Business context and reporting period
Central Federal Corporation, the parent of CFBank, filed this Form 10-K for the fiscal year ended December 31, 2016. CFBank converted from a federal savings institution to a national bank on December 1, 2016; the parent became a registered bank holding company and elected financial holding company status. The company serves Ohio markets and focuses on commercial, commercial real estate, multifamily, residential mortgage, and consumer lending.
Financial and operating metrics
| Metric | 2016 / year-end value | Comparison or context |
|---|---|---|
| Total assets | $436.1 million | Stockholders’ equity was $39.3 million. |
| Gross loans | $353.1 million | Up $49.4 million, or 16.3%, from $303.7 million in 2015. |
| Loan mix | Commercial, commercial real estate, multifamily and related construction: $221.4 million, or 62.7% of gross loans | Up from 56.5% of gross loans in 2015. Commercial lending rose 63.1% to $71.3 million. |
| Allowance for loan and lease losses | $6.9 million; 1.96% of loans | Up from $6.6 million; coverage of nonperforming loans was 983.7%, versus 464.6%. |
| Credit quality | Nonperforming loans: $704,000; nonperforming assets: $908,000 | Nonperforming loans fell from $1.4 million and nonperforming assets from $3.1 million in 2015. Nonperforming loans were 0.20% of total loans. |
| Deposits and liquidity | Average deposits: $315.7 million; average rate paid: 0.98% | Average deposits rose from $271.9 million and the rate paid from 0.92% in 2015. Cash, unpledged securities and deposits at other institutions totaled $63.7 million at year-end. |
| Borrowings | FHLB advances: $13.5 million | No Federal Reserve borrowings or unsecured bank-line borrowings were outstanding at year-end. Brokered deposits were $29.7 million. |
| Securities | $14.1 million available for sale | Fair value was $14.058 million; holdings were principally U.S. Treasury securities. |
| Cash at parent | $2.2 million | Management stated this was adequate for the parent’s foreseeable operating needs. |
The supplied filing text does not provide clear 2016 revenue, net income, earnings per share, operating cash flow, net interest margin, or a complete cash-flow statement. The financial statements and detailed management discussion are incorporated by reference to the 2016 Annual Report to Stockholders. The filing states the company had operating profits in 2015 and 2016, following operating losses in each of the prior five years.
Material changes versus the prior comparable period
- Loan growth was substantial, with the commercial, commercial real estate, multifamily and construction share of the portfolio increasing.
- Credit quality improved: nonperforming loans declined by $721,000, mainly from payments and payoffs; foreclosed real estate declined to $204,000 from $1.6 million.
- The allowance increased by $305,000 even as its ratio to total loans fell to 1.96%, reflecting loan growth and other portfolio factors. Net recoveries were $75,000 in 2016.
- Average deposit costs increased to 0.98% from 0.92%. Average certificates of deposit remained the largest deposit category, representing 49.4% of average deposits.
- The company repurchased 21,300 shares under its repurchase program through year-end; no securities were repurchased in the fourth quarter.
Outlook, commentary, risks and unusual items
- No specific earnings, growth, or other forward guidance is provided in the supplied text. Management reported improved credit quality and said it continued to monitor credit risk and assess loan opportunities carefully.
- Management considered the allowance adequate at year-end, but warned that deterioration in borrower performance, economic conditions, real estate values, or business conditions could require additional provisions.
- Key exposures include concentrated Ohio markets and significant commercial and real estate lending. The filing highlights risks from borrower or property weakness, rising rates and adjustable-rate loan payments, deposit competition, funding costs, and the company’s ability to manage growth.
- Liquidity depends in part on deposits, including brokered deposits, and access to FHLB and Federal Reserve borrowing facilities. The company reported available year-end borrowing capacity of $44.5 million from the FHLB and $31.8 million from the Federal Reserve, subject to collateral and eligibility.
- Regulatory cease-and-desist orders and related commitments had ended before year-end 2016. The company remained subject to extensive banking supervision and regulation; management believed CFBank met the requirements to be well-capitalized.
- The company reported $23.1 million of net operating loss carryforwards, but estimated $20.5 million would expire unused because of ownership-change limits. In 2015, reversal of a deferred-tax valuation allowance produced a $3.2 million income tax credit; this is a prior-year item, not 2016 earnings.
- Management stated that no pending legal proceeding was believed likely to have a material adverse effect. Internal controls over financial reporting were assessed as effective at December 31, 2016.
Most important facts for investors to verify
- Review the incorporated 2016 Annual Report for full revenue, earnings, margins, cash flows, capital ratios, and year-over-year financial results; those values are not clear in the supplied filing text.
- Assess the pace and underwriting quality of loan growth, particularly commercial and commercial real estate exposures, and the adequacy of the allowance under adverse conditions.
- Verify deposit composition and stability, including brokered and large certificates of deposit, and the effect of higher funding costs on profitability and liquidity.
- Confirm current capital, dividend capacity, and any restrictions applicable to the parent or bank, including preferred-stock dividend terms and subordinated-debt obligations.
- Evaluate the assumptions behind expected use of tax-loss carryforwards and the risk of further limitations or expirations.