CF Bankshares Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; interim financial statements are unaudited. CF Bankshares is a bank holding company whose principal subsidiary, CFBank, serves businesses and consumers in Ohio and Indiana, with a focus on commercial, real estate, retail and mortgage lending.
Financial performance and condition
| Metric | Q1 2024 / March 31, 2024 | Comparable / prior period |
|---|---|---|
| Total assets | $2.039 billion | $2.059 billion at Dec. 31, 2023 |
| Net loans and leases | $1.696 billion | $1.694 billion at Dec. 31, 2023 |
| Total deposits | $1.723 billion | $1.744 billion at Dec. 31, 2023 |
| Cash and cash equivalents | $236.9 million | $261.6 million at Dec. 31, 2023 |
| Stockholders’ equity | $158.0 million | $155.4 million at Dec. 31, 2023 |
| Net interest income | $11.3 million | $12.7 million in Q1 2023 |
| Net interest margin | 2.36% | 2.93% in Q1 2023 |
| Net income | $3.1 million; diluted EPS $0.47 | $4.4 million; diluted EPS $0.68 in Q1 2023 |
| Provision for credit losses | $1.2 million | $0.2 million in Q1 2023 |
| Net cash from operating activities | $(1.2) million | $5.8 million in Q1 2023 |
- Interest income rose 20.3% to $29.1 million, but interest expense increased 55.6% to $17.8 million. Management attributed higher expense to increased funding costs and average interest-bearing liabilities; the average cost of interest-bearing deposits rose to 4.58% from 3.24%.
- Noninterest income increased 25.9% to $0.9 million; noninterest expense decreased 7.0% to $7.2 million, primarily reflecting lower salaries and employee benefits.
- The loan allowance was $18.2 million, or 1.06% of total loans, versus $16.9 million, or 0.99%, at year-end. Nonperforming loans were $7.9 million, or 0.46% of loans, up from $5.7 million, or 0.33%. No loans were 90 days or more past due and still accruing; the company reported no foreclosed assets.
- Borrowings included $111.0 million of FHLB advances and other debt and $15.0 million of subordinated debentures. The bank’s regulatory capital ratios were 13.50% total capital, 12.31% common equity Tier 1 and 10.05% leverage.
Material changes and notable items
- Compared with Q1 2023, net income declined 31.0%, mainly due to lower net interest income and higher credit-loss provision; lower operating expenses and higher noninterest income partly offset the decline.
- Deposits decreased $21.0 million from year-end. Interest-bearing deposits fell $21.9 million; brokered deposits declined $51.1 million to $389.3 million, while nonbrokered reciprocal CDARS/ICS balances increased $34.8 million to $272.6 million. About 29.8% of deposits exceeded the $250,000 FDIC insurance limit.
- Loan balances were nearly flat overall, with commercial real estate loans increasing $28.8 million and construction loans decreasing $12.3 million from year-end. The filing identifies a $3.0 million increase in newly identified individually evaluated commercial loans and a reserve increase related to an individually evaluated loan placed on nonaccrual.
- On February 6, 2024, the company issued 2,000 Series D preferred shares in exchange for 200,000 voting common shares. The preferred stock has specified conversion rights and participates in dividends on an as-converted basis.
- The company repurchased 8,850 shares under its repurchase program in Q1 and declared common dividends of $0.06 per share, versus $0.05 in Q1 2023.
Outlook, risks and contingencies
- The filing provides no quantified earnings or financial guidance. Management said liquidity at both the holding company and bank was sufficient for current needs and strategic plans and said it continues to monitor credit quality and capital.
- CFBank received an OCC Community Reinvestment Act rating of “Needs to Improve” in March 2024, based on an evaluation covering 2020–2022. The company attributes the rating primarily to its legacy direct-to-consumer mortgage business and says subsequent strategy and operational changes have addressed the issues. The rating brings additional conditions for certain activities, including acquisitions, mergers and commencement of new activities; the next evaluation is expected to begin in 2026.
- Holding-company borrowings of $34.5 million were outstanding under a $35.0 million credit facility. The revolving period was scheduled to end May 21, 2024, after which the outstanding balance would convert to a 10-year term note. The facility’s rate was fixed at 3.85% through May 2026, subject to the terms disclosed in the filing.
- Available liquidity, including cash, unpledged securities and borrowing capacity, totaled $638.4 million at March 31, 2024. Management cautioned that access to FHLB/FRB capacity can be affected by collateral, credit performance and lender policies.
- Key risks include rising funding costs and pressure on net interest margin, deterioration in borrower performance or real estate values, deposit competition and uninsured deposit balances, and regulatory limits on dividends. Management reported no material change in market risk from its 2023 Form 10-K, no material changes to reported risk factors, and no pending legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- Whether net interest margin and deposit costs stabilize, and how the funding mix changes as brokered and core deposits evolve.
- Whether nonaccrual, past-due and criticized/classified loans continue to rise, and whether the allowance remains adequate. Past-due loans increased to $5.4 million from $2.0 million at year-end.
- The outcome and practical effects of the CRA rating, including any restrictions or conditions on planned activities.
- The post-May 21, 2024 status and repayment terms of the holding-company credit facility, and the cost of floating-rate subordinated debt.
- The drivers of negative operating cash flow in Q1 and the sustainability of liquidity and capital levels amid deposit outflows and loan growth.