off the $1.7 million value of goodwill and $217,000 in other intangible assets related to the October 2004 acquisition. The decision to recognize the impairment loss was in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” which requires recognition of an impairment loss when the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value. Additional information is included in Notes 1, 2 and 7 to our audited consolidated financial statements.

Comparison of Financial Condition at September 30, 2005 and December 31, 2004

      General. Total assets at December 31, 2004 included $30.0 million in overnight investments at a positive spread to the FHLB advances used to fund the investment. As short term interest rates increased and the spread between the investment and borrowing declined, the cash was withdrawn to repay the advances during the first quarter of 2005. The $13.1 million decline in total assets to $157.9 million at September 30, 2005 from $171.0 million at December 31, 2004 was the result of the $30.0 million reduction in cash and borrowings associated with the arbitrage transaction and the $2.0 million pre-tax impairment charge discussed above, offset by $12.2 million growth in commercial loans and $8.0 million growth in home equity lines of credit. Loan growth was funded by $19.1 million in deposit growth.

      Cash and cash equivalents. Cash and cash equivalents totaled $2.3 million at September 30, 2005, a decline of $30.4 million from $32.7 million at December 31, 2004 due to the use of cash to repay FHLB advances as discussed above.

      Securities. Securities available for sale totaled $33.3 million at September 30, 2005, an increase of $19.8 million from $13.5 million at December 31, 2004 due to a securitization transaction, discussed below.

      Loans. Loans totaled $107.0 million at September 30, 2005 compared to $108.1 million at December 31, 2004. Single-family residential loan balances declined $19.2 million and totaled $23.4 million at September 30, 2005 due to the securitization discussed below. Not considering the

securitization transaction, overall loan balances increased 16.1%. Commercial loan balances, which include multi-family and commercial real estate loans, increased $12.2 million and totaled $64.9 million at September 30, 2005 compared to $52.7 million at December 31, 2004 as we continued to focus on these lending types as part of its strategic growth plan. Total consumer loan balances increased $6.2 million due to $8.0 million growth in home equity lines of credit offset by a $2.1 million decline in auto loan balances.

      In a transaction with Freddie Mac in the second quarter of 2005, we securitized single-family residential mortgage loans held in its portfolio with an outstanding principal balance of $18.6 million. The securitization increased liquidity as the securities retained are readily marketable, eliminated credit risk on the loans and reduced the bank’s risk-based capital requirement.

      Deposits. Deposits increased $19.1 million or 18.8% during the first nine months of 2005 and totaled $120.7 million at September 30, 2005 compared to $101.6 million at December 31, 2004. The increase was due to growth of $17.7 million in certificate of deposit accounts and $4.5 million in demand deposit accounts, largely checking accounts. Traditional savings account balances declined $3.1 million.

      Federal Home Loan Bank Advances. FHLB advances totaled $13.9 million at September 30, 2005, a decline of $27.3 million from $41.2 million at December 31, 2004 due to repayment of borrowings associated with the arbitrage transaction, discussed above.

      Other Borrowings. Other borrowings, which totaled $2.2 million at December 31, 2004 and represented the outstanding balance on a revolving line of credit with an unaffiliated bank acquired in the Reserve acquisition, were repaid during the quarter ended March 31, 2005.

      Shareholders’ Equity. Total shareholders’ equity declined $2.3 million during the first nine months of 2005 and totaled $17.2 million at September 30, 2005 compared to $19.5 million at December 31, 2004 due to the net loss and dividends during the period. The decline was offset by the $350,000 after tax unrealized gain on the securities retained in the securitization and $375,000 in proceeds from the exercise of stock options. Our capital ratio was 10.9% at September 30, 2005 compared to 11.4% at December 31, 2004.

      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%. Continued operating losses may require us to infuse additional capital into the bank.

Comparison of Financial Condition at December 31, 2004 and December 31, 2003

      General. Total assets increased $64.0 million, or 59.8% during 2004 and totaled $171.0 million at December 31, 2004 compared to $107.0 million at December 31, 2003 primarily due to growth in the commercial and multi-family loan portfolios and short term cash balances.

      Cash and Cash Equivalents. Cash and cash equivalents totaled $32.7 million at December 31, 2004, an increase of $23.8 million from $8.9 million at December 31, 2003. The increase was primarily in funds from overnight borrowings, which were invested in short term cash investments available to fund loans.

      Securities. Securities available for sale declined $13.6 million during the year and totaled $13.5 million at December 31, 2004 compared to $27.1 million at December 31, 2003. Cash flows from maturities and sales were generally invested in short term cash investments in anticipation of commercial loan growth.

      Loans. Loans, net increased $50.1 million, or 86.4% during 2004 and totaled $108.1 million at December 31, 2004 compared to $58.0 million at December 31, 2003 primarily due to growth in commercial, commercial real estate and multi-family mortgage loans and, to a lesser extent, growth in single-family mortgage loan balances. Commercial, commercial real estate and multi-family mortgage loan balances increased $42.3 million and totaled $52.7 million at December 31, 2004 compared to $10.4 million at December 31, 2003 as we continued to focus on business banking. Single-family mortgage loan balances increased $6.6 million during the year and totaled $41.4 million at December 31, 2004 compared to $34.8 million at December 31, 2003.

      Deposits. Deposits increased $28.2 million, or 38.4% during 2004 and totaled $101.6 million at December 31, 2004 compared to $73.4 million at December 31, 2003. The increase was due to growth of $14.6 million in money market accounts, $9.6 million in certificate of deposit accounts and $4.4 million in checking accounts, primarily commercial checking accounts offset by a $383,000 decline in savings accounts. The growth in deposits was primarily the result of our focus on commercial customer relationships and our expansion into new markets. The growth in certificate of deposit accounts included $6.1 million in brokered deposits. We expect to continue to use brokered deposits as a source of funding depending on market conditions, pricing and funding needs.

      Federal Home Loan Bank Advances. FHLB advances increased $33.7 million during 2004 and totaled $41.2 million at December 31, 2004 compared to $7.5 million at December 31, 2003 as advances were used to fund loan growth and short term cash investments. Fixed rate advances for terms of one through 4.5 years totaling $12.3 million were drawn primarily during the first six months of 2004 to fund loans at low borrowing interest rates and protect our interest rate risk position as market interest rates increased.

      Other Borrowings. Other borrowings totaled $2.2 million at December 31, 2004 and represent the outstanding balance on a revolving line of credit with an unaffiliated bank, acquired in the Reserve acquisition. There were no other borrowings at December 31, 2003.

      Subordinated Debentures. Subordinated debentures totaled $5.2 million at year-end 2004 and 2003 and were issued by us in 2003 in exchange for the proceeds of a $5.0 million trust preferred securities offering issued by a trust formed by us. The proceeds of the offering are available to provide capital for CFBank to support growth.

      Shareholders’ Equity. Total shareholders’ equity declined 1.8% during 2004 and totaled $19.5 million at December 31, 2004 compared to $19.9 million at December 31, 2003 primarily due to the net loss and dividends during the year offset by the issuance of additional capital in the acquisition of Reserve in October 2004. Capital levels remained strong as we continued to leverage our capital through growth. Our capital ratio totaled 11.4% at December 31, 2004 compared to 18.6% at December 31, 2003. OTS regulations require savings institutions to maintain certain minimum levels of regulatory capital, described above. The bank had capital ratios above the well-capitalized levels at December 31, 2004 and 2003.

Comparison of Results of Operations for the Three Months Ended September 30, 2005 and 2004

      General. We incurred a net loss for the quarter ended September 30, 2005 of $2.1 million or $.94 per diluted share compared to a net loss of $665,000 or $.33 per diluted share for the quarter ended September 30, 2004. The current year quarter included a $1.9 million, or $0.86 per diluted share impairment loss discussed above. Not including the impairment loss, the current year quarter loss totaled $175,000 or $.08 per diluted share, a 74% improvement from the prior year period. The current period loss (excluding the impairment loss) was due to $57,000 net operating losses of the bank’s mortgage services division, the expense associated with increasing the reserve for loan losses and operating costs necessary to support Company’s growth plan. Profitability during the first nine months of 2005 has been negatively impacted by Reserve’s pretax operating losses. We expected Reserve’s performance to be accretive to earnings, but lower than projected loan origination and sales volumes have resulted in losses. We recorded a non-cash after-tax impairment loss of $1.9 million or $0.86 per diluted share in the quarter ended September 30, 2005 to write-off the value of goodwill and other intangible assets related to the October 2004 acquisition. Goodwill totaling $1.7 million represented the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Other intangible assets with an unamortized balance of $217,000 consisted of prior owner intangibles arising from the acquisition. The decision to recognize the impairment loss was in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” which requires recognition of an impairment loss when the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value. Recognition of the impairment loss had no effect on the regulatory capital ratios of CFBank or our tangible book value.

      Net Interest Income. Net interest income increased 16.5% to $1.2 million for the quarter ended September 30, 2005 from $1.1 million in the prior year quarter due to growth in assets in accordance with our growth plan. Both the volume and yield on interest-earning assets increased in the third quarter of 2005 compared to the prior year quarter. The resultant growth in interest income was partially offset by increased interest expense related to funding loan growth due to an increase in volume and cost of interest-bearing liabilities during the current year quarter.

      Average interest earning assets increased $14.1 million or 11.0% to $142.8 million in the third quarter of 2005 from $128.7 million in the third quarter of 2004 due to loan growth pursuant to our strategy to expand into business banking in the Fairlawn and Columbus, Ohio markets. The yield on interest earning assets increased 112 basis points to 6.15% in the third quarter of 2005 from 5.03% in the prior year quarter reflecting higher yields on commercial, commercial real estate and multi-family loans. Interest income increased $570,000 or 35.3% to $2.2 million in the third quarter of 2005 from $1.6 million in the prior year quarter due to growth in interest income on loans, which increased $437,000 or 34.0% to $1.7 million for the quarter ended September 30, 2005 from $1.3 million in the prior year quarter. Average loan balances increased $16.2 million, or 18.1% to $105.6 million in the third quarter of 2005 from $89.4 million in the prior year quarter and the average yield on loans increased 77 basis points to 6.53% in the third quarter of 2005 from 5.76% in the prior year quarter due to commercial, commercial real estate and multi-family mortgage loan growth and an increase in yields on home equity lines of credit caused by the increase in short-term market interest rates and the resultant increase in the prime rate.

      Average interest-bearing liabilities increased $14.5 million or 12.3% to $132.4 million in the third quarter of 2005 from $117.9 million in the third quarter of 2004 due to growth in deposits used to fund loan growth. The average cost of interest-bearing liabilities increased 99 basis points or

51.8% to 2.90% in the third quarter of 2005 from 1.91% in the third quarter of 2004 primarily due to higher short-term interest rates in the current year quarter which resulted in both higher deposit and borrowing costs. Interest expense on deposits increased $398,000 or 110.6% to $758,000 for the quarter ended September 30, 2005 from $360,000 in the prior year quarter. Average deposit balances increased $31.2 million or 38.0% to $113.3 million in the quarter ended September 30, 2005 from $82.1 million in the prior year quarter due to an increase in certificate of deposit and checking account balances. The average cost of deposits increased 93 basis points to 2.68% in the quarter ended September 30, 2005 from 1.75% in the prior year quarter. Interest expense on FHLB advances and other debt, including subordinated debentures, declined $2,000 to $202,000 in the quarter ended September 30, 2005 from $204,000 in the prior year quarter due to a decline in average borrowing balances of $16.7 million in the quarter ended September 30, 2005 to $19.1 million compared to $35.8 million in the prior year quarter offset by a 195 basis point increase in borrowing costs to 4.23% in the third quarter of 2005 from 2.28% in the prior year quarter.

      Net interest margin increased 18 basis points to 3.45% for the quarter ended September 30, 2005 compared to 3.27% in the prior year quarter.

      Provision for Loan Losses. Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values and changes in the composition of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk in its loan portfolio. Such evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience, changes in the size and growth of the loan portfolio and other factors that warrant recognition in providing for an adequate loan loss allowance. Future additions to the allowance for loan losses will be dependent on these factors.

      Based on management’s review, the provision for loan losses declined $246,000 to $50,000 in the third quarter of 2005 from $296,000 in the prior year quarter due to a $5.1 million decline in commercial, commercial real estate and multi-family loan balances during the quarter ended September 30, 2005 compared to growth of $15.1 million during the prior year quarter. The provision for loan losses during the current year quarter primarily represents additional reserves on our mortgage portfolio, which incurred $65,000 in write-offs during the quarter ended September 30, 2005. At September 30, 2005, the allowance for loan losses represented 1.1% of total loans compared to .8% at September 30, 2004. Nonperforming loans, all of which are nonaccrual loans, increased $320,000 to $606,000 or .6% of total loans at September 30, 2005 compared to $286,000 or .3% of total loans at December 31, 2004 due to an increase in delinquent single-family mortgage loans. More than 97% of the nonaccrual loan balances are secured by single-family homes in our primary market area. Management believes the allowance for loan losses is adequate to absorb probable incurred credit losses in the loan portfolio at September 30, 2005, however future additions to the allowance may be necessary based on changes in economic conditions and the factors discussed in the previous paragraph.

      Noninterest Income. Noninterest income increased $105,000 to $161,000 in the third quarter of 2005 from $56,000 in the third quarter of 2004 due to increased gains on sales of loans in the current year quarter and losses on security sales in the prior year quarter which were not repeated in the current period. Gains on sales of loans increased $35,000 to $54,000 in the current year quarter from $19,000 in the prior year period due to increased mortgage originations and sales. We sell loans on a servicing released basis.

      Noninterest Expense. Noninterest expense, excluding the impairment loss on goodwill and intangible assets, decreased $156,000 to $1.7 million in the third quarter of 2005 from $1.8 million in the prior year period which included approximately $320,000 related to employee severance expenses, post-retirement life insurance benefits associated with bank-owned life insurance and expenses recognized in connection with the servicing of loans and internal operating account write-offs. Operating costs of Reserve totaled $185,000 during the current year quarter compared to none in the prior year period ended September 30, 2004, as the acquisition of Reserve was completed in October 2004.

      Income Taxes. The income tax benefit associated with the pretax loss for the quarter ended September 30, 2005 totaled $237,000 compared to a $355,000 tax benefit in the prior year quarter. The goodwill impairment loss recognized in the current year quarter was not deductible for tax purposes.

Comparison of the Results of Operations for the Nine Months Ended September 30, 2005 and 2004

      General. We incurred a net loss for the nine months ended September 30, 2005 of $2.6 million or $1.19 per diluted share, compared to a net loss of $1.2 million or $.61 per diluted share for the nine months ended September 30, 2004. The current year period included a $1.9 million, or $.86 per diluted share impairment loss discussed above. Not including the impairment loss, the current year period loss totaled $734,000 or $.33 per diluted share, a 40% improvement from the prior year period. The current period loss (excluding the impairment loss) was due to $174,000 net operating losses of the bank’s mortgage services division, the expense associated with increasing the reserve for loan losses and operating costs necessary to support our growth plan.

      Net Interest Income. The tables below 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 income increased 27.4% to $3.6 million for the nine months ended September 30, 2005 from $2.9 million in the prior year period due to growth in assets in accordance with our growth plan. Both the volume and yield on interest-earning assets increased in the first nine months of 2005 compared to the prior year period. The resultant growth in interest income was partially offset by increased interest expense related to funding loan growth due to an increase in volume and cost of interest-bearing liabilities in the current year period.

      Average interest earning assets increased $30.7 million or 27.2% to $143.7 million in the first nine months of 2005 from $113.0 million in the prior year period due to loan growth pursuant to our strategy to expand into business banking services in the Fairlawn and Columbus, Ohio markets. The yield on interest earning assets increased 74 basis points to 5.78% in the first nine months of 2005 from 5.04% in the prior year period reflecting higher yields on commercial, commercial real estate and multi-family loans. Interest income increased $1.9 million or 46.1% to $6.2 million in the first nine months of 2005 from $4.3 million in the prior year period due to growth in interest income on loans, which increased $2.0 million or 58.5% to $5.3 million for the nine months ended September 30, 2005 from $3.3 million in the prior year period. Average loan balances increased $37.6 million, or 50.5% to $112.0 million in the first nine months of 2005 from $74.4 million in the prior year period and the average yield on loans increased 32 basis points to 6.28% in the first nine months of 2005 from 5.96% in the prior year period due to commercial, commercial real estate and

multi-family mortgage loan growth and an increase in yields on home equity lines of credit caused by the increase in short-term market interest rates and the resultant increase in the prime rate.

      Average interest-bearing liabilities increased $30.7 million or 30.1% to $132.6 million in the first nine months of 2005 from $101.9 million in the prior year period due to growth in deposits. The average cost of interest-bearing liabilities increased 76 basis points or 41.3% to 2.60% in the first nine months of 2005 from 1.84% in prior year period primarily due to higher short-term interest rates in the current year period which resulted in both higher deposit and borrowing costs. Interest expense on deposits increased $946,000 or 95.3% to $1.9 million for the nine months ended September 30, 2005 from $1.0 million in the prior year period. Average deposit balances increased $31.9 million or 41.9% to $108.1 million in the nine months ended September 30, 2005 from $76.2 million in the prior year period due to an increase in certificate of deposit and checking account balances. The average cost of deposits increased 65 basis points to 2.39% in the nine months ended September 30, 2005 from 1.74% in the prior year. Interest expense on FHLB advances and other debt, including subordinated debentures increased $234,000 to $646,000 in the nine months ended September 30, 2005 from $412,000 in the prior year period due to a 139 basis point increase in borrowing costs to 3.53% in the first nine months of 2005 from 2.14% in the prior year period.

      Net interest margin was 3.38% for the nine months ended September 30, 2005, unchanged from the prior year period.

      Provision for Loan Losses. Based on management’s review of the factors and market conditions discussed above, the provision for loan losses increased $36,000 to $402,000 in the first nine months of 2005 from $366,000 in the prior year period. The provision for loan losses reflects growth in commercial, commercial real estate and multi-family loans and additional reserves on our mortgage portfolio in the current year period as discussed previously.

      Noninterest Income. Noninterest income increased $391,000 or 138.7% to $673,000 in the first nine months of 2005 from $282,000 in the prior year period due to increased mortgage originations and sales which resulted in $361,000 in gains on sales of loans in the nine months ended September 30, 2005, a $298,000 increase from $63,000 in the prior year period.

      Noninterest Expense. Noninterest expense excluding the impairment loss on goodwill and intangible assets increased $446,000 to $5.1 million in the first nine months of 2005 from $4.7 million in the prior year period which included approximately $320,000 related to employee severance expenses, post-retirement life insurance benefits associated with bank owned life insurance and expenses recognized in connection with the servicing of loans and internal operating account write-offs. Operating costs of Reserve totaled $681,000 during the current year period. As the acquisition of Reserve was completed in October 2004, there were no operating costs in the nine-month period ended September 30, 2004.

      Income Taxes. The income tax benefit associated with the pretax loss for the nine months ended September 30, 2005 totaled $547,000 compared to a $683,000 tax benefit in the prior year period. The goodwill impairment loss recognized in the current year period was not deductible for tax purposes.

Comparison of Results of Operations for 2004 and 2003

      General. We incurred a net loss of $1.7 million or $.82 per diluted share in 2004, a 30.0% improvement from the net loss of $2.4 million or $1.31 per diluted share in 2003 primarily due to higher net interest income offset by additional provision for loan losses, a decline in gains on loan sales and increased noninterest expense.

      Net Interest Income. Net interest income is a significant component of our 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 below 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 income totaled $4.0 million in 2004 compared to $1.9 million in 2003. Net interest income in 2003 included a $1.3 million pre-tax prepayment penalty incurred in the repayment of long-term, fixed-rate FHLB advances, discussed below. Not including this prior year charge, net interest income increased 25.5% in 2004 compared to the 2003. The improvement in net interest income was due to the growth in assets, primarily commercial, commercial real estate and multi-family mortgage loans in accordance with our growth strategy and a reduction in the cost of borrowings in 2004 due to payoff of the FHLB advances, noted above, and lower market interest rates.

      Interest income increased $709,000 or 13.0% to $6.1 million in 2004, compared to $5.4 million in 2003, primarily due to increased income on loans and short term cash investments offset by a decline in income on securities. Interest income on loans increased $652,000, or 15.5% in 2004 to $4.9 million, compared to $4.2 million in 2003, primarily due to growth in loan balances offset by lower yields on loans. Average loan balances increased $24.5 million and totaled $81.9 million in 2004 compared to $57.4 million in 2003 primarily due to loan growth pursuant to our strategy to expand into business banking in the Fairlawn and Columbus, Ohio markets. Average loan yields declined 139 basis points to 5.93% in 2004 compared to 7.32% in 2003 due to growth in commercial, commercial real estate and multi-family mortgage loans, which are primarily adjustable rate loans at lower rates than single-family mortgage loans, which comprised 59.6% of the loan portfolio in 2003 compared to 37.9% in 2004. Interest income on federal funds sold and other earning assets totaled $367,000 in 2004 and increased $215,000, or 141.4% from $152,000 in 2003 due to an increase in both the average balance and yield of other earning assets. The average balance of other earning assets increased $4.9 million and totaled $17.3 million in 2004 compared to $12.4 million in 2003 as we maintained short term cash balances in anticipation of loan growth. The yield on other earning assets increased 90 basis points to 2.12% in 2004 from 1.22% in 2003 as market interest rates increased during 2004. Interest income on securities declined $169,000 or 18.0% and totaled $770,000 in 2004 compared to $939,000 in 2003 primarily due to a decline in the average balance of securities. The average balance of securities declined $4.1 million and totaled $19.6 million in 2004 compared to $23.7 million in 2003 due to cash flows from maturities and sales of securities generally invested in short term cash investments in anticipation of loan growth. The yield on securities was 4.01% in 2004 compared to 4.02% in 2003. The average balance of interest-earning assets increased $25.4 million and the average yield of interest-earning assets declined 59 basis points during 2004.

      Interest expense, not including the $1.3 million prepayment penalty, decreased $102,000 or 4.5% to $2.1 million in 2004 compared to $2.2 million in 2003 due to a decline in interest expense on deposits offset by an increase in interest expense on borrowings. Interest expense on deposits decreased $134,000 or 8.5% to $1.4 million in 2004 from $1.6 million in 2003 due to a decline in the cost of deposits offset by an increase in the deposit balances. The average cost of deposits declined 35 basis points to 1.79% in 2004 from 2.14% in 2003. Average deposit balances increased $6.9 million to $80.3 million in 2004 from $73.4 million in 2003 primarily due to our success in building deposit relationships with business loan customers. Interest expense on FHLB advances and other borrowings, including subordinated debentures, increased $32,000 or 4.7% to $713,000 in

2004 from $681,000 in 2003, not including the $1.3 million prepayment penalty, due to increased borrowings offset by a decline in the average cost of borrowings. The average balance of FHLB advances and other borrowings increased $19.1 million to $31.3 million in 2004 from $12.2 million in 2003 as borrowings were used to fund loan growth and short term cash investments. The average cost of FHLB advances and other borrowings decreased 331 basis points to 2.28% in 2004 from 5.59% in 2003 primarily due to payoff of long- term, fixed-rate FHLB advances in 2003. The average balance of interest-bearing liabilities increased $25.9 million and the average cost of interest-bearing liabilities declined 70 basis points in 2004. Net interest margin declined one basis point from 3.28% in 2003 to 3.27% in 2004.

      Provision for Loan Losses. Based on management’s review of the adequacy of the allowance for loan losses, the provision for loan losses totaled $646,000 in 2004, an increase of $544,000 from $102,000 in 2003. Our strategy to expand into business financial services and the significant growth in commercial, commercial real estate and multi-family mortgage loans that resulted from that strategy in 2004 required an increase in the provision and allowance for loan losses related to these loan types. At December 31, 2004, the allowance for commercial, commercial real estate and multi-family mortgage loans totaled $862,000, an increase of $762,000 from $100,000 at December 31, 2003 as these loan types grew from 17.8% of the total loan portfolio at year-end 2003 to 48.3% at year-end 2004. 88.4% of the allowance was allocated to these loan types at December 31, 2004, as they tend to be larger balance, higher risk loans than single-family residential mortgages, where we have experienced low historical loss rates. At December 31, 2004, the allowance for loan losses represented 0.90% of total loans compared to 0.71% at December 31, 2003. Further, nonperforming loans, all of which are nonaccrual loans, were $286,000 at December 31, 2004 and $741,000 at December 31, 2003. At December 31, 2004, nonaccrual loans represented 0.3% of total loans, compared to 1.3% at December 31, 2003. The decline in nonaccrual loans was principally due to our acquisition of properties through the foreclosure process. More than 96% of the nonaccrual loan balances are secured by single-family homes in our primary market area.

      Noninterest Income. Noninterest income declined $219,000 or 29.0% to $537,000 in 2004, compared to $756,000 in 2003, primarily due to losses on security sales and decreased gains on sales of loans offset by increased loan servicing fees. Net losses on sales of securities, which totaled $55,000 in 2004 compared to gains of $42,000 in 2003, were primarily from sales of fixed-rate debt securities. Gains on sales of loans totaled $222,000 in 2004, a decline of $207,000 or 48.3% from $429,000 during 2003 due to decreased mortgage originations and sales as market mortgage interest rates increased and customer refinancing slowed during the current year. Net loan servicing fee income totaled $62,000 in 2004, an increase of $163,000 from a net loss of $101,000 in 2003, primarily a result of slower mortgage loan prepayments as market interest rates increased in 2004.

      Noninterest Expense. Noninterest expense increased $490,000 or 8.3% and totaled $6.4 million in 2004 compared to $5.9 million in 2003 primarily due to a full year of operating costs related to staffing, improved technology and expansion to new locations in Fairlawn and Columbus, including data processing, occupancy, depreciation and other expenses. Noninterest expense in 2004 also included $106,500 in legal and professional fees related to a proposed reverse stock split and $412,000 in expenses related to employee severance, post-retirement life insurance benefits associated with bank owned life insurance, charges recognized in connection with the servicing of loans and internal operating account write-offs. Expenses for the year ended December 31, 2003 included $1.6 million in salaries and benefits related to restructuring of employee benefit plans and payments on agreements with former executives.

      Income Taxes. The income tax benefit associated with the lower net loss in 2004 totaled $872,000 compared to $988,000 in 2003.

      Average Balances, Interest Rates and Yields. The following tables present 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.

(See footnotes on page 33)

      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.