CF Bankshares Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance sheet comparisons are to December 31, 2020. CF Bankshares is an Ohio-focused commercial bank with residential mortgage lending operations. Unless noted otherwise, dollar amounts below are in millions.
Financial performance
| Metric | Q1 2021 | Comparable period / change |
|---|---|---|
| Net interest income | $9.6 | $6.1 in Q1 2020; up 57.1% |
| Noninterest income | $7.2 | $3.4 in Q1 2020; up 109.9% |
| Noninterest expense | $9.0 | $7.0 in Q1 2020; up 27.3% |
| Net income | $6.4 | $2.0 in Q1 2020; up 220.1% |
| Diluted EPS | $0.96 | $0.30 in Q1 2020 |
| Net interest margin | 2.69% | 2.87% in Q1 2020 |
| Operating cash flow | $(162.4) | $34.9 in Q1 2020 |
Revenue growth reflected higher average earning assets and strong mortgage loan sales. Net gains on loan sales were $6.4 million, versus $2.8 million a year earlier. Management attributed the increase to mortgage sales volume; it also reported declining mortgage margins since Q4 2020. Salaries and benefits rose $1.6 million, partly reflecting mortgage-business expansion, and professional fees increased $0.2 million. The effective tax rate was 18.5%, compared with 20.5%.
No loan-loss provision was recorded in either quarter. Q1 2021 had net recoveries of $64,000, compared with net charge-offs of $65,000 in Q1 2020.
Financial position, liquidity, and credit
- Total assets were $1.605 billion, up 8.6% from year-end. Loans held for sale increased 52.0% to $430.5 million; net loans and leases increased 8.0% to $966.8 million.
- Cash and cash equivalents were $125.8 million, down $95.8 million from year-end. Operating cash use was driven substantially by mortgage originations and timing of loan-sale proceeds; the filing reports $920.1 million of held-for-sale originations and $763.2 million of proceeds from sales.
- Deposits rose 18.6% to $1.320 billion. Brokered deposits, including qualifying CDARS and ICS balances, were $307.6 million, up 82.3% from year-end.
- FHLB advances and other debt declined 35.7% to $137.9 million. Subordinated debentures were $14.9 million. The bank also reported $65.0 million of unused commercial-bank lines, plus additional FHLB and FRB borrowing capacity.
- Stockholders’ equity was $116.7 million, up 5.8% from year-end. CFBank’s regulatory ratios included 11.92% CET1, 13.18% total capital, and a 9.37% leverage ratio; the bank was classified as well capitalized.
- The allowance for loan and lease losses was $17.1 million, or 1.74% of total loans (1.95% excluding SBA-guaranteed loans). Nonperforming loans were $641,000, or 0.07% of loans, down from $695,000 at year-end. Criticized and classified loans increased $1.0 million during the quarter.
- Approximately $3.6 million of loans remained on temporary COVID-related payment deferrals at March 31. Management said these were not classified as troubled debt restructurings under the CARES Act.
Outlook, risks, and notable items
- Management warned that mortgage originations and related noninterest income could decline substantially during the remainder of 2021 compared with 2020, given market volatility and reduced margins. No specific earnings or revenue guidance was provided.
- Management cited continuing uncertainty from COVID-19 and potential effects on credit costs, margins, and expenses. It considered the allowance adequate at quarter-end but noted that deterioration in borrower performance, economic conditions, or real estate values could require future additions.
- The company discontinued its Northpointe mortgage purchase program in Q1 2021.
- A pending agreement would transfer two Columbiana County branches, approximately $100 million of deposits, and specified loans and other assets to Consumers National Bank. Closing was expected in Q3 2021, subject to regulatory approval and other conditions.
- CECL credit-loss guidance is scheduled to become effective for the company in fiscal years beginning after December 15, 2022. Management said the effect could include a higher allowance but could not yet reasonably estimate the impact. The company was also assessing its transition away from LIBOR.
- Management stated that ordinary-course litigation was not expected to have a material adverse effect; the filing reported no material change to previously disclosed risk factors.
Key facts for investors to verify
- Whether elevated mortgage-sale revenue and volumes are sustainable, particularly as management reports margin compression and anticipates weaker mortgage activity.
- How the substantial growth in deposits, including brokered deposits, affects funding costs and liquidity as the balance sheet grows.
- Whether credit quality and the allowance remain adequate amid higher criticized and classified loans and continuing COVID-related uncertainty.
- Completion, timing, and final financial terms of the planned branch sale, including the deposits and loans transferred.
- The eventual CECL impact and the company’s progress in addressing LIBOR-linked instruments.