CF Bankshares Inc. — FY2021 Form 10-K
Business context and reporting period. CF Bankshares is a bank holding company whose principal operating subsidiary, CFBank, serves businesses, entrepreneurs and retail customers across Ohio and Indianapolis. The fiscal year ended December 31, 2021. Commercial banking became the primary earnings driver as the company scaled back residential mortgage activity.
Key financial metrics
| Metric | FY2021 / Dec. 31, 2021 | Prior comparable period |
|---|---|---|
| Total assets | $1.496 billion | $1.477 billion at Dec. 31, 2020 |
| Net income | $18.5 million; diluted EPS $2.77 | $29.6 million; diluted EPS $4.47 in 2020 |
| Net interest income | $42.0 million | $27.8 million in 2020 |
| Net interest margin | 3.04% | 2.55% in 2020 |
| Noninterest income | $11.6 million | $60.0 million in 2020 |
| Noninterest expense | $32.5 million | $40.6 million in 2020 |
| Net loans and leases | $1.214 billion | $895.3 million at Dec. 31, 2020 |
| Deposits | $1.246 billion | $1.113 billion at Dec. 31, 2020 |
| Cash and cash equivalents | $166.6 million | $221.6 million at Dec. 31, 2020 |
| Allowance for loan and lease losses | $15.5 million; 1.26% of loans | $17.0 million; 1.87% at Dec. 31, 2020 |
| Stockholders’ equity | $125.3 million | $110.2 million at Dec. 31, 2020 |
Cash flow, debt and liquidity
- Net cash from operating activities was $253.3 million; investing activities used $316.7 million and financing activities provided $8.4 million. Cash declined $55.0 million during the year. Operating cash flow included substantial mortgage-loan originations and sale proceeds and should be read in that context.
- FHLB advances and other debt totaled $89.7 million; subordinated debentures totaled $14.9 million. The holding company had $24.3 million outstanding on its credit facility.
- CFBank reported $169.0 million in cash, unpledged securities and deposits at other financial institutions, plus $250.3 million of additional FHLB, Federal Reserve and commercial-bank borrowing capacity. Total listed liquidity sources were $419.2 million.
- Brokered deposits were $278.1 million, up from $168.7 million; certificates of deposit represented 48.5% of average deposits. Regulatory capital ratios remained above well-capitalized thresholds: total risk-based capital 14.02% and leverage 11.29%.
Material changes versus 2020
- Net income fell 37.7%, principally because net gains on residential mortgage loan sales declined to $5.9 million from $58.3 million. Management cited fewer refinancing opportunities and lower mortgage margins, and strategically reduced the mortgage business.
- Net interest income rose 51.2%, benefiting from balance-sheet growth and lower funding costs; net interest margin improved 49 basis points. Noninterest expense fell 20.1%, largely alongside the mortgage-business reduction.
- Loans grew 34.8% gross. Single-family residential loans rose to $346.8 million from $147.9 million, while commercial real estate loans rose to $359.6 million from $277.0 million. Commercial loans were broadly flat as $104.8 million of PPP repayments offset new lending.
- The allowance declined by $1.5 million, reflecting a $1.6 million negative provision and $86,000 in net recoveries; 2020 had $10.9 million of provision expense and $1.0 million in net charge-offs.
- The company sold its Wellsville and Calcutta, Ohio branches in July 2021 and recognized a $1.9 million gain on sale of deposits.
Outlook, risks and unusual items
- No quantified earnings or growth guidance is provided. The company said it expects to continue paying dividends at similar levels, subject to board decisions and legal, regulatory and debt-related restrictions; FY2021 dividends were $0.13 per share.
- Management described strong commercial banking growth and emphasized continued credit monitoring. It stated that the allowance was adequate at year-end but warned that deterioration in borrower performance, economic conditions or real-estate values could require additional provisions.
- Key exposures include concentrated lending in Ohio markets, commercial and commercial real estate credit risk, adjustable-rate borrower stress, interest-rate and mortgage-market volatility, deposit competition and reliance on brokered deposits. COVID-19 effects and potential cybersecurity, vendor and operational disruptions also remain risks.
- The company had no loans remaining on COVID-related payment deferrals at year-end and made no new TDR modifications in 2021. Nonperforming loans were $997,000, or 0.08% of loans; there were no foreclosed assets.
- CECL was expected to become effective for the company in 2023; management had not determined its financial impact. The filing also identifies LIBOR transition exposure but states management did not expect a material effect.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The allowance for loan losses was identified as a critical audit matter because it involves significant estimates and judgment. Management reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether commercial and real estate loan growth can be maintained without weakening credit quality; review portfolio concentrations, criticized/classified loans and allowance assumptions.
- How mortgage-business retrenchment and lower gain-on-sale income affect recurring earnings, and whether reported operating cash flow is comparable across periods.
- The cost, stability and maturity profile of brokered deposits and other funding, alongside available borrowing capacity and holding-company debt obligations.
- Future effects of interest-rate changes on net interest margin, borrowers, loan demand and deposit costs.
- Management’s eventual CECL adoption estimate, LIBOR contract transition and any changes to dividend capacity or capital needs.