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<SEC-DOCUMENT>0000950152-04-002392.txt : 20040330
<SEC-HEADER>0000950152-04-002392.hdr.sgml : 20040330
<ACCEPTANCE-DATETIME>20040330084234
ACCESSION NUMBER:		0000950152-04-002392
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		15
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040330

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CENTRAL FEDERAL CORP
		CENTRAL INDEX KEY:			0001070680
		STANDARD INDUSTRIAL CLASSIFICATION:	SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035]
		IRS NUMBER:				341877137
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-25045
		FILM NUMBER:		04698111

	BUSINESS ADDRESS:	
		STREET 1:		C/O CENTRAL FEDERAL BANK
		STREET 2:		601 MAIN ST
		CITY:			WELLSVILLE
		STATE:			OH
		ZIP:			43968
		BUSINESS PHONE:		3305321517

	MAIL ADDRESS:	
		STREET 1:		C/O CENTRAL FEDERAL BANK
		STREET 2:		601 MAIN ST
		CITY:			WELLSVILLE
		STATE:			OH
		ZIP:			43968

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	GRAND CENTRAL FINANCIAL CORP
		DATE OF NAME CHANGE:	19980918
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>l05633ae10ksb.txt
<DESCRIPTION>CENTRAL FEDERAL CORPORATION       10KSB
<TEXT>
<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

     For the Fiscal Year Ended December 31, 2003

| |  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the transition period from __________ to __________

                         Commission File Number: 0-25045

                          CENTRAL FEDERAL CORPORATION.
                 (Name of Small Business Issuer in Its Charter)

             Delaware                                    34-1877137
 (State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)

   601 Main Street, Wellsville, Ohio                       43968
 (Address of Principal Executive Offices)               (Zip Code)

                                  (330)532-1517
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES |X| NO | |

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. | |

The issuer's revenues for the fiscal year ended December 31, 2003 were $6.4
million.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of February 27, 2004 was $22,789,000.

As of February 27, 2004, there were 2,028,872 shares of the Registrant's Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Rule 14a-3(b) Annual Report to Shareholders for
2003 and its Proxy Statement for the 2004 Annual Meeting of Stockholders to be
held on April 20, 2004, which was filed with the Securities and Exchange
Commission (the "Commission") on March 12, 2004, are incorporated herein by
reference into Parts II and III, respectively, of this Form 10-KSB.

Transitional Small Business Disclosure Format (Check One): YES | | NO |X|

<PAGE>

                                       INDEX
                                                                            PAGE
                                                                            ----
PART I

   Item 1.  Description of Business.........................................  3

   Item 2.  Description of Property......................................... 28

   Item 3.  Legal Proceedings............................................... 29

   Item 4.  Submission of Matters to a Vote of Security Holders............. 29

PART II

   Item 5.  Market for Common Equity and Related Stockholder Matters........ 29

   Item 6.  Management's Discussion and Analysis or Plan of Operation....... 29

   Item 7.  Financial Statements............................................ 29

   Item 8.  Changes In and Disagreements With Accountants on Accounting
            and Financial Disclosure........................................ 30

   Item 8A  Controls and Procedures......................................... 30

PART III

   Item 9.  Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act............... 31

   Item 10. Executive Compensation.......................................... 32

   Item 11. Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters................................. 32

   Item 12. Certain Relationships and Related Transactions.................. 33

   Item 13. Exhibits, List and Reports on Form 8-K.......................... 33

   Item 14. Principal Accountant Fees and Services.......................... 34

SIGNATURES

EXHIBIT INDEX


                                       2
<PAGE>

FORWARD-LOOKING STATEMENTS

When used in this Form 10-KSB, or in future filings with the Commission, in
press releases or other public or shareholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the Company's actual results to be materially different from those
indicated. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the market areas where the Company
conducts business, which could materially impact credit quality trends, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the market areas where the Company conducts business, and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company undertakes no obligation to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

                                     PART I

ITEM 1 DESCRIPTION OF BUSINESS

GENERAL

Central Federal Corporation (the "Company"), formerly known as Grand Central
Financial Corp., was organized as a Delaware corporation in September 1998 as
the holding company for Central Federal Bank (the "Bank"), formerly known as
Central Federal Savings and Loan Association of Wellsville, in connection with
the Bank's conversion from a mutual to stock form of organization. As a savings
and loan holding company, the Company is subject to regulation by the Office of
Thrift Supervision (the "OTS"). Central Federal Capital Trust I (the "Trust"),
was formed by the Company in 2003 as a wholly owned subsidiary of the Company to
raise additional funding for the Company. Currently, the Company does not
transact any material business other than through the Bank and Trust. Under new
accounting guidance, FASB Interpretation No. 46, as revised in December 2003,
the trust is not consolidated with the Company. Accordingly, the Company does
not report the securities issued by the trust as liabilities, and instead
reports as liabilities the subordinated debentures issued by the Company and
held by the trust. At December 31, 2003, the Company had total assets of $107.0
million and stockholders' equity of $19.9 million.

The Bank is a community-oriented savings institution which was originally
organized in 1892. The Bank's principal business consists of attracting deposits
from the general public in its primary market area and investing those deposits
and other funds, generated from operations and from borrowings, primarily in
conventional mortgage loans secured by single-family residences. The Bank also
invests in consumer loans, primarily indirect automobile loans and loans
originated directly or on the Bank's behalf by automobile dealers at the time of
sale. To a lesser extent, the Bank invests in home equity, multi-family,
construction and land loans. In 2003, the Bank began making more commercial
loans than it had in the past as management positioned the Bank for expansion
into business financial services. The Bank also invests in securities, primarily
those guaranteed or insured by government agencies, and other investment- grade
securities. The Bank's revenues are derived principally from the generation of
interest and fees on loans originated and, to a lesser extent, interest and
dividends on securities. The Bank's primary sources of funds are retail savings
deposits and, to a lesser extent, principal and interest payments on loans and


                                        3

<PAGE>

securities, FHLB advances and other borrowings and proceeds from the sale of
loans. The Bank operates through its executive offices in Fairlawn, Ohio, an
office in Columbiana County, Ohio, an office in Jefferson County, Ohio and an
office in Columbus, Ohio.

MARKET AREA AND COMPETITION

The Bank's primary market area is a competitive market for financial services
and the Bank faces competition both in making loans and in attracting deposits.
The Bank faces direct competition from a number of financial institutions
operating in its market area, many with a state-wide or regional presence, and
in some cases, a national presence. Many of these financial institutions are
significantly larger and have greater financial resources than the Bank. The
Bank's competition for loans and deposits comes from savings institutions,
mortgage banking companies, commercial banks and credit unions brokerage firms
and insurance companies.

LENDING ACTIVITIES

LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily of
conventional first mortgage loans secured by single-family residences. At
December 31, 2003, gross loans receivable totaled $58.4 million; and
single-family residential mortgage loans which represented 59.6% of total gross
loans totaled $34.8 million. The remainder of the portfolio consisted of the
following: consumer loans totaled $12.6 million, or 21.6% of gross loans
receivable; construction loans totaled $610,000, or 1.0% of gross loans
receivable; multi-family mortgages totaled $1.3 million, or 2.1% of gross loans
receivable; commercial real estate loans totaled $5.0 million, or 8.6% of gross
loans receivable; and commercial loans not secured by real estate totaled $4.1
million, or 7.1% of gross loans receivable. At that same date, 55.7% of the
Bank's loan portfolio had fixed interest rates. Mortgage loans held for sale at
December 31, 2003 totaled $106,000.

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


                                        4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
                                         -------------------------------------------------------------------
                                                  2003                   2002                   2001
                                         ---------------------   --------------------   --------------------
                                                    PERCENT OF             PERCENT OF             PERCENT OF
                                          AMOUNT       TOTAL      AMOUNT     TOTAL       AMOUNT      TOTAL
                                         -------   -----------   -------   ----------   -------   ----------
                                                              (DOLLARS IN THOUSANDS)
<S>                                      <C>        <C>          <C>       <C>          <C>       <C>
Real estate mortgage loans:
   Single-family                         $34,810       59.58%    $47,108      74.84%    $49,785      70.16%
   Multi-family                            1,250        2.14%      1,536       2.44%      1,381       1.95%
   Construction                              610        1.04%        134       0.22%        675       0.95%
   Commercial real estate                  5,040        8.63%         --       0.00%         --       0.00%
                                         -------      ------     -------     ------     -------     ------
      Total real estate mortgage loans    41,710       71.39%     48,778      77.50%     51,841      73.06%

Consumer loans:
   Home equity loans                       1,003        1.72%      1,378       2.19%      2,416       3.41%
   Home equity lines of credit             1,640        2.81%      1,109       1.76%      1,240       1.75%
   Automobile                              9,292       15.90%     10,540      16.75%     15,273      21.52%
   Other                                     663        1.13%        877       1.39%         --       0.00%
                                         -------      ------     -------     ------     -------     ------
      Total consumer loans                12,598       21.56%     13,904      22.09%     18,929      26.68%

Commercial loans                           4,116        7.05%        261       0.41%        184       0.26%
                                         -------      ------     -------     ------     -------     ------
Total loans receivable                    58,424      100.00%     62,943     100.00%     70,954     100.00%
                                                      ======                 ======                 ======

Less:
   Net deferred loan fees                     15                     (17)                   (11)
   Allowance for loan losses                (415)                   (361)                  (373)
                                         -------                 -------                -------
Loans receivable, net                    $58,024                 $62,565                $70,570
                                         =======                 =======                =======
</TABLE>

LOAN MATURITY. The following table shows the remaining contractual maturity of
the loan portfolio at December 31, 2003. Demand loans and other loans having no
stated schedule of repayments or no stated maturity are reported as due within
one year. The table does not include potential prepayments or scheduled
principal amortization.

<TABLE>
<CAPTION>
                                                           AT DECEMBER 31, 2003
                                            --------------------------------------------------
                                            REAL ESTATE                            TOTAL LOANS
                                              MORTGAGE    CONSUMER   COMMERCIAL     RECEIVABLE
                                            -----------   --------   -----------   -----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>        <C>           <C>
Amounts due:
   Within one year                            $      6    $    445     $ 1,761       $ 2,212
                                              --------    --------     -------       -------
   After one year:
      More than one year to three years             96       4,179       1,839         6,114
      More than three years to five years          839       4,865          34         5,738
      More than five years to 10 years           3,353       2,905          51         6,309
      More than 10 years to 15 years             5,798           7       2,795         8,600
      More than 15 years                        26,578         197       2,676        29,451
                                              --------    --------     -------       -------
         Total due after 2004                   36,664      12,153       7,395        56,212
                                              --------    --------     -------       -------
   Total amount due                           $ 36,670    $ 12,598     $ 9,156       $58,424
                                              ========    ========     =======       =======
</TABLE>


                                       5

<PAGE>

The following table sets forth at December 31, 2003, the dollar amount of total
loans receivable contractually due after December 31, 2004, and whether such
loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                DUE AFTER DECEMBER 31, 2004
                             --------------------------------
                               FIXED     ADJUSTABLE    TOTAL
                             ---------   ----------   -------
                                  (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>          <C>
Real estate mortgage loans    $21,340      $15,324    $36,664
Consumer loans                 10,529        1,624     12,153
Commercial loans                  209        7,186      7,395
                              -------      -------    -------
   Total loans                $32,078      $24,134    $56,212
                              =======      =======    =======
</TABLE>

ORIGINATION OF LOANS. The Bank's mortgage lending activities are conducted
through its offices. Although the Bank may originate both adjustable-rate and
fixed-rate mortgage loans, a majority of the Bank's loan originations are
fixed-rate mortgage loans. The Bank's ability to originate loans depends upon
the relative customer demand for fixed-rate or adjustable-rate mortgage loans,
which is affected by the current and expected future level of interest rates.
Beginning in 2002 and more pronouncedly in 2003, current originations of
long-term fixed-rate mortgages were sold rather than retained in portfolio.
Although the decision to sell current mortgage originations rather than retain
the loans in portfolio results in declining mortgage loan portfolio balances and
lower earnings from that portfolio in the near term, it protects future
profitability as management believes it is not prudent to retain these
long-term, fixed-rate loans and subject the Company to the interest rate risk
and reduced future earnings associated with a rise in interest rates. The
Company allowed mortgage loan portfolio balances to decline as interest rates
fell to 40-year lows and consumers continued to refinance during 2003. The Bank
emphasizes the origination of home equity loans and construction loans secured
primarily by owner-occupied properties and indirect auto loans. In 2003, the
Bank began originating commercial loans and commercial real estate loans as it
started the process of utilizing its strong capital position to take advantage
of opportunities for expansion into business financial services and growth in
the Fairlawn and Columbus, Ohio markets.


                                       6


<PAGE>

SINGLE-FAMILY MORTGAGE LENDING. The primary lending activity of the Bank has
been the origination of permanent conventional mortgage loans secured by
single-family residences located in the Bank's primary market area. The Bank
sells most of the fixed-rate loans that it originates and generally retains the
servicing rights on the loans it sells. The Bank retains for its portfolio any
adjustable rate mortgage ("ARM") loans that it originates. Most single-family
mortgage loans are underwritten according to Freddie Mac guidelines. Loan
originations are obtained from the Bank's loan officers and their contacts with
the local real estate industry, existing or past customers, and members of the
local communities. The Bank primarily originates fixed-rate loans in the current
low interest rate environment, but also offers adjustable-rate mortgage loans.
At December 31, 2003, single-family mortgage loans totaled $34.8 million, or
59.6% of total loans at such date. At that date, of the Bank's mortgage loans
secured by single-family residences, $19.7 million, or 56.6% were fixed-rate
loans.

The Bank's policy is to originate single-family residential mortgage loans in
amounts up to 80% of the appraised value of the property securing the loan and
up to 95% of the appraised value if private mortgage insurance is obtained.
Mortgage loans originated by the Bank generally include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
without the Bank's consent. Due-on-sale clauses are an important means of
adjusting the rates on the Bank's fixed-rate mortgage loan portfolio, and the
Bank exercises its rights under these clauses. The residential mortgage loans
originated by the Bank are generally for terms to maturity of up to 30 years.

The Bank offers several adjustable-rate loan programs with terms of up to 30
years and interest rates that adjust with a maximum adjustment limitation of
2.0% per year and a 6% lifetime cap. The interest rate adjustments on ARM loans
currently offered are indexed to a variety of established indices. ARM loans
offered by the Bank do not provide for initial deep discount interest rates or
for negative amortization.

The volume and types of ARM loans originated by the Bank have been affected by
such market factors as the level of interest rates, consumer preferences,
competition and the availability of funds. In recent years, demand for ARM loans
in the Bank's primary market area has been weak due to the low interest rate
environment and consumer preference for fixed-rate loans. Consequently, in
recent years the Bank has not originated a significant amount of ARM loans as
compared to its originations of fixed-rate loans. However, as a result of
management's strategy to sell current long-term fixed rate loan production and
the resultant decline in the single-family mortgage portfolio, ARM loans
represent a larger percentage of the portfolio as customers have refinanced
their fixed rate loans in the current low interest rate environment. At December
31, 2003, $15.1 million, or 43.4% of the single-family mortgage loan portfolio
had adjustable rates, compared to $6.5 million, or 11% at December 31, 2002.

MULTI-FAMILY REAL ESTATE LENDING. On a limited basis, the Bank originates
multi-family mortgage loans generally secured by properties located in the
Bank's primary market area. In reaching its decision on whether to make a
multi-family loan, the Bank considers a number of factors including: the net
operating income of the mortgaged premises before debt service and depreciation;
the debt service ratio (the ratio of net operating income to debt service); and
the ratio of loan amount to appraised value. Pursuant to the Bank's current
underwriting policies, a multi-family mortgage loan may be made in an amount up
to 80% of the appraised value of the underlying property. In addition, the Bank
generally requires a debt service ratio of 120%. Properties securing a
multi-family loan are appraised by an independent appraiser.

When evaluating a multi-family loan, the Bank also considers the financial
resources and income level of the borrower, the borrower's experience in owning
or managing similar property, and the Bank's lending experience with the
borrower. The Bank's underwriting policies require that the borrower be able to
demonstrate strong management skills and the ability to maintain the property
from current rental income. The borrower is required to present evidence of the
ability to repay the mortgage and a satisfactory credit


                                        7

<PAGE>

history. In making its assessment of the creditworthiness of the borrower, the
Bank generally reviews the financial statements, employment and credit history
of the borrower, as well as other related documentation.

Multi-family real estate loans are generally considered to involve a greater
degree of risk than single-family residential mortgage loans. Because payments
on loans secured by multi-family properties are dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks through its underwriting
policies, which require such loans to be qualified at origination on the basis
of the property's income and debt coverage ratio.

The Bank's multi-family real estate loan portfolio totaled $1.3 million or 2.1%
of gross loans receivable at December 31, 2003.

COMMERCIAL REAL ESTATE LENDING. In 2003, the Bank expanded into business
financial services and positioned itself for growth in the Fairlawn and
Columbus, Ohio markets and, as a result, originations of commercial real estate
loans increased significantly and balances grew to $5.0 million or 8.6% of gross
loans receivable at December 31, 2003. At December 31, 2002, there were no
commercial real estate loans in the Bank's loan portfolio. The Bank anticipates
that commercial real estate lending activities will continue to grow in the
future.

The Bank originates commercial real estate loans that are generally secured by
properties used for business purposes such as manufacturing facilities, office
buildings or retail facilities located in its primary market area. The Bank's
underwriting policies provide that commercial real estate loans may be made in
amounts up to 85% of the appraised value of the property. In underwriting
commercial real estate loans, the Bank considers the net operating income of the
property, the debt service ratio and the property owner's financial strength,
expertise and credit history.

Commercial real estate loans are generally considered to involve a greater
degree of risk than single-family residential mortgage loans. Because payments
on loans secured by commercial real estate properties are dependent on
successful operation or management of the properties, repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting policies, which require such loans to be qualified at origination
on the basis of the property's income and debt coverage ratio and the financial
strength of the owners.

COMMERCIAL LENDING. In 2003, the Bank expanded into business financial services
and positioned itself for growth in the Fairlawn and Columbus, Ohio markets and,
as a result, originations of commercial loans increased significantly and
balances grew from $261,000 or .4% of gross loans receivable at December 31,
2002 to $4.1 million or 7.1% of gross loans receivable at December 31, 2003. The
Bank anticipates that commercial lending activities will continue to grow in the
future.

The Bank makes commercial business loans primarily to small business and
generally secured by business equipment, inventory, accounts receivable and
other business assets. In underwriting commercial loans, the Bank considers the
net operating income of the company, the debt service ratio and the financial
strength, expertise and credit history of the owners.

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


                                        8

<PAGE>

CONSTRUCTION AND LAND LENDING. The Bank generally originates construction and
land development loans to contractors and individuals in its primary market
area. The Bank's construction loans primarily are made to finance the
construction of owner-occupied single-family residential properties and, to a
lesser extent, individual properties built by developers for future sale. The
Bank's construction loans to individuals are primarily fixed-rate loans which,
after a four-month construction period, convert to permanent loans with
maturities of up to 30 years. The Bank's policies provide that construction
loans may be made in amounts up to 80% of the appraised value of the property
for construction of single-family residences. The Bank requires an independent
appraisal of the property. Loan proceeds are disbursed in increments as
construction progresses and as inspections warrant. The Bank requires regular
inspections to monitor the progress of construction. Land loans are determined
on an individual basis, but generally they do not exceed 75% of the actual cost
or current appraised value of the property, whichever is less.

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

CONSUMER AND OTHER LENDING. The Bank's consumer loan portfolio generally
consists of automobile loans, home equity lines of credit, home equity and home
improvement loans and loans secured by deposits. The Bank's home equity lines of
credit are generally ARM loans with rates adjusting monthly at up to 2% above
the prime rate of interest as disclosed in The Wall Street Journal. At December
31, 2003, the Bank's consumer loan portfolio was $12.6 million, or 21.6% of
gross loans receivable.

Loans secured by rapidly depreciable assets such as automobiles entail greater
risks than single-family residential mortgage loans. In such cases, repossessed
collateral for a defaulted loan may not provide an adequate source of repayment
of the outstanding loan balance, since there is a greater likelihood of damage,
loss or depreciation of the underlying collateral. Further, consumer loan
collections on these loans depend on the borrower's continuing financial
stability and, therefore, are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Finally, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans in the event of
a default. A significant portion of the Bank's automobile loans are originated
on the Bank's behalf by automobile dealers at the time of sale. This indirect
lending requires the maintenance of relationships with such dealers. Such loans
do not have the benefit of direct interaction between the borrowers and the
Bank's lending officers during the underwriting process.

DELINQUENCIES AND CLASSIFIED ASSETS. The Board of Directors reviews all
delinquent mortgage and commercial loans thirty days or more past due monthly.
Additionally, the Board of Directors review past due statistics and trends for
all consumer and installment loans. The procedures taken by the Bank with
respect to resolving delinquencies vary depending on the nature of the loan and
period of delinquency. In general, the Bank makes every effort, consistent with
safety and soundness principles, to work with the borrower to have the loan
brought current. If the loan is still not brought current it becomes necessary
for the Bank to repossess collateral or take legal action.

Federal regulations and the Bank's Classification of Assets Policy require that
the Bank use an internal asset classification system as a means of reporting and
monitoring problem and potential problem assets. The Bank has incorporated the
OTS internal asset classifications as a part of its credit monitoring system.
The Bank currently classifies problem and potential problem assets as
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and


                                        9

<PAGE>

paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and having so little value that their continuance as assets without the
establishment of a specific loss allowance is not warranted. Assets are required
to be designated "special mention" when they posses weaknesses but do not
currently expose the insured institution to sufficient risk to warrant
classification in one of these categories.

When an insured institution classifies one or more assets, or portions thereof,
as substandard or doubtful, under current OTS policy the Bank is required to
consider establishing a general valuation allowance in an amount deemed prudent
by management. The general valuation allowance, which is a regulatory term,
represents a loss allowance which has been established to recognize the inherent
credit risk associated with lending and investing activities, but which, unlike
specific allowances, has not been allocated to particular problem assets. When
an insured institution classifies one or more assets, or portions thereof, as
"loss," it is required either to establish a specific allowance for losses equal
to 100% of the amount of the asset so classified or to charge off such amount.

A savings institution's determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional general or specific loss allowances. The
OTS, in conjunction with the other federal banking agencies, has adopted an
interagency policy statement on the allowance for loan and lease losses. The
policy statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation allowances. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Management believes that an adequate allowance for loan losses has been
established. However, actual losses are dependent upon future events and, as
such, further additions to the level of allowances for estimated loan losses may
become necessary.

The Bank's Classification of Assets Committee reviews and classifies the Bank's
assets on a quarterly basis, and the Board of Directors reviews the results of
the reports on a quarterly basis. The Bank classifies assets in accordance with
the management guidelines described above. At December 31, 2003, the Bank had no
assets designated as special mention, $939,000 in assets classified as
substandard and no assets classified as doubtful and loss.


                                       10

<PAGE>

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

<TABLE>
<CAPTION>
                                          DECEMBER 31, 2003                          DECEMBER 31, 2002
                                ---------------------------------------   ---------------------------------------
                                     60-89 Days        90 Days or More         60-89 Days       90 Days or More
                                ------------------   ------------------   ------   ---------   ------------------
                                NUMBER   PRINCIPAL   NUMBER   PRINCIPAL   NUMBER   PRINCIPAL   NUMBER   PRINCIPAL
                                  OF      BALANCE      OF      BALANCE      OF      BALANCE      OF      BALANCE
                                 LOANS    OF LOANS    LOANS    OF LOANS   LOANS     OF LOANS    LOANS   OF LOANS
                                ------   ---------   ------   ---------   ------   ---------   ------   ---------
                                                            (DOLLARS IN THOUSANDS)
<S>                             <C>      <C>         <C>      <C>         <C>      <C>         <C>      <C>
Real estate loans:
   Single-family                    3        97          9      $ 714        10        $559       10        $ 761
   Multi-family                              --                    --        --          --       --           --
   Construction                              --                    --        --          --       --           --
   Commercial                                --                    --        --          --       --           --
Consumer loans:
   Home equity loans and
      lines of credit               3        37                    --        --          --       --           --
   Automobile                       2        13          2          6         1           5        3           19
   Unsecured lines of credit                 --          1          1        --          --        1            1
   Other                                     --          4         20         2           6       --           --
Commercial loans                    1        25                    --        --          --       --           --
                                  ---      ----        ---      -----       ---        ----      ---        -----
      Total delinquent loans        9      $172         16      $ 741        13        $570       14        $ 781
                                  ===      ====        ===      =====       ===        ====      ===        =====
Delinquent loans as a percent
   of total loans                           .30%                 1.28%                  .91%                 1.25%
</TABLE>

<TABLE>
<CAPTION>
                                            DECEMBER 31, 2001
                                ---------------------------------------
                                    60-89 Days        90 Days or More
                                ------------------   ------------------
                                NUMBER   PRINCIPAL   NUMBER   PRINCIPAL
                                  OF      BALANCE      OF      BALANCE
                                 LOANS   OF LOANS     LOANS    OF LOANS
                                ------   ---------   ------   ---------
                                           (DOLLARS IN THOUSANDS)
<S>                             <C>      <C>         <C>      <C>
Real estate loans:
   Single-family                    5       $134        12      $871
   Multi-family                    --         --        --        --
   Construction                    --         --        --        --
   Commercial                      --         --        --        --
Consumer loans:
   Home equity loans and
      lines of credit              --         --        --        --
   Automobile                       2         10         2        12
   Unsecured lines of credit       --         --        --        --
   Other                            7          1        --        --
Commercial loans                   --         --        --        --
                                  ---       ----       ---      ----
      Total delinquent loans       14       $145        14      $883
                                  ===       ====       ===      ====
Delinquent loans as a percent
   of total loans                            .20%               1.25%
</TABLE>

- ----------
The table does not include delinquent loans less than 60 days past due. At
December 31, 2003, 2002 and 2001, loans past due 30 to 59 days totaled $481,000,
$517,000 and $662,000 respectively.


                                       11

<PAGE>

NONPERFORMING ASSETS AND IMPAIRED LOANS. The following table contains
information regarding nonperforming loans, real estate owned ("REO") and other
repossessed assets. At December 31, 2003, nonperforming loans totaled $741,000.
It is the Bank's policy to stop accruing interest on loans 90 days or more past
due and set up reserves for all previously accrued interest. At December 31,
2003, the amount of additional interest income that would have been recognized
on nonaccrual loans if such loans had continued to perform in accordance with
their contractual terms was approximately $18,000. At December 31, 2003, 2002
and 2001, the Bank had no impaired loans or troubled debt restructurings.

<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,
                                                          ---------------------
                                                          2003     2002    2001
                                                          -----   -----   -----
                                                          (DOLLARS IN THOUSANDS)
<S>                                                       <C>     <C>     <C>
Nonaccrual loans:
   Single-family real estate                              $ 714   $ 761   $ 871
   Consumer                                                  27      20      12
   Commercial                                                --      --      --
                                                          -----   -----   -----
      Total(1)                                              741     781     883
Real estate owned (REO)                                     184      --      98
Other repossessed assets                                      9       2       4
                                                          -----   -----   -----
      Total nonperforming assets(2)                       $ 934   $ 783   $ 985
                                                          =====   =====   =====

Nonperforming loans to total loans                         1.28%   1.25%   1.25%
Nonperforming assets to total assets                        .87%    .71%    .81%
</TABLE>

- ----------
(1)  Total nonaccrual loans equal total nonperforming loans.

(2)  Nonperforming assets consist of nonperforming loans (and impaired loans),
     other repossessed assets and REO.

ALLOWANCE 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 inherent in its loan
portfolio and the general economy. 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. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additional provisions for loan losses based upon
information available at the time of the review. As of December 31, 2003, the
Bank's allowance for loan losses totaled 0.71% of total loans as compared to
0.57% as of December 31, 2002. The Bank will continue to monitor and modify its
allowances for loan losses as conditions dictate.


                                       12

<PAGE>

The following table sets forth activity in the Bank's allowance for loan losses
for the periods indicated.

<TABLE>
<CAPTION>
                                                       AT OR FOR THE YEAR ENDED
                                                             DECEMBER 31,
                                                       ------------------------
                                                        2003     2002     2001
                                                       ------   ------   ------
                                                        (DOLLARS IN THOUSANDS)
<S>                                                    <C>      <C>      <C>
Allowance for loan losses, beginning of period         $  361   $  373   $  354
Charge-offs:
   Consumer                                                50       35       53
                                                       ------   ------   ------
      Total charge-offs                                    50       35       53
Recoveries on loans previously charged off:
   Consumer                                                 2        4       10
                                                       ------   ------   ------
      Total recoveries                                      2        4       10
Net charge-offs                                            48       31       43
Provision for loan losses                                 102       19       62
                                                       ------   ------   ------
Allowance for loan losses, end of period               $  415   $  361   $  373
                                                       ======   ======   ======

Allowance for loan losses to total loans                  .71%     .57%     .53%
Allowance for loan losses to nonperforming loans        56.01%   46.22%   42.24%
Net charge-offs to the allowance for losses             11.57%    8.59%   11.53%
Net charge-offs to average loans                          .08%     .05%     .05%
</TABLE>


                                       13

<PAGE>

The following table sets forth the Bank's allowance for loan losses in each of
the categories listed at the dates indicated and the percentage of such amounts
to the total allowance and loans in each category as a percent of total loans.

<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                     ---------------------------------------------------------------------------------------------
                                                 2003                           2002                            2001
                                     -----------------------------   -----------------------------   -----------------------------
                                                % OF       PERCENT              % OF       PERCENT              % OF       PERCENT
                                              ALLOWANCE   OF LOANS            ALLOWANCE   OF LOANS            ALLOWANCE   OF LOANS
                                               IN EACH     IN EACH             IN EACH     IN EACH             IN EACH     IN EACH
                                               CATEGORY   CATEGORY             CATEGORY   CATEGORY             CATEGORY   CATEGORY
                                               TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                                     AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                                     ------   ---------   --------   ------   ---------   --------   ------   ---------   --------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                  <C>      <C>         <C>        <C>      <C>         <C>        <C>      <C>         <C>
Real estate mortgage loans            $213      51.33%      62.76%    $296      82.00%     77.50%     $280      75.07%     73.06%
Consumer loans                         102      24.58%      21.56%      64      17.73%     22.09%       90      24.13%     26.68%
Commercial loans                       100      24.09%      15.68%       1        .27%       .41%        3        .80%       .26%
                                      ----     ------      ------     ----     ------     ------      ----     ------     ------
   Total allowance for loan losses    $415     100.00%     100.00%    $361     100.00%    100.00%     $373     100.00%    100.00%
                                      ====     ======      ======     ====     ======     ======      ====     ======     ======
</TABLE>


                                       14

<PAGE>

REAL ESTATE OWNED

At December 31, 2003, real estate owned totaled $184,000 and consisted of 1
property. Assets acquired through (or in lieu of) loan foreclosure are recorded
at fair value when acquired. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Costs after acquisition are
expensed.

INVESTMENT ACTIVITIES

Federally-chartered savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certificates of deposit of insured banks and
savings institutions, bankers' acceptances and federal funds. Subject to various
restrictions, federally-chartered savings institutions may also invest their
assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally-chartered
savings institution is otherwise authorized to make directly. Additionally, the
Bank must maintain minimum levels of investments that qualify as liquid assets
under OTS regulations. Historically, the Bank has maintained liquid assets above
the minimum OTS requirements and at a level considered to be more than adequate
to meet its normal daily activities.

The investment policy of the Bank as established by the Board of Directors
attempts to provide and maintain liquidity, generate a favorable return on
investments without incurring undue interest rate and credit risk, and
complement the Bank's lending activities. The Bank's policies provide the
authority to invest in United States Treasury and federal agency securities
meeting the Bank's guidelines and in mortgage-backed securities guaranteed by
the U.S. government and agencies thereof, as well as municipal bonds. To improve
liquidity, the Company transferred all securities previously classified as "held
to maturity" to "available for sale" in 2003. At December 31, 2003, the Bank's
securities portfolio totaled $27.1 million.

At December 31, 2003, all of the Bank's mortgage-backed securities were insured
or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. The Bank owned two
collateralized mortgage obligations (CMOs) which failed a stress test at
December 31, 2003. The securities failed the portion of the test in which the
percentage change in price would drop more than the prescribed amount in the
event interest rates rise 300 basis points or more. The risk involved is the
inability to sell the securities to reinvest at more favorable rates. Management
does not consider this security to be high risk given the low overall interest
rate risk position of the Bank. Management reports these securities to the Board
of Directors on a quarterly basis, at which time the Board may direct management
to divest of such securities, in accordance with regulations. Such directive
from the Board has not occurred.


                                       15

<PAGE>

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

<TABLE>
<CAPTION>
                                                                               AT DECEMBER 31,
                                                        ---------------------------------------------------------------
                                                                2003                  2002                 2001
                                                        -------------------   -------------------   -------------------
                                                        AMORTIZED     FAIR    AMORTIZED    FAIR     AMORTIZED    FAIR
                                                          COST       VALUE       COST      VALUE       COST      VALUE
                                                        ---------   -------   ---------   -------   ---------   -------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                     <C>         <C>       <C>         <C>       <C>         <C>
Debt securities:
   Debt securities available for sale:
      Federal agency                                     $12,755    $12,759    $    --    $    --    $    --    $    --
      State and municipal                                  1,370      1,375         --         --         --         --
                                                         -------    -------    -------    -------    -------    -------
         Total debt securities available for sale         14,125     14,134         --         --         --         --
   Debt securities held to maturity:
      U.S. Government and federal agency                      --         --      2,527      2,557      2,000      2,017
      Corporate                                               --         --      1,996      1,996         --         --
                                                         -------    -------    -------    -------    -------    -------
         Total debt securities held to maturity               --         --      4,523      4,553      2,000      2,017
                                                         -------    -------    -------    -------    -------    -------
            Total debt securities                         14,125     14,134      4,523      4,553      2,000      2,017

Mortgage-backed securities:
   Available for sale                                     12,697     12,992      1,395      1,439      1,990      2,013
   Held to maturity                                           --         --     13,299     13,616     21,343     21,511
                                                         -------    -------    -------    -------    -------    -------
            Total mortgage-backed securities              12,697     12,992     14,694     15,055     23,333     23,524

Equity securities available for sale                          --         --         --         --         78         79

Net unrealized gains on securities available for sale        304         --         44         --         24         --
                                                         -------    -------    -------    -------    -------    -------
Total securities                                         $27,126    $27,126    $19,261    $19,608    $25,435    $25,620
                                                         =======    =======    =======    =======    =======    =======

</TABLE>


                                       16

<PAGE>

The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the debt securities
available for sale as of December 31, 2003. Yields are stated on a fully taxable
equivalent basis.

<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31, 2003
                      ------------------------------------------------------------------------------------------------------------
                                             MORE THAN ONE YEAR   MORE THAN FIVE YEARS
                        ONE YEAR OR LESS       TO FIVE YEARS          TO TEN YEARS       MORE THAN TEN YEARS          TOTAL
                      -------------------   -------------------   --------------------   -------------------   -------------------
                                 WEIGHTED              WEIGHTED               WEIGHTED              WEIGHTED              WEIGHTED
                      CARRYING    AVERAGE   CARRYING    AVERAGE    CARRYING    AVERAGE   CARRYING    AVERAGE   CARRYING    AVERAGE
                        VALUE      YIELD      VALUE      YIELD       VALUE      YIELD      VALUE      YIELD      VALUE      YIELD
                      --------   --------   --------   --------   ---------   --------   --------   --------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                   <C>        <C>        <C>        <C>         <C>        <C>        <C>        <C>        <C>        <C>
Federal agency          $503       3.49%     $12,256     2.98%      $   --                $    --               $12,759     3.00%
State and municipal       --                      --                   400      5.08%         975      5.29%      1,375     5.23%
Mortgage-backed           --                     938     5.29%         798      6.01%      11,256      4.98%     12,992     5.07%
                        ----                 -------                ------                -------               -------
   Total securities
      at fair value     $503       3.49%     $13,194     3.15%      $1,198      5.70%     $12,231      5.01%    $27,126     4.10%
                        ====                 =======                ======                =======               =======
</TABLE>


                                       17

<PAGE>

SOURCES OF FUNDS

GENERAL. Deposits, loan repayments and prepayments, securities maturities and
prepayments, borrowings and cash flows generated from operations are the primary
sources of the Bank's funds for use in lending, investing and for other general
purposes.

DEPOSITS. The Bank offers a variety of deposit accounts with a range of interest
rates and terms. The Bank's deposits consist of passbook accounts, savings and
club accounts, NOW accounts, money market accounts and certificates of deposit.
For the year ended December 31, 2003, certificates of deposit constituted 51.5%
of total average deposits. The term of the certificates of deposit offered by
the Bank vary from seven days to five years and the offering rates are
established by the Bank. Specific terms of an individual account vary according
to the type of account, the minimum balance required, the time period funds must
remain on deposit and the interest rate, among other factors. The flow of
deposits is influenced significantly by general economic conditions, changes in
money market rates, prevailing interest rates and competition. At December 31,
2003, the Bank had $22.7 million of certificate accounts maturing in less than
one year. The Bank expects that most of these accounts will be reinvested and
does not believe that there are any material risks associated with the
respective maturities of these certificates. The Bank's deposits are obtained
predominantly from the area in which its banking offices are located. The Bank
relies primarily on a willingness to pay market-competitive interest rates to
attract and retain these deposits. Accordingly, rates offered by competing
financial institutions affect the Bank's ability to attract and retain deposits.

At December 31, 2003, the Bank had $4.3 million in certificate accounts in
amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
MATURITY PERIOD            AMOUNT   WEIGHTED AVERAGE RATE
- ---------------            ------   ---------------------
                   (DOLLARS IN THOUSANDS)
<S>                        <C>      <C>
Three months or less       $  219           2.80%
Over 3 through 6 months     1,012           3.69%
Over 6 through 12 months    1,426           3.42%
Over 12 months              1,628           3.61%
                           ------
   Total                   $4,285
                           ======
</TABLE>


                                       18

<PAGE>

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

<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED DECEMBER 31,
                                ------------------------------------------------------------------------------------------
                                            2003                           2002                           2001
                                ----------------------------   ----------------------------   ----------------------------
                                           PERCENT                        PERCENT                        PERCENT
                                          OF TOTAL   AVERAGE             OF TOTAL   AVERAGE             OF TOTAL   AVERAGE
                                AVERAGE    AVERAGE     RATE    AVERAGE    AVERAGE     RATE    AVERAGE    AVERAGE     RATE
                                BALANCE   DEPOSITS     PAID    BALANCE   DEPOSITS     PAID    BALANCE   DEPOSITS     PAID
                                -------   --------   -------   -------   --------   -------   -------   --------   -------
                                                                  (DOLLARS IN THOUSANDS)
<S>                             <C>       <C>        <C>       <C>       <C>        <C>       <C>       <C>        <C>
NOW accounts                    $ 8,463     11.25%     .86%    $ 8,748     11.43%    1.66%    $ 8,611     11.28%    1.64%
Money market accounts             7,843     10.43%    1.40%      6,146      9.20%    1.49%      7,038      9.22%    3.38%
Savings accounts                 18,373     24.43%     .82%     17,812     23.07%    1.69%     17,653     23.12%    2.42%
Certificates of deposit          38,761     51.52%    3.24%     42,792     55.32%    4.63%     42,338     55.46%    5.76%
Noninterest-bearing deposits:
   Demand deposits                1,781      2.37%      --         754       .98%      --         702       .92%      --
                                -------    ------              -------    ------              -------    ------
      Total average deposits    $75,221    100.00%    2.14%    $76,252    100.00%    3.31%    $76,342    100.00%    4.28%
                                =======    ======              =======    ======              =======    ======
</TABLE>

The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 2003.

<TABLE>
<CAPTION>
                                 PERIOD TO MATURITY FROM DECEMBER 31, 2003        At DECEMBER 31, 2003
                                --------------------------------------------------------------------------
                                                                       OVER
                                LESS THAN     ONE TO       TWO TO      THREE
                                 ONE YEAR   TWO YEARS   THREE YEARS    YEARS     2003      2002      2001
                                ---------   ---------   -----------   ------   -------   -------   -------
                                                             (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>         <C>           <C>      <C>       <C>       <C>
Certificate accounts:
0 to 3.99%                       $19,764      $7,969       $  734     $1,025   $29,492   $23,359   $ 5,725
4.00 to 4.99%                      2,580         476        2,914        182     6,152    12,167    11,271
5.00 to 5.99%                        295         208          474         --       977     3,421    17,299
6.00 to 6.99%                         61          --           --         --        61     1,547     6,447
7.00 to 7.99%                         --          --           --         --        --       160     2,690
8.00% and above                        1          --           --         10        11        67       240
                                 -------      ------       ------     ------   -------   -------   -------
   Total certificate accounts    $22,701      $8,653       $4,122     $1,217   $36,693   $40,721   $43,672
                                 =======      ======       ======     ======   =======   =======   =======
</TABLE>


                                       19

<PAGE>

BORROWINGS. The Bank utilizes FHLB advances as an alternative to retail deposits
to fund its operations as part of its operating strategy. These FHLB advances
are collateralized primarily by certain of the Bank's mortgage loans and
mortgage-backed securities and secondarily by the Bank's investment in capital
stock of the FHLB. FHLB advances are made pursuant to several credit programs,
each of which has its own interest rate and range of maturities. The maximum
amount that the FHLB will advance to member institutions, including the Bank,
fluctuates from time to time in accordance with the policies of the FHLB.

The following table sets forth certain information regarding the Bank's borrowed
funds at or for the periods ended on the dates indicated:

<TABLE>
<CAPTION>
                                                                   AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                                   -------------------------------------
                                                                          2003      2002      2001
                                                                        -------   -------   -------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                                     <C>       <C>       <C>
FHLB advances and other borrowings:
   Average balance outstanding                                          $12,192   $19,902   $38,217
   Maximum amount outstanding at any month-end during the period         16,542    19,370    43,678
   Balance outstanding at end of period                                  12,655    16,330    25,393
   Weighted average interest rate during the period                        5.59%     4.83%     5.40%
   Weighted average interest rate at end of period                         2.28%     5.53%     4.62%
</TABLE>

A trust formed by the Company issued $5,000 of 3 month LIBOR plus 2.85% floating
rate trust preferred securities in 2003 as part of a pooled offering of such
securities. The Company issued subordinated debentures to the trust in exchange
for the proceeds of the offering, which debentures represent the sole asset of
the trust. The Company may redeem the subordinated debentures, in whole but not
in part, any time after five years at par. The subordinated debentures must be
redeemed no later than 2033.

Under new accounting guidance, FASB Interpretation No. 46, as revised in
December 2003, the trust is not consolidated with the Company. Accordingly, the
Company does not report the securities issued by the trust as liabilities, and
instead reports as liabilities the subordinated debentures issued by the Company
and held by the trust.

SUBSIDIARY ACTIVITIES

As of December 31, 2003, the Company maintained the Bank and Trust as wholly
owned subsidiaries. The Bank has no subsidiaries.

PERSONNEL

As of December 31, 2003, the Bank had 41 full-time and 3 part-time employees.


                                       20

<PAGE>

REGULATION AND SUPERVISION

GENERAL. As a savings and loan holding company, the Company is required by
federal law to report to, and otherwise comply with the rules and regulations
of, the Office of Thrift Supervision ("OTS"). The Bank is subject to extensive
regulation, examination and supervision by the OTS, as its primary federal
regulator, and the Federal Deposit Insurance Corporation ("FDIC"), as the
deposit insurer. The Bank is a member of the Federal Home Loan Bank System and,
with respect to deposit insurance, of the Savings Bank Insurance Fund ("SAIF")
managed by the FDIC. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other savings institutions. The OTS and/or the FDIC
conduct periodic examinations to test the Bank's safety and soundness and
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain regulatory
requirements applicable to the Bank and to the Company are referred to below or
elsewhere herein. The description of statutory provisions and regulations
applicable to savings institutions and their holding companies set forth in this
Form 10-KSB does not purport to be a complete description of such statutes and
regulations and their effects on the Bank and the Company.

SARBANES-OXLEY ACT OF 2002. The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act)
was enacted on July 30, 2002. The Sarbanes-Oxley Act represents a comprehensive
revision of laws affecting corporate governance and financial disclosure. The
Sarbanes-Oxley Act is applicable to all companies with equity securities
registered or that file reports under the Securities Exchange Act of 1934,
including the Company. The Sarbanes-Oxley Act establishes, among other things:
(i) new requirements for audit committees; (ii) additional responsibilities
regarding financial statements for the Chief Executive Officer and Chief
Financial Officer; (iii) new standards for auditors and regulations governing
audits; (iv) increased disclosure and reporting obligations for the reporting
company and its directors and executive officers: and (v) new and increased
civil and criminal penalties for violations of the securities laws.

HOLDING COMPANY REGULATION. The Company is a nondiversified unitary savings and
loan holding company within the meaning of federal law. Under prior law, a
unitary savings and loan holding company, such as the Company, was not generally
restricted as to the types of business activities in which it may engage,
provided that the Bank continued to be a qualified thrift lender. See "Federal
Savings Institution Regulation - QTL Test." The Gramm-Leach-Bliley Act of 1999
provides that no company may acquire control of a savings Bank after May 4, 1999
unless it engages only in the financial activities permitted for financial
holding companies under the law or for multiple savings and loan holding
companies as described below. Further, the Gramm-Leach-Bliley Act specifies that
existing savings and loan holding companies may only engage in such activities.
The Gramm-Leach-Bliley Act, however, grandfathered the unrestricted authority
for activities with respect to unitary savings and loan holding companies
existing prior to May 4, 1999, so long as the holding company's savings Bank
subsidiary continues to comply with the QTL Test. The Company does qualify for
the grandfathering. Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the OTS, the Company
would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation. However, the OTS has issued an
interpretation concluding that


                                       21

<PAGE>

multiple savings and loan holding companies may also engage in activities
permitted for financial holding companies.

A savings and loan holding company is prohibited from, directly or indirectly,
acquiring more than 5% of the voting stock of another savings institution or
savings and loan holding company, without prior written approval of the OTS and
from acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating applications by holding companies to acquire
savings institutions, the OTS considers the financial and managerial resources
and future prospects of the company and institution involved, the effect of the
acquisition on the risk to the deposit insurance funds, the convenience and
needs of the community and competitive factors.

The OTS may not approve any acquisition that would result in a multiple savings
and loan holding company controlling savings institutions in more than one
state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

Although savings and loan holding companies are not currently subject to
specific capital requirements or specific restrictions on the payment of
dividends or other capital distributions, federal regulations do prescribe such
restrictions on subsidiary savings institutions as described below. The Bank
must notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.

ACQUISITION OF THE HOLDING COMPANY. Under the Federal Change in Bank Control Act
("CIBCA"), a notice must be submitted to the OTS if any person (including a
company), or group acting in concert, seeks to acquire 10% or more of the
Company's outstanding voting stock, unless the OTS has found that the
acquisition will not result in a change of control of the Company. Under the
CIBCA, the OTS has 60 days from the filing of a complete notice to act, taking
into consideration certain factors, including the financial and managerial
resources of the acquirer and the anti-trust effects of the acquisition. Any
company that acquires control would then be subject to regulation as a savings
and loan holding company.

FEDERAL SAVINGS INSTITUTION REGULATION

Business Activities. The activities of federal savings Banks are governed by
federal law and regulations. These laws and regulations delineate the nature and
extent of the activities in which federal Banks may engage. In particular,
certain lending authority for federal Banks, e.g., commercial, non-residential
real property loans and consumer loans, is limited to a specified percentage of
the institution's capital or assets.

Capital Requirements. The OTS capital regulations require savings institutions
to meet three minimum capital standards: a 1.5% tangible capital to total assets
ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on
the CAMELS examination rating system) and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest CAMELS rating), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
OTS regulations also require that, in meeting the tangible, leverage and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.


                                       22

<PAGE>

The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance-sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

The OTS also has authority to establish individual minimum capital requirements
in appropriate cases upon a determination that an institution's capital level is
or may become inadequate in light of the particular circumstances. At December
31, 2003, the Bank met each of its capital requirements.

The following table presents the Bank's capital position at December 31, 2003:

<TABLE>
<CAPTION>
                                          EXCESS            CAPITAL
                                       ------------   ------------------
                   ACTUAL   REQUIRED   (DEFICIENCY)    ACTUAL   REQUIRED
                  CAPITAL    CAPITAL       AMOUNT     PERCENT    PERCENT
                  -------   --------   ------------   -------   --------
                                   (DOLLARS IN THOUSANDS)
<S>               <C>       <C>        <C>            <C>       <C>
Tangible          $14,678    $1,584       $13,094       13.9%      1.5%

Core (Leverage)    14,678     4,217        10,461       13.9%      4.0%

Risk-based         15,093     5,597         9,496       21.6%      8.0%
</TABLE>

Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.


                                       23

<PAGE>

Insurance of Deposit Accounts. The Bank is a member of the SAIF. The FDIC
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for SAIF member institutions are determined
semi-annually by the FDIC and currently range from zero basis points for the
healthiest institutions to 27 basis points of assessable deposits for the
riskiest.

In addition to the assessment for deposit insurance, institutions are required
to make payments on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. During 2003, FICO payments
for SAIF members approximated 1.54 basis points of assessable deposits. The
Bank's total assessment paid for 2003 (including the FICO assessment) was
$12,374. The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.

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

Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At December
31, 2003, the Bank's 15% limit on loans to one borrower was $2.3 million. At
December 31, 2003, the Bank did not have a lending relationship in excess of
this limit.

QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender test. Under the test, a savings Bank is required to either qualify as a
"domestic building and loan Bank" under the Internal Revenue Code or maintain at
least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of each
12 month period.

A savings institution that fails the qualified thrift lender test is subject to
certain operating restrictions and may be required to convert to a bank charter.
As of December 31, 2003, the Bank maintained 70.3% of its portfolio assets in
qualified thrift investments and, therefore, met the qualified thrift lender
test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered "qualified thrift
investments."

Limitation on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under the regulation, an application to and
the prior approval of the OTS is required prior to any capital distribution if
the institution does not meet the criteria for "expedited treatment" of
applications under OTS regulations (i.e., generally, examination ratings in the
two top categories), the total capital distributions for the calendar year
exceed net income for that year plus the amount of retained net income for the
preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with the OTS. If an application is not required, the
institution must still provide


                                       24

<PAGE>

prior notice to the OTS of the capital distribution if, like the Bank, it is a
subsidiary of a holding company. In the event the Bank's capital fell below its
regulatory requirements or the OTS notified it that it was in need of increased
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.

Assessments. Savings institutions are required to pay assessments to the OTS to
fund the agency's operations. The general assessments, paid on a semi-annual
basis, are computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank for 2003 totaled $38,216.

Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

The recently enacted Sarbanes Oxley Act generally prohibits loans by the Company
to its executive officers and directors. However, that act contains a specific
exception for loans by the Bank to its executive officer's and directors in
compliance with federal banking laws. Under such laws the Bank's authority to
extend credit to executive officers, directors and 10% shareholders
("insiders"), as well as entities such persons control, is limited. The law
limits both the individual and aggregate amount of loans the Bank may make to
insiders based, in part, on the Bank's capital position and requires certain
board approval procedures to be followed. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees.

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

Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines prescribing Standards for Safety and Soundness. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that a savings
institution fails to


                                       25

<PAGE>

meet any standard prescribed by the guidelines, the OTS may require the
institution to submit an acceptable plan to achieve compliance with the
standard.

FEDERAL HOME LOAN BANK SYSTEM

The Bank is a member of the Federal Home Loan Bank System, which consists of 12
regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central
credit facility primarily for member institutions. The Bank, as a member of the
Federal Home Loan Bank, is required to acquire and hold shares of capital stock
in that Federal Home Loan Bank in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the Federal Home Loan Bank, whichever is greater. The Bank was in
compliance with this requirement with an investment in Federal Home Loan Bank
stock at December 31, 2003 of $3.6 million.

The Federal Home Loan Banks are required to provide funds for the resolution of
insolvent thrifts in the late 1980s and to contribute funds for affordable
housing programs. These requirements could reduce the amount of dividends that
the Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members. If dividends were reduced, or interest on future Federal Home Loan Bank
advances increased, The Bank's net interest income would likely also be reduced.
Recent legislation has changed the structure of the Federal Home Loan Banks
funding obligations for insolvent thrifts, revised the capital structure of the
Federal Home Loan Banks and implemented entirely voluntary membership for
Federal Home Loan Banks. Management cannot predict the effect that these changes
may have with respect to its Federal Home Loan Bank membership.

FEDERAL RESERVE SYSTEM

The Federal Reserve Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts (primarily
Negotiable Order of Withdrawal (NOW) and regular checking accounts). The
regulations generally provide that reserves be maintained against aggregate
transaction accounts as follows: a 3% reserve ratio is assessed on net
transaction accounts up to and including $42.1 million; a 10% reserve ratio is
applied above $42.1. The first $6.0 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. These amounts are adjusted annually. The Bank complies
with the foregoing requirements.

FEDERAL AND STATE TAXATION

FEDERAL TAXATION

General. The Company and the Bank report their income on a calendar year,
consolidated basis using the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Bank or the Company. For its 2003 taxable year, the Company is subject to
a maximum federal income tax rate of 34%.

Bad Debt Reserve. Historically, savings institutions such as the Bank which met
certain definitional tests primarily related to their assets and the nature of
their business ("qualifying thrifts") were permitted to establish a reserve for
bad debts and to make annual additions thereto, which may have been deducted in
arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income,


                                       26

<PAGE>

computed with certain modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. Due to the Bank's loss experience, the
Bank generally recognized a bad debt deduction equal to 8% of taxable income.

In August 1996, the provisions repealing the above thrift bad debt rules were
passed by Congress as part of "The Small Business Job Protection Act of 1996."
The new rules eliminate the 8% of taxable income method for deducting additions
to the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. Those rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allowed an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years was equal to or greater than the
institution's average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution was permitted to postpone the reserve capture, it was required to
begin its six year recapture no later than the 1998 tax year. The unrecaptured
base year reserves will not be subject to recapture as long as the institution
continues to carry on the business of banking. In addition, the balance of the
pre-1988 bad debt reserves continue to be subject to a provision of present law
referred to below that require recapture in the case of certain excess
distributions to shareholders.

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

Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's taxable income.

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

OHIO TAXATION

The Company is subject to the Ohio corporation franchise tax, which, as applied
to the Company, is a tax measured by both net earnings and net worth. In
general, the tax liability is the greater of 5.1% on the first $50,000 of
computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess
of $50,000 or 0.4% times of taxable net worth. Under these alternative measures
of computing tax liability, complex formulas determine the jurisdictions to
which total net income and total net worth are apportioned or allocated. The
minimum tax is $50 per year and maximum tax liability as measured by net worth
is limited to $150,000 per year.


                                       27

<PAGE>

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

Certain holding companies, such as the Company, will qualify for complete
exemption from the net worth tax if certain conditions are met. The Company will
most likely meet these conditions, and thus, calculate its Ohio franchise tax on
the net income basis.

The Bank is a "financial institution" for State of Ohio tax purposes. As such,
it is subject to the Ohio corporate franchise tax on "financial institutions,"
which is imposed annually at a rate of 1.3% of the Bank's apportioned book net
worth, determined in accordance with Generally Accepted Accounting Principles,
less any statutory deduction. As a "financial institution," the Bank is not
subject to any tax based upon net income or net profits imposed by the State of
Ohio.

DELAWARE TAXATION

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

ITEM 2 DESCRIPTION OF PROPERTY

The Bank conducts its business through four banking offices located in Summit,
Columbiana, Jefferson and Franklin Counties, Ohio.

<TABLE>
<CAPTION>
                                          ORIGINAL                  NET BOOK VALUE OF
                                LEASED      YEAR       DATE OF    PROPERTY OR LEASEHOLD
        OFFICE                    OR     LEASED OR      LEASE        IMPROVEMENTS AT
      LOCATIONS                  OWNED    ACQUIRED   EXPIRATION     DECEMBER 31, 2003
- -----------------------         ------   ---------   ----------   ---------------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                             <C>      <C>         <C>          <C>
2841 Riviera Drive, Suite 300   Leased      2003        2004              $  9
Fairlawn, Ohio 44333

601 Main Street                  Owned      1989          --               650
Wellsville, Ohio 43968

49028 Foulks Drive               Owned      1979          --               320
East Liverpool, Ohio 43920

4249 Easton Way, Suite 125      Leased      2003        2008                --
Columbus, Ohio 43219
</TABLE>


                                       28

<PAGE>

ITEM 3 LEGAL PROCEEDINGS

The Company and Bank may, from time to time, be involved in various legal
proceedings in the normal course of business. Periodically, there have been
various claims and lawsuits involving the Bank, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to the Bank's business. Neither the Company nor the Bank
is a party to any pending legal proceedings that the Company believes would have
a material adverse effect on its financial condition or operations, if decided
adversely to the Company or the Bank.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5 MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS

Except as set forth below, the information required by Item 201 of Regulation
S-B is incorporated by reference to the Company's 2003 Annual Report to
shareholders distributed to shareholders and furnished to the Commission under
Rule 14a-3(b) of the Exchange Act; the information appears under the caption
"Market Prices and Dividends Declared" and "Note 13 - Capital Requirements and
Restrictions on Retained Earnings" at pages 16 and 33 therein, respectively.

Information required by Item 201(d) of Regulation S-B with respect to the
Company's equity compensation plans is set forth below under Part III, Item 11,
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Information required by Item 303 of Regulation S-B is incorporated by reference
to the Company's 2003 Annual Report to shareholders distributed to shareholders
and furnished to the Commission under Rule 14a-3(b) of the Exchange Act; the
information appears under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" at page 4 therein.

ITEM 7 FINANCIAL STATEMENTS

The consolidated financial statements required by Item 310(a) of Regulation S-B
are incorporated by reference to the Company's 2003 Annual Report to
shareholders distributed to shareholders and furnished to the Commission under
Rules 14a-3(b) and (c) of the Exchange Act; the financial statements appear
under the caption "Financial Statements" at page 17 therein and include the
following:

     Report of Independent Auditors
     Consolidated Balance Sheets
     Consolidated Statements of Operations
     Consolidated Statements of Comprehensive Income (Loss)
     Consolidated  Statements of Changes in Shareholders' Equity
     Consolidated Statements of Cash Flows
     Notes to Consolidated Financial Statements


                                       29

<PAGE>

ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE

None.

ITEM 8A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Company maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Principal
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-14(c). The Company's management, with the participation
of the Company's Chief Executive Officer and Principal Financial Officer, has
evaluated the effectiveness of its disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (Exchange Act)) as of the end of the period covered by this report.
Based on such evaluation, the Company's Chief Executive Officer and Principal
Accounting Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.

Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the completion of the evaluation of those
controls by the Chief Executive Officer and Chief Financial Officer.


                                       30

<PAGE>

                                    PART III

ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
       WITH SECTION 16(A) OF THE EXCHANGE ACT

Directors. Information required by Item 401 of Regulation S-B with respect to
the Company's directors is incorporated by reference to the Company's definitive
Proxy Statement for its 2004 Annual Meeting of Stockholders filed with the
Commission on March 12, 2004, under the caption "PROPOSAL 1. ELECTION OF
DIRECTORS."

Executive Officers of the Registrant

<TABLE>
<CAPTION>
                         AGE AT
                        DECEMBER
NAME                    31, 2003     POSITION HELD WITH THE COMPANY AND/OR BANK
- ---------------------   --------   ----------------------------------------------
<S>                     <C>        <C>
David C. Vernon            63      President and Chief Executive Officer, Company
                                   and Chief Executive Officer, Bank

Raymond E. Heh             61      President and Chief Operating Officer, Bank

Edward L. Baumgardner      60      Regional President - Columbiana County, Bank

R. Parker MacDonell        49      Regional President - Columbus, Bank

Eloise L. Mackus           53      Senior Vice President, General Counsel and
                                   Secretary, Company and Bank

Therese A. Liutkus         44      Chief Financial Officer, Company and Bank
</TABLE>

David C. Vernon is President and Chief Executive Officer of the Company and
Chief Executive Officer of the Bank. Prior to assuming those positions in 2003,
he was Chairman and CEO of Founders Capital Corporation. Prior to forming
Founders Capital Corporation, Mr. Vernon was Chairman, President and CEO of
Summit Bancorp and Summit Bank in Akron, Ohio. He is also Chairman of the Board
of the Company and the Bank.

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

Edward L. Baumgardner, Regional President - Columbiana County, joined the Bank
in June 2003. Prior to joining the Bank, Mr. Baumgardner was the President and
CEO of Potters Bank and Potters Financial Corporation and for 7 years and has 28
years of experience in the banking industry. He is a graduate of the University
of Baltimore.

R. Parker MacDonell is Regional President - Columbus and joined the Bank in May
2003. Mr. MacDonell is a third generation Ohio banker with 17 years of
commercial banking experience. He is a former Senior Vice President of Bank One
Columbus NA, a position he held for three years during his 15 year tenure with
Bank One. He is a graduate of Dartmouth College and received his master's degree
from Yale University.


                                       31

<PAGE>

Eloise L. Mackus is Senior Vice President, General Counsel and Secretary of the
Company and Bank. Prior to joining the Company and Bank in July 2003, Ms. Mackus
practiced in law firms in Connecticut and Ohio and was the Vice President and
General Manager of International Markets for The J. M. Smucker Company. Ms.
Mackus completed a BA at Calvin College and a JD at The University of Akron
School of Law.

Therese A. Liutkus joined the Company and Bank as Chief Financial Officer in
November 2003. Prior to that time, Ms. Liutkus was Chief Financial Officer of
First Place Financial Corp. and First Place Bank for five years and she has 17
years of banking experience. Ms. Liutkus is a certified public accountant and
has a Bachelor's degree in accounting from Cleveland State University.

Compliance with Section 16(A) of the Exchange Act. Information required by Item
405 of Regulation S-B is incorporated by reference to the Company's definitive
Proxy Statement for its 2004 Annual Meeting of Stockholders filed with the
Commission on March 12, 2004, under the caption "ADDITIONAL INFORMATION ABOUT
DIRECTORS AND EXECUTIVE OFFICERS - Compliance with Section 16(a) of the Exchange
Act."

Code of Ethics. The Company has adopted a code of ethics, its Financial Code of
Ethics, which meets the requirements of Item 406 of Regulation S-B and applies
to the Company's principal executive officer, principal financial officer and
principal accounting officer. A copy of the code of ethics is included as
Exhibit 14.1 to this Annual Report on Form 10-KSB. The Company currently does
not maintain a website, and it will file a Form 8-K to disclose information
regarding any amendment to, or waiver from, any provision of the Company's
Financial Code of Ethics. Since the Company's inception in 1998, it has had a
Code of Business Conduct and Ethics (Code of Conduct). The Company requires all
directors, officers and other employees to adhere to the Code of Conduct in
addressing the legal and ethical issues encountered in conducting their work.
The Code of Conduct requires that the Company's employees avoid conflicts of
interest, comply with all laws and other legal requirements, conduct business in
an honest and ethical manner and otherwise act with integrity and in the
Company's best interest. The Company's Code of Conduct is included as Exhibit
14.2 to this Annual Report on Form 10-KSB.

ITEM 10 EXECUTIVE COMPENSATION

Information required by Item 402 of Regulation S-B is incorporated by reference
to the Company's definitive Proxy Statement for its 2004 Annual Meeting of
Stockholders filed with the Commission on March 12, 2004, under the caption
"EXECUTIVE COMPENSATION."

ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
        RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management. Information
required by Item 403 of Regulation S-B is incorporated by reference to the
Company's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders
filed with the Commission on March 12, 2004, under the caption "STOCK
OWNERSHIP."

Related Stockholder Matters. Information required by Item 201(d) of Regulation
S-B is incorporated by reference to the Company's definitive Proxy Statement for
its 2004 Annual Meeting of Stockholders filed with the Commission on March 12,
2004, under the caption "PROPOSAL 2: AMENDED AND RESTATED CENTRAL FEDERAL
CORPORATION 2003 EQUITY COMPENSATION PLAN - EQUITY COMPENSATION PLAN
INFORMATION."


                                       32

<PAGE>

See Part II, Item 7, Financial Statements, Notes 8 and 12, for a description of
the principal provisions of the Company's equity compensation plans. The
information required by Item 7 is incorporated by reference to the Company's
2003 Annual Report to shareholders distributed to shareholders and furnished to
the Commission under Rules 14a-3(b) and (c) of the Exchange Act; the financial
statements appear under the caption "Financial Statements" at page 17 therein.

ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by Item 404 of Regulation S-B is incorporated by reference
to the Company's definitive Proxy Statement for its 2004 Annual Meeting of
Stockholders filed with the Commission on March 12, 2004, under the caption
"ADDITIONAL INFORMATION ABOUT DIRECTORS AND OFFICERS - Certain Relationships and
Related Transactions."

ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)  See Exhibit Index at page 36 of this report on Form 10-KSB.

(b)  Reports on Form 8-K filed during the last quarter of 2003

     On October 29, 2003, the Company filed an 8-K announcing financial results
     for the quarter ended September 30, 2003. The press release announcing the
     financial performance was filed by exhibit.

     On December 24, 2003, the Company filed an 8-K to announce that; 1) its
     Board of Directors, at their meeting on December 18, 2003, declared a cash
     dividend of 9 cents per share on its common stock to be paid on January 19,
     2004 to shareholders of record on January 8, 2004; 2) on December 12, 2003,
     the Company issued $5.0 million in trust preferred securities through
     Central Federal Capital Trust I, a wholly owned subsidiary of the Company;
     and 3) on November 17, 2003, the Bank opened its Columbus office, located
     at 4249 Easton Way, Suite 125, Columbus, Ohio 43219. The press release was
     filed by exhibit.

     On December 31, 2003, the Company filed an 8-K to announce that the Bank
     had elected to prepay fixed rate Federal Home Loan Bank borrowings totaling
     $11.2 million. These borrowings had an average cost of 5.52 percent and an
     average remaining maturity of 4.5 years. The repayment resulted in a charge
     of $1.3 million as a result of a penalty associated with prepaying the
     loans. The press release discussing the transaction was filed by exhibit.


                                       33

<PAGE>

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

Aggregate fees billed to the Company for the fiscal years ended December 31,
2003 and 2002 by Crowe Chizek and Company LLC, the Company's principal
accounting firm, were as follows:

<TABLE>
<CAPTION>
                                                                 2003      2002
                                                               -------   -------
<S>                                                            <C>       <C>
Audit fees                                                     $50,500   $53,000
Audit-related fees                                               7,500     4,585
Tax fees                                                         6,000     8,890
Other fees                                                          --        --
                                                               -------   -------
Total                                                          $64,000   $66,475
                                                               =======   =======
</TABLE>

Audit-related fees were related to Crowe Chizek and Company LLC's review of the
Company's filings with the Securities and Exchange Commission during the year
ended December 31, 2003.

Tax fees were related to Crowe Chizek and Company LLC's preparation of the
Company's federal and state tax returns.

The Company's Audit Committee must pre-approve all engagements of the
independent auditor by the Company and its subsidiaries, including the Bank, as
required by the Company's Audit Committee's charter and the rules of the
Securities and Exchange Commission. Prior to the beginning of each fiscal year,
the Audit Committee will approve an annual estimate of fees for engagements,
taking into account whether the services are permissible under applicable law
and the possible impact of each non-audit service on the independent auditor's
independence from management. In addition, the Audit Committee will evaluate
known potential engagements of the independent auditor, including the scope of
the proposed work to be performed and the proposed fees, and approve or reject
each service. Management may present additional services for approval at
subsequent committee meetings. The Audit Committee has delegated to the Audit
Committee Chairman the authority to evaluate and approve engagements on behalf
of the Audit Committee in the event a need arises for pre-approval between
Committee meetings and in the event the engagement for services was within the
annual estimate but not specifically approved. If the Chairman so approves any
such engagements, he will report that approval to the full Committee at the next
Committee meeting.

Since the effective date of the Securities and Exchange Commission's rules
regarding strengthening auditor independence, all the audit, audit-related, and
tax services provided by Crowe Chizek and Company LLC were pre-approved in
accordance with the Audit Committee's policies and procedures.


                                       34

<PAGE>

                                   SIGNATURES

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

                                        CENTRAL FEDERAL CORPORATION

                                        /s/ David C. Vernon
                                        ----------------------------------------
                                        David C. Vernon
                                        Chairman of the Board, President and
                                        Chief Executive Officer

                                        Date: March 30, 2004

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

<TABLE>
<CAPTION>
            Name                              Title                      Date
            ----                              -----                      ----
<S>                             <C>                                <C>
/s/ David C. Vernon             Chairman of the Board, President   March 30, 2004
- -----------------------------   and Chief Executive Officer
David C. Vernon
(principal executive officer)

/s/ Therese Ann Liutkus         Chief Financial Officer            March 30, 2004
- -----------------------------
Therese Ann Liutkus, CPA
(principal accounting
and financial officer)

/s/ Jeffrey W. Aldrich          Director                           March 30, 2004
- -----------------------------
Jeffrey W. Aldrich

/s/ Mark S. Allio               Director                           March 30, 2004
- -----------------------------
Mark S. Allio

/s/ Thomas P. Ash               Director                           March 30, 2004
- -----------------------------
Thomas P. Ash

/s/ William R. Downing          Director                           March 30, 2004
- -----------------------------
William R. Downing

/s/ Gerry W. Grace              Director                           March 30, 2004
- -----------------------------
Gerry W. Grace

/s/ Jerry F. Whitmer            Director                           March 30, 2004
- -----------------------------
Jerry F. Whitmer
</TABLE>


                                       35

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                            Description of Exhibit
- -----------                            ----------------------
<S>            <C>
    3.1        Certificate of Incorporation of Central Federal Corporation
               (incorporated by reference to Exhibit 3.1 to the Company's
               Registration Statement on Form SB-2 No. 333-64089 filed with the
               Commission on September 23, 1998)

    3.2        Bylaws of Central Federal Corporation (incorporated by reference
               to Exhibit 3.2 to the Company's Registration Statement on Form
               SB-2 No. 333-64089 filed with the Commission on September 23,
               1998)

    4.1        Form of Stock Certificate of Central Federal Corporation
               (incorporated by reference to Exhibit 4.0 to the Company's
               Registration Statement on Form SB-2 No. 333-64089 filed with the
               Commission on September 23, 1998)

    10.1*      Employment Agreement between Central Federal Corporation and
               David C. Vernon

    10.2*      Employment Agreement between Central Federal Bank and David C.
               Vernon

    10.3*      Director's Retirement Agreement between Central Federal
               Corporation, Central Federal Bank and William R. Williams

    10.4*      Supplemental Executive Retirement Agreement between Central
               Federal Corporation, Central Federal Bank and William R. Williams

    11.1       Statement Re: Computation of Per Share Earnings

    13.1       Annual Report to Security Holders for the Fiscal Year Ended
               December 31, 2003

    14.1       Financial Code of Ethics

    14.2       Code of Business Conduct and Ethics

    21.1       Subsidiaries of the Registrant

    23.1       Consent of Independent Auditors

    31.1       Rule 13a-14(a) Certifications of the Chief Executive Officer

    31.2       Rule 13a-14(a) Certifications of the Chief Financial Officer

    32.1       Section 1350 Certifications of the Chief Executive Officer

    32.2       Section 1350 Certifications of the Chief Financial Officer
</TABLE>

- ----------
*Management contract or compensation plan or arrangement identified pursuant to
Item 13(a) of Form 10-KSB


                                       36

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>l05633aexv10w1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>
                                                                    Exhibit 10.1

  EMPLOYMENT AGREEMENT BETWEEN CENTRAL FEDERAL CORPORATION AND DAVID C. VERNON

                          GRAND CENTRAL FINANCIAL CORP.
                              EMPLOYMENT AGREEMENT

     This AGREEMENT ("Agreement") is made effective as of February 28, 2003 by
and between GRAND CENTRAL FINANCIAL CORP. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal administrative office
at 601 Main Street, Wellsville, Ohio 43968 and David C. Vernon (the
"Executive"). Any reference to "Institution" herein shall mean Central Federal
Savings and Loan Association of Wellsville or any successor thereto.

     WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and

     WHEREAS, the Executive is willing to serve in the employ of the Holding
Company for said period.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.   POSITION AND RESPONSIBILITIES.

     During the period of Executive's employment hereunder, Executive agrees to
serve as Chief Executive Officer and effective April 23, 2003, as President of
the Holding Company. The Executive shall render administrative and management
services to the Holding Company such as are customarily performed by persons in
a similar executive capacity. During said period, Executive also agrees to
serve, if elected, as an officer and director of any subsidiary of the Holding
Company.

2.   TERMS.

     (a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty six (36) full calendar months thereafter.

     (b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.

     (c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this


                                       37

<PAGE>

Agreement, subject to the terms and conditions of this Agreement. Moreover, in
the event the Executive is terminated or suspended from his position with the
Institution, Executive shall not perform, in any respect, directly or
indirectly, during the pendency of his temporary or permanent suspension or
termination from the Institution, duties and responsibilities formerly performed
at the Institution as part of his duties and responsibilities as President and
Chief Executive Officer of the Holding Company.

3.   COMPENSATION AND REIMBURSEMENT.

     (a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $120,000 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any tax-qualified
retirement or welfare plan or any other deferred compensation arrangement
maintained by the Holding Company and its Subsidiaries. Such Base Salary shall
be payable in accordance with the normal payroll practices of the Holding
Company or the Institution. The Board may increase Executive's Base Salary at
anytime. Any increase in Base Salary shall become the "Base Salary" for purposes
of this Agreement. In addition to the Base Salary provided in this Section 3(a),
the Holding Company shall also provide Executive, at no premium cost to
Executive, with all such other benefits as provided uniformly to permanent
full-time employees of the Holding Company and its Subsidiaries.

     (b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating, eligible to participate, or otherwise deriving or
eligible to derive benefit from immediately prior to the beginning of the term
of this Agreement, and the Holding Company and its Subsidiaries will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder, except to the extent that such changes are made applicable
to all Holding Company and Institution employees eligible to participate in such
plans, arrangements and perquisites on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Holding Company and its Subsidiaries in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Holding Company and its Subsidiaries
in which Executive is eligible to participate or as determined by the Board of
Directors of the Association or the Holding Company. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.

     (c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel, including reasonable expenses for spouse's travel, and other reasonable
expenses incurred in the performance of Executive's obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine.

     (d) During the term of this Agreement, the Holding Company or the
Institution shall reimburse Executive up to $500 per month for one (1) country
club or organization (business, social or otherwise) membership which will
benefit the Holding Company or the Association.


                                       38

<PAGE>

     (e) During the term of this Agreement, the Holding Company or the
Institution will reimburse Executive up to $600 per month for all expenses
associated with purchasing, financing, leasing, insuring, registrating,
operating or maintaining an automobile. Executive shall comply with reasonable
reporting and expense limitations on the use of such automobile as the Board of
Directors may establish from time to time, and the Holding Company or the
Institution shall annually include on Executive's Form W-2 any amount
attributable to Executive's personal use of such automobile.

4.   PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

     (a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Executive Officer, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D) (E) or (F), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than thirty
(30) days prior written notice given within six full calendar months after the
event giving rise to said right to elect.

     (b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the Base Salary and bonuses in accordance with Section 3 of this Agreement that
would have been paid to Executive for the remaining term of this Agreement had
the Event of Termination not occurred; and (ii) all benefits, including health
insurance in accordance with Section 3(b) that would have been provided to
Executive for the remaining term of this Agreement had an Event of Termination
not occurred. At the election of the Executive, such payments shall be made in a
lump sum. In the event that no election is made, payment to the Executive will
be made on a monthly basis in approximately equal installments during the
remaining term of the Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following the Date of Termination.

     (c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.

5.   CHANGE IN CONTROL.


                                       39

<PAGE>

     (a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, or the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods; or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed; or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.

     (b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or Termination for Cause (as
defined herein).

     (c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the Base Salary and bonuses in accordance with Section 3 of this Agreement that
would have been paid to Executive for the remaining term of the Agreement had
the event described in Subsection (b) of


                                       40

<PAGE>

this Section 5 not occurred and all benefits, including health insurance, in
accordance with Section 3(b) that would have been provided to Executive for the
remaining term of this Agreement had the event described in Subsection (b) of
this Section 5 not occurred; or (ii) three (3) times Executive's average Annual
Compensation for the five (5) preceding taxable years. Such Annual Compensation
shall include all taxable income paid by the Holding Company or its
Subsidiaries, including, but not limited to, Base Salary, commissions and
bonuses, as well as contributions on behalf of Executive to any pension and
profit sharing plan, severance payments, directors or committee fees and fringe
benefits paid or to be paid to the Executive during such years. At the election
of the Executive, such payment shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event Executive obtains other
employment following the Date of Termination.

     (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his termination. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.

6.   CHANGE OF CONTROL RELATED PROVISIONS.

     (a)  Notwithstanding the provisions of Section 5, in the event that:

          (i)  the aggregate payments or benefits to be made or afforded to
               Executive, which are deemed to be parachute payments as defined
               in Section 280G of the Internal Revenue Code of 1986, as amended
               (the "Code") or any successor thereof, (the "Termination
               Benefits") would be deemed to include an "excess parachute
               payment" under Section 280G of the Code; and

          (ii) if such Termination Benefits were reduced to an amount (the
               "Non-Triggering Amount"), the value of which is one dollar
               ($1.00) less than an amount equal to three (3) times Executive's
               "base amount," as determined in accordance with said Section 280G
               and the Non-Triggering Amount less the product of the marginal
               rate of any applicable state and federal income tax and the Non
               Triggering Amount would be greater than the aggregate value of
               the Termination Benefits (without such reduction) minus (i) the
               amount of tax required to be paid by the Executive thereon by
               Section 4999 of the Code and further minus (ii) the product of
               the Termination Benefits and the marginal rate of any applicable
               state and federal income tax, then the Termination Benefits shall
               be reduced to the Non-Triggering Amount. The allocation of the
               reduction required hereby among the Termination Benefits shall be
               determined by the Executive.

7.   TERMINATION FOR CAUSE.

     The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal dishonesty,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Holding Company or its Subsidiaries.
Notwithstanding


                                       41

<PAGE>

the foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
which shall include a copy of a resolution duly adopted by the affirmative vote
of not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
8 hereof through the Date of Termination, unvested awards granted to Executive
under any stock benefit plan of the Holding Company or its Subsidiaries shall
not vest. At the Date of Termination, such stock options and related limited
rights and such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such Date of
Termination for Cause.

8.   NOTICE.

     (a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

     (b) "Date of Termination" shall mean the date specified in the Notice of
Termination as the effective date on which Executive's employment terminates
(which, in the case of a Termination for Cause, shall not be less than thirty
(30) days from the date such Notice of Termination is given).

     (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.

9.   POST-TERMINATION OBLIGATIONS.

     During any term of this Agreement remaining after the Date of Termination
up to a maximum of one (1) year, Executive shall, upon reasonable notice,
furnish such information and assistance to the Holding Company as may reasonably
be required by the Holding Company in connection with any


                                       42

<PAGE>

litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party. Executive shall receive reasonable compensation for time and
expenses incurred in providing such information and assistance.

10.  NON-DISCLOSURE.

     Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and its
Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries to any person, firm, corporation, or other
entity for any reason or purpose whatsoever unless expressly authorized by the
Board of Directors or required by law. Notwithstanding the foregoing, Executive
may disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, or other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.

11.  SOURCE OF PAYMENTS.

     (a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).

     (b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated February 28, 2003,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.

12.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

     This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.

13.  NO ATTACHMENT.


                                       43

<PAGE>

     (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

     (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors, heirs and
assigns.

14.  MODIFICATION AND WAIVER.

     (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

     (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

15.  SEVERABILITY.

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

16.  HEADINGS FOR REFERENCE ONLY.

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

     Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.

17.  GOVERNING LAW.

     This Agreement shall be governed by the laws of the State of Ohio without
regard to the principles of conflicts of law of this state, unless otherwise
specified herein.


                                       44

<PAGE>

18.  ARBITRATION.

     Notwithstanding any right to enforcement under Section 10(a), any dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in Cleveland, Ohio, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.

     In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.

19.  PAYMENT OF LEGAL FEES.

     All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.

20.  INDEMNIFICATION.

     (a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of him having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.

     (b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and any other rules or regulations promulgated thereunder.

21.  SUCCESSOR TO THE HOLDING COMPANY.

     The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.

SIGNATURES

     IN WITNESS WHEREOF, Grand Central Financial Corp. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and Executive


                                       45

<PAGE>

has signed this Agreement, on the 26th day of March, 2003.

ATTEST:                                            GRAND CENTRAL FINANCIAL CORP.

/s/ Jeffrey W. Aldrich                             By: /s/ Gerry W. Grace
- ----------------------                                 -------------------------

        [SEAL]

WITNESS:

/s/ Jeffrey W. Aldrich                             By: /s/ David C. Vernon
- ----------------------                                 -------------------------
                                                       David C. Vernon


                                       46

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>l05633aexv10w2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>
<PAGE>
                                                                    Exhibit 10.2

      EMPLOYMENT AGREEMENT BETWEEN CENTRAL FEDERAL BANK AND DAVID C. VERNON

           CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
                              EMPLOYMENT AGREEMENT

     This AGREEMENT is made effective as of February 28, 2003 by and among
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE (the "Association"),
a federally-chartered financial institution, with its principal administrative
office at 601 Main Street, Wellsville, Ohio, 43968, Grand Central Financial
Corp., a corporation organized under the laws of the State of Delaware, the
holding company for the Association (the "Holding Company"), and DAVID C. VERNON
("Executive").

     WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and

     WHEREAS, Executive is willing to serve in the employ of the Association for
said period.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.   POSITION AND RESPONSIBILITIES.

     During the period of his employment hereunder, Executive agrees to serve as
Chief Executive Officer and effective April 23, 2003, as President of the
Association. Executive shall render administrative and management services to
the Association such as are customarily performed by persons situated in a
similar executive capacity. During said period, Executive also agrees to serve,
if elected, as an officer and director of the Holding Company or any subsidiary
of the Association.

2.   TERMS AND DUTIES.

     (a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter.

     (b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Association, or materially
affect the performance of Executive's duties pursuant to this Agreement.

     (c) Notwithstanding anything herein to the contrary, Executive's employment
with the Association may be terminated by the Association or the Executive
during the term of this Agreement, subject to the terms and conditions of this
Agreement.


                                       47
<PAGE>
3.   COMPENSATION AND REIMBURSEMENT.

     (a) The Executive shall be entitled to a salary from the Association of
$120,000 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or welfare
benefit plan or any other deferred compensation arrangement maintained by the
Association. Such Base Salary shall be payable in accordance with normal payroll
practices of the Association or the Holding Company. Any increase in Base Salary
shall become the "Base Salary" for purposes of this Agreement. In addition to
the Base Salary provided in this Section 3(a), the Association shall also
provide Executive, at no premium cost to Executive, with all such other benefits
as are provided uniformly to permanent full-time employees of the Association.

     (b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating, eligible to participate, or otherwise deriving or
eligible to derive benefit from immediately prior to the beginning of the term
of this Agreement, and the Association will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder; except
to the extent such changes are made applicable to all Association employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Association in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Association in which Executive is
eligible to participate or as determined by the Board of Directors of the
Association or the Holding Company. Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation to which
the Executive is entitled under this Agreement.

     (c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Association shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.

     (d) During the term of this Agreement, the Association shall reimburse
Executive up to $500 per month for one (1) country club or organization
(business, social or otherwise) membership which will benefit the Association.

     (e) During the term of this Agreement, the Association will reimburse
Executive up to $600 per month for all expenses associated with purchasing,
financing, leasing, insuring, registrating, operating or maintaining an
automobile. Executive shall comply with reasonable reporting and expense
limitations on the use of such automobile as the Board of Directors may
establish from time to time, and the Association shall annually include on
Executive's Form W-2 any amount attributable to Executive's personal use of such
automobile.

4.   PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

     (a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the


                                       48
<PAGE>
following: (i) the termination by the Association of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Association's employ upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as President and Chief
Executive Officer, unless consented to by the Executive, (B) a material change
in Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Association or Holding
Company, or (F) breach of this Agreement by the Association. Upon the occurrence
of any event described in clauses (A), (B), (C), (D), (E) or (F), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than thirty (30) days prior written
notice given within six full months after the event giving rise to said right to
elect.

     (b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be an amount equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3 of this Agreement
that would have been paid to Executive for the remaining term of this Agreement
had the Event of Termination not occurred; and (ii) all benefits, including
health insurance in accordance with Section 3(b) that would have been provided
to Executive for the remaining term of this Agreement had an Event of
Termination not occurred; provided, however, that any payments pursuant to this
subsection and subsection 4(c) below, shall not, in the aggregate, exceed three
(3) times Executive's average Annual Compensation for the five most recent
taxable years that Executive has been employed by the Association or such lesser
number of years in the event that Executive shall have been employed by the
Association for less than five years. In the event the Association is not in
compliance with its minimum capital requirements or if such payments pursuant to
this subsection (b) would cause the Association's capital to be reduced below
its minimum regulatory capital requirements, such payments shall be deferred
until such time as the Association or successor thereto is in capital
compliance. At the election of the Executive, such payments shall be made in a
lump sum as of the Executive's Date of Termination. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following the Date of Termination.

     (c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Association or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.

5.   CHANGE IN CONTROL.

     (a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act or the Rules and Regulations promulgated by the Office


                                       49
<PAGE>
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Association or the Holding Company or similar transaction
occurs in which the Association or Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.

     (b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the twenty-four
(24) month period following the date of the Change in Control due to: (1)
Executive's dismissal or (2) Executive's voluntary resignation following any
demotion, loss of title, office or significant authority or responsibility,
material reduction in annual compensation or benefits or relocation of his
principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control, unless such termination is because
of his death or Termination for Cause (as defined herein).

     (c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the Base Salary and bonuses in accordance with Section 3 of
this Agreement that would have been paid to Executive for the remaining term of
the Agreement had the event described in Subsection (b) of this Section 5 not
occurred; or (2) three (3) times Executive's average Annual Compensation for the
five (5) most recent taxable years that Executive has been employed by the
Association or such lesser number of years in the event that Executive shall
have been employed by the Association for less than five (5) years. Such average
Annual Compensation shall include all taxable income paid by the Association,
including, but not limited to, Base Salary, commissions and bonuses, as well as
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees, fringe
benefits paid or to be paid to the Executive in any such year, and payment of
expense items without accountability or business purpose or that do not meet the
IRS requirements for deductibility by the Institution; provided however, that
any payment under this provision and subsection 5(d) below shall not exceed
three (3) times the Executive's average Annual Compensation. In the event the
Association is not in compliance with its minimum capital requirements or if
such payments would cause the Association's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred until
such time as the Association or successor thereto is in capital compliance. At
the election of the Executive, such payment shall be made in a lump sum as of
the Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments on a


                                       50
<PAGE>
monthly basis over a period of thirty-six (36) months following the Date of
Termination. Such payments shall not be reduced in the event Executive obtains
other employment following the Date of Termination.

     (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Association
for Executive prior to his termination at no premium cost to the Executive,
except to the extent that such coverage may be changed in its application for
all Association employees on a non-discriminatory basis. Such coverage and
payments shall cease upon the expiration of thirty-six (36) months following the
Date of Termination.

6.   CHANGE OF CONTROL RELATED PROVISIONS.

     Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.

7.   TERMINATION FOR CAUSE.

     The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive's conduct justified a finding of
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, unvested awards granted to Executive under any stock
benefit plan of the Association, the Holding Company or any subsidiary or
affiliate thereof, shall not vest. At the Date of Termination for Cause, such
stock options and related limited rights and such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.

8.   NOTICE.

     (a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.


                                       51
<PAGE>
     (b) "Date of Termination" shall mean the date specified in the Notice of
Termination as the effective date on which Executive's employment terminates
(which, in the case of a Termination for Cause, shall not be less than thirty
days from the date such Notice of Termination is given.).

     (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause the Association will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.

9.   POST-TERMINATION OBLIGATIONS.

     During any term of this Agreement remaining after the Date of Termination
up to a maximum of one (1) year, Executive shall, upon reasonable notice,
furnish such information and assistance to the Association as may reasonably be
required by the Association in connection with any litigation in which it or any
of its subsidiaries or affiliates is, or may become, a party. Executive shall
receive reasonable compensation for time and expenses incurred in providing such
information and assistance.

10.  NON-DISCLOSURE.

     Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Association and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Association. Executive will not, during or after
the term of his employment, disclose any knowledge of the past, present, planned
or considered business activities of the Association or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Association. Further, Executive may disclose information regarding the business
activities of the Association to the OTS and the Federal Deposit Insurance
Corporation ("FDIC") pursuant to a formal regulatory request. In the event of a
breach or threatened breach by Executive of the provisions of this Section, the
Association will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Association or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association for such breach or
threatened breach, including the recovery of damages from Executive.

11.  SOURCE OF PAYMENTS.

     (a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Holding Company, however,
unconditionally guarantees payment


                                       52
<PAGE>
and provision of all amounts and benefits due hereunder to Executive and, if
such amounts and benefits due from the Association are not timely paid or
provided by the Association, such amounts and benefits shall be paid or provided
by the Holding Company.

     (b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated February 28, 2003,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement. Payments
pursuant to this Agreement and the Holding Company Agreement shall be allocated
in proportion to the services rendered and time expended on such activities by
Executive as determined by the Holding Company and the Association on a
quarterly basis.

12.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

     This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.

13.  NO ATTACHMENT.

     (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

     (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors, heirs, and
assigns.

14.  MODIFICATION AND WAIVER.

     (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

     (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

15.  REQUIRED PROVISIONS.

     (a) The Association may terminate Executive's employment at any time, but
any termination by the Association, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after the Termination Date for Termination for Cause as
defined in Section 7 hereinabove.


                                       53
<PAGE>
     (b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1), the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association shall: (i) pay Executive all or part of the compensation withheld
while their contract obligations were suspended; and (ii) reinstate (in whole or
in part) any of the obligations which were suspended.

     (c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Association under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.

     (d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) all obligations of
the Association under this contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.

     (e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director of
the OTS (or her designee), the FDIC or the Resolution Trust Corporation, at the
time the FDIC enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1823(c); or (ii) by the Director of the
OTS (or her designee) at the time the Director (or her designee) approves a
supervisory merger to resolve problems related to the operations of the
Association or when the Association is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.

     (f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.

16.  REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).

     In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.

17.  SEVERABILITY.

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

18.  HEADINGS FOR REFERENCE ONLY.


                                       54
<PAGE>
     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

     Wherever any words are used herein in the masculine, feminine or neutor
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.

19.  GOVERNING LAW.

     The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Ohio, but only to the extent not
superseded by federal law.

20.  ARBITRATION.

     Notwithstanding any right to enforcement under Section 10(a), any dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration, conducted before a panel of three
arbitrators in Cleveland, Ohio, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement, other than in the case of a
Termination for Cause.

     In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.

21.  PAYMENT OF COSTS AND LEGAL FEES.

     All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.

22.  INDEMNIFICATION.

     (a) Subject to the provisions of Section 15 hereof, the Association shall
provide Executive (including his heirs, executors and administrators) with
coverage under a standard directors' and officers' liability insurance policy at
its expense, and shall indemnify Executive (and his heirs, executors and
administrators) to the fullest extent permitted under Ohio law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of him having been a director or officer of the Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.

23.  SUCCESSOR TO THE ASSOCIATION.

     The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's


                                       55
<PAGE>
obligations under this Agreement, in the same manner and to the same extent that
the Association would be required to perform if no such succession or assignment
had taken place.

                                   SIGNATURES

     IN WITNESS WHEREOF, Central Federal Savings and Loan Association of
Wellsville and Grand Central Financial Corp. have caused this Agreement to be
executed and their seals to be affixed hereunto by their duly authorized
officers and directors, and Executive has signed this Agreement, on the 26th day
of March, 2003.

ATTEST:                                    CENTRAL FEDERAL SAVINGS AND LOAN
                                           ASSOCIATION OF WELLSVILLE

/s/ Jeffrey W. Aldrich                     By: /s/ Gerry W. Grace
- ----------------------------------------       ---------------------------------
       [SEAL]

ATTEST:                                    GRAND CENTRAL FINANCIAL CORP.
                                           (Guarantor)

/s/ Jeffrey W. Aldrich                     By: /s/ Gerry W. Grace
- ----------------------------------------       ---------------------------------
       [SEAL]

WITNESS:

/s/ Jeffrey W. Aldrich                     /s/ David C. Vernon
- ----------------------------------------   -------------------------------------
                                           David C. Vernon


                                       56

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>l05633aexv10w3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.3

  DIRECTORS' RETIREMENT AGREEMENT BETWEEN CENTRAL FEDERAL CORPORATION, CENTRAL
                      FEDERAL BANK AND WILLIAM R. WILLIAMS

RECITALS:

A.   William R. Williams, an Ohio resident ("MR. WILLIAMS"), is a member of the
     board of directors of Central Federal Corporation, a Delaware corporation
     (the "CORPORATION").

B.   Mr. Williams is a member of the board of directors of Central Federal Bank,
     a federally chartered savings association (the "BANK").

C.   Mr. Williams has already retired as an officer of the Corporation and the
     Bank.

D.   Mr. Williams desires to retire also from his monthly duties on the boards
     of directors of the Corporation and the Bank.

E.   Mr. Williams is willing to make himself available to the Corporation and
     the Bank on a consulting basis.

NOW, THEREFORE, in consideration of the covenants and terms contained in this
Agreement, the Corporation, the Bank and Mr. Williams agree as follows:

1. Payment. The Corporation and the Bank agree, in consideration of the terms in
Sections 2 and 3, below, that the Bank will pay Mr. Williams a sum equal to
$10,000 for the remainder of the year 2003 (payable January 5, 2004), $20,000
for each of the years 2004 (payable January 5, 2004) and 2005 (payable January
5, 2005), and $6,667 for the year 2006 (payable January 5, 2006). If Mr.
Williams dies before any payments described in this Section are paid, the unpaid
amounts will be paid to his spouse, if she survives him, at the times Mr.
Williams would have received payments. Mr. Williams or his widow, as the case
may be, will be responsible for the payment of all taxes relating to payments
made under this Agreement.

2. Release of Claims. Mr. Williams agrees that in consideration of payments made
to him, he will not institute any action or actions, cause or causes of action
(in law or in equity), suits, debts, liens, claims, or demands (known and
unknown) in state or federal court or with any state, federal or local
governmental agency against the Corporation or the Bank in connection with his
resignation from the Corporation's and the Bank's boards of directors. However,
this release will not preclude Mr. Williams from enforcing the terms of this
Agreement or, subject to Section 5, of the Supplemental Executive Retirement
Plan executed as of April 1, 2003 by the parties to this Agreement (the "SERA").

     The Corporation and the Bank agree, in consideration of the services to be
performed under and of the covenants and terms contained in this Agreement, that
neither of them will institute any action or actions, cause or causes of action
(in law or in equity), suits, debts, liens, claims, or demands (known and
unknown) in state or federal court or with any state, federal or local
governmental agency against Mr. Williams or any or all of his heirs,
beneficiaries or assigns in connection with his activities on the board of
directors of the Corporation or the board of directors of the Bank.

3. Understanding of Availability to the Boards of Directors. Each of the parties
to this Agreement understands and agrees that in further consideration of
payments made to him, Mr. Williams will continue to make himself available to
the boards of directors of the Corporation and the Bank for advice and


                                       57

<PAGE>

consultation on an as-needed basis. So long as Mr. Williams continues to agree
to provide advice and consulting services to the boards of directors of the
Corporation and the Bank, (a) he will continue to vest in, and maintain the
rights to, all stock options and stock awards granted to him under the
Corporation's stock-based benefit plan, (b) he will be allowed to exercise all
stock options anytime after they become vested and until close of business July
14, 2009 and to receive all stock awards when they become vested, and (c) these
exercise rights will not be affected by his resignation from the boards of
directors of either (or both) of the Corporation and/or the Bank. If Mr.
Williams dies before the options or stock awards vest, and if his wife survives
him, then the unvested options and stock awards will continue to vest as
provided in this Section, and his surviving spouse may exercise the options and
receive the stock awards any time after they become vested until her death or
the close of business on July 14, 2009, whichever is earlier.

4. Arbitration of Claims. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators sitting in a location in Ohio
selected by Mr. Williams, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.

5. Complete Agreement. This Agreement shall represent the complete agreement
among the Corporation, the Bank, and Mr. Williams concerning the subject matter
hereof and supersedes all prior written or oral agreements or understandings
other than the SERA. To the extent that there may be any conflict between the
SERA and this Agreement or the equity awards dated July 15, 1999 between the
parties to this Agreement and this Agreement, the provisions of this Agreement
shall govern. No attempted modification or waiver of any of the provisions of
this Agreement shall be binding on either party unless made in writing and
signed by Mr. Williams, the Corporation, and the Bank or their respective
successors.

6. Applicable Law. This Agreement shall be governed by and construed under the
laws of the State of Ohio, unless pre-empted by federal law.

IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of September 18, 2003.

Attest:                                         CENTRAL FEDERAL CORPORATION

/s/ Laura L. Martin                             By: /s/ David C. Vernon
- ----------------------------------                  ----------------------------
Name in Print:                                  DAVID C. VERNON
Laura L. Martin                                 Chairman, President & CEO

[signatures continue on following page]


                                       58

<PAGE>

Attest:                                         CENTRAL FEDERAL BANK

/s/ Laura L. Martin                             By: /s/ David C. Vernon
- ----------------------------------                  ----------------------------
Name in Print:                                  DAVID C. VERNON
Laura L. Martin                                 Chairman, President & CEO

Witness:

/s/ Elaine M. Willaims                          /s/ William R. Williams
- ----------------------------------              --------------------------------
Name in Print:                                  WILLIAM R. WILLIAMS
Elaine M. Willaims


                                       59

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>l05633aexv10w4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.4

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT BETWEEN CENTRAL FEDERAL CORPORATION,
                  CENTRAL FEDERAL BANK AND WILLIAM R. WILLIAMS

WHEREAS, in connection with the retirement of William R. Williams, the Board of
Directors of Central Federal Savings and Loan Association of Wellsville (the
"Association") approved a supplemental retirement benefit for Mr. Williams in
recognition of his longstanding service to the Association.

     NOW, THEREFORE, in consideration of the covenants and terms contained
herein the Association, Grand Central Financial Corp. (the "Company") and Mr.
Williams agree as follows:

1.   Payment. The Association agrees to pay Mr. Williams a sum of $796,214.31
     less applicable withholding. The Association agrees to make this payment to
     Mr. Williams in a single lump sum no later than April 30, 2003.

2.   Release of Employment Agreement Claims. Upon the acceptance of payment made
     hereunder by the Association, Mr. Williams acknowledges and agrees that
     each of the Association and the Company shall have no obligation to him
     under the employment agreements entered into by and between Mr. Williams,
     the Company and the Association effective December 30, 1998 (the
     "Employment Agreements"). Mr. Williams hereby agrees that he, or any person
     acting by, through or on behalf of him, releases the Association and the
     Company and their successors, from any and all rights and claims Mr.
     Williams has under the Employment Agreements, against the Association and
     the Company, and Mr. Williams agrees that he will not institute any action
     or actions, cause or causes of action (in law or in equity), suits, debts,
     liens, claims, demands (known or unknown) in state or federal court, or
     with any state, federal or local governmental agency arising from or
     attributable to settlement of claims under the Employment Agreements.

3.   Understanding of Service on the Boards of Directors. Each of the parties
     hereto understand and agree that this Acknowledgment will not, by itself,
     affect Mr. Williams' position on the Boards of Directors of the Association
     or the Company. And as long as Mr. Williams continues to serve on the Board
     of Directors of the Association and/or the Company, he will continue to
     vest in, and maintain the rights to all stock options and stock awards
     granted to Mr. Williams under the Company's stock-based benefit plan.

4.   Arbitration of Claims. Any dispute or controversy arising under or in
     connection with this Acknowledgment shall be settled exclusively by
     arbitration, conducted before a panel of three arbitrators sitting in a
     location in Ohio selected by Mr. Williams, in accordance with the rules of
     the American Arbitration Association then in effect. Judgment may be
     entered on the arbitrator's award in any court having jurisdiction.

5.   Complete Agreement. This Acknowledgment and Receipt shall represent the
     complete agreement between the Association, the Company and Mr. Williams
     concerning the subject matter hereof and supersedes all prior agreements or
     understandings, written or oral. No attempted modification or waiver of any
     of the provisions hereof shall be binding on either party unless made in
     writing and signed by Mr. Williams, the Association, the Company and/or
     their successors.


                                       60

<PAGE>

6.   Applicable Law. This Acknowledgment shall be governed by the laws of the
     State of Ohio, unless pre-empted by federal law.

IN WITNESS WHEREOF, the parties hereto have executed this Acknowledgment as of
April 1, 2003.

Attest:
                                                CENTRAL FEDERAL SAVINGS AND LOAN
                                                ASSOCIATION OF WELLSVILLE

/s/ Michele R. Guildoo                          By: /s/ David C. Vernon
- ----------------------------------                  For the Board of Directors

                                                GRAND CENTRAL FINANCIAL CORP.

/s/ Michele R. Guildoo                          By: /s/ David C. Vernon
- ----------------------------------                  For the Board of Directors

Witness:

/s/ Michele R. Guildoo                          /s/ William R. Williams
- ----------------------------------              --------------------------------
                                                William R. Williams


                                       61

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11.1
<SEQUENCE>7
<FILENAME>l05633aexv11w1.txt
<DESCRIPTION>EXHIBIT 11.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 11.1

                       COMPUTATION OF PER SHARE EARNINGS

The information regarding Computation of Per Share Earnings is incorporated by
reference to the Company's 2003 Annual Report to shareholders distributed to
shareholders and furnished to the Commission under Rules 14a-3(b) and (c) of the
Exchange Act; the computation appears under the caption "Note 17 - Earnings Per
Share" at page 37 therein.


                                       62

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>8
<FILENAME>l05633aexv13w1.txt
<DESCRIPTION>EXHIBIT 13.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 13.1

  ANNUAL REPORT TO SECURITY HOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

Message to Shareholders

Dear Shareholders,

For more than 111 years the officers and employees of our Company have served
the financial services needs of the communities of Wellsville and Calcutta, Ohio
with distinction. In the past few years we have considered how best to take
advantage of our strong capital base and our proud heritage. After careful
planning we made the decision to make 2003 the year for positioning Central
Federal Corporation for growth and increased profitability.

While our plan was adopted by your Board of Directors, it is important to
recognize the contributions of Advisory Director Mr. Joseph M. Wells, Jr., who
was most influential in the process of making the decisions necessary to move
our Company forward. I would also like to thank retired Director Mr. Fred C.
Jackson for his advice and counsel during this year of significant change for
our Company.

Mr. William R. Williams, our former President and CEO, contributed significantly
to the successful execution of our plan. Mr. Williams decided he wanted to
retire on April 23, 2003. After 32 years of dedicated service to our Company, it
was everyone's desire that he be granted his wish to enjoy a well-deserved
retirement. However, we did not want to lose his counsel and insight, and he
remains a valued consultant to the Company.

Our plan involved the execution of a number of action items, which have been
discussed in various press releases and regulatory filings throughout the year.
I urge you to review the Management Discussion and Analysis section of this
annual report for additional details about the actions we have taken to position
Central Federal Corporation for the future.

During 2003 we established offices in Fairlawn and Columbus, Ohio, raised
additional capital, strengthened the management team, expanded the Board of
Directors, increased our technological capabilities, remodeled our existing
offices and began offering business financial services. In essence, we have
created the new Central Federal.

We look forward to the opportunity to build on the accomplishments of 2003,
which were made possible by the efforts of so many. Thank you for your support
of Central Federal Corporation. We are continuing our efforts to grow and become
even stronger.

David C. Vernon
Chairman, President and CEO


                                       63

<PAGE>

    Management's Discussion and Analysis of Financial Condition and Results
                                 of Operations

                        SELECTED FINANCIAL AND OTHER DATA

The selected financial and other data of the Company set forth below is derived
in part from, and should be read in conjunction with the Financial Statements of
the Company and Notes thereto presented elsewhere in this report.

<TABLE>
<CAPTION>
                                                       AT DECEMBER 31,
                                     ----------------------------------------------------
                                       2003       2002       2001       2000       1999
                                     --------   --------   --------   --------   --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>        <C>        <C>        <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets                         $107,011   $110,551   $120,927   $140,933   $142,497
Cash and cash equivalents               8,936     12,861      4,329      2,930      4,928
Securities available for sale          27,126      1,439      2,092      3,090      3,795
Securities held to maturity                --     17,822     23,343     35,796     54,708
Loans, net(1)                          58,024     62,565     70,570     86,265     73,030
Allowance for loan losses                 415        361        373        354        369
Nonperforming assets                      934        783        985        489        104
Foreclosed assets                         193          2         98         --         11
Deposits                               73,358     74,690     76,168     73,997     75,833
Federal Home Loan Bank advances         7,500     11,430     18,393     40,536     36,419
Loan payable                               --      4,900      7,000      7,000         --
Subordinated debentures                 5,155         --         --         --         --
Total shareholders' equity             19,856     17,583     18,160     17,833     29,200
</TABLE>

<TABLE>
<CAPTION>
                                                FOR THE YEAR ENDED DECEMBER 31,
                                         -------------------------------------------
                                           2003     2002     2001     2000     1999
                                         -------   ------   ------   ------   ------
                                                    (DOLLARS IN THOUSANDS)
<S>                                      <C>       <C>      <C>      <C>      <C>
SUMMARY OF EARNINGS:
Total interest income                    $ 5,435   $7,067   $9,588   $9,834   $9,303
Total interest expense                     3,521    3,462    5,299    5,802    4,714
                                         -------   ------   ------   ------   ------
   Net interest income                     1,914    3,605    4,289    4,032    4,589
Provision for loan losses                    102       19       62       --       --
                                         -------   ------   ------   ------   ------
   Net interest income after provision
      for loan losses                      1,812    3,586    4,227    4,032    4,589
Noninterest income
   Net gain on sale of securities             42       16       15       10       38
   Other                                     888      599      169      284      276
                                         -------   ------   ------   ------   ------
      Total noninterest income               930      615      184      294      314
Noninterest expense                        6,104    3,214    3,501    3,900    4,956
                                         -------   ------   ------   ------   ------
Income (loss) before income taxes         (3,362)     987      910      426      (53)
Income tax expense (benefit)                (988)     313      312      150      (11)
                                         -------   ------   ------   ------   ------
      Net income (loss)                  $(2,374)  $  674   $  598   $  276   $  (42)
                                         =======   ======   ======   ======   ======
</TABLE>

                                                    (See footnotes on next page)


                                       64

<PAGE>

     Management's and Discussion Analysis of Financial Condition and Result
                                  of Operations

<TABLE>
<CAPTION>
                                                                      AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------------
                                                              2003        2002        2001        2000        1999
                                                            -------     -------     -------     -------     -------
<S>                                                         <C>         <C>         <C>         <C>         <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:

PERFORMANCE RATIOS:(2)
Return on average assets                                      (2.19%)      0.58%       0.45%       0.02%      (0.03%)
Return on average equity                                     (12.34%)      3.76%       3.32%       1.27%      (0.14%)
Average yield on interest-earnings assets(3)                   5.62%       6.98%       7.71%       7.42%       6.97%
Average rate paid on interest-bearing liabilities              2.63%       3.63%       4.65%       5.01%       4.55%
Average interest rate spread(4)                                2.99%       3.35%       3.06%       2.21%       2.42%
Net interest margin, fully taxable equivalent(5) (11)          3.28%       3.56%       3.45%       2.96%       3.44%
Interest-earning assets to interest-bearing liabilities      113.38%     106.09%     109.17%     120.16%     127.68%
Efficiency ratio(6)                                          217.84%      76.45%      78.53%      90.36%     101.75%
Noninterest expense to average assets                          5.63%       2.79%       2.63%       2.82%       3.60%
Dividend payout ratio                                           n/m       83.72%      81.58%        n/m         n/m

CAPITAL RATIOS:(2)
Equity to total assets at end of period                       18.56%      15.90%      15.02%      12.65%      20.49%
Average equity to average assets                              17.76%      15.54%      13.54%      15.68%      22.48%
Tangible capital ratio (9)                                    13.90%      18.90%      18.40%      15.60%      15.10%
Core capital ratio (9)                                        13.90%      18.90%      18.40%      15.60%      15.10%
Risk-based capital ratio (9)                                  21.60%      38.60%      35.70%      32.40%      34.10%

ASSET QUALITY RATIOS:(2)
Nonperforming loans to total loans (7)                         1.28%       1.25%       1.25%        .56%        .13%
Nonperforming assets to total assets(8)                        0.87%       0.71%       0.81%       0.35%       0.07%
Allowance for loan losses to total loans                       0.71%       0.57%       0.53%       0.41%       0.50%
Allowance for loan losses to nonperforming loans (7)          56.01%      46.22%      42.24%      72.39%       3.97%
Net charge-offs to average loans                               0.08%       0.05%       0.05%       0.02%       0.02%

PER SHARE DATA:
Basic earnings (loss) per share                             $ (1.31)    $  0.44     $  0.38     $  0.17     $ (0.02)
Diluted earnings (loss) per share                             (1.28)       0.43        0.38        0.17       (0.02)
Dividends declared (10)                                        0.36        0.36        0.31        6.25        0.17
Book value per share at year end                               9.81       10.68       10.42       10.19       15.85
</TABLE>

- ----------
(1)  Loans, net represents gross loans receivable net of the allowance for loan
     losses, loans in process and deferred loan origination fees.

(2)  Asset quality ratios and capital ratios are end-of-period ratios. All other
     ratios are based on average monthly balances during the indicated periods.

(3)  Calculations of yield are presented on a taxable equivalent basis using the
     federal income tax rate of 34%.

(4)  The average interest rate spread represents the difference between the
     weighted average yield on average interest-earning assets and the weighted
     average cost of average interest-bearing liabilities.

(5)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.

(6)  The efficiency ratio equals noninterest expense divided by net interest
     income plus noninterest income (excluding gains or losses on securities
     transactions).

(7)  Nonperforming loans consist of nonaccrual loans and other loans 90 days or
     more past due.

(8)  Nonperforming assets consist of nonperforming loans, other repossessed
     assets and REO.

(9)  Regulatory capital ratios of Central Federal Bank.

(10) The Company paid a return of capital dividend of $6.00 per share in 2000.

(11) Calculated excluding the $1.3 million penalty on prepayment of Federal Home
     Loan Bank advances in 2003.

n/m - not meaningful


                                       65

<PAGE>

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 thrift holding company as a result of the conversion of Central
Federal Bank (formerly known as Central Federal Savings and Loan Association of
Wellsville) from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association in December of 1998.

Management's discussion and analysis represents a review of the Company's
consolidated financial condition and results of operations. This review should
be read in conjunction with the consolidated financial statements and footnotes.

The Company's results of operations are dependent primarily on net interest
income, which is the difference ("spread") between the interest income earned on
its loans and securities and its cost of funds, consisting of interest paid on
its 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. The Company's net income is also affected by, among
other things, loan fee income, provisions for loan losses, service charges,
operating expenses and franchise and income taxes. The Company's revenues are
derived primarily from interest on mortgage loans, consumer loans, commercial
loans and securities, as well as income from service charges and loan sales. The
Company's operating expenses principally consist of interest expense, employee
compensation and benefits, occupancy and other general and administrative
expenses. The Company's 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 the Company.

FORWARD-LOOKING STATEMENTS

When used in this Annual Report, or in future filings with the Securities and
Exchange Commission, in press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause the Company's actual results to be materially different from
those indicated. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the market areas where the Company
conducts business, which could materially impact credit quality trends, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the market areas where the Company conducts business, and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company undertakes no obligation to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.


                                       66

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

MANAGEMENT STRATEGY

The Company is a community-oriented financial institution offering a variety of
financial services to meet the needs of the communities it serves. The Company
attracts deposits from the general public and uses such deposits, together with
borrowings and other funds, to originate single-family residential mortgage
loans, short-term consumer loans and commercial loans. To a lesser extent, the
Company also originates residential construction loans in its market area and
loans secured by multi-family real estate.

The Company implemented significant changes in 2003 to utilize its strong
capital position to take advantage of opportunities for expansion into business
financial services and position itself for growth in the Fairlawn and Columbus,
Ohio markets. The Company completed a private placement transaction which
further strengthened its capital position and provided additional funds for
growth. The management team was expanded and strengthened. Offices were opened
in Fairlawn and Columbus, Ohio. The Company restructured its borrowings to
reduce funding costs and restructured employee benefit plans to reduce future
expenses. The data processing system was upgraded, and the Company's subsidiary
Bank began originating commercial loans.

The Company's management team now includes Raymond E. Heh, former Chairman,
President and CEO of Bank One Akron NA, who is President and Chief Operating
Officer of Central Federal Bank. R. Parker MacDonell, former Senior Vice
President of Bank One Columbus NA and third generation Ohio banker, is Regional
President, Columbus. Edward L. Baumgardner, former President and CEO of Potters
Bank and Potters Financial Company, is Regional President, Columbiana County.
Eloise L. Mackus, Esq. joined the Company and Bank as Senior Vice President,
General Counsel and Secretary. Therese A. Liutkus, CPA, former CFO of First
Place Financial Corp., joined the Company and Bank as Chief Financial Officer.
William R. Reed, former Senior Vice President and Senior Credit Officer of
FirstMerit Bank, Akron, Ohio, is Senior Credit Officer. Three directors were
added to the Boards of the Company and the Bank in 2003: Mark S. Allio,
President and CEO, Rock Financial Services; William R. Downing, President, R.H.
Downing, Inc.; and Jerry F. Whitmer, Partner, Brouse McDowell. William R.
Williams, former President and CEO of Central Federal Corporation retired from
the Board of Directors in 2003.

The Columbus office opened in November 2003 and construction of the new Fairlawn
office is expected to be completed in March 2004. Currently, the Company rents
office space in a Fairlawn office building, and is a one-third owner of a
limited liability company that will own and manage the new office building.

The Company restructured its borrowings and eliminated costly long-term Federal
Home Loan Bank advances and issued less costly subordinated debentures in
exchange for the proceeds of a trust preferred security offering by a trust
formed by the Company. The proceeds from this offering are available to provide
additional capital to Central Federal Bank to support growth. The Company
terminated the Employee Stock


                                       67

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Ownership Plan, froze pension benefits and instituted a 401(k) plan to reduce
future expenses.

The Company allowed mortgage loan portfolio balances to decline as interest
rates fell to 40-year lows and consumers continued to refinance during 2003.
Current originations of long-term fixed-rate mortgages continue to be sold
rather than retained in portfolio. The Company shortened the maturities of its
securities portfolio in anticipation of growth in the commercial loan portfolio.
To improve liquidity, all securities previously classified as held to maturity
were reclassified as available for sale during 2003. Cash flows from the
mortgage and securities portfolios will continue to be used to fund commercial
loan growth.

Near-term profitability is expected to be negatively impacted by the occupancy
costs of the new offices in Fairlawn and Columbus and salaries and employee
benefits expense associated with additions made to the management team, as noted
above. Profitability in the near term will also be negatively impacted by
Management's decision to shorten security maturities and allow mortgage loan
portfolio balances to decline. Although the decision to sell current mortgage
originations rather than retain the loans in portfolio results in declining
mortgage loan portfolio balances and lower earnings from that portfolio in the
near term, it protects future profitability as Management believes it is not
prudent to retain these long-term, fixed-rate loans and subject the Company to
the interest rate risk and reduced future earnings associated with a rise in
interest rates. Keeping security maturities short and selling long-term,
fixed-rate mortgage loans gives the Company the liquidity necessary to reinvest
in higher earning assets in a rising interest rate environment. Additionally, a
rise in mortgage interest rates would likely cause consumer refinancing to slow,
reducing the Bank's volume of loan originations, sales and resultant gains.
Longer term, however, growth in commercial loans and deposits at the Fairlawn
and Columbus offices are expected to result in improved financial performance.

The Company is not aware of any market or institutional trends, events or
uncertainties that are expected to have a material effect on liquidity, capital
resources or operations. The Company is not aware of any current recommendations
by its regulators which would have a material effect if implemented.

FINANCIAL CONDITION

GENERAL. Assets totaled $107.0 million at December 31, 2003, a decrease of $3.5
million, or 3.2% from $110.6 million at December 31, 2002. The decline was
primarily due to repayment of $11.4 million in long-term, fixed-rate Federal
Home Loan Bank advances and repayment of the remaining $4.9 million balance of a
loan which had been obtained to fund payment of a return of capital dividend
declared in 2000. These were partially offset by proceeds from $7.5 million in
short-term Federal Home Loan Bank advances and $5.2 million in proceeds from the
issuance of subordinated debentures.


                                       68

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

CASH AND CASH EQUIVALENTS. Cash and cash equivalents totaled $8.9 million at
December 31, 2003, a decline of $4.0 million or 30.5% from $12.9 million at
December 31, 2002. The decline was primarily due to the net use of cash in the
transactions discussed above.

INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS. Interest-bearing
deposits in other financial institutions totaled $1.6 million at December 31,
2003, a decrease of $5.6 million from $7.2 million at December 31, 2002 due to
maturity of a $7.0 million certificate of deposit reflected in this balance at
December 31, 2002 offset by current year deposits.

SECURITIES. Securities available for sale increased $25.7 million during the
year and totaled $27.1 million at December 31, 2003, compared to $1.4 million at
December 31, 2002. Securities held to maturity decreased $17.8 million during
the same time frame. In 2003, the Company transferred all securities previously
classified as "held to maturity," which had a carrying value of $10.5 million,
to "available for sale". The unrealized gain on the securities transferred
totaled $458,000 before tax. The Company's equity and accumulated other
comprehensive income increased $302,000 after tax as a result of the transfer.
Management anticipates securities purchased in the future will be classified as
"available for sale". The $7.9 million net increase in securities reflected the
investment of funds from mortgage repayments and prepayments as the mortgage
portfolio declined during 2003.

LOANS. Loans, net totaled $58.0 million at December 31, 2003, a decrease of $4.6
million or 7.3% from $62.6 million at December 31, 2002 primarily as a result of
Management's strategy to sell current mortgage production in the existing low
rate environment rather than hold these long-term, low fixed-rate loans in
portfolio. The decline in mortgage loan balances was partially offset by growth
in commercial loans pursuant to Management's strategy to expand into business
financial services. Residential mortgage loan balances totaled $36.1 million at
December 31, 2003, a decline of $12.6 million or 25.9% from $48.6 million at
December 31, 2002. Commercial loan balances totaled $9.2 million at December 31,
2003, an increase of $8.9 million from $261,000 at December 31, 2002.

DEPOSITS. Deposits decreased $1.3 million, or 1.8%, during the year and totaled
$73.4 million at December 31, 2003, compared to $74.7 million at December 31,
2002. The decline was due to a $4.0 million decline in certificate accounts and
a $1.2 million decline in money market accounts partially offset by $3.6 million
growth in checking accounts, primarily commercial checking accounts, and
$327,000 growth in savings accounts. The decline in certificate accounts was
primarily due to customers seeking higher rates from competitors who may often
price irrationally in this current low interest rate environment as a way to
attract funding. The decline in certificate accounts could continue as
Management focuses on attracting lower cost, core deposit accounts, such as
checking and savings accounts.

FEDERAL HOME LOAN BANK ADVANCES. Federal Home Loan Bank advances totaled $7.5
million, a decline of $3.9 million during 2003, compared to $11.4 million at
year-end 2002. During 2003, the Company elected to prepay fixed rate Federal
Home Loan Bank


                                       69

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

borrowings totaling $11.2 million. These borrowings had an average cost of 5.52%
and an average remaining maturity of 4.5 years. The repayment resulted in a
charge of $1.3 million pre-tax, or $838,000 after tax as a result of a penalty
associated with prepaying the loans. These fixed rate loans were arranged in
1998 and 1999 at much higher interest rates than current levels and were used to
finance mortgage loans which have since prepaid.

LOAN PAYABLE. The $4.9 million loan payable balance at December 31, 2002 was
repaid during 2003 and represented the remaining balance of a $7.0 million loan
which had been obtained to fund a return of capital dividend declared in 2000.
The loan was repaid with funds from the maturity of the certificate of deposit
discussed above.

SUBORDINATED DEBENTURES. Subordinated debentures totaled $5.2 million at
year-end and were issued by the Company in 2003 in exchange for the proceeds of
a $5.0 million trust preferred securities offering issued by a trust formed by
the Company. The proceeds of the offering are available to provide capital for
Central Federal Bank to support growth.

SHAREHOLDERS' EQUITY. Total shareholders' equity increased $2.3 million or 12.9%
during the year and totaled $19.9 million at December 31, 2003, compared to
$17.6 million at December 31, 2002. The increase in shareholders' equity was
primarily due to the completion of a private placement of 312,649 shares of the
Company's common stock which generated an additional $3.1 million in capital.
The Company's capital ratio increased to 18.6% at December 31, 2003 from 15.9%
at December 31, 2002 primarily as a result of the capital generated by the
private placement.

Office of Thrift Supervision (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%. The Bank had capital ratios above
the well-capitalized levels at December 31, 2003 and 2002.

COMPARISON OF RESULTS OF OPERATIONS FOR 2003 AND 2002

GENERAL. The Company incurred a net loss in 2003 of $2.4 million or $1.28 per
diluted share, compared to net income of $674,000 or $.43 per diluted share in
2002. The loss was primarily due to increased noninterest expense associated
with Management's strategy to expand into business financial services by opening
offices in the Fairlawn and Columbus, Ohio markets, costs associated with
additions to the management team and staff, restructuring of employee benefit
plans and payments on agreements with former executives. Additionally, a $1.3
million pre-tax prepayment penalty was incurred in the repayment of long-term,
fixed-rate Federal Home Loan Bank advances.


                                       70

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

NET INTEREST INCOME. Net interest income is a significant component of the
Company's 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 following tables titled "Average Balances,
Interest Rates and Yields" and "Rate/Volume Analysis of Net Interest Income"
provide important information on factors impacting net interest income and
should be read in conjunction with this discussion of net interest income.

Net interest income decreased $1.7 million in 2003 to $1.9 million, compared to
$3.6 million in 2002 primarily due to the $1.3 million prepayment penalty
discussed above. Interest income decreased by $1.7 million or 23.1% to $5.4
million in 2003, compared to $7.1 million in 2002. The decline was due to a
decrease in mortgage loan portfolio balances and investment in securities with
short-term maturities, and resultant lower yields, in order to reduce interest
rate risk and provide liquidity for growth in commercial loans, as discussed
above. Interest income on loans decreased $1.1 million, or 20.0% in 2003 to $4.2
million, compared to $5.3 million in 2002, primarily due to continued high
levels of mortgage refinancing and the sale of current fixed-rate loan
production. Average loan balances decreased $9.4 million and average loan yields
declined 54 basis points (bp) during 2003. Interest income from securities
totaled $939,000 in 2003 and declined $579,000, or 38.1% from $1.5 million in
2002. The decrease in income was primarily due to prepayments received on
mortgage-backed securities and reinvestment of proceeds in securities with
short-term maturities and lower current market rates. The average balance of
securities decreased $177,000 and the average yield on the portfolio declined
234 bp during 2003. The decline in the yield of the portfolio is representative
of Management's strategic decision to shorten the maturity of the securities
portfolio.

Interest expense, not including the $1.3 million prepayment penalty, decreased
$1.2 million or 35.0% during 2003 to $2.3 million from $3.5 million in 2002. The
decline in interest expense resulted from a decrease in interest rates paid on
deposits as market interest rates declined, and from reduced interest expense on
borrowed funds, primarily as a result of the repayment of the $4.9 million loan
payable discussed above. The average balance of interest-bearing liabilities
decreased $9.8 million and the average cost of interest-bearing liabilities
declined 100 bp in 2003.

Net interest margin decreased 28 bp from 3.56% in 2002 to 3.28% in 2003.

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 inherent in its loan
portfolio and the general economy. 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


                                       71

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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 totaled $102,000 in
2003, an increase of $83,000 from $19,000 in 2002. The increase primarily
reflected the $8.9 million growth in commercial loans during 2003. At December
31, 2003, the allowance for loan losses represented .71% of total loans compared
to .57% at December 31, 2002. Further, nonperforming loans, all of which are
nonaccrual loans, were $741,000 at December 31, 2003 and $781,000 at December
31, 2002. At both December 31, 2003 and December 31, 2002, nonaccrual loans
represented 1.3% of the net loan balance. More than 96% of the nonaccrual loan
balances are secured by single-family homes in the Bank's primary market area.
Management believes the allowance for loan losses is adequate to absorb probable
incurred losses at December 31, 2003; 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 $315,000 to $930,000 in 2003,
compared to $615,000 in 2002, primarily due to increased gains on sales of
loans, service charges and earnings on bank owned life insurance. Gains on sales
of loans totaled $429,000 during 2003, an increase of $116,000 or 37.1% from
$313,000 during 2002 due to increased originations experienced during the
current low market interest rate environment and Management's strategic decision
to sell current production rather than retain these long-term, low fixed-rate
loans in portfolio. Management anticipates loan sales will continue depending on
market conditions. A rise in mortgage interest rates would likely cause consumer
refinancing to slow, and likely reduce the Bank's volume of loan originations,
sales and resultant gains. Service charges totaled $165,000 in 2003, an increase
of $35,000 or 26.9% from $130,000 in 2002 primarily due to increased checking
account fees. Earnings from bank owned life insurance increased $120,000 and
totaled $188,000 in 2003, compared to $68,000 in 2002 primarily due to a full
year of earnings in 2003 versus a partial year in 2002 when the insurance was
originally purchased.

NONINTEREST EXPENSE. Noninterest expense increased $2.9 million or 89.9% and
totaled $6.1 million in 2003, compared to $3.2 million in 2002. The increase in
noninterest expense was primarily due to management, staff and benefits
restructuring, expansion to new locations in the Fairlawn and Columbus markets
and conversion of the data processing system in 2003. These expenses included
higher salaries and employee benefits, higher occupancy expense, professional
fees and data processing expenses. Salaries and employee benefits expense in
2003 included $638,000 associated with termination of the Company's ESOP and
$917,000 related to a supplemental executive retirement agreement in connection
with the retirement of William R. Williams as President and a severance
agreement with a former executive.

INCOME TAXES. The income tax benefit associated with the net loss in 2003
totaled $988,000 compared to $313,000 income tax expense associated with net
income in 2002.


                                       72

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

COMPARISON OF RESULTS OF OPERATIONS FOR 2002 AND 2001

GENERAL. Net income totaled $674,000, or $.43 per diluted share in 2002 compared
to $598,000, or $.38 per diluted share in 2001. The 12.7% increase in net
income, or $76,000 was primarily due to an increase in non-interest income and a
decline in non-interest expense, partially offset by a decline in net interest
income.

NET INTEREST INCOME. Net interest income decreased $684,000 or 15.9%, from $4.3
million in 2001 to $3.6 million in 2002. The decrease was due to a $2.5 million,
or 26.3% decrease in interest income, which was partially offset by a $1.8
million, or 34.7% decrease in interest expense. The decline in both interest
income and interest expense was the result of declining interest rates in 2002.

Interest income on loans totaled $5.3 million in 2002, a decrease of $1.4
million or 21.3% from $6.7 million in 2001. Market interest rates fell to
historic lows during 2002 resulting in high mortgage refinancing activity. Due
to prepayment of higher rate portfolio mortgage loans and the sale of fixed-rate
mortgage loan production, a smaller portfolio and lower yield resulted in lower
interest income. The Company experienced similar declines in the auto loan
portfolio in 2002 as many dealers offered 0% financing. Average loan balances
decreased $15.8 million and average loan yields declined 23 bp during 2002.
Interest income from securities totaled $1.5 million in 2002 and declined $1.0
million, or 38.8% from $2.5 million in 2001. The decrease in income was
primarily due to prepayments received on mortgage-backed securities and
reinvestment of proceeds at lower current market rates. The average balance of
securities decreased $8.9 million and the average yield on the portfolio
declined 121 bp during 2002.

Interest expense totaled $3.5 million in 2002 and decreased $1.8 million, or
34.7% from $5.3 million in 2001. The decrease in interest expense was primarily
due to the declining interest rate environment in 2002. Additionally, the
Company reduced its borrowings from the Federal Home Loan Bank with proceeds
received from loan and security repayments. The average balance of
interest-bearing liabilities decreased $18.5 million and the average cost of
interest-bearing liabilities declined 102 bp in 2002.

Net interest margin increased 11 bp from 3.45% in 2001 to 3.56% in 2002.
However, average interest-earning assets declined $23.1 million, or $4.6 million
more than the $18.5 million decline in interest bearing liabilities and resulted
in a decrease in net interest income despite the increase in margin.

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.

PROVISION FOR LOAN LOSSES. The provision for loan losses is based on
Management's regular review of the loan portfolio as described in detail
previously. Based on this review, the provision for loan losses totaled $19,000
in 2002 and $62,000 and 2001. At December 31, 2002, the allowance for loan
losses represented 0.57% of total loans compared to 0.53% at December 31, 2001.
Further, nonperforming loans, all of which are


                                       73

<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

nonaccrual loans, were $781,000 at December 31, 2002 and $883,000 at December
31, 2001. Nonaccrual loans represented 1.3% of the net loan balance at both
December 31, 2002 and 2001. More than 97% of the nonaccrual loan balances are
secured by single-family homes in the Bank's primary market area.

NONINTEREST INCOME. Noninterest income increased $431,000 to $615,000 in 2002
from $184,000 in 2001 primarily due to increased gains on sales of loans and
earnings on bank owned life insurance. Gains on sales of loans totaled $313,000
in 2002, an increase of $376,000 from a loss of $63,000 in 2001 due to
Management's strategic decision in 2002 to sell current fixed rate production
rather than retain these long-term, low fixed-rate loans in portfolio. The
Company purchased bank owned life insurance in 2002, and earnings totaled
$68,000.

NONINTEREST EXPENSE. Noninterest expense for the year ended December 31, 2002
decreased $287,000, or 8.2% and totaled $3.2 million in 2002 compared to $3.5
million in 2001. The decrease in noninterest expense was primarily due to
salaries and benefits, data processing and other expenses which were not
incurred in 2002 relative to a branch that was closed in 2001. There was also a
charge of $154,000 related to the branch closing in 2001, which was not repeated
in 2002. These declines in expenses were slightly offset by an increase in
professional fees.

INCOME TAXES. The income tax expense in 2002 and 2001 were approximately the
same, $313,000 and $312,000 despite the increase in income primarily due to
nontaxable income from bank owned life insurance.


                                       74

<PAGE>

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

AVERAGE BALANCES, INTEREST RATES AND YIELDS. The following table presents for
the periods indicated the total dollar amount of fully taxable equivalent
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed in both dollars and rates.

<TABLE>
<CAPTION>
                                                              For the Years Ended December 31,
                                             --------------------------------------------------------------------
                                                            2003                               2002
                                             ---------------------------------   --------------------------------
                                               Average     Interest    Average     Average     Interest   Average
                                             Outstanding    Earned/    Yield/    Outstanding    Earned/    Yield/
                                               Balance       Paid       Rate       Balance       Paid       Rate
                                             -----------   --------   --------   -----------   --------   -------
                                                                     (Dollars in thousands)
<S>                                          <C>           <C>        <C>        <C>           <C>        <C>
Interest-earning assets:
   Securities (1) (2)                          $ 23,675    $    942       4.02%   $  23,852     $1,518     6.36%
   Loans (3)                                     57,449       4,203       7.32%      66,847      5,255     7.86%
   Other earning assets                          12,410         152       1.22%       7,105        137     1.93%
   FHLB stock                                     3,557         141       3.96%       3,406        157     4.61%
                                               --------    --------               ---------     ------
      Total interest-earning assets              97,091       5,438       5.62%     101,210      7,067     6.98%
   Noninterest-earning assets                    11,268                              14,055
                                               --------                           ---------
      Total assets                             $108,359                           $ 115,265
                                               ========                           =========
Interest-bearing liabilities:
   Deposits                                    $ 73,440       1,570       2.14%   $  75,498      2,501     3.31%
   FHLB advances and other borrowings (4)        12,192         681       5.59%      19,902        961     4.83%
                                               --------    --------               ---------     ------
      Total interest-bearing liabilities         85,632       2,251       2.63%      95,400      3,462     3.63%
   Noninterest-bearing liabilities                3,484                               1,958
                                               --------                           ---------
      Total liabilities                          89,116                              97,358
Equity                                           19,243                              17,907
                                               --------                           ---------
   Total liabilities and equity                $108,359                           $ 115,265
                                               ========                           =========
Net interest-earning assets                    $ 11,459                           $   5,810
                                               ========                           =========
Net interest income/interest rate spread                   $  3,187       2.99%                 $3,605     3.35%
                                                           ========   ========                  ======     ====
Net interest margin                                                       3.28%                            3.56%
                                                                      ========                             ====
Average interest-earning assets
   to average interest-bearing liabilities       113.38%                             106.09%
                                               ========                           =========
</TABLE>

<TABLE>
<CAPTION>
                                             For the Years Ended December 31,
                                             --------------------------------
                                                            2001
                                             --------------------------------
                                               Average     Interest   Average
                                             Outstanding    Earned/    Yield/
                                               Balance       Paid      Rate
                                             -----------   --------   -------
                                                 (Dollars in thousands)
<S>                                          <C>           <C>        <C>
Interest-earning assets:
   Securities (1) (2)                         $ 32,757      $2,481     7.57%
   Loans (3)                                    82,676       6,685     8.09%
   Other earning assets                          5,646         207     3.67%
   FHLB stock                                    3,224         215     6.67%
                                              --------      ------
      Total interest-earning assets            124,303       9,588     7.71%
   Noninterest-earning assets                    8,928
                                              --------
      Total assets                            $133,231
                                              ========
Interest-bearing liabilities:
   Deposits                                   $ 75,640       3,236     4.28%
   FHLB advances and other borrowings (4)       38,217       2,063     5.40%
                                              --------      ------
      Total interest-bearing liabilities       113,857       5,299     4.65%
   Noninterest-bearing liabilities               1,336
                                              --------
      Total liabilities                        115,193
Equity                                          18,038
                                              --------
   Total liabilities and equity               $133,231
                                              ========
Net interest-earning assets                   $ 10,446
                                              ========
Net interest income/interest rate spread                    $4,289     3.06%
                                                            ======     ====
Net interest margin                                                    3.45%
                                                                       ====
Average interest-earning assets
   to average interest-bearing liabilities      109.17%
                                              ========
</TABLE>

- ----------
(1)  Includes securities available for sale and held to maturity. Average
     balance is computed using the carrying value of securities. Average yield
     is computed using the historical amortized cost average balance for
     available for sale securities.

(2)  Average yields are stated on a fully taxable equivalent basis.

(3)  Balance is net of deferred loan origination fees, undisbursed proceeds of
     construction loans and includes nonperforming loans.

(4)  Interest paid does not include $1.3 million penalty on prepayment of FHLB
     advances in 2003.


                                       75

<PAGE>

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

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 or 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.

<TABLE>
<CAPTION>
                                                    Year Ended                       Year Ended
                                                December 31, 2003                December 31, 2002
                                             Compared to Year Ended            Compared to Year Ended
                                                December 31, 2002                 December 31, 2001
                                           --------------------------      -----------------------------
                                           Increase (decrease)             Increase (decrease)
                                                 due to                          due to
                                           -------------------             -------------------
                                              Rate    Volume       Net       Rate     Volume       Net
                                              -----   ------     -------     -----   -------     -------
                                                                (Dollars in thousands)
<S>                                           <C>     <C>        <C>         <C>     <C>         <C>
Interest-earning assets:
   Securities                                 $(565)  $ (11)     $  (576)    $(356)  $  (607)    $  (963)
   Loans                                       (345)   (707)      (1,052)     (185)   (1,245)     (1,430)
   Other earning assets                         (62)     77           15      (115)       45         (70)
   FHLB stock                                   (23)      7          (16)      (69)       11         (58)
                                              -----   -----      -------     -----   -------     -------

      Total interest-earning assets            (995)   (634)      (1,629)     (725)   (1,796)     (2,521)

Interest-bearing liabilities:
   Deposits                                    (865)    (66)        (931)     (729)       (6)       (735)
   FHLB advances and other borrowings           134    (414)        (280)     (199)     (903)     (1,102)
                                              -----   -----      -------     -----   -------     -------

      Total interest-bearing liabilities       (731)   (480)      (1,211)     (928)     (909)     (1,837)
                                              -----   -----      -------     -----   -------     -------

Net change in net interest income             $(264)  $(154)     $  (418)    $ 203   $  (887)    $  (684)
                                              =====   =====      =======     =====   =======     =======
</TABLE>


                                       76

<PAGE>

ASSET/LIABILITY MANAGEMENT AND MARKET RISK

GENERAL. The Company's most significant market risk, or risk of loss from
adverse changes in market prices and rates, is interest rate risk.
Asset/liability management is the measurement and analysis of the Company's
exposure to changes in interest rates. Management actively monitors and manages
its interest rate risk exposure. The objective of the Company's asset/liability
management function is to maintain long-term profitability within the
constraints of an optimum earning-asset mix, capital adequacy, liquidity and
safety. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on earnings of the Company.

QUALITATIVE ASPECTS OF MARKET RISK. The principal objective of the Company's
interest rate risk management function is to evaluate interest rate risk,
determine the level of risk appropriate to the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Directors' approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its earnings to changes in interest rates. The Bank's Board of
Directors has established an Asset/Liability Committee, responsible for
reviewing its asset/liability policies and interest rate risk position, which
meets on a monthly basis and reports trends and interest rate risk position to
the Board. The Company manages interest rate risk on a continuing basis through
the use of a number of strategies as an ongoing part of its business plan.

QUANTITATIVE ASPECTS OF MARKET RISK. The Bank measures the effect of interest
rate changes on its net portfolio value (NPV), which is the difference between
the estimated market value of the Bank's assets and liabilities under different
interest rate scenarios. Changes in NPV are measured using instantaneous changes
in interest rates rather than linear changes in rates over a period of time. At
December 31, 2003, the Bank's NPV ratios, using interest rate shocks ranging
from a 300 bp rise in rates to a 100 bp decline in rates are shown in the
following table. All values are within the acceptable range established by the
Board of Directors.

<TABLE>
<CAPTION>
  Net Portfolio Value
     (Bank only)
- -----------------------
Basis Point
 Change in
   Rates      NPV Ratio
- -----------   ---------
<S>           <C>
    +300        16.86%
    +200        17.65%
    +100        18.27%
       0        18.58%
    -100        18.76%
</TABLE>

In evaluating the Bank's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis presented in the foregoing table must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to which they reprice, they may react in different
degrees to changes in market interest rates. In addition, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Furthermore, in the event of a change in interest
rates, prepayments and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability
of many borrowers to service their debt may decrease when interest rates rise.
Therefore, the actual effect of changing interest rates may differ materially
from that presented in the foregoing table.


                                       77

<PAGE>

The Company's interest rate risk position has improved as a result of
Management's strategic decisions to sell fixed rate mortgage loan originations
rather than retain these long-term, low fixed-rate loans in portfolio, shorten
securities maturities and grow commercial loans, which tend to have shorter
maturities than residential mortgage loans and, in many cases, adjustable
interest rates. Keeping security maturities short and selling long-term, low
fixed-rate mortgage production provide the liquidity necessary to reinvest in
higher earning assets in a rising interest rate environment.

LIQUIDITY AND CAPITAL RESOURCES

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

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

Liquidity management is both a daily and long-term responsibility of Management.
The Bank adjusts its investments in liquid assets, primarily cash, short-term
investments and other assets that are widely traded in the secondary market,
based on Management's assessment of expected loan demand, expected deposit
flows, yields available on interest-earning deposits and securities and the
objective of its asset/liability management program. In 2003, the Company
improved liquidity by transferring all securities previously classified as "held
to maturity" to "available for sale". In addition to its liquid assets, the
Company has other sources of liquidity available including, but not limited to
access to advances from the Federal Home Loan Bank and the ability to obtain
deposits by offering above-market interest rates.

The Bank relies primarily on competitive rates, customer service and
long-standing relationships with customers to retain deposits. Based on the
Bank's experience with deposit retention and current retention strategies,
Management believes that, although it is not possible to predict future terms
and conditions upon renewal, a significant portion of such deposits will remain
with the Bank.

At December 31, 2003, the Bank exceeded all of its regulatory capital
requirements to be considered well-capitalized with a Tier 1 capital level of
$14.7 million, or 13.9% of adjusted total assets, which exceeds the required
level of $5.3 million, or 5.0%; Tier 1 risk-based capital level of $14.7
million, or 21.0% of risk-weighted assets, which exceeds the required level of
$4.2 million, or 6.0%; and risk-based capital of $15.1 million, or 21.6% of
risk-weighted assets, which exceeds the required level of $7.0 million, or
10.0%.


                                       78

<PAGE>

IMPACT OF INFLATION

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

CRITICAL ACCOUNTING POLICIES

The Company follows 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. Some of
these accounting policies are considered to be critical accounting policies.
Critical accounting policies 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 the Company's financial position or results of
operations. The Company has identified accounting polices that are critical
accounting policies and an understanding of these policies is necessary to
understand our financial statements. A critical accounting policy relates to
determining the adequacy of the allowance for loan losses. Additional
information regarding this policy is included in the notes to the consolidated
financial statements, Note 1 (Summary of Significant Accounting Policies), Note
3 (Loans), and the section above captioned "Provision for Loan Losses".
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.


                                       79

<PAGE>

MARKET PRICES AND DIVIDENDS DECLARED

The common stock of Central Federal Corporation trades on the Nasdaq SmallCap
Market under the symbol "GCFC." As of December 31, 2003, there were 2,024,372
shares of common stock outstanding and 619 shareholders, excluding persons or
entities holding stock in nominee or street name through various brokerage
firms.

The following table shows the quarterly reported high and low trade prices of
the common stock and cash dividends per share declared during 2003 and 2002.

<TABLE>
<CAPTION>
                  High      Low    Dividends
                 ------   ------   ---------
<S>              <C>      <C>      <C>
2003
- ----
First quarter    $11.03   $ 9.28     $0.09
Second quarter    13.13    10.49      0.09
Third quarter     14.00    10.70      0.09
Fourth quarter    16.18    13.60      0.09

2002
- ----
First quarter    $11.00   $ 9.90     $0.09
Second quarter    11.36    10.40      0.09
Third quarter     10.79     9.03      0.09
Fourth quarter    10.00     9.10      0.09
</TABLE>


                                       80

<PAGE>

                              FINANCIAL STATEMENTS

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Central Federal Corporation
Wellsville, Ohio

We have audited the accompanying consolidated balance sheets of Central Federal
Corporation as of December 31, 2003 and 2002 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Central Federal
Corporation as of December 31, 2003 and 2002 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.

                                                    Crowe Chizek and Company LLC
                                                    Cleveland, Ohio
                                                    February 12, 2004


                                       81

<PAGE>

- --------------------------------------------------------------------------------

                           CENTRAL FEDERAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002
                  (Dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                              2003       2002
                                                            --------   --------
<S>                                                         <C>        <C>
ASSETS
Cash and cash equivalents                                   $  8,936   $ 12,861
Interest-bearing deposits in other financial institutions      1,587      7,205
Securities available for sale                                 27,126      1,439
Securities held to maturity (fair value 2002 - $18,169)           --     17,822
Loans held for sale                                              106         --
Loans, net of allowance of $415 and $361                      58,024     62,565
Federal Home Loan Bank stock                                   3,626      3,485
Loan servicing rights                                            221        200
Foreclosed assets, net                                           193          2
Premises and equipment, net                                    1,932        833
Bank owned life insurance                                      3,256      3,068
Accrued interest receivable                                      487        403
Other assets                                                   1,517        668
                                                            --------   --------

                                                            $107,011   $110,551
                                                            ========   ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
   Non-interest bearing                                     $  2,457   $  1,396
   Interest bearing                                           70,901     73,294
                                                            --------   --------
      Total deposits                                          73,358     74,690
Federal Home Loan Bank advances                                7,500     11,430
Loan payable                                                      --      4,900
Advances by borrowers for taxes and insurance                    207        448
Accrued interest payable and other liabilities                   935      1,500
Subordinated debentures                                        5,155         --
                                                            --------   --------
      Total liabilities                                       87,155     92,968

Shareholders' equity
   Preferred stock, 1,000,000 shares authorized;
      none issued                                                 --         --
   Common stock, $.01 par value; 6,000,000 shares
      authorized; 2003 - 2,280,020 shares issued,
      2002 - 1,938,871 shares issued                              23         19
   Additional paid-in capital                                 11,845      8,306
   Retained earnings                                          10,997     14,085
   Accumulated other comprehensive income                        201         28
   Unearned Employee Stock Ownership Plan shares                  --     (1,425)
   Unearned stock based incentive plan shares                   (357)      (160)
   Treasury stock, at cost (2003 - 255,648 shares,
      2002 - 292,950 shares)                                  (2,853)    (3,270)
                                                            --------   --------
      Total shareholders' equity                              19,856     17,583
                                                            --------   --------

                                                            $107,011   $110,551
                                                            ========   ========
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       82

<PAGE>

- --------------------------------------------------------------------------------

                           CENTRAL FEDERAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended December 31, 2003, 2002 and 2001
                  (Dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                        2003     2002      2001
                                                      -------   ------   -------
<S>                                                   <C>       <C>      <C>
Interest and dividend income
   Loans, including fees                              $ 4,203   $5,255   $6,685
   Taxable securities                                     934    1,518    2,481
   Tax exempt securities                                    5       --       --
   Federal Home Loan Bank stock dividends                 141      157      215
   Federal funds sold and other                           152      137      207
                                                      -------   ------   ------
                                                        5,435    7,067    9,588
Interest expense
   Deposits                                             1,570    2,501    3,236
   Federal Home Loan Bank advances and other debt       1,940      961    2,063
   Subordinated debentures                                 11       --       --
                                                      -------   ------   ------
                                                        3,521    3,462    5,299
                                                      -------   ------   ------

Net interest income                                     1,914    3,605    4,289

Provision for loan losses                                 102       19       62
                                                      -------   ------   ------

Net interest income after provision for loan losses     1,812    3,586    4,227

Noninterest income
   Service charges on deposit accounts                    165      130      174
   Net gain (loss) on sales of loans                      429      313      (63)
   Loan servicing fees                                     73       58       22
   Net gains on sales of securities                        42       16       15
   Earnings on bank owned life insurance                  188       68       --
   Other                                                   33       30       36
                                                      -------   ------   ------
                                                          930      615      184

Noninterest expense
   Salaries and employee benefits                       3,549    1,713    1,758
   Occupancy and equipment                                224       96      105
   Data processing                                        246      196      200
   Franchise taxes                                        301      287      309
   Professional fees                                      673      212      163
   Director fees                                          119       84       81
   Supplies                                               173      101       86
   Loan expenses                                           91      143      130
   Foreclosed assets, net                                  14      (34)       4
   Depreciation and amortization                          350      194      154
   Branch closing expense                                  --       --      154
   Other                                                  364      222      357
                                                      -------   ------   ------
                                                        6,104    3,214    3,501
                                                      -------   ------   ------

Income (loss) before income taxes                      (3,362)     987      910

Income tax expense (benefit)                             (988)     313      312
                                                      -------   ------   ------

Net income (loss)                                     $(2,374)  $  674   $  598
                                                      =======   ======   ======
</TABLE>
- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       83

<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<S>                                                   <C>       <C>      <C>
Earnings (loss) per share:
   Basic                                              $ (1.31)  $ 0.44   $ 0.38
   Diluted                                              (1.28)    0.43     0.38
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       84

<PAGE>

                           CENTRAL FEDERAL CORPORATION
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                  Years ended December 31, 2003, 2002 and 2001
                  (Dollars in thousands except per share data)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          2003     2002   2001
                                                        -------   -----   ----
<S>                                                     <C>        <C>    <C>
Net income (loss)                                       $(2,374)   $674   $598

Change in net unrealized gain (loss) on securities
   available for sale                                      (154)     34     17

Less: Reclassification adjustment for
   gains and losses later recognized in net income           42      16     15
                                                        -------    ----   ----

Net unrealized gains and (losses)                          (196)     18      2

Unrealized gain on securities transferred from held
   to maturity to available for sale                        458      --     --

Tax effect                                                  (89)     (6)    (1)
                                                        -------    ----   ----

Other comprehensive income                                  173      12      1
                                                        -------    ----   ----

Comprehensive income (loss)                             $(2,201)   $686   $599
                                                        =======    ====   ====
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       85

<PAGE>

                           CENTRAL FEDERAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  Years ended December 31, 2003, 2002 and 2001
                  (Dollars in thousands except per share data)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        Accumulated       Unearned
                                                               Additional                  Other       Employee Stock
                                                      Common     Paid-In    Retained   Comprehensive   Ownership Plan
                                                       Stock     Capital    Earnings       Income          Shares
                                                      ------   ----------   --------   -------------   --------------
<S>                                                   <C>      <C>          <C>        <C>             <C>
Balance at January 1, 2001                              $19      $8,322      $13,846        $15           $(1,853)

Comprehensive income:
Net income                                                                       598
Other comprehensive income                                                                    1
   Total comprehensive income

Commitment to release 18,864 employee stock
   ownership plan shares                                            (12)                                    202
Release of 15,516 stock based incentive plan shares
Purchase of 7,500 shares of treasury stock
Cash dividends declared ($.31 per share)                                        (482)
                                                        ---      ------      -------        ---           -------
Balance at December 31, 2001                             19       8,310       13,962         16            (1,651)

Comprehensive income:
Net income                                                                       674
Other comprehensive income                                                                   12
   Total comprehensive income

Commitment to release 21,588 employee stock
   ownership plan shares                                             (4)                                    226
Release of 15,516 stock based incentive plan shares
Purchase of 96,410 shares of treasury stock
Cash dividends declared ($.36 per share)                                        (551)
                                                        ---      ------      -------        ---           -------

Balance at December 31, 2002                             19       8,306       14,085         28            (1,425)
</TABLE>

                             See accompanying notes.


                                       86

<PAGE>

<TABLE>
<CAPTION>
                                                                                             Accumulated       Unearned
                                                                    Additional                  Other       Employee Stock
                                                           Common     Paid-In    Retained   Comprehensive   Ownership Plan
                                                            Stock     Capital    Earnings       Income          Shares
                                                           ------   ----------   --------   -------------   --------------
<S>                                                        <C>      <C>          <C>        <C>             <C>
Comprehensive income:
Net loss                                                                           (2,374)
Other comprehensive income                                                                        173
   Total comprehensive loss

Issuance of common stock in private placement, net of
   offering costs of $64 312,649 shares)                       3       3,116
Issuance of stock based incentive plan shares (28,500)         1         337
Sale of employee stock ownership plan shares
   at plan termination (81,000 shares)                                   125                                      748
Final allocation of employee stock ownership plan
   shares at plan termination (41,882 shares)                            (39)                                     677
Release of 16,002 stock based incentive plan shares
Stock options exercised (37,302 shares)                                               (72)
Tax benefits from stock options exercised                                              47
Cash dividends declared ($.36 per share)                                             (689)
                                                             ---     -------      -------        ----            ----
Balance at December 31, 2003                                 $23     $11,845      $10,997        $201            $ --
                                                             ===     =======      =======        ====            ====
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       87

<PAGE>

<TABLE>
<CAPTION>
                                                       Unearned Stock                  Total
                                                      Based Incentive   Treasury   Shareholders'
                                                        Plan Shares       Stock        Equity
                                                      ---------------   --------   -------------
<S>                                                   <C>               <C>        <C>
Balance at January 1, 2001                                 $(365)       $(2,151)      $17,833

Comprehensive income:
Net income                                                                                598
Other comprehensive income                                                                  1
                                                                                      -------
   Total comprehensive income                                                             599

Commitment to release 18,864 employee stock
   ownership plan shares                                                                  190
Release of 15,516 stock based incentive plan shares           95                           95
Purchase of 7,500 shares of treasury stock                                  (75)          (75)
Cash dividends declared ($.31 per share)                                                 (482)
                                                           -----        -------       -------

Balance at December 31, 2001                                (270)        (2,226)       18,160

Comprehensive income:
Net income                                                                                674
Other comprehensive income                                                                 12
                                                                                      -------
   Total comprehensive income                                                             686

Commitment to release 21,588 employee stock
   ownership plan shares                                                                  222
Release of 15,516 stock based incentive plan shares          110                          110
Purchase of 96,410 shares of treasury stock                              (1,044)       (1,044)
Cash dividends declared ($.36 per share)                                                 (551)
                                                           -----        -------       -------

Balance at December 31, 2002                                (160)        (3,270)       17,583
</TABLE>

                            See accompanying notes.


                                       88

<PAGE>

<TABLE>
<CAPTION>
                                                               Unearned Stock                  Total
                                                              Based Incentive   Treasury   Shareholders'
                                                                Plan Shares       Stock        Equity
                                                              ---------------   --------   -------------
<S>                                                           <C>               <C>        <C>
Comprehensive income:
Net loss                                                                                       (2,374)
Other comprehensive income                                                                        173
                                                                                              -------
   Total comprehensive loss                                                                    (2,201)

Issuance of common stock in private
   placement, net of offering costs of $64 (312,649 shares)                                     3,119
Issuance of stock based incentive plan shares (28,500)              (338)                          --
Sale of employee stock ownership plan shares
   at plan termination (81,000 shares)                                                            873
Final allocation of employee stock ownership plan
   shares at plan termination (41,882 shares)                                                     638
Release of 16,002 stock based incentive plan shares                  141                          141
Stock options exercised (37,302 shares)                                             417           345
Tax benefits from stock options exercised                                                          47
Cash dividends declared ($.36 per share)                                                         (689)
                                                                   -----        -------       -------

Balance at December 31, 2003                                       $(357)       $(2,853)      $19,856
                                                                   =====        =======       =======
</TABLE>

                            See accompanying notes.


                                       89

<PAGE>

                           CENTRAL FEDERAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2003, 2002 and 2001
                  (Dollars in thousands except per share data)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            2003       2002       2001
                                                          --------   --------   -------
<S>                                                       <C>        <C>        <C>
Cash flows from operating activities
Net income (loss)                                         $ (2,374)  $    674   $   598
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
      Provision for loan losses                                102         19        62
      Valuation loss on mortgage servicing rights               56         --        --
      Depreciation and amortization                            108        118       101
      Net amortization of securities                            63        (51)     (131)
      Net gain on sales of securities                          (42)       (16)      (15)
      Loss on disposal of premises and equipment                50         --        --
      Write-down of assets from branch closing                  --         --       154
      Federal Home Loan Bank stock dividend                   (141)      (157)     (215)
      ESOP expense                                             638        222       190
      SBIP expense                                             141        110        95
      Earnings on bank owned life insurance                   (188)       (68)       --
      Net change in:
         Loans held for sale                                  (106)     8,221    (8,221)
         Accrued interest receivable                           (84)       127       576
         Other assets                                       (1,021)      (195)     (120)
         Accrued interest payable and other liabilities       (600)       865      (303)
                                                          --------   --------   -------
            Net cash from operating activities              (3,398)     9,869    (7,229)
Cash flows from investing activities
   Net change in interest bearing deposits                   5,618       (199)       (6)
   Available-for-sale securities:
      Sales                                                  3,078        386       245
      Maturities, prepayments and calls                     28,968        594     1,077
      Purchases                                            (46,914)      (290)     (233)
   Held-to-maturity securities:
      Maturities, prepayments and calls                      7,201     27,056    12,493
      Purchases                                                 --    (21,508)       --
   Loan originations and payments, net                       4,434      8,010    15,676
   Additions to premises and equipment                      (1,326)      (127)      (10)
   Purchase of bank owned life insurance                        --     (3,000)       --
   Cash received in repayment of ESOP loan                     853         --        --
                                                          --------   --------   -------
      Net cash from investing activities                     1,912     10,922    29,242
Cash flows from financing activities
   Net change in deposits                                   (1,332)    (1,478)    2,171
   Proceeds from Federal Home Loan Bank
      advances and other debt                                7,500         --    49,320
   Repayments on Federal Home Loan Bank
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       90

<PAGE>

<TABLE>
<S>                                                       <C>        <C>        <C>
      advances and other debt                              (16,330)    (9,063)   (71,463)
   Net change in advances by borrowers for
      taxes and insurance                                     (241)      (123)       (85)
   Proceeds from subordinated debentures                     5,155         --         --
   Cash dividends paid                                        (655)      (551)      (482)
   Proceeds from private placement                           3,119         --         --
   Proceeds from exercise of stock options                     345         --         --
   Repurchase of common stock                                   --     (1,044)       (75)
                                                          --------   --------   --------
      Net cash from financing activities                    (2,439)   (12,259)   (20,614)

Net change in cash and cash equivalents                     (3,925)     8,532      1,399

Beginning cash and cash equivalents                         12,861      4,329      2,930
                                                          --------   --------   --------

Ending cash and cash equivalents                          $  8,936   $ 12,861   $  4,329
                                                          ========   ========   ========

Supplemental cash flow information:
   Interest paid                                          $  3,519   $  3,495   $  5,852
   Income taxes paid                                           106        160        226

Supplemental noncash disclosures:
   Transfer of securities from held to maturity
      to available for sale                               $ 10,533   $     --   $     --
   Transfers from loans to repossessed assets                  193         --        145
</TABLE>

- --------------------------------------------------------------------------------

                             See accompanying notes.


                                       91

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial
statements include Central Federal Corporation and its wholly-owned subsidiary,
Central Federal Bank, together referred to as "the Company". Intercompany
transactions and balances are eliminated in consolidation.

The Company provides financial services through its offices in Wellsville,
Fairlawn and Columbus, Ohio. Its primary deposit products are checking, savings,
and term certificate accounts, and its primary lending products are residential
mortgage, commercial, and installment loans. Substantially all loans are secured
by specific items of collateral including business assets, consumer assets, and
commercial and residential real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Other financial
instruments, which potentially represent concentrations of credit risk, include
deposit accounts in other financial institutions.

Use of Estimates: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, Management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and actual results could differ. The allowance for loan
losses, loan servicing rights, and fair values of financial instruments are
particularly subject to change.

Cash Flows: Cash and cash equivalents include cash and deposits with other
financial institutions under 90 days. Net cash flows are reported for loan and
deposit transactions.

Securities: Debt securities are classified as held to maturity and carried at
amortized cost when Management has the positive intent and ability to hold them
to maturity. Debt securities are classified as available for sale when they
might be sold before maturity. Equity securities with readily determinable fair
values are classified as available for sale. Securities available for sale are
carried at fair value, with unrealized holding gains and losses reported in
other comprehensive income. Trading securities are carried at fair value, with
changes in unrealized holding gains and losses included in income. Other
securities such as Federal Home Loan Bank stock are carried at cost.

Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.

Loans Held for Sale: Loans originated and intended for sale in the secondary
market are carried at the lower of cost or market in the aggregate. Net
unrealized losses, if any, are recorded as a valuation allowance and charged to
earnings.

- --------------------------------------------------------------------------------
                                  (Continued)


                                       92

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Loans that Management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Interest income is reported on the interest method
and includes amortization of net deferred loan fees and costs over the loan
term. Interest income on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the loan is well-secured and in
process of collection. Consumer and credit card loans are typically charged off
no later than 180 days past due. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is
considered doubtful.

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

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

The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.

A loan is impaired when full payment under the loan terms is not expected.
Commercial and commercial real estate loans are individually evaluated for
impairment. If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Large groups of smaller
balance homogeneous loans, such as consumer and residential real estate loans,
are collectively evaluated for impairment, and accordingly, they are not
separately identified for impairment disclosures.

- --------------------------------------------------------------------------------
                                  (Continued)


                                       93

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Servicing Rights: Servicing rights represent the allocated value of retained
servicing rights on loans sold and the cost of purchased rights. Servicing
assets are expensed in proportion to, and over the period of, estimated net
servicing revenues. Impairment is evaluated based on the fair value of the
assets, using groupings of the underlying loans as to interest rates and then,
secondarily, as to geographic and prepayment characteristics. Fair value is
determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions.
Any impairment of a grouping is reported as a valuation allowance, to the extent
that fair value is less than the capitalized amount for a grouping.

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

Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Buildings and related components
are depreciated using the straight-line method with useful lives ranging from 7
to 40 years. Furniture, fixtures and equipment are depreciated using the
straight-line method with useful lives ranging from 3 to 25 years. Leasehold
improvements are amortized over the lives of the respective leases.

Bank Owned Life Insurance: The Company has purchased life insurance policies on
certain key executives. Bank owned life insurance is recorded at its cash
surrender value, or the amount that can be realized.

Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
fair value.

Loan Commitments and Related Financial Instruments: Financial instruments
include off-balance- sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are recorded
when they are funded. Instruments, such as standby letters of credit, that are
considered financial guarantees in accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 45 are recorded at fair value.

- --------------------------------------------------------------------------------
                                  (Continued)


                                       94

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation.

<TABLE>
<CAPTION>
                                                  2003     2002    2001
                                                -------   -----   -----
<S>                                             <C>       <C>     <C>
Net income (loss) as reported                   $(2,374)  $ 674   $ 598
Deduct: Stock-based compensation expense
   determined under fair value based method         175     121     121
                                                -------   -----   -----
Pro forma net income (loss)                     $(2,549)  $ 553   $ 477
                                                =======   =====   =====

Basic earnings (loss) per share as reported     $ (1.31)  $0.44   $0.38
Pro forma basic earnings (loss) per share         (1.40)   0.36    0.30

Diluted earnings (loss) per share as reported   $ (1.28)  $0.43   $0.38
Pro forma diluted earnings (loss) per share       (1.37)   0.35    0.30
</TABLE>

The pro forma effects are computed using option pricing models, using the
following weighted- average assumptions as of grant date.

<TABLE>
<CAPTION>
                                                 2003
                                                ------
<S>                                             <C>
Risk-free interest rate                         2.96%
Expected option life                            5.9 years
Expected stock price volatility                   44%
Dividend yield                                  3.13%
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                       95

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.

Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest. See Note 9 - ESOP Plan for information regarding
termination of this plan in 2003.

Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
ESOP shares are considered outstanding for this calculation unless unearned.
Stock based incentive plan shares are considered outstanding as they are earned
over the vesting period. Diluted earnings per common share includes the dilutive
effect of stock based incentive plan shares and additional potential common
shares issuable under stock options.

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

Adoption of New Accounting Standards: During 2003, the Company adopted FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest
Entities. Adoption of the new standards did not materially affect the Company's
operating results or financial condition.

Interpretation 45 requires recognizing the fair value of guarantees made and
information about the maximum potential payments that might be required, as well
as the collateral or other recourse obtainable. Interpretation 45 covers
guarantees such as standby letters of credit, performance guarantees, and direct
or indirect guarantees of the indebtedness of others, but not guarantees of
funding.

Interpretation 46, as revised in December 2003, changes the accounting model for
consolidation from one based on consideration of control through voting
interests. Whether to consolidate an entity will now also consider whether that
entity has sufficient equity at risk to enable it to operate without additional
financial support, whether the equity owners in that entity lack the obligation
to absorb expected losses or the right to receive residual returns of the
entity, or whether voting rights in the entity are not proportional to the
equity interest and substantially all the entity's activities are conducted for
an investor with few voting rights. The Company owns a 100% interest in a trust

- --------------------------------------------------------------------------------
                                  (Continued)


                                       96

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

formed by the Company in 2003. Under this new accounting guidance, the trust is
not consolidated with the Company.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank
of $300 and $148 was required to meet regulatory reserve and clearing
requirements at year-end 2003 and 2002. These balances do not earn interest.

Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.

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

Operating Segments: While the chief decision-makers monitor the revenue streams
of the various products and services, the identifiable segments are not material
and operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the financial service operations are
considered by Management to be aggregated in one reportable operating segment.

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

- --------------------------------------------------------------------------------
                                  (Continued)


                                       97

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 2 - SECURITIES

The fair value of available for sale securities and the related gross unrealized
gains and losses recognized in accumulated other comprehensive income (loss)
were as follows:

<TABLE>
<CAPTION>
                                                            Gross        Gross
                                                 Fair    Unrealized   Unrealized
                                                Value       Gains       Losses
                                               -------   ----------   ----------
<S>                                            <C>       <C>          <C>
2003
   Federal agency                              $12,759      $  8        $  (4)
   State and municipal                           1,375         5           --
   Mortgage-backed                              12,992       400         (105)
                                               -------      ----        -----
      Total                                    $27,126      $413        $(109)
                                               =======      ====        =====

2002
   Mortgage-backed                             $ 1,439      $ 45        $  (1)
                                               -------      ----        -----
      Total                                    $ 1,439      $ 45        $  (1)
                                               =======      ====        =====
</TABLE>

The carrying amount, unrecognized gains and losses, and fair value of securities
held to maturity were as follows:

<TABLE>
<CAPTION>
                                                      Gross          Gross
                                        Carrying   Unrecognized   Unrecognized    Fair
                                         Amount       Gains          Losses       Value
                                        --------   ------------   ------------   ------
<S>                                     <C>        <C>            <C>            <C>
2002
   U.S. Government and federal agency    $ 2,527       $ 30           $--        $ 2,557
   Corporate                               1,996         --            --          1,996
   Mortgage-backed                        13,299        322            (5)        13,616
                                         -------       ----           ---        -------
      Total                              $17,822       $352           $(5)       $18,169
                                         =======       ====           ===        =======
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                       98

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

Sales of available for sale securities were as follows:

<TABLE>
<CAPTION>
                                                             2003    2002   2001
                                                            ------   ----   ----
<S>                                                         <C>      <C>    <C>
Proceeds                                                    $3,078   $386   $245
Gross gains                                                     42     16     15
</TABLE>

The fair value of debt securities at year-end 2003 by contractual maturity were
as follows. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.

<TABLE>
<CAPTION>
                                                                       Available
                                                                       for Sale
                                                                          Fair
                                                                         Value
                                                                       ---------
<S>                                                                    <C>
Due in one year or less                                                 $   503
Due from one to five years                                               12,256
Due from five to ten years                                                  400
Due after ten years                                                         975
Mortgage-backed                                                          12,992
                                                                        -------
   Total                                                                $27,126
                                                                        =======
</TABLE>

At year-end 2003 and 2002, there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies, in an amount greater
than 10% of shareholders' equity.

- --------------------------------------------------------------------------------
                                  (Continued)


                                       99

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

Securities with unrealized losses at year-end 2003 not recognized in income are
as follows:

<TABLE>
<CAPTION>
                                      Less than 12 Months        12 Months or More               Total
                                    -----------------------   -----------------------   -----------------------
                                                 Unrealized                Unrealized                Unrealized
Description of Securities           Fair Value      Loss      Fair Value      Loss      Fair Value      Loss
- -------------------------           ----------   ----------   ----------   ----------   ----------   ----------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
Federal agency                        $4,026        $  4          $--          $--        $4,026        $  4
Mortgage-backed                        4,021         105           --          $--         4,021         105
                                      ------        ----          ---          ---        ------        ----
Total temporarily impaired            $8,047        $109          $--          $--        $8,047        $109
                                      ======        ====          ===          ===        ======        ====
</TABLE>

Unrealized losses on the above securities have not been recognized in income
because the issuers of the bonds are all federal agencies and the decline in
fair value is temporary and largely due to changes in market interest rates. The
fair value is expected to recover as the bonds approach their maturity date
and/or market rates decline.

To improve liquidity, in 2003 the Company transferred all securities previously
classified as "held to maturity," which had a carrying value of $10,533, to
"available for sale." The unrealized gain on the securities transferred totaled
$458 before tax. The Company's equity and accumulated other comprehensive income
increased $302 after tax as a result of the transfer.

NOTE 3 - LOANS

Loans at year-end were as follows:

<TABLE>
<CAPTION>
                                                              2003        2002
                                                            --------   ---------
<S>                                                         <C>        <C>
Commercial                                                  $  4,116   $    261
Real estate:
   Residential                                                36,060     48,644
   Commercial                                                  5,040         --
   Construction                                                  610        134
Consumer                                                      12,598     13,904
                                                            --------   --------
      Subtotal                                                58,424     62,943
Less: Net deferred loan fees                                      15        (17)
      Allowance for loan losses                                 (415)      (361)
                                                            --------   --------
Loans, net                                                  $ 58,024   $ 62,565
                                                            ========   ========
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                      100

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 3 - LOANS (Continued)

Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
                                                            2003   2002   2001
                                                            ----   ----   ----
<S>                                                         <C>    <C>    <C>
Beginning balance                                           $361   $373   $354
Provision for loan losses                                    102     19     62
Loans charged-off                                            (50)   (35)   (53)
Recoveries                                                     2      4     10
                                                            ----   ----   ----

Ending balance                                              $415   $361   $373
                                                            ====   ====   ====
</TABLE>

Impaired loans are not material for any period presented.

Nonperforming loans were as follows:

<TABLE>
<CAPTION>
                                                                     2003   2002
                                                                     ----   ----
<S>                                                                  <C>    <C>
Loans past due over 90 days still on accrual                         $ --   $ --
Nonaccrual loans                                                      741    781
</TABLE>

Nonperforming loans include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired
loans.

- --------------------------------------------------------------------------------
                                  (Continued)


                                      101

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 4 - SECONDARY MORTGAGE MARKET ACTIVITIES

Mortgage loans serviced for others are not reported as assets. The principal
balances of these loans were $32,584 and $25,930 at year-end 2003 and 2002.

Custodial escrow balances maintained in connection with serviced loans were $100
and $26 at year-end 2003 and 2002.

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

<TABLE>
<CAPTION>
                                                             2003   2002   2001
                                                            -----   ----   ----
<S>                                                         <C>     <C>    <C>
Servicing rights:
Beginning of year                                           $ 200   $ 88   $ 58
Additions                                                     195    162     45
Amortized to expense                                         (118)   (50)   (15)
                                                            -----   ----   ----

End of year                                                 $ 277   $200   $ 88
                                                            =====   ====   ====
</TABLE>

<TABLE>
<CAPTION>
                                                            2003   2002   2001
                                                            ----   ----   ----
<S>                                                          <C>    <C>    <C>
Valuation allowance:
Beginning of year                                            $--    $--    $--
Additions expensed                                            56     --     --
                                                             ---    ---    ---
End of Year                                                  $56    $--    $--
                                                             ===    ===    ===
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                      102

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

<TABLE>
<CAPTION>
                                                                2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Land                                                          $   117   $    63
Buildings                                                       1,713     1,485
Furniture, fixtures and equipment                               1,416     1,227
Leasehold improvements                                             10        --
                                                              -------   -------
                                                                3,256     2,775
Less: Accumulated depreciation                                 (1,324)   (1,942)
                                                              -------   -------

                                                              $ 1,932   $   833
                                                              =======   =======
</TABLE>

Depreciation expense was $176, $118 and $101 for 2003, 2002 and 2001.

Rent expense was $14, $0, and $16 for 2003, 2002 and 2001. Rent commitments
under noncancelable operating leases were as follows, before considering renewal
options that generally are present.

<TABLE>
<S>            <C>
2004           $ 60
2005             57
2006             57
2007             57
2008             57
               ----

   Total       $288
               ====
</TABLE>

The Company is a one-third owner of a limited liability company that will own
and manage the office building at 2923 Smith Road, Fairlawn, Ohio 44333 where
the Company's headquarters and Central Federal Bank Fairlawn office will be
located. The Company is currently in negotiations with the limited liability
company to complete a lease agreement for this office space. As a result, rent
expense for this office is not included above. The lease is expected to be
accounted for as an operating lease.

The Company closed one branch during 2001 and took charges totaling $154. In
connection with the branch closings the Company paid a cancellation fee for
terminating the lease, wrote-off the remaining leasehold improvements and
abandoned equipment and wrote down the remaining equipment to its estimated
realizable value.

- --------------------------------------------------------------------------------
                                  (Continued)


                                      103

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 6 - DEPOSITS

Time deposits of $100 or more were $4,285 and $3,520 at year-end 2003 and 2002.

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

<TABLE>
<S>    <C>
2004   $22,702
2005     8,652
2006     4,122
2007       703
       -------
2008       514
       -------

       $36,693
       =======
</TABLE>

NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER DEBT

At year end, advances from the Federal Home Loan Bank were as follows.

<TABLE>
<CAPTION>
                                                             2003     2002
                                                            ------   -------
<S>                                                         <C>      <C>
Maturity January 2004 at 1.09% floating rate                $7,500   $    --

Maturities August 2005 thru March 2009, primarily fixed
at rates from 5.07% to 6.96%, averaging 5.53%                   --    11,430
                                                            ------   -------

   Total                                                    $7,500   $11,430
                                                            ======   =======
</TABLE>

In December 2003, the Company prepaid $11,195 in Federal Home Loan Bank
advances, with an average cost of 5.52% and an average remaining maturity of 4.5
years. These fixed rate advances were arranged primarily in 1998 and 1999 and
were used to finance mortgage loans which had prepaid. Accordingly, the loans
represented an inappropriate and costly source of funding which was not
necessary due to the liquidity position of the Company. The pre-tax prepayment
penalty associated with this transaction was $1,270 and is included in interest
expense on Federal Home Loan Bank advances and other debt in the 2003
Consolidated Statement of Operations.

The floating rate advances outstanding at year-end 2003 can be prepaid at any
time with no penalty. The advances were collateralized by $34,795 and $47,004 of
first mortgage loans under a blanket lien arrangement and $1,296 and $2,343 of
securities at year-end 2003 and 2002.

Loan Payable: The Company had a 4.30% note payable with a financial institution
with a balance of $4,900 at year-end 2002. The loan was repaid in full during
2003 and represented the remaining balance of a $7,000 loan which had been
obtained to fund a return of capital dividend declared in 2000. The note was
secured by stock the Company owns in the Bank and the Bank was required

- --------------------------------------------------------------------------------
                                  (Continued)


                                       104

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

maintain a deposit with the lending institution in the amount of the loan which
earned interest at 1.90% below the loan rate.

NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER DEBT (Continued)

Trust Preferred Securities: A trust formed by the Company issued $5,000 of 3
month LIBOR plus 2.85% floating rate trust preferred securities in 2003 as part
of a pooled offering of such securities. The Company issued subordinated
debentures to the trust in exchange for the proceeds of the offering, which
debentures represent the sole asset of the trust. The Company may redeem the
subordinated debentures, in whole but not in part, any time after five years at
par. The subordinated debentures must be redeemed no later than 2033.

Under new accounting guidance, FASB Interpretation No. 46, as revised in
December 2003, the trust is not consolidated with the Company. Accordingly, the
Company does not report the securities issued by the trust as liabilities, and
instead reports as liabilities the subordinated debentures issued by the Company
and held by the trust.

                              PAYMENT INFORMATION:

Required payments on all debt over the next five years are:

<TABLE>
<S>    <C>
2004   $7,500
       ======
</TABLE>

NOTE 8 - OTHER BENEFIT PLANS

Multi-employer pension plan: The Company participates in a multiemployer
contributory trustee pension plan. The retirement benefits to be provided by the
plan were frozen as of June 30, 2003 and future employee participation in the
plan was stopped. The plan was maintained for all eligible employees and the
benefits were funded as accrued through the purchase of individual life
insurance policies. The cost of funding was charged directly to operations. The
unfunded liability at June 30, 2003 totaled $96. The Company's contribution for
the plan year ending June 30, 2004 totaled $34. The Company made no
contributions for 2002 or 2001.

401(k) Plan: In 2003, the Company instituted a 401(k) benefit plan. Employees 21
years of age and older are eligible to participate and are eligible for Company
matching contributions after one year of service. The plan allows employee
contributions up to 90% of their compensation, which may be matched by the
Company on a discretionary basis. There was no match in 2003.

Stock Based Incentive Plans: Stock based incentive plans (SBIP) provide for
stock option grants and restricted stock awards to directors, officers and
employees. The 1999 Stock Based Incentive Plan was approved by shareholders on
July 13, 1999. The plan provided for 193,887 shares for stock option grants and
77,554 shares for restricted stock awards. The 2003 Equity Compensation Plan was
ratified by shareholders on April 23, 2003. The plan provided an aggregate of
100,000 shares for stock option grants and restricted stock awards, including up
to a maximum of 30,000 shares for restricted stock awards. Both plans provide
for options to be granted for terms of up to,

- --------------------------------------------------------------------------------
                                   (Continued)


                                      105

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

but not exceeding ten years from the date of grant and cannot be granted at a
price less than the fair market value of the common stock on the date of grant.
Shares related to forfeited stock options and restricted stock awards become
available for subsequent grant under the terms of the plans.

Compensation expense for restricted stock awards is based on the fair value of
the stock at the date of grant and is recognized over the vesting period. Total
restricted stock awards issuable under the plans are 107,554. 28,500 shares were
issued in 2003 and no shares were issued in 2002. At December 31, 2003, 97,526
restricted stock awards were outstanding of which 57,007 had vested.
Compensation expense was $141, $110 and $95 for 2003, 2002 and 2001. Unearned
compensation is reported as a reduction of shareholders' equity until earned.

NOTE 9 - ESOP PLAN

Until the plan was terminated in 2003, employees participated in an Employee
Stock Ownership Plan (ESOP). The ESOP borrowed from the Company to purchase
155,111 shares of stock at $10 per share. The Company made discretionary
contributions to the ESOP, and paid dividends on unallocated shares to the ESOP,
and the ESOP used funds it received to repay the loan. When loan payments were
made, ESOP shares were allocated to participants based on relative compensation
and expense was recorded. Dividends on allocated shares increased participant
accounts.

The ESOP received $738 from a return of capital distribution paid by the Company
in 2000 and purchased an additional 83,353 shares with the proceeds.

At the time of termination, there were 122,882 unearned ESOP shares of which
81,000 shares were sold and the proceeds were used to repay the outstanding
balance of the loan incurred to fund the ESOP plan at inception. The remaining
41,882 shares were allocated to participants on a fully vested basis. The cost
associated with terminating the ESOP totaled $638 and is included in salaries
and employee benefits expense in the 2003 Consolidated Statement of Operations.

Contributions to the ESOP during 2003, 2002 and 2001 were $0, $159 and $152.
Expense for 2003, 2002, and 2001 was $638, $222 and $190.

Shares held by the ESOP were as follows:

<TABLE>
<CAPTION>
                                     2002
                                   --------
<S>                                <C>
Allocated to participants           108,483
Unearned                            122,882
                                   --------

   Total ESOP shares                231,365
                                   ========
   Fair value of unearned shares   $  1,153
                                   ========
</TABLE>

- --------------------------------------------------------------------------------
                                   (Continued)


                                      106

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES

Income tax expense (benefit) was as follows.

<TABLE>
<CAPTION>
                     2003    2002   2001
                   -------   ----   ----
<S>                <C>       <C>    <C>
Current federal    $    95   $175   $276
Deferred federal    (1,083)   138     36
                   -------   ----   ----

Total              $  (988)  $313   $312
                   =======   ====   ====
</TABLE>

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

<TABLE>
<CAPTION>
                                               2003       2002      2001
                                             -------     -----     -----
<S>                                          <C>         <C>       <C>
Federal statutory rate times financial
   statement income (loss)                   $(1,143)    $ 336     $ 309
Effect of:
ESOP shares released at fair market value        207         1        --
Bank owned life insurance income                 (64)      (23)       --
Other                                             12        (1)        3
                                             -------     -----     -----
                                             $  (988)    $ 313     $ 312
                                             =======     =====     =====
Effective tax rate                             (29.4%)    31.7%     34.3%
</TABLE>

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

<TABLE>
<CAPTION>
                                              2003    2002
                                             ------   ----
<S>                                          <C>      <C>
Deferred tax assets:
   Allowance for loan losses                 $  141   $123
   Deferred loan fees                           160    265
   Nonaccrual interest                           36     30
   Accrued stock awards                          39     16
   Net operating loss                         1,325     --
   Other                                         14     --
                                             ------   ----
                                              1,715    434

Deferred tax liabilities:
   Depreciation                                 229     76
   FHLB stock dividend                          378    330
   Mortgage servicing rights                     75     68
   Unrealized gain on securities available
      for sale                                  103     14
   Other                                         --     10
                                             ------   ----
                                                785    498
                                             ------   ----

Net deferred tax asset (liability)           $  930   $(64)
                                             ======   ====
</TABLE>

- --------------------------------------------------------------------------------
                                   (Continued)


                                      107

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

Federal income tax laws provided additional bad debt deductions through 1987,
totaling $2,250. Accounting standards do not require a deferred tax liability to
be recorded on this amount, which otherwise would total $765 at year-end 2003.
If the Bank were liquidated or otherwise ceases to be a bank or if tax laws were
to change, this amount would be expensed.

No valuation allowance has been recorded against the deferred tax asset for net
operating losses totaling $3,897 which expire in 2023 because the benefit is
more likely than not to be realized.

NOTE 11 - RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates in 2003 were as
follows.

<TABLE>
<S>                                    <C>
Beginning balance                      $ 607
New loans                                 --
Effect of changes in related parties    (599)
Repayments                                (8)
                                       -----
Ending balance                         $  --
                                       =====
</TABLE>

Deposits from principal officers, directors, and their affiliates at year-end
2003 and 2002 were $384 and $300.

NOTE 12 - STOCK OPTIONS

Options to buy stock are granted to directors, officers and employees under the
1999 Stock Based Incentive Plan and 2003 Equity Compensation Plan, which provide
for issue of up to 293,887 options. Exercise price is the market price at date
of grant, so there is no compensation expense recognized in the income
statement. The maximum option term is ten years, and options vest over three to
five years.

- --------------------------------------------------------------------------------
                                   (Continued)


                                      108


<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 12 - STOCK OPTIONS (Continued)

A summary of the activity in the plan is as follows.

<TABLE>
<CAPTION>
                                               2003                  2002                  2001
                                      -------------------   -------------------   -------------------
                                                 Weighted              Weighted              Weighted
                                                  Average               Average               Average
                                                 Exercise              Exercise              Exercise
                                       Shares      Price     Shares      Price     Shares      Price
                                      --------   --------   --------   --------   --------   --------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Outstanding at beginning of year       182,497    $ 9.23     182,497     $9.23     182,497     $9.23
Granted                                 77,758     11.79          --                    --
Exercised                              (37,302)     9.23          --                    --
Forfeited                              (13,232)     9.26          --                    --
                                      --------    ------    --------     -----    --------     -----
Outstanding at end of year             209,721    $10.17     182,497     $9.23     182,497     $9.23
                                      ========    ======    ========     =====    ========     =====

Options exercisable at year-end        101,285    $ 9.20     107,903     $9.22      71,402     $9.21
                                      ========    ======    ========     =====    ========     =====

Weighted average fair value of
   options granted during year        $   3.96              $     --              $     --
                                      ========              ========              ========
</TABLE>

Options outstanding at year-end 2003 were as follows.

<TABLE>
<CAPTION>
                          Outstanding                   Exercisable
              -----------------------------------   ------------------
                             Weighted
                             Average     Weighted             Weighted
Range of                    Remaining     Average              Average
Exercise                   Contractual   Exercise             Exercise
Prices            Number       Life        Price     Number     Price
- --------------   -------   -----------   --------   -------   --------
<S>              <C>       <C>           <C>        <C>       <C>
$9.19 - $13.94   209,721    7.0 years     $10.17    101,285    $9.20
                 =======    =========     ======    =======    =====
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                      109

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and, additionally for banks,
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements can
initiate regulatory action.

Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At year-end 2003 and
2002, the most recent regulatory notifications categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that Management believes
have changed the institution's category.

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

<TABLE>
<CAPTION>
                                                                          To Be Well
                                                                      Capitalized Under
                                                     For Capital      Prompt Corrective
                                     Actual       Adequacy Purposes   Action Provisions
                                ---------------   -----------------   -----------------
                                Amount    Ratio     Amount   Ratio      Amount   Ratio
                                ------    -----     ------   -----      ------   -----
<S>                             <C>       <C>       <C>      <C>        <C>      <C>
2003
Total Capital to risk
   weighted assets              $15,093   21.6%     $5,597    8.0%      $6,997   10.0%

Tier 1 (Core) Capital to risk
   weighted assets               14,678   21.0%      2,799    4.0%       4,198    6.0%

Tier 1 (Core) Capital to
   adjusted assets               14,678   13.9%      4,217    4.0%       5,272    5.0%

Tangible Capital (to
   adjusted total assets)        14,678   13.9%      1,584    1.5%         N/A
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                      110

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (CONTINUED)

<TABLE>
<CAPTION>
                                                                          To Be Well
                                                                      Capitalized Under
                                                     For Capital      Prompt Corrective
                                     Actual       Adequacy Purposes   Action Provisions
                                ---------------   -----------------   -----------------
                                 Amount   Ratio     Amount   Ratio      Amount   Ratio
                                -------   -----     ------   -----      ------   -----
<S>                             <C>       <C>       <C>      <C>        <C>      <C>
2002
Total Capital to risk
   weighted assets              $21,163   38.6%     $4,385    8.0%      $5,482   10.0%

Tier 1 (Core) Capital to risk
   weighted assets               20,802   38.0%      2,193    4.0%       3,289    6.0%

Tier 1 (Core) Capital to
   adjusted assets               20,802   18.9%      4,403    4.0%       5,504    5.0%

Tangible Capital (to adjusted
   total assets)                 20,802   18.9%      1,650    1.5%         N/A
</TABLE>

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

When the Bank converted from a mutual to a stock institution, a "liquidation
account" was established at $14,300, which was net worth reported in the
conversion prospectus. Eligible depositors who have maintained their accounts,
less annual reductions to the extent they have reduced their deposits, would
receive a distribution from this account if the Bank liquidated. Dividends may
not reduce shareholders' equity below the required liquidation account balance.

Office of Thrift Supervision (OTS) regulations limit capital distributions by
savings associations. Generally, capital distributions are limited to
undistributed net income for the current and prior two years. At year-end 2003,
no amount is available to pay dividends to the Company without prior approval
from the OTS.

- --------------------------------------------------------------------------------
                                  (Continued)


                                      111

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 14 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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

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

<TABLE>
<CAPTION>
                                  2003               2002
                            ----------------   ----------------
                            Fixed   Variable   Fixed   Variable
                             Rate     Rate      Rate     Rate
                            -----   --------   -----   --------
<S>                         <C>     <C>        <C>     <C>
Commitments to make loans    $486     $  520    $123     $  769
Unused lines of credit                 4,257              2,294
</TABLE>

Commitments to make loans are generally made for periods of 60 days or less. The
fixed rate loan commitments have interest rates ranging from 5.25% to 7.00% and
maturities ranging from 15 years to 30 years.

- --------------------------------------------------------------------------------
                                   (Continued)


                                       112

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                                       2003                  2002
                                                               -------------------   -------------------
                                                               Carrying     Fair     Carrying      Fair
                                                                Amount     Value      Amount       Value
                                                               --------   --------   --------   --------
<S>                                                            <C>         <C>       <C>        <C>
Financial assets
   Cash and cash equivalents                                   $  8,936    $ 8,936   $ 12,861   $ 12,861
   Interest-bearing deposits in other financial institutions      1,587      1,587      7,205      7,205
   Securities available for sale                                 27,126     27,126      1,439      1,439
   Securities held to maturity                                       --         --     17,822     18,169
   Loans held for sale                                              106        107         --         --
   Loans, net                                                    58,024     59,341     62,565     65,119
   Federal Home Loan Bank stock                                   3,626      3,626      3,485      3,485
   Accrued interest receivable                                      487        487        403        403

Financial liabilities
   Deposits                                                     (73,358)   (72,789)   (74,690)   (75,345)
   Federal Home Loan Bank advances                               (7,500)    (7,500)   (11,430)   (12,819)
   Loan payable                                                      --         --     (4,900)    (4,900)
   Subordinated debentures                                       (5,155)    (5,155)        --         --
   Accrued interest payable                                         (65)       (65)       (63)       (63)
</TABLE>

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

Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable
and payable, demand deposits, short-term debt, and variable rate loans or
deposits that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair
values for impaired loans are estimated using discounted cash flow analysis or
underlying collateral values. Fair value of loans held for sale is based on
market quotes. Fair value of debt is based on current rates for similar
financing. The fair value of off-balance-sheet items is based on the current
fees or cost that would be charged to enter into or terminate such arrangements.

- --------------------------------------------------------------------------------
                                   (Continued)


                                       113

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Central Federal Corporation follows.

CONDENSED BALANCE SHEETS
December 31

<TABLE>
<CAPTION>
                                                     2003      2002
                                                   -------   -------
<S>                                                <C>       <C>
ASSETS
Cash and cash equivalents                          $ 9,238   $   516
Investment in banking subsidiary                    15,099    20,831
Investment in and advances to other subsidiaries       155        --
Other assets                                           755     1,291
                                                   -------   -------
Total assets                                       $25,247   $22,638
                                                   =======   =======

LIABILITIES AND EQUITY
Debt                                               $ 5,155   $ 4,900
Accrued expenses and other liabilities                 236       155
Shareholders' equity                                19,856    17,583
                                                   -------   -------
Total liabilities and shareholders' equity         $25,247   $22,638
                                                   =======   =======
</TABLE>

CONDENSED STATEMENTS OF OPERATIONS
Years ended December 31

<TABLE>
<CAPTION>
                                          2003     2002    2001
                                        -------   -----   ------
<S>                                     <C>       <C>     <C>
Interest income                         $    20   $  77   $   86
Other income                                 11      --       --
Interest expense                             59     297      494
Other expense                               338     173      204
                                        -------   -----   ------
Loss before income tax and
   effect of subsidiaries' operations      (366)   (393)    (612)
Income tax benefit                         (125)   (137)    (208)
Effect of subsidiaries' operations       (2,133)    930    1,002
                                        -------   -----   ------
Net income (loss)                       $(2,374)  $ 674   $  598
                                        =======   =====   ======
</TABLE>

- --------------------------------------------------------------------------------
                                   (Continued)


                                       114

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollar amounts in thousands except per share data)

- --------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)

CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31

<TABLE>
<CAPTION>
                                                       2003      2002      2001
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Cash flows from operating activities
   Net income (loss)                                 $(2,374)  $   674   $   598
   Adjustments:
      Effect of subsidiaries' operations               2,133      (930)   (1,002)
      Change in other assets and other liabilities      (236)     (230)      421
                                                     -------   -------   -------
         Net cash from operating activities             (477)     (486)       17

Cash flows from investing activities
   Cash received in repayment of ESOP loan               853       212       212
   Dividends received from bank                        5,437     2,800        --
   Investments in subsidiaries                          (155)       --        --
                                                     -------   -------   -------
         Net cash from investing activities            6,135     3,012       212

Cash flows from financing activities
   Proceeds of borrowings                              5,155        --        --
   Repayments of borrowings                           (4,900)   (2,100)       --
   Proceeds from stock issue                           3,119        --        --
   Proceeds from exercise of stock options               345        --        --
   Purchase of treasury stock                             --    (1,044)      (75)
   Dividends paid                                       (655)     (551)     (482)
   Dividends on unallocated ESOP shares                   --       (53)      (60)
                                                     -------   -------   -------
         Net cash from financing activities            3,064    (3,748)     (617)
                                                     -------   -------   -------

Net change in cash and cash equivalents                8,722    (1,222)     (388)

Beginning cash and cash equivalents                      516     1,738     2,126
                                                     -------   -------   -------

Ending cash and cash equivalents                     $ 9,238   $   516   $ 1,738
                                                     =======   =======   =======
</TABLE>

- --------------------------------------------------------------------------------
                                  (Continued)


                                       115

<PAGE>

NOTE 17 - EARNINGS PER SHARE

The factors used in the earnings per share computation follow.

<TABLE>
<CAPTION>
                                                                    2003         2002         2001
                                                                 ----------   ----------   ----------
<S>                                                              <C>          <C>          <C>
Basic
   Net income (loss)                                             $   (2,374)  $      674   $      598
                                                                 ==========   ==========   ==========

   Weighted average common shares outstanding                     1,815,210    1,530,429    1,564,797
                                                                 ==========   ==========   ==========

   Basic earnings (loss) per common share                        $    (1.31)  $     0.44   $     0.38
                                                                 ==========   ==========   ==========

Diluted
   Net income (loss)                                             $   (2,374)  $      674   $      598
                                                                 ==========   ==========   ==========

   Weighted average common shares outstanding for basic
      earnings (loss) per share                                   1,815,210    1,530,429    1,564,797

   Add: Dilutive effects of assumed exercises of stock options
      and stock based incentive plan shares                          45,349       31,570        4,713
                                                                 ----------   ----------   ----------

   Average shares and dilutive potential common shares            1,860,559    1,561,999    1,569,510
                                                                 ==========   ==========   ==========

   Diluted earnings (loss) per common share                      $    (1.28)  $     0.43   $     0.38
                                                                 ==========   ==========   ==========
</TABLE>

All stock options for shares of common stock were considered in computing
diluted earnings per common share for 2003. Stock options for 8,000 shares of
common stock were not considered in computing diluted earnings per common share
for 2002 and 2001 because they were antidilutive.


                                       116

<PAGE>

CENTRAL FEDERAL CORPORATION
AND CENTRAL FEDERAL BANK
BOARD OF DIRECTORS

David C. Vernon, Chairman
President & Chief Executive Officer
Central Federal Corporation

Chairman & Chief Executive Office
Central Federal Bank

Jeffrey W. Aldrich
Former President
Sterling China Co.

Mark S. Allio
President and CEO
Rock Financial Services

Thomas P. Ash
Superintendent
Mid-Ohio Educational Service Center

William R. Downing
President
R.H. Downing, Inc.

Gerry W. Grace
President
Grace Services, Inc.

Jerry F. Whitmer
Partner
Brouse McDowell

CENTRAL FEDERAL BANK
COLUMBUS DEVELOPMENT BOARD

Daniel P. Finkelman
Senior Vice President
Limited Brands, Inc.

Julia F. Johnson
Former Senior Vice President
Bank One Corp.

R. Parker MacDonell
President - Columbus Region
Central Federal Bank

John L. Mead
Owner
Little Turtle Golf Course

Louis A. Nobile, Jr.
Former President
Bank One Lima

Robert F. Parsons
Director of Development & Marketing
Communities in Schools, Columbus Inc.

Kim Rice Wilson
President
Six String Concerts


CENTRAL FEDERAL CORPORATION
OFFICERS

David C. Vernon
Chairman, President &
Chief Executive Officer

Eloise L. Mackus
Senior Vice President,
General Counsel & Secretary

Therese A. Liutkus, CPA
Chief Financial Officer

CENTRAL FEDERAL BANK
OFFICERS

David C. Vernon
Chairman & Chief Executive Officer

Raymond E. Heh
President & Chief Operating Officer

Edward L. Baumgardner
Regional President - Columbiana County

R. Parker MacDonell
Regional President - Columbus

Eloise L. Mackus
Senior Vice President, General Counsel & Secretary

Therese A. Liutkus, CPA
Chief Financial Officer

William R. Reed
Senior Credit Officer

Daniel F. Galeoti
Vice President

Charles O. Standley
Vice President

J. Brent Thomas
Vice President

Nancianne Dodgson
Assistant Vice President

Deborah L. Jacob
Assistant Vice President

John S. Lawell
Assistant Vice President

Daphne U. Moehring
Assistant Vice President

Diana M. Spencer
Assistant Vice President

Allan G. Dingey
Bank Security Officer

Stephen C. Burt
Commercial Banking Officer

Janna L. Cable
Loan Officer

Marjorie K. Minor
Loan Officer

Laura L. Martin
Assistant Secretary


                                      117

<PAGE>

CENTRAL FEDERAL BANK
OFFICE LOCATIONS
FAIRLAWN
2923 Smith Road
Akron, Ohio  44333
330-666-7979

David C. Vernon
Chairman & Chief Executive Officer

Raymond E. Heh
President & Chief Operating Officer

Eloise L. Mackus
Senior Vice President,
General Counsel & Secretary

Therese A. Liutkus, CPA
Chief Financial Officer

William R. Reed
Senior Credit Officer

Nancianne Dodgson
Assistant Vice President,
Office Manager

Danielle M. Boxler
Client Service Manager

Stephen C. Burt
Commercial Banking Officer

Krista J. Dobronos
Client Service Representative

Kenneth V. Hastings
Client Service Manager

Deborah L. Jacob
Assistant Vice President, Compliance & Audit

John S. Lawell
Assistant Vice President
Operations

Leigh Ann Martelon
Staff Accountant

Laura L. Martin
Assistant Secretary,
Executive Assistant

Richard J. Miller
Accounting Manager

Amy L. Tenney
Controller

Mary D. Williams
Accounting
Bank Secrecy Act Officer

WELLSVILLE
601 Main Street
Wellsville, Ohio  43968
330-532-1517

Edward L. Baumgardner
Regional President -
Columbiana County

Diana M. Spencer
Assistant Vice President,
Wellsville and Calcutta
Office Manager

Joan L. Boley
Loan Operations

Lisa A. Conkle
Mortgage Loan Processor

Amy Dalrymple
Teller

Allan G. Dingey
Client Service Manager
and Collections

Daniel F. Galeoti
Vice President,
Mortgage Lending

Sheryl A. Gibson
Teller

Michele R. Guildoo
Administrative Assistant,
Human Resources Coordinator

Carolyn J. LaScola
Teller

Kimberlee K. Little
Mortgage Loan Processor

Marjorie K. Minor
Loan Officer

Vicky M. Novacky
Teller

Susan D. Pickens
Deposit Operations

Becky Sant
Teller

Patricia A. Wilson
Teller

Teresa L. Wilson
Teller

CALCUTTA
49028 Foulks Drive
Calcutta, Ohio  43920
330-385-4323

Charles O. Standley
Vice President,
 Consumer Lending

Janice L. Boso
Teller

Janna L. Cable
Loan officer

Margie C. Cline
Teller

Pamela S. Davis
Commercial Loan Operations and
Consumer Lending

Marian C. Ferlaino
Client Service Supervisor

Mary C. Gilkinson
Teller

Rhonda R. McDole
Teller

Delores M. Mosti
Consumer Lending

COLUMBUS
4249 Easton Way, Suite 125
Columbus, Ohio  43219
614-334-7979

R. Parker MacDonell
Regional President-
Columbus

Daphne U. Moehring
Assistant Vice President,
Office Manager

Matthew Allyn
Client Service Manager

Arline R. Moore
Administrative Assistant

J. Brent Thomas
Vice President,
Business Banker


                                      118

<PAGE>

Corporate Data

Annual Report

A copy of the Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission will be available March 30, 2003 without charge upon written
request to:

Therese A. Liutkus - Chief Financial Officer
Central Federal Corporation
2923 Smith Road
Fairlawn, Ohio  44333
Phone: 330-666-7979 ext. 1012
Fax: 330-666-7959
Email: TerriLiutkus@centralfedbank.com

Annual Meeting

The Annual Meeting of Shareholders of Central Federal Corporation will be held
at 10 a.m. on Tuesday, April 20, 2004 at the Central Federal Bank Fairlawn
Office, 2923 Smith Road, Fairlawn, Ohio 44333.

Shareholder Services

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

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


                                      119

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.1
<SEQUENCE>9
<FILENAME>l05633aexv14w1.txt
<DESCRIPTION>EXHIBIT 14.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 14.1

                            FINANCIAL CODE OF ETHICS

This Financial Code of Ethics (this "Code") has been adopted by Central Federal
Corporation to establish standards and policies for its principal executive,
financial and accounting officers (collectively, the "covered officers") with
respect to ethical conduct, conflicts of interest and compliance with law. It
embodies the commitment of the Company to conduct its business in accordance
with all applicable laws, rules and regulations and the highest ethical
standards. The covered officers are listed on the attached Schedule I.

This Code summarizes the standards that must guide the actions of the covered
officers. This Code cannot and does not cover every issue that may arise, or
every situation in which ethical decisions must be made, but rather sets forth
key guiding principles of business conduct that the Company expects of the
covered officers. This Code should be read in conjunction with the Company's
other corporate polices and procedures, including those related to corporate
disclosure, conflicts of interest, insider trading and the protection of
confidential information, as set forth in the Company's Code of Business Conduct
and Ethics applicable generally to employees, officers and directors of the
Company, to which the covered officers also are subject.

It is the Company's intention that this Code serve as the Company's written code
of ethics that is the subject of Section 406 of the Sarbanes-Oxley Act of 2002
and related rules of the Securities and Exchange Commission (the "SEC").

The Company is strongly committed to conducting its business affairs with
honesty and integrity and in full compliance with all applicable laws, rules and
regulations. No covered officer may commit an illegal or unethical act or
instruct or authorize others to do so, for any reason, if such act is or may
appear to be related to such person's employment.

The covered officers are responsible for full, fair, accurate, timely and
understandable disclosure in the periodic reports required to be filed by the
Company with the SEC. It is the responsibility of each such person to assist the
Company in fulfilling its disclosure obligations and to notify the Audit
Committee promptly of any material information of which such person may become
aware that affects the disclosures made by the Company in its public filings.

Each person subject to this Code shall promptly bring to the attention of the
Audit Committee any information such person may have concerning (i) significant
deficiencies in the design or operation of internal controls that could
adversely affect the Company's ability to record, process, summarize and report
financial data or (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company's
financial reporting, disclosures or internal controls.

Each person subject to this Code shall promptly bring to the attention of the
Audit Committee and the General Counsel or Chief Executive Officer any
information such person may have regarding (i) any violation of the Company's
Code of Business Conduct and Ethics, and any actual or apparent conflicts of
interest between personal and professional relationships, involving any member
of management or other employee who has a significant role in the Company's
financial reporting, disclosures or internal controls or (ii) evidence of a
material violation of the securities or other laws, rules or regulations
applicable to the Company and the operation of its business, by the Company or
any agent thereof, or of violation of this Code.

No covered officer shall unduly or fraudulently influence, coerce, manipulate or
mislead any authorized audit or interfere with any auditor engaged in the
performance of an internal or independent audit of the Company's financial
statements or accounting books and records.

Each covered officer shall (i) comply with rules and regulations of federal,
state and local governments and other appropriate private and public regulatory
agencies and (ii) avoid conflicts of interest in personal and professional
relationships that may conflict with the interests of the Company or make it
difficult to perform Company work objectively and effectively; provided however,
that certain actual or apparent conflicts of interest shall be permissible if
the contract,


                                       120

<PAGE>

transaction, relationship or interest is disclosed or known to the Board of
Directors or the stockholders of the Company, and the Board or the stockholders
in good faith authorize, approve or ratify the contract, transaction,
relationship or interest in accordance with the bylaws of the Company.

No person subject to this Code shall use confidential information acquired in
the course of Company work for personal advantage or use or share such
information for stock trading purposes. Each covered officer also shall abide by
the Company's specific policies governing trading in securities of the Company
by its employees.

The Board of Directors shall determine any appropriate action to be taken for
any violation of this Code. Any such action shall be reasonably designed to
deter wrongdoing and to promote accountability for adherence to this Code. Such
actions may include censure by the Board, demotion or re-assignment, suspension
with or without pay or benefits, termination of employment and referral for
criminal prosecution. In determining the appropriate action in a particular
case, the Board of Directors will consider all relevant information, including
the nature and severity of the violation, whether the violation was an isolated
occurrence and whether the violation appears to have been intentional or
inadvertent.

The Audit Committee has adopted Procedures for Reporting Complaints, which
provide that any person may submit a good faith complaint, report or concern
regarding accounting or auditing matters relating to the Company or violations
of the Company's policies to the management of the Company without fear of
dismissal or retaliation of any kind. The Company is committed to achieving
compliance with all applicable securities laws and regulations, accounting
standards, accounting controls and audit practices. These procedures cover (a)
the receipt, retention and treatment of complaints, reports and concerns
regarding accounting, internal accounting controls or auditing matters
("Accounting Matters") and regarding potential violations of applicable laws,
rules and regulations or of the Company's codes, policies and procedures
("Compliance Matters") and (b) the confidential, anonymous submission of
complaints, reports and concerns regarding Accounting Matters or Compliance
Matters. A copy of the Procedures for Reporting Complaints is attached to this
Code as Exhibit A.

Only the Board of Directors may grant a waiver of or amend any provision of this
Code, and any such waiver or amendment will be promptly disclosed as required by
law or regulation.

This Code has been approved by the Board of Directors.

                                   SCHEDULE I
                                COVERED OFFICERS

David C. Vernon, Chairman, President and Chief Executive Officer
Raymond E. Heh, President
Edward L. Baumgardner - Regional President - Columbiana County
R. Parker MacDonell - Regional President - Columbus
Eloise L. Mackus - Senior Vice President, General Counsel and Secretary
Therese Ann Liutkus - Chief Financial Officer
Amy L. Tenney - Controller
William R. Reed - Senior Credit Officer

                                    EXHIBIT A
                       PROCEDURES FOR REPORTING COMPLAINTS

Any person may submit a good faith complaint, report or concern regarding
accounting or auditing matters relating to Central Federal Corporation
("Company") or violations of the Company's policies to the management of the
Company without fear of dismissal or retaliation of any kind. The Company is
committed to achieving compliance with all applicable securities laws and
regulations, accounting standards, accounting controls and audit practices.


                                       121

<PAGE>

In order to facilitate reporting, the Company's Audit Committee has established
the following procedures for (a) the receipt, retention and treatment of
complaints, reports and concerns regarding accounting, internal accounting
controls or auditing matters ("Accounting Matters") and regarding potential
violations of applicable laws, rules and regulations or of the Company's codes,
policies and procedures ("Compliance Matters") and (b) the confidential,
anonymous submission of complaints, reports and concerns regarding Accounting
Matters or Compliance Matters.

RECEIPT OF CALLS

Any person with concerns regarding Accounting Matters or Compliance Matters may
report such concerns on a confidential or anonymous basis to the Audit Committee
of the Company by calling the Assistant Vice President, Compliance and Audit at
330-666-7979 extension 1017, the Ethics Line established by the Company for that
purpose.

DIRECT CORRESPONDENCE WITH NON-MANAGEMENT DIRECTORS

The Ethics Line also may be used by interested persons, on a direct and
confidential basis, to raise concerns regarding the Company to the
non-management directors of the Company.

SCOPE OF MATTERS COVERED BY PROCEDURES

These procedures relate to complaints, reports and concerns about questionable
accounting or auditing matters, including:

- -    fraud or error in the preparation, evaluation, review or audit of any
     financial statement of the Company;

- -    fraud or error in the recording and maintaining of financial records of the
     Company;

- -    deficiencies in or noncompliance with the Company's internal accounting
     controls;

- -    misrepresentation or false statement to or by a senior officer or
     accountant regarding a matter contained in the financial records, financial
     reports (including discussions in quarterly and annual reports filed with
     the Securities and Exchange Commission) or audit reports of the Company;
     and

- -    deviation from full and fair reporting of the Company's financial
     condition.

These procedures also relate to reports of violations, including violations of:

- -    applicable laws, rules and regulations;

- -    Nasdaq listing standards;

- -    the Company's Corporate Governance Guidelines;

- -    the Company's Code of Business Conduct and Ethics;

- -    the Company's Financial Code of Ethics; and

- -    any other code, policy or procedure established by the Company.

TREATMENT OF COMPLAINTS AND REPORTS

The Company has retained a third party provider to accept, verify and log all
calls received on the Ethics Line. Upon receipt of a call, the third party
provider will notify the Company's internal audit department, which will log the
call and advise the Audit Committee of the call. The Audit Committee will then
(a) determine whether the call pertains to Accounting Matters or Compliance
Matters or is a concern addressed to the non-management directors of the Company
and (b) when possible, acknowledge receipt of the call to the sender. Calls
relating to Accounting Matters will be reviewed under Audit Committee direction
and oversight by the internal audit department or such other persons as the
Audit Committee determines to be appropriate. Calls relating to Compliance
Matters will be reviewed under Audit Committee direction and oversight by the
Company's legal department or human resources department, as appropriate. If a
call is intended for the non-management directors of the Company, the Audit
Committee will inform the remaining non-management directors of the call and
make the recording of the call available to them. Confidentiality with respect
to all complaints, reports and concerns will be maintained by the third party
provider, the Company, the Audit Committee and the


                                       122

<PAGE>

non-management directors of the Company to the fullest extent possible,
consistent with the need to conduct an adequate review.

Prompt and appropriate corrective action will be taken when and as warranted in
the judgment of the Audit Committee, the Board of Directors or the
non-management directors, as applicable.

The Company will not take any adverse action against anyone as a result of any
good faith complaint, report or concern made pursuant to these procedures and
will not discharge, demote, suspend, threaten, harass or in any manner
discriminate against any employee in the terms and conditions of employment
based upon any lawful actions taken by the employee with respect to good faith
reporting of complaints, concerns or other matters regarding the Company or
otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.

REPORTING AND RETENTION OF COMPLAINTS AND INVESTIGATIONS

The Company's internal audit department will maintain a log of all calls on the
Ethics Line, tracking their receipt, investigation and resolution and will
prepare a periodic summary report for the Audit Committee.

AMENDMENTS

The Audit Committee of the Board of Directors of the Company may amend these
procedures at any time, consistent with the requirements of applicable laws,
rules and regulations.


                                       123

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.2
<SEQUENCE>10
<FILENAME>l05633aexv14w2.txt
<DESCRIPTION>EXHIBIT 14.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 14.2

                       CODE OF BUSINESS CONDUCT AND ETHICS

                               FINANCIAL POLICIES

USE OF COMPANY ASSETS

The Company's assets are to be used exclusively in the pursuit of the Company's
business except for minimal personal use authorized by your supervisor in
accordance with other Company policies. The Company's assets include equipment,
facilities, supplies, services such as telephones and computer networks, and the
time and efforts of its employees. You should not use Company assets for
personal gain or convenience, or make Company assets available for the gain or
convenience of anyone else, or for any purpose other than conducting the
Company's business unless you have management authorization to do so.

AUTHORITY TO MAKE COMMITMENTS

Only specific employees are authorized to make financial or other commitments on
behalf of the Company. Commitments might be such things as approving a loan or
other extension of credit, ordering equipment or materials, authorizing business
travel, approving payment of an invoice or expense report, authorizing budgets
or budget overruns, signing leases or other contracts, selling Company assets,
settling litigation or other claims, borrowing money, setting compensation or
employee benefits, making charitable contributions and other transactions. These
authorizations are in writing and are governed by corporate policies. You should
not make a Company commitment unless you have the authority to do so.

BRIBES AND OTHER ILLEGAL CORPORATE PAYMENTS

The use of Company funds for payments to any individual, company or organization
for the purpose of obtaining favorable treatment in securing business or other
special considerations is prohibited. This policy does not prohibit normal and
customary business expenses such as reasonable entertainment, trade organization
dues or similar expenses that are allowed by applicable Company policies, which
must be properly reported on an appropriate expense report form.

RELATIONS WITH GOVERNMENT EMPLOYEES

The U.S. government has various regulations prohibiting government personnel
from accepting entertainment, gifts, gratuities or other business courtesies
that may be acceptable in the private commercial sector. All Company employees
who may have to make these sorts of judgments must understand and comply with
the letter and intent of such regulations.

INTEGRITY OF RECORDS AND REPORTS

The Company's accounting records are relied upon to produce reports to the
Company's management, shareholders, governmental entities and others. All
Company accounting records and reports produced from those records shall be kept
and presented in accordance with the laws of each applicable jurisdiction and
must accurately and fairly reflect in reasonable detail the Company's assets,
liabilities, revenues and expenses.


                                       124

<PAGE>

Responsibility for accurate and complete financial records does not rest solely
with the Company's accounting employees. All employees involved in approving
transactions, supplying supporting information for transactions and determining
account classifications have responsibility for complying with our policies.

REPORTS TO MANAGEMENT

The same high standards required in the Company's external reporting apply to
financial reports to management. Accruals and estimates included in internal
reports (such as business plans, budgets and forecasts) shall be supported by
appropriate documentation and based on good-faith judgment.

PAYMENTS AND DISBURSEMENTS

All payments made by or on behalf of the Company must be documented in the
accounting records with appropriate approval(s) and an adequate description of
the business purpose of the disbursement.

CASH DEPOSITS AND BANK ACCOUNTS

All cash received by the Company shall be promptly recorded in the accounting
records and deposited in a bank account properly authorized by the Company. All
bank accounts and other cash accounts shall be clearly and accurately recorded
in the accounting records. No unrecorded accounts, funds or assets shall be
established for any purpose.

COOPERATION WITH INQUIRIES

Employees shall provide complete and accurate information in response to
inquiries from the Company's internal and outside independent auditors as well
as the Company's legal counsel.

POLITICAL CONTRIBUTIONS AND ACTIVITIES

No Company funds or assets, including the work time of any employee, may be
contributed, loaned or made available, directly or indirectly, to any political
party or to the campaign of any candidate for a local, state or federal office.

CONFLICTS OF INTEREST

You must carry out your professional responsibilities with integrity and with a
sense of loyalty to the Company. You must avoid any situation that involves a
possible conflict or an appearance of a conflict of interest between your
personal interests and the interests of the Company. Knowingly acting in a
manner that presents a conflict between your personal interests and the best
interests of the Company is a violation of this Code.

A conflict of interest cannot be defined precisely, only illustrated. The basic
factor that exists in all conflict situations is a division of loyalty between
the Company's best interests and the personal interest of the individual. Many,
but not all, conflict situations arise from personal loyalties or personal
financial dealings. It is impossible to list every circumstance giving rise to a
possible conflict of interest, but the following illustrates the types of
situations that may cause conflicts.

FAMILY MEMBERS

A conflict of interest may exist when the Company does business with or competes
with an organization in which a family member has an ownership or employment
interest. "Family members" include a spouse, parents, children, siblings and
in-laws. You may not conduct business on behalf of the Company with family
members or an organization with which you or a family member is associated
unless you receive prior written approval under this Code.

OWNERSHIP IN OTHER BUSINESSES


                                       125

<PAGE>

You cannot own, directly or indirectly, a significant financial interest in any
business entity that does business with or is in competition with the Company
unless you receive prior written approval under this Code. As a guide, "a
significant financial interest" is defined as ownership by an employee and/or
family members of more than 1% of the outstanding securities/capital value of a
corporation or that represents more than 5% of the total assets of the employee
and/or family members.

OUTSIDE EMPLOYMENT

Employees must keep outside business activities, such as a second job or
self-employment, completely separate from the employee's activities with the
Company. Employees may not use Company assets, facilities, materials, or
services of other employees for outside activities unless specifically
authorized by the Company, such as for certain volunteer work.

DISCLOSURE REQUIRED - WHEN IN DOUBT, ASK!

You should avoid any actual or apparent conflict of interest. Conflicts can
arise unexpectedly and prompt disclosure is critically important. Employees must
disclose existing or emerging conflicts of interest (including personal
relationships that could reasonably be considered to create conflicts) to their
manager and follow the guidance provided. Executive officers and directors must
disclose existing or emerging conflicts of interest to the Chairman of the Audit
Committee.

ACCEPTING GIFTS AND GRATUITIES

ACCEPTING THINGS OF VALUE

Except as provided below, you may not solicit or accept for yourself or for a
third party anything of value from anyone in return for any business, service or
confidential information of the Company. Things of value include gifts, meals,
favors, services and entertainment. The purpose of this policy is to ensure that
the Company's business is safeguarded from undue influence of bribery and
personal favors.

The solicitation of and acceptance of things of value is generally prohibited by
the Bank Bribery Act. Violations may be punished by fines and imprisonment.

PERMITTED TRANSACTIONS

The following transactions are permitted and will be considered as exceptions to
the general prohibition against accepting things of value:

     -    Acceptance of gifts, gratuities, amenities or favors based on family
          or personal relationships when the circumstances make clear that it is
          those relationships, rather than the business of the Company, that are
          the motivating factors;

     -    Acceptance of meals, refreshments, travel arrangements, accommodations
          or entertainment, all of a reasonable value, in the course of a
          meeting or other occasion, the purpose of which is to hold bona fide
          business discussions or to foster better business relations, provided
          that the expense would be paid for by the Company as a reasonable
          business expense if not paid for by another party;

     -    Acceptance of advertising or promotional material of reasonable value,
          such as pens, pencils, note pads, key chains, calendars and similar
          items;

     -    Acceptance of discounts or rebates on merchandise or services that do
          not exceed those available to other customers;


                                       126

<PAGE>

     -    Acceptance of gifts of reasonable value related to commonly recognized
          events or occasions, such as a promotion, new job, wedding,
          retirement, birthday or holiday; or

     -    Acceptance of civic, charitable, education or religious organizational
          awards for recognition of service and accomplishment.

OTHER TRANSACTIONS

If you are offered or receive something of value beyond what is permitted in
this Code, you must obtain prior approval before you may accept or keep it.
Transactions other than those described above may be approved so long as
approval is consistent with the Bank Bribery Act. If you are at all uncertain as
to whether you may accept something of value, do not hesitate to ask.

CORPORATE OPPORTUNITIES

Directors and officers of the Company stand in a fiduciary relationship to the
Company. It is a breach of this duty for any such person to take advantage of a
business opportunity for his or her own personal profit or benefit when the
opportunity is within the corporate powers of the Company and when the
opportunity is of present or potential practical advantage to the Company,
unless the Board of Directors knowingly elects not to avail itself of such
opportunity and the director's or officer's participation is approved in advance
by the Board. It is the policy of the Company that no director or executive
officer appropriate a corporate opportunity without the consent of the Board of
Directors.

EQUAL EMPLOYMENT OPPORTUNITY, HARASSMENT AND SEXUAL HARASSMENT

EQUAL EMPLOYMENT OPPORTUNITY

It is the policy of the Company to provide equal employment opportunity in full
compliance with all federal, state and local equal employment opportunity laws
and regulations.

HARASSMENT PROHIBITED

The Company is committed to providing a work environment where all employees
work free from harassment because of race, color, religion, age, gender, sexual
orientation, national origin, disability or any characteristic protected by
applicable law. The Company will not tolerate harassment by employees,
supervisors, customers or others.

Our policy is essentially based on common sense: all employees should treat each
other with respect and courtesy. Harassment in any form - including verbal and
physical conduct, visual displays, threats, demands and retaliation - is
prohibited.

WHAT CONSTITUTES SEXUAL HARASSMENT

The Equal Employment Opportunity Commission has guidelines that define sexual
harassment as unwelcome sexual advances, requests for sexual favors and other
verbal or physical conduct of a sexual nature when:

     -    Submission to such conduct is made either explicitly or implicitly a
          term or condition of an individual's employment, or used as the basis
          for employment decisions affecting such individual; or

     -    Such conduct creates an intimidating, hostile or offensive working
          environment.

Sexual harassment can involve either a tangible employment action or a hostile
work environment. Sexual harassment includes more than overt physical or verbal
intimidation. Lewd or vulgar remarks, suggestive comments, posters, pictures


                                       127

<PAGE>

and calendars, pressure for dates and sexual favors, and unacceptable physical
contact are examples of what can constitute harassment.

It is important to realize that what may not be offensive to you may be
offensive to others. You should consider carefully the effect of your words and
actions on others, and should not assume that another employee's failure to
object means that the employee welcomes the behavior at issue. The Company as a
general matter does not seek to regulate the private social behavior of
employees. However, intimate relationships between supervisors and employees
whom they directly supervise are discouraged. Because of the undesirable
workplace repercussions that they may have, any such ongoing relationship should
be disclosed to the supervisor's department head. All employees should
understand that no one at the Company has the authority to offer job benefits or
threaten job disadvantages based on the provision of sexual favors.

Sexual harassment also can occur among co-workers or result from behavior by
contractors or other non-employees who have reason to interact with Company
employees. Our policy extends to these circumstances as well.

OBLIGATION TO REPORT

Any employee who has reason to believe that he/she is being harassed must
promptly report the harassment. The official procedure for reporting violations
or suspected violations of this policy is located on page 13 of this Code under
the Heading "How to Report a Violation." Do not allow an inappropriate situation
to continue by not reporting it, regardless of who is creating the situation.

INVESTIGATIONS

As set forth in "Administration of the Code of Business Conduct," beginning on
page 13, the Company will promptly investigate allegations of harassment and, to
the extent possible, conduct such investigations confidentially. Any employee
who is found to have violated this policy is subject to discipline or discharge.

NO RETALIATION

The Company will not tolerate retaliation in any form against an employee who
has, in good faith, reported an incident of harassment, and employees should not
fear that such a report will endanger his/her job.

ILLEGAL AND IMPAIRING SUBSTANCES

You may not possess, use, sell, distribute or be under the influence of illegal
drugs while on Company property or while conducting Company business anywhere.
Such behavior is a violation of Company policy in addition to being a violation
of the law.

When reporting for work and throughout the work day, you must be fit for duty at
all times and, in particular, not pose a safety hazard to yourself or others
through your use of alcohol or other legal, but impairing, substances.

WORKPLACE VIOLENCE

The Company expressly prohibits any acts of violence or threats of violence by
any Company employee against any other person in or about Company facilities or
in connection with the conduct of Company business elsewhere at any time.

You are prohibited from possessing firearms while on Company property or while
conducting Company business anywhere at any time unless authorized by the
Company.


                                       128

<PAGE>

MARKETING PRACTICES AND ANTITRUST

MARKETING PRACTICES

The Company's products and services must be sold fairly and honestly. You should
not attempt to take advantage of anyone through manipulation, concealment, abuse
of privileged information, misrepresentation of material facts, or any other
unfair practice. Many of the products and services provided by the Company are
subject to laws and regulations that specify the information that must be
provided to the Company's customers. It is the policy of the Company to comply
fully with these disclosure requirements.

ANTITRUST

The antitrust laws are intended to foster free and open competition and it is
important that the Company comply with the letter and the spirit of such laws.
Agreements that reduce business competition are a core concern of the antitrust
laws and violations may result in severe civil and criminal penalties to the
Company and to individuals. Antitrust laws pertain to dealings with customers
and suppliers as well as competitors.

In some cases, depending on the circumstances, the antitrust laws prohibit
discussions among competitors about competitively sensitive subjects. The most
serious antitrust violations are agreements among competitors that directly
restrict competition among them.

These include agreements:

     -    To raise, lower or stabilize prices;

     -    To divide the areas in which they will do business or the customers
          they will serve; or

     -    To refuse to deal with certain customers or suppliers.

Conduct intended to drive a competitor out of business may also violate
antitrust laws. It is the policy of the Company to fully comply with all
applicable antitrust laws.

Antitrust is a complex area of the law and violations have serious consequences
for the Company and for individuals personally. The Company's legal counsel
should be consulted with any questions.

COMPUTER NETWORKS, VOICE MAIL, E-MAIL AND THE INTERNET

Many Company employees depend on access to computer networks, voice mail, e-mail
and/or the Internet to do their jobs. These tools come with risks and
responsibilities that all employees must understand and accept.

You must use these resources only for the business activities of the Company
(except as described under "Authorized Uses" on page 8) and:

     -    Properly identify yourself in electronic communication;

     -    Use only your own password and user ID to gain access to systems or
          data;

     -    Accept full personal responsibility for the activities undertaken with
          your password and user ID;


                                       129

<PAGE>

     -    Delete e-mail, voice mail and other electronic files in accordance
          with applicable record retention policies; and

     -    Comply with the computer security policies of the Company and conduct
          yourself in a manner that protects the Company from damage, theft,
          waste and violations of the law, including:

               -    Protecting against exposure to potentially destructive
                    elements, intentional (viruses, sabotage, etc.) or
                    unintentional (bugs); and

               -    Protecting against unauthorized access to Company
                    information or resources (hacking).

COMPANY PROPERTY AND PRIVACY

Computer networks and electronic communications systems, and all messages and
log files generated on or handled by them (including back-up copies), are
considered to be the property of the Company.

There should be no expectation of privacy in these electronic interactions. The
Company may monitor the content of your electronic communications or monitor the
content of server log files to review what Web sites or other Internet locations
you have visited and what files you may have sent or received. Computer
networks, e-mail systems, voice mail systems and server logs are monitored
regularly to support routine and non-routine activities such as operations,
maintenance, auditing, security and investigations. You should also keep in mind
that, as a matter of law, the Company may be called upon to turn over this
information to law enforcement and private litigants.

You may not intercept or disclose, or assist in intercepting or disclosing,
electronic communications or Internet activity except as specifically provided
above and only then with appropriate authorization.

AUTHORIZED USES

Company computer networks, e-mail and voice mail systems and Internet access
generally must be used only for Company business activities. Incidental personal
use is permitted if it:

     -    Doesn't preempt or interfere with any Company business activity or
          with employee productivity; and

     -    Consumes only a trivial amount of Company resources.

Incidental personal use is subject to the same policies as business use.


                                       130

<PAGE>

PROHIBITED USES

Under no circumstances should Company computer networks, e-mail and voice mail
systems or Internet access be used:

     -    For any illegal activity;

     -    To communicate offensive sexual, racial or other remarks, jokes, slurs
          and obscenities;

     -    For private business, commercial or solicitation activities;

     -    For chain-letter communications of any kind;

     -    For charitable endeavors that are not Company-sponsored or authorized,
          including any fundraising;

     -    For gambling; or

     -    For pornography.

Additional uses may be prohibited or limited by other provisions of this Code or
by other Company policies.

CONFIDENTIAL INFORMATION

Many employees learn confidential Company information in the course of their
jobs and use it to perform important functions. It is vitally important that all
employees handle confidential information properly.

There are two major concerns:

     -    Preventing the release of unauthorized or inappropriate information
          that might adversely affect the Company's business; and

     -    Avoiding violations of the law, particularly the securities laws
          relating to disclosure of material financial information before the
          information is made public.

WHAT IS CONFIDENTIAL INFORMATION?

What follows is not a complete list of what is considered to be confidential
information, but it illustrates what is typically confidential unless it has
been disclosed by the Company in a securities filing, press release, or other
authorized formal or official public communication:

     -    Financial results, budgets or forecasts;

     -    Business plans, operating plans, strategy statements, memos, operating
          manuals, organization charts and other internal communications;

     -    Company investments, acquisitions or divestitures;

     -    New products, processes or designs;

     -    Whether a product or business is meeting financial or other
          expectations;


                                       131

<PAGE>

     -    Business relationships or the terms of any business arrangement,
          including prices paid or received by the Company;

     -    Customer data such as customer names and addresses or any confidential
          personal or business information of the customer;

     -    Advertising and marketing plans and campaigns;

     -    Wages and salaries, bonus or compensation plans, notices to employees
          or unannounced personnel changes; and

     -    Personal information about any employee.

In general, if information about the Company has not been made public by the
Company, it should be treated as confidential.

NON-DISCLOSURE AND NON-USE

You may not disclose to unauthorized persons or use for your own personal
advantage or profit, or the advantage or profit of another, any confidential
information that you obtain as a result of your position with the Company. This
includes not only financial analysts and the press, but also business
associates, family members and personal friends. It is a serious mistake to
disclose such information to anyone simply because you are confident that that
person will neither try to benefit from it nor disclose it to others.

Your obligations not to disclose the Company's confidential information and not
to use it for unauthorized purposes continue after your affiliation with the
Company ends.

PRIVACY OF CUSTOMER INFORMATION

The Company is entrusted with important information about individuals and
businesses. It is essential that you respect the confidential nature of this
information. The Company is legally obliged to protect the privacy of a
consumer's personal financial information. The Company's privacy practices are
set out in a privacy policy that is circulated to our customers and made
available to the public. All employees are expected to adhere to the Company's
privacy policy.

PUBLIC DISCLOSURES

You may be asked for information about the Company by the media, trade groups,
consultants and others collecting information for various purposes. You should
not make public statements on behalf of the Company or provide confidential
information in response to external inquiries unless you have been authorized to
do so.

PROPER DISCLOSURES

Some employees must disclose confidential Company information as a part of their
job responsibilities. This policy on confidential information is not intended to
prohibit such authorized disclosures.

A few examples of situations in which confidential information might properly be
disclosed are:

     -    Disclosure of operational data to vendors or consultants in connection
          with providing services to the Company;

     -    Participation in legitimate and authorized industry surveys;

     -    Providing data to governmental agencies as part of required filings;
          or


                                       132

<PAGE>

     -    An authorized employee responding to media or financial analyst
          inquiries.

You should be certain that you understand what you have been authorized to
disclose, and to whom, prior to disclosing any confidential information.

"INSIDE" INFORMATION AND INSIDER TRADING

You must not trade in the Company's stock when you have material information
about the Company that is not yet public. Material information is information
that would reasonably be expected to either (1) affect the price of securities
issued by the Company or (2) be important to an investor in deciding whether to
buy, sell or hold securities issued by the Company. Furthermore, you must not
communicate material non-public information to persons outside the Company so
that they may profit from transactions in the Company's securities.

ENGAGING IN INSIDER TRADING, OR PROVIDING CONFIDENTIAL INFORMATION THAT IS USED
IN INSIDER TRADING, IS ILLEGAL AND CAN RESULT IN SUBSTANTIAL FINES AND CRIMINAL
PENALTIES TO YOU.

The Company maintains a policy on insider trading that provides more complete
guidance on this subject, including rules on trading in Company securities by
executive officers, directors and employees who have access to certain financial
information.

You should call the Corporate Secretary with any questions about buying or
selling of Company stock.

EXAMINATIONS, GOVERNMENT INVESTIGATIONS AND LITIGATION

REGULATORY EXAMINATIONS

The Company and its subsidiaries are subject to examination by federal and state
banking regulators. It is Company policy to cooperate fully with the Company's
regulators.

GOVERNMENT INVESTIGATIONS

It is Company policy to cooperate with reasonable and valid requests by federal,
state or local government investigators. At the same time, the Company is
entitled to all the safeguards provided in the law for persons under
investigation, including representation by legal counsel.

Accordingly, if a government investigator requests an interview with you, seeks
information or access to files, or poses written questions, he/she should be
told that you must first consult with the Company's legal counsel. You should
immediately contact the Chief Executive Officer, who will then provide advice as
to further action.

PENALTIES

You should be aware that criminal sanctions could be imposed upon any person who
submits false or misleading information to the government in connection with any
regulatory examination or government investigation. Full cooperation and proper
legal supervision of any response in connection with a regulatory examination or
government investigation is essential from both corporate and individual
viewpoints.

LITIGATION

In the event any litigation is begun or threatened against the Company, notify
the Chief Executive Officer immediately, even if the action or threats appear to
be without merit or insignificant.


                                       133

<PAGE>

PRESERVATION OF RECORDS

All records relating to the business of the Company shall be retained as
required by the Company's record retention guidelines. Notwithstanding such
guidelines, under no circumstances shall any records known to be the subject of
or germane to any anticipated, threatened or pending lawsuit, governmental or
regulatory investigation, or bankruptcy proceeding be removed, concealed or
destroyed.

DETAILED POLICIES AND PROCEDURES

This Code does not contain all of the policies of the Company or all of the
details of the policies that are included. The Company has written policies and
procedures that provide more information on some of the topics in this Code of
Business Conduct.

Talk to your supervisor about the Company's policies and procedures that you are
responsible for following in your job and make sure that you have reviewed and
understand them.

ADMINISTRATION OF THE CODE OF BUSINESS CONDUCT

EMPLOYEE OBLIGATIONS

Every Employee Has an Obligation to:

     -    COMPLY with this Code of Business Conduct, which prohibits violation
          of local, state, federal or foreign laws and regulations applicable to
          our businesses, and requires compliance with all Company policies;

     -    BE FAMILIAR with laws and Company policies applicable to his/her job
          and communicate them effectively to subordinates;

     -    ASK QUESTIONS if a policy or the action to take in a specific
          situation is unclear;

     -    BE ALERT to indications and/or evidence of possible wrongdoing; and

     -    REPORT violations and suspected violations of this Code of Business
          Conduct to the appropriate person as described in "How to Report a
          Violation" below and elsewhere in this Code.

The Company's managers have a particular responsibility to notice and question
incidents, circumstances and behaviors that point to a reasonable possibility
that a violation of this Code has occurred. A manager's failure to follow up on
reasonable questions is, in itself, a violation of Company policy.

HOW TO ASK A QUESTION

Whenever possible, an employee should work with his/her immediate supervisor to
get answers to routine questions.

If a supervisor's answer does not resolve a question or if an employee has a
question that he/she cannot comfortably address to his/her supervisor, he/she
should go to the Chief Executive Officer, or, in the case of a violation of this
code of conduct relating to any accounting or financial matter, to the Chairman
of the Audit Committee.

Executive officers and directors may bring any questions to the Chairman of the
Board or the Chairman of the Audit Committee.


                                       134

<PAGE>

HOW TO REPORT A VIOLATION

Any employee having information about a violation (or suspected violation) of
this Code should report the violation in writing to the Chief Executive Officer,
or, in the case of a violation of this code of conduct relating to any
accounting or financial matter, to the Chairman of the Audit Committee.

Executive officers and directors may submit any reports of violations (or
suspected violations) of this Code in writing to the Chairman of the Board or
the Chairman of the Audit Committee.

If the violation involves the Chairman of the Board or the Chairman of the Audit
Committee, then the employee should report the violation by informing the Chief
Executive Officer.

Concerns regarding questionable accounting or auditing matters should be handled
under the procedures for confidential, anonymous submissions established by the
Audit Committee.

FOLLOW-UP TO THE REPORT OF A VIOLATION

The Chairman of the Board or the Chairman of the Audit Committee may arrange a
meeting with the employee to allow the employee to present a complete
description of the situation. The Chairman of the Board or the Chairman of the
Audit Committee will take the matter under consideration, including undertaking
any necessary investigation or evaluation of the facts related to the situation
and, after consultation with the Chief Executive Officer, shall render a written
decision, response or explanation as expeditiously as possible. Individuals who
are alleged to be involved in a violation will not participate in its
investigation.

DETERMINING WHETHER A VIOLATION HAS OCCURRED

If the alleged violation of this Code concerns an executive officer or director,
the determination of whether a violation has occurred shall be made by the Audit
Committee of the Board of Directors, in consultation with such external legal
counsel as the Audit Committee deems appropriate.

If the alleged violation concerns any other employee, the determination of
whether a violation has occurred shall be made by the Chief Executive Officer,
in consultation with such legal counsel as the Audit Committee deems
appropriate.

In determining whether a violation of this Code has occurred, the committee or
person making such determination may take into account to what extent the
violation was intentional, the materiality of the violation from the perspective
of either the detriment to the Company or the benefit to the director, executive
officer or employee, the policy behind the provision violated and such other
facts and circumstances as they shall deem advisable.

Acts or omissions determined to be violations of this Code by other than the
Audit Committee under the process set forth above shall be promptly reported by
the Chief Executive Officer to the Audit Committee and by the Audit Committee to
the Board.

CONFIDENTIALITY

Reports of suspected violations will be kept confidential to the extent possible
and consistent with the conduct of an appropriate investigation.

NO RETALIATION

Retaliation in any form against an employee who has, in good faith, reported a
violation of this Code will not be tolerated.


                                       135

<PAGE>

CONSEQUENCES OF A VIOLATION

Employees who violate this Code, or who fail to report violations of which they
are aware or should be aware, will subject themselves to disciplinary action up
to and including dismissal. Some violations may also result in civil liability
and/or lead to criminal prosecution.

PRIOR APPROVALS

Whenever the requirement for prior approval appears in this Code, it means that
a writing setting forth the pertinent facts of the situation under consideration
shall be submitted according the following process.

If a request for prior approval relates to an executive officer or director, the
determination with respect to the approval shall be made by the Audit Committee
of the Board of Directors, in consultation with such external legal counsel as
the Audit Committee deems appropriate.

If a request for prior approval relates to any other employee, the determination
shall be made by the Chief Executive Officer, in consultation with such external
legal counsel as the Chief Executive Officer deems appropriate, unless the
matter is quantitatively or qualitatively material or outside the ordinary
course of business, in which case such determination shall be made by the Audit
Committee.

All approvals (other than those approved by the Audit Committee) shall be
promptly reported to the Audit Committee.

WAIVERS

You must request a waiver of a provision of this Code if there is a reasonable
likelihood that your contemplated action will violate the Code.

If a waiver request relates to an executive officer or director, the
determination with respect to the waiver shall be made by the Audit Committee of
the Board of Directors, in consultation with such external legal counsel as the
Audit Committee deems appropriate. Any waivers granted by such committee shall
be submitted to the Board for ratification.

If a waiver request relates to any other employee, the determination shall be
made by the Chief Executive Officer, in consultation with such external legal
counsel as the Chief Executive Officer deems appropriate, unless the matter is
quantitatively or qualitatively material or outside the ordinary course of
business, in which case such determination shall be made by the Audit Committee.

All waivers of this Code (other than those approved by the Audit Committee)
shall be promptly reported to the Audit Committee.

Waivers will not be granted except under extraordinary or special circumstances.

Any waivers of this Code for any executive officer or director of the Company
must promptly be disclosed to stockholders.

UPDATES AND CHANGES

This Code will be reissued from time to time to remind employees, officers and
directors of its specifics and to make changes and clarifications based on
experience and suggestions.


                                       136

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>11
<FILENAME>l05633aexv21w1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT

Central Federal Bank
Central Federal Capital Trust I


                                      137

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>12
<FILENAME>l05633aexv23w1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.1

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                          INDEPENDENT AUDITORS' CONSENT

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-84817 and 333-105515) and Form S-3 (333-110218) of
Central Federal Corporation (formerly Grand Central Financial Corp.) of our
report dated February 12, 2004, related to the consolidated financial statements
of Central Federal Corporation included in this annual report on Form 10-KSB for
the year ended December 31, 2003.

                                        Crowe Chizek and Company LLC

Cleveland, Ohio
March 30, 2004


                                      138

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>13
<FILENAME>l05633aexv31w1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.1

                          Rule 13a-14(a) Certifications

I, David C. Vernon, certify, that:

     1.   I have reviewed this annual report on Form 10-KSB of Central Federal
          Corporation.

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

               a)   designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, to ensure that material information
                    relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those
                    entities, particularly during the period in which this
                    annual report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this annual report
                    our conclusions about the effectiveness of the disclosure
                    controls and procedures, as of the end of the period covered
                    by this annual report based on such evaluation; and

               c)   disclosed in this annual report any change in the
                    registrant's internal control over financial reporting that
                    occurred during the registrant's fourth fiscal quarter that
                    has materially affected, or is reasonably likely to
                    materially affect, the registrant's internal control over
                    financial reporting.

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

               a)   all significant deficiencies in the design or operation of
                    internal control over financial reporting which are
                    reasonably likely to adversely affect the registrant's
                    ability to record, process, summarize and report financial
                    information; and

               b)   any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal control over financial reporting.

Date: March 30, 2004                            /s/ David C. Vernon
                                                --------------------------------
                                                David C. Vernon
                                                Chairman of the Board, President
                                                and Chief Executive Officer


                                      139

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>14
<FILENAME>l05633aexv31w2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 31.2

                          Rule 13a-14(a) Certifications

I Therese Ann Liutkus, certify, that:

     1.   I have reviewed this annual report on Form 10-KSB of Central Federal
          Corporation.

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:

               d)   designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, to ensure that material information
                    relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those
                    entities, particularly during the period in which this
                    annual report is being prepared;

               e)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this annual report
                    our conclusions about the effectiveness of the disclosure
                    controls and procedures, as of the end of the period covered
                    by this annual report based on such evaluation; and

               f)   disclosed in this annual report any change in the
                    registrant's internal control over financial reporting that
                    occurred during the registrant's fourth fiscal quarter that
                    has materially affected, or is reasonably likely to
                    materially affect, the registrant's internal control over
                    financial reporting.

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

               c)   all significant deficiencies in the design or operation of
                    internal control over financial reporting which are
                    reasonably likely to adversely affect the registrant's
                    ability to record, process, summarize and report financial
                    information; and

               d)   any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal control over financial reporting.

Date: March 30, 2004                            /s/ Therese Ann Liutkus
                                                --------------------------------
                                                Therese Ann Liutkus, CPA
                                                Chief Financial Officer


                                      140

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>15
<FILENAME>l05633aexv32w1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.1

                           Section 1350 Certifications

In connection with the Annual Report of Central Federal Corporation (the
"Company") on Form 10-KSB for the fiscal year ended December 31, 2003 as filed
with the Securities and Exchange Commission (the "Report"), I, David C. Vernon,
Chairman of the Board, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company as of and for the period covered by the Report.

                                                /s/ David C. Vernon
                                                --------------------------------
                                                David C. Vernon
                                                Chairman of the Board, President
                                                and Chief Executive Officer

Date: March 30, 2004


                                      141

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>16
<FILENAME>l05633aexv32w2.txt
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.2

                          Section 1350 Certifications

In connection with the Annual Report of Central Federal Corporation (the
"Company") on Form 10-KSB for the fiscal year ended December 31, 2003 as filed
with the Securities and Exchange Commission (the "Report"), I, Therese Ann
Liutkus, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company as of and for the period covered by the Report.

                                                /s/ Therese Ann Liutkus
                                                --------------------------------
                                                Therese Ann Liutkus, CPA
                                                Chief Financial Officer

Date: March 30, 2004


                                      142

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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