CF Bankshares Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with 2021. CF Bankshares is a bank holding company whose principal operating subsidiary, CFBank, serves businesses, entrepreneurs and consumers in Ohio and Indianapolis, Indiana. The filing is an annual report, not a standalone fourth-quarter earnings report.
Key financial results
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total interest income | $67.8 million | $52.3 million | Up 29.5% |
| Net interest income | $48.8 million | $42.0 million | Up 16.1% |
| Net interest margin | 3.15% | 3.04% | Up 11 basis points |
| Noninterest income | $3.2 million | $11.6 million | Down 72.4% |
| Provision for loan losses | $0.8 million | $(1.6) million | Prior year included a provision release |
| Noninterest expense | $28.6 million | $32.5 million | Down 11.8% |
| Net income | $18.2 million | $18.5 million | Down 1.6%; diluted EPS was $2.78 versus $2.77 |
| Return on average assets / equity | 1.11% / 13.69% | 1.26% / 15.58% | Both declined |
| Efficiency ratio | 55.04% | 60.47% | Improved |
Financial position, cash flow and liquidity
- Total assets were $1.82 billion, up 21.7%. Gross loans and leases were $1.588 billion, up 29.2%; net loans were $1.572 billion. Commercial, commercial real estate, multifamily and construction lending together represented a substantial share of the portfolio.
- Deposits were $1.528 billion, up 22.6%, including growth in money market balances. The company reported $291.8 million of brokered deposits and $690.4 million of deposits above the FDIC insurance limit.
- Cash and cash equivalents were $151.8 million. Cash, unpledged securities and deposits at other financial institutions totaled $154.4 million; disclosed additional FHLB, Federal Reserve and commercial-bank borrowing capacity brought reported liquidity resources to $512.4 million.
- FHLB advances were $80.0 million; the holding company credit facility balance was $29.5 million; subordinated debentures were $14.9 million. Total stockholders’ equity was $139.2 million, or 7.65% of assets.
- Cash from operating activities was $39.8 million; investing activities used $353.3 million, financing activities provided $298.8 million, and cash declined $14.8 million during the year.
- CFBank’s regulatory capital ratios included a 12.74% total risk-based capital ratio and a 9.89% leverage ratio. Management said the bank met the applicable well-capitalized requirements.
Material changes versus 2021
- Net interest income rose as average earning assets and yields increased, but interest expense rose 84.1% as deposit costs increased.
- Noninterest income fell, mainly because residential mortgage loan-sale gains declined and the 2021 branch-sale gain did not recur. The bank continued to scale back direct-to-consumer mortgage activity and focus on regional commercial banking. Residential loans originated for sale fell to $97.3 million from $2.4 billion.
- Loan growth was broad-based, including a 120.9% increase in construction loans to $184.1 million. Total assets and deposits also grew materially.
- The allowance for loan and lease losses increased to $16.1 million, while its ratio to total loans declined to 1.01% from 1.26%. Nonperforming loans fell to $0.761 million from $0.997 million.
- Equity increased 11.1%, with net income partly offset by $1.2 million of dividends, $2.3 million of treasury-share purchases and a $1.9 million increase in accumulated other comprehensive loss.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management said liquidity was adequate for anticipated needs and considered the loan-loss allowance adequate at year-end, while warning that economic deterioration, weaker borrower cash flows or lower real estate values could require additional provisions.
- Key exposures include concentration in Ohio markets; commercial, commercial real estate and construction credit risk; rising rates’ effects on borrower repayment and deposit funding costs; and competition for deposits. Management reported $117.9 million of interest-only commercial lines and $30.5 million of interest-only home equity lines at year-end.
- Interest-rate sensitivity modeling showed the economic value of equity-to-assets ratio falling from 10.5% at unchanged rates to 8.1% under a 400-basis-point rate increase. Management cautioned that actual results may differ from the model.
- The bank adopted the CECL expected-credit-loss standard on January 1, 2023; the filing estimated the one-time cumulative allowance adjustment at approximately $15,000 and expected it to be immaterial.
- The available-for-sale securities portfolio had $2.578 million of gross unrealized losses at year-end, primarily attributed by management to market conditions rather than credit quality. A $570,000 property impairment was recorded in connection with the planned sale of the Worthington headquarters, which was classified as held for sale at year-end.
- Management reported effective internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements and identified the allowance for loan losses as a critical audit matter. Management reported no pending legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- Deposit stability and the cost, maturity profile and concentration of brokered, uninsured and large time deposits.
- Credit quality behind rapid loan growth, especially construction, commercial real estate and criticized loans; also review CECL adoption outcomes and allowance assumptions.
- Whether higher deposit costs and interest-rate movements continue to support net interest margin and earnings.
- Execution and profitability of the commercial-banking strategy following the mortgage-business reduction, including mortgage-sale income trends.
- Holding-company liquidity and dividend capacity, given limited parent cash, debt obligations and dependence on bank dividends; 2022 dividends were $0.18 per share.
- The securities portfolio’s unrealized losses and the effect of future rate changes on capital, liquidity and reported earnings.