CF BANKSHARES INC., PARENT OF CFBANK NA, REPORTS RESULTS FOR THE 3rd QUARTER 2024

Strategically, our business intents include repositioning our balance sheet, by reducing the portfolio of residential home mortgage loans, channeling refinancing and/or sale proceeds to fund commercial banking pipelines and growth opportunities. We have introduced initiatives coupled with incentives to accelerate refinancing of lower rate residential home mortgage loans.  This approach will result in a long-term benefit to our net interest margin.  Furthermore, commercial loans are typically accompanied by attractive full-service deposit and treasury management relationships.

Our business initiatives include efforts aimed at continued expansion of our shareholder base, including both institutional and retail investors.  CF has strong insider ownership, with roughly 40% of our outstanding stock being held by our Board Members and Management (including their affiliates and related parties). 

During October we moved into our new Northeast Ohio (Cleveland Market) Main Office in Pinecrest. By relocating to a location adjacent to a number of successful Family Wealth Offices, we expect to gain greater visibility as well as efficiency. We anticipate our relocation will provide added business synergy for our CF Boutique Banking model.

We believe Our Bests are yet Ahead!"

Robert E. Hoeweler, Chairman of the Board, added: "Our CF Leadership Team has continued to successfully adapt to the challenging interest rate environment. We maintain our focus on executing solid fundamentals, including at the forefront serving the needs of entrepreneurs and closely-held businesses."

Overview of Results 

Net income for the three months ended September 30, 2024 totaled $4.2 million (or $0.65 per diluted common share) compared to net income of $1.7 million (or $0.26 per diluted common share) for the three months ended June 30, 2024 and net income of $4.0 million (or $0.62 per diluted common share) for the three months ended September 30, 2023.  Pre-provision, pre-tax net revenue ("PPNR") for the three months ended September 30, 2024 was $5.8 million compared to PPNR of $5.5 million for the three months ended June 30, 2024 and PPNR of $6.2 million for the three months ended September 30, 2023.

Net income for the nine months ended September 30, 2024 totaled $9.0 million (or $1.38 per diluted common share) compared to net income of $12.7 million (or $1.97 per diluted common share) for the nine months ended September 30, 2023. PPNR for the nine months ended September 30, 2024 was $16.3 million compared to PPNR of $17.3 million for the nine months ended September 30, 2023.

Net Interest Income and Net Interest Margin

Net interest income totaled $11.5 million for the quarter ended September 30, 2024 and increased $93,000, or 0.8%, compared to $11.4 million for the prior quarter, and decreased $207,000, or 1.8%, compared to $11.7 million for the third quarter of 2023.

The increase in net interest income compared to the prior quarter was primarily due to a $681,000, or 2.3%, increase in interest income, partially offset by a $588,000, or 3.3%, increase in interest expense.  The increase in interest income was primarily attributed to a 14bps increase in the average yield on interest-earning assets, coupled with a $1.5 million, or 0.08%, increase in average interest-earning assets. The increase in interest expense when compared to the prior quarter was attributed to a 13bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $7.5 million, or 0.5%, increase in average interest-bearing liabilities. The net interest margin of 2.41% for the quarter ended September 30, 2024 increased 2bps compared to the net interest margin of 2.39% for the prior quarter.

The decrease in net interest income compared to the third quarter of 2023 was primarily due to a $2.0 million, or 12.3%, increase in interest expense, partially offset by a $1.8 million, or 6.5%, increase in interest income.  The increase in interest expense was attributed to a 46bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $22.8 million, or 1.5%, increase in average interest-bearing liabilities. The increase in interest income was primarily attributed to a 26bps increase in the average yield on interest-earning assets, coupled with a $40.9 million, or 2.2%, increase in average interest-earning assets outstanding. The net interest margin of 2.41% for the quarter ended September 30, 2024 decreased 9bps compared to the net interest margin of 2.50% for the third quarter of 2023.

Noninterest Income

Noninterest income for the quarter ended September 30, 2024 totaled $1.6 million and increased $388,000, or 31.9%, compared to $1.2 million for the prior quarter.  The increase was primarily due to a $252,000 increase in swap fee income and an $81,000 increase in other noninterest income.

Noninterest income for the quarter ended September 30, 2024 increased $305,000, or 23.4%, compared to $1.3 million for the quarter ended September 30, 2023.  The increase was primarily due to a $259,000 increase in service charges on deposit accounts and a $188,000 increase on other noninterest income, partially offset by a $192,000 decrease in swap fee income.

The following table represents the notional amount of loans sold during the three months ended September 30, 2024, June 30, 2024, and September 30, 2023 (in thousands).

Noninterest Expense

Noninterest expense for the quarter ended September 30, 2024 totaled $7.2 million and increased $134,000, or 1.9%, compared to $7.1 million for the prior quarter.  The increase in noninterest expense was primarily due to a $159,000 increase in other noninterest expense, partially offset by a $31,000 decrease in salary and employee benefit expense. 

Noninterest expense for the quarter ended September 30, 2024 increased $466,000, or 6.9%, compared to $6.8 million for the quarter ended September 30, 2023.  The increase in noninterest expense was primarily due to a $194,000 increase in other noninterest expense, a $119,000 increase in salaries and employee benefits, and a $91,000 increase in data processing expense. The increase in other noninterest expense was primarily due to a $135,000 increase in fraud losses on customer accounts, coupled with a $53,000 increase in charitable contributions.  The increase in salaries and employee benefits was primarily related to an increase in the number of employees, partially offset by lower deferred compensation incentive plan expense.

Income Tax Expense

Income tax expense was $1.1 million for the quarter ended September 30, 2024 (effective tax rate of 20.4%), compared to $237,000 for the prior quarter (effective tax rate of 12.3%) and $984,000 for the quarter ended September 30, 2023 (effective tax rate of 19.6%).

Loans and Loans Held For Sale

Net loans and leases totaled $1.7 billion at September 30, 2024 and increased $29.4 million, or 1.7%, from the prior quarter and increased $22.9 million, or 1.4%, from December 31, 2023. The increase in net loans and leases during the quarter was primarily due to a $26.9 million increase in loans and leases balances coupled with a $2.5 million decrease in the allowance for credit losses.  The increase in loans and leases balances was primarily due to $48.2 million increase in multi-family loan balances and a $10.9 million increase in commercial and industrial (C&I) loan balances, partially offset by a $13.4 million decrease in construction loan balances, a $12.1 million decrease in commercial real estate loan balances, and a $6.6 million decrease in single-family residential loan balances.  The decrease in the allowance for credit losses was primarily driven by net charge-offs of $3.3 million, partially offset by the quarterly provision for credit losses on loans of $758,000. 

The increase in net loans and leases from December 31, 2023 was primarily due to a $45.8 million increase in multi-family loan balances, a $14.8 million increase in commercial real estate loan balances, and a $5.0 million increase in home equity lines of credit, partially offset by a $19.2 million decrease in construction loan balances, a $17.1 million decrease in single-family residential loan balances, and a $7.0 million decrease in commercial and industrial (C&I) loan balances. 

The following table presents the recorded investment in loans and leases for certain non-owner-occupied loan types (in thousands).

Asset Quality

Nonaccrual loans were $14.6 million, or 0.84% of total loans at September 30, 2024, an increase of $3.7 million from $10.9 million at June 30, 2024 and an increase of $8.9 million from $5.7 million at December 31, 2023.  The increase in nonaccrual loans when compared to the prior quarter end was primarily due to two commercial loans, totaling $7.0 million, becoming nonaccrual during the third quarter of 2024, partially offset by charge-offs of $3.3 million on loans that were in nonaccrual status during the second quarter of 2024. 

The increase in nonaccrual loans when compared to December 31, 2023 was primarily driven by six commercial loans, totaling $11.5 million, and two single-family residential loans, totaling $918,000, becoming nonaccrual during the nine months ended September 30, 2024, partially offset by $3.3 million in charge-offs.  Loans past due more than 30 days totaled $7.7 million at September 30, 2024, compared to $7.6 million at June 30, 2024 and $2.0 million at December 31, 2023. 

The allowance for credit losses on loans and leases totaled $16.8 million at September 30, 2024 compared to $19.3 million at June 30, 2024 and $16.9 million at December 31, 2023.  The ratio of the allowance for credit losses on loans and leases to total loans and leases was 0.97% at September 30, 2024, compared to 1.13% at June 30, 2024 and 0.99% at December 31, 2023.  The decrease in the allowance for credit losses during the quarter ended September 30, 2024 was primarily driven by $3.3 million in charge-offs, which included a commercial participation loan that had a $2.9 million additional reserve placed on it in the second quarter of 2024.

There was $558,000 in provision for credit losses expense for the quarter ended September 30, 2024, compared to $3.6 million for the quarter ended June 30, 2024 and $1.2 million for the quarter ended September 30, 2023.  The decrease in the provision for credit losses when compared to the prior quarter was primarily driven by additional reserves placed on two individually-evaluated commercial loan participations in the second quarter of 2024.  These two loan participations were acquired from regional banks.  Net charge-offs for the quarter ended September 30, 2024 totaled $3.3 million, compared to net charge-offs of $2.1 million for the prior quarter and net charge-offs of $126,000 for the quarter ended September 30, 2023.

Deposits

Deposits totaled $1.75 billion at September 30, 2024, an increase of $49.1 million, or 2.9%, compared to $1.70 billion at June 30, 2024, and an increase of $1.5 million, or 0.09%, when compared to $1.74 billion at December 31, 2023.  The increase when compared to June 30, 2024 was primarily due to a $39.9 million increase in noninterest-bearing account balances, coupled with a $9.2 million increase in interest-bearing accounts balances.  The increase when compared to December 31, 2023, was primarily due to a $21.8 million increase in noninterest-bearing account balances, partially offset by a $20.3 million decrease in interest-bearing account balances.  The decrease in interest-bearing account balances when compared to December 31, 2023 included a $14.7 million reduction in brokered deposits.

At September 30, 2024, approximately 30.2% of our deposit balances exceeded the FDIC insurance limit of $250,000, as compared to approximately 28.6% at June 30, 2024 and approximately 29.2% at December 31, 2023.

Borrowings

FHLB advances and other debt totaled $108.7 million at September 30, 2024 and decreased $28.5 million, or 20.8%, when compared to $137.2 million at June 30, 2024 and decreased $1.3 million when compared to $110.0 million at December 31, 2023. The decrease when compared to June 30, 2024 was primarily due to a $26.0 million short-term borrowing that paid off during the third quarter 2024, coupled with a $2.5 million maturity of a FHLB fixed rate advance. 

Capital

Stockholders' equity totaled $164.0 million at September 30, 2024, an increase of $4.4 million, or 2.8%, when compared to $159.6 million at June 30, 2024, and an increase of $8.6 million, or 5.6%, from $155.4 million at December 31, 2023.  The increase in total stockholders' equity during the three months ended September 30, 2024 was primarily attributed to net income, partially offset by $388,000 in dividend payments. The increase in stockholders' equity during the nine months ended September 30, 2024 was primarily attributed to net income, partially offset by $1.2 million in dividend payments.

USE OF NON-GAAP FINANCIAL MEASURES

This earnings release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP").  Non-GAAP financial measures included in this earnings release include Pre-Provision, Pre-Tax Net Revenue (PPNR).  Management uses these "non-GAAP" financial measures in its analysis of the Company's performance and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and peers.  These disclosures should not be viewed as substitutes for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included at the end of this earnings release under the heading "GAAP TO NON-GAAP RECONCILIATION."

About CF Bankshares Inc. and CFBank

CF Bankshares Inc. (the "Company") is a holding company that owns 100% of the stock of CFBank, National Association ("CFBank"). CFBank is a nationally chartered boutique Commercial bank operating primarily in Four (4) Major Metro Markets: Columbus, Cleveland, and Cincinnati, Ohio, and Indianapolis, Indiana. The current Leadership Team and Board recapitalized the Company and CFBank in 2012 during the financial crisis, repositioning CFBank as a full-service Commercial Bank model. Since the 2012 recapitalization, CFBank has achieved a CAGR in excess of 20%.

CFBank focuses on serving the financial needs of closely held businesses and entrepreneurs, by providing a comprehensive Commercial, Retail, and Mortgage Lending services presence. In all regional markets, CFBank provides commercial loans and equipment leases, commercial and residential real estate loans and treasury management depository services, residential mortgage lending, and full-service commercial and retail banking services and products.  CFBank is differentiated by our penchant for individualized service coupled with direct customer access to decision-makers, and ease of doing business. CFBank matches the sophistication of much larger banks, without the bureaucracy.

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