CF Bankshares Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing was signed March 23, 2021. CF Bankshares is a bank holding company whose principal business is conducted through CFBank, National Association, serving Ohio markets and originating residential mortgages nationally. The company changed its name from Central Federal Corporation in July 2020.
Financial performance and position
- Assets and equity: Total assets were approximately $1.5 billion and stockholders’ equity was $110.2 million at year-end.
- Loans: Gross loans grew 36.1% to $912.4 million from $670.4 million. Commercial, commercial real estate and multifamily loans, including construction, were $729.8 million, or 80.0% of gross loans. Commercial loans rose 98.2% to $338.3 million; these included $105.3 million of PPP loans. Net loans were $895.3 million.
- Mortgage banking: Single-family mortgage originations for sale were $2.2 billion, up 203.8% from 2019, reflecting expansion of the leads-based business and increased sales activity; refinancing was an important factor. Portfolio single-family mortgage loans originated were $52.3 million.
- Credit quality and provision: The allowance for loan and lease losses (ALLL) rose to $17.0 million from $7.1 million, or 1.87% of loans versus 1.06%. The increase reflected a $10.9 million provision, partly offset by $1.0 million of net charge-offs. Nonperforming loans fell to $695,000 from $2.4 million; nonperforming assets were 0.05% of assets. Troubled debt restructurings totaled $2.9 million, most of which were performing under modified terms and excluded from nonperforming loans. Management considered the allowance adequate, while noting that further provisions could be required.
- Deposits and liquidity: Average deposits increased to $886.4 million from $638.0 million. Average interest-bearing deposit cost declined to 1.60% from 2.22%; certificates of deposit represented 48.4% of average deposits. Year-end brokered deposits were $168.7 million. Cash, unpledged securities and deposits at other financial institutions totaled $212.7 million.
- Borrowings: Year-end balances included $27.5 million of FHLB advances, $107.4 million of PPPLF funding against PPP loans, and $70.0 million drawn on a mortgage warehouse facility. At the holding company, $4.5 million remained on a term loan and $5.0 million on a revolving credit line. The filing describes these facilities separately; it does not provide a single consolidated total-debt figure in the supplied text.
- Revenue, earnings, margins and cash flow: The supplied filing text does not provide clear values for net income, revenue, earnings per share, net interest margin, or operating, investing and financing cash flows. The financial statements and MD&A are incorporated by reference to the 2020 Annual Report, which is not included in the supplied text; those measures should not be inferred from the figures above.
Material changes versus 2019
- Loan balances expanded substantially, particularly commercial lending, while average deposits also grew significantly.
- Mortgage originations for sale more than tripled, and the ALLL increased sharply amid pandemic-related uncertainty and loan growth.
- Nonperforming loans declined, principally because a $1.7 million commercial real estate loan was paid off.
- The company entered into a $75 million mortgage warehouse facility in 2020; $70 million was outstanding at year-end. PPP lending and related PPPLF funding also became significant.
- Average deposit funding costs decreased, while year-end brokered deposits were $168.7 million.
Outlook, risks and unusual items
- Branch sale: CFBank agreed in December 2020 to sell its Wellsville and Calcutta branches to Consumers National Bank. The transaction includes approximately $100 million of deposits, certain securities and loans, and a premium of 1.75% of eligible average deposits. It remained subject to regulatory approval and other closing conditions; the parties expected closing in the third quarter of 2021.
- COVID-19 and PPP: The company cited uncertainty around the pandemic’s effects on borrowers, collateral values, credit losses, mortgage activity and earnings. PPP loans are SBA-guaranteed, but the filing warns that SBA guarantee protection could be affected by deficiencies in origination, funding or servicing.
- Concentrations and market risks: The company is concentrated in Ohio and has substantial commercial, commercial real estate and multifamily exposure. Risks include local economic weakness, real estate value declines, interest-rate changes, adjustable-rate borrower stress, competition, and mortgage repurchase or indemnification claims. The filing also discusses the transition away from LIBOR; management did not expect a material impact.
- Capital and accounting: Management believed CFBank met the regulatory ratios for “well-capitalized” status at year-end, but the supplied text gives no actual capital ratios. CECL implementation was scheduled for January 1, 2023 for the company, with potential effects on allowances and capital.
- Other items: The company reported no pending legal proceeding it believed would have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2020. No specific earnings or dividend guidance is provided in the supplied text.
Important facts for investors to verify
- Consult the incorporated 2020 Annual Report for audited income statements, cash flows, net interest margin, EPS, full debt schedule and regulatory capital ratios.
- Review the composition and assumptions behind the $17.0 million ALLL, including the concentration of reserves in commercial real estate and construction loans, and subsequent credit performance.
- Confirm the status, final terms and completed financial impact of the Columbiana County branch sale.
- Assess the quality, forgiveness progress and servicing compliance of the $105.3 million PPP portfolio and the associated $107.4 million PPPLF advances.
- Evaluate deposit concentration and funding costs, including brokered deposits and large certificates of deposit, as well as liquidity after the rapid balance-sheet growth.