CFBK CF Bankshares Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 3, 2023

CF BANKSHARES INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02. Results of Operations and Financial Condition.

On August 3, 2023, CF Bankshares Inc. (the “Company”) issued a press release announcing financial results for the second quarter ended June 30, 2023 (the “Earnings Release”). A copy of the Earnings Release is included as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits

‎

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Parent of CFBank, NA







CF BANKSHARES INC., PARENT OF CFBANK NA, REPORTS RESULTS FOR THE 2nd  QUARTER 2023.  



Columbus, Ohio – August 3, 2023 – CF Bankshares Inc. (NASDAQ: CFBK) (the “Company”), the parent of CFBank, National Association (“CFBank”), today announced financial results for the second quarter ended June 30, 2023.



Second Quarter and First Half 2023 Highlights



Recent Developments

CEO and Board Chair Commentary



Timothy T. O’Dell, President and CEO, commented: “Our CFBK Earnings were $4.2 Million, or $0.66 cents per share, for Q2. Our Book Value at June 30, 2023 was $22.49 per share.



Our CF Team has been proactive in responding early on to Margin pressures boosting loan pricing and deposit requirements beginning early this year.



Loan growth has been modest during the first half of the year. Presently, we are pleased to report that both our Loan and Deposit Pipelines are increasing. Our objective and expectation for the second half of 2023 is to outrun elevated loan payoffs experienced during the second quarter and anticipated during the third quarter of this year. These payoffs are mostly Commercial Real Estate loans moving to permanent financing sources. Our business objectives include taking advantage of continuing quality new business relationship opportunities throughout all of our markets during the second half of this year.



In addition to significant commercial loan payoffs during the second quarter, our Residential Mortgage Lending Business also experienced roughly $10 Million of low-rate loans being paid off. We successfully replaced this low-rate runoff at higher interest rates, while absorbing the remaining unrecognized loan origination expenses during Q2. We expect this to provide a future lift to our Margin and Earnings.



We continue to opportunistically make investments in our CF Banking Team, focused on adding proven revenue generators for growing our Deposit and Fee Income businesses.



The current operating environment, with high interest rates coupled with an inverted yield curve, remains highly challenging.  However, we believe that we are adjusting successfully and, as a general statement, seeing signs of improving stabilization along with positive impacts from our ongoing loan pricing initiatives. Our total assets continue to increase, to $1.96 Billion at June 30, 2023, and we anticipate surpassing $2 Billion in total assets during 2023.



“We remain very encouraged going forward by our continued access to quality new full relationship Loan and Deposit business. Additionally, we are gaining traction in growing our Fee Income businesses including good acceptance of our recently launched Business Credit Card product offering.



Steady as we go!”



Robert E. Hoeweler, Chairman of the Board, added: “Our over-achieving Business principle is to serve well the needs of our customers and our communities. Our concentration on the basics, the blocking and tackling of banking if you will, has us well positioned. Our seasoned CFBank Leadership Team has once again successfully reacted to the current economic situation quickly and decisively as reflected in our Q2 results.”



Overview of Results 

Net income for the three months ended June 30, 2023 totaled $4.2 million (or $0.66 per diluted common share) compared to net income of $4.4 million (or $0.68 per diluted common share) for the three months ended March 31, 2023 and net income of $4.7 million (or $0.72 per diluted common share) for the three months ended June 30, 2022.  Pre-provision, pre-tax net revenue (“PPNR”) for the three months ended June 30, 2023 was $5.3 million compared to PPNR of $5.8 million for the three months ended March 31, 2023 and $5.9 million for the three months ended June 30, 2022.

Net income for the six months ended June 30, 2023 totaled $8.7 million (or $1.35 per diluted common share) compared to net income of $9.2 million (or $1.41 per diluted common share) for the six months ended June 30, 2022.

Net Interest Income and Net Interest Margin

Net interest income totaled $11.5 million for the quarter ended June 30, 2023 and decreased $1.2 million, or 9.8%, compared to $12.7 million in the prior quarter, and decreased $59,000, or 0.5%, compared to $11.5 million in the second quarter of 2022.    

The decrease in net interest income compared to the prior quarter was primarily due to a  $3.2 million, or 28.8%, increase in interest expense, partially offset by a $2.0 million, or 8.5%, increase in interest income. The increase in interest expense when

compared to the prior quarter was attributed to a  65bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $101.4 million, or 7.2%, increase in average interest-bearing liabilities.  The increase in interest income was primarily attributed to an $80.3 million, or 4.6%, increase in average interest-earning assets, coupled with 20bps increase in average yield on interest-earning assets.    The net interest margin of 2.52% for the quarter ended June 30, 2023 decreased 41bps compared to the net interest margin of 2.93% for the prior quarter.

The decrease in net interest income compared to the second quarter of 2022 was primarily due to a $11.6 million, or 366.4%, increase in interest expense, partially offset by a $11.5 million, or 78.3%, increase in interest income.  The increase in interest expense was attributed to a 284bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $313.5 million, or 26.1%, increase in average interest-bearing liabilities. The increase in interest income was primarily attributed to a  188bps increase in the average yield on interest-earning assets, coupled with a  $301.3 million, or 19.9%, increase in average interest-earning assets outstanding.  The net interest margin of 2.52% for the quarter ended June 30, 2023 decreased 52bps compared to the net interest margin of 3.04% for the second quarter of 2022.

Noninterest Income

Noninterest income for the quarter ended June 30, 2023 totaled $978,000 and increased $259,000, or 36.0%, compared to $719,000 for the prior quarter.  The increase was primarily due to a $112,000 increase in swap fee income and a $75,000 increase in service charges on deposit accounts.    

Noninterest income for the quarter ended June 30, 2023 increased $170,000, or 21.0%, compared to $808,000 for the quarter ended June 30, 2022.  The increase was primarily due to a $167,000 increase in other noninterest income related to commercial loan servicing fees, a $137,000 increase in swap fee income, partially offset by a $143,000 decrease in net gain on sale of commercial loans.

During the second quarter 2022, we exited the DTC mortgage loan business in favor of traditional Retail mortgage lending to customers in our Regional markets. The following table represents the notional amount of loans sold during the three months ended June 30, 2023,  March 31, 2023, and June 30, 2022 (in thousands).









The following table represents the revenue recognized on mortgage activities for the three months ended June 30, 2023,  March 31, 2023, and June 30, 2022 (in thousands).









Noninterest Expense

Noninterest expense for the quarter ended June 30, 2023 totaled $7.2 million and decreased $518,000, or 6.7%, compared to $7.7 million for the prior quarter.  The decrease in noninterest expense was primarily due to a $303,000 decrease in other noninterest expense and a $208,000 decrease in salaries and employee benefits.  The decrease in other noninterest expense was primarily due to fraud losses on customer accounts that occurred in the first quarter of 2023.  The decrease in salaries and employee benefits was primarily due to a decrease in the number of employees coupled with lower payroll taxes.

Noninterest expense for the quarter ended June 30, 2023 increased $701,000, or 10.8%, compared to $6.5 million for the quarter ended June 30, 2022.  The increase in noninterest expense was primarily due to a $292,000 increase in FDIC premiums and a $200,000 increase in salaries and employee benefits.  The increase in FDIC expense was related to increased

assets and deposit levels and assessment rates.  The increase in salaries and employee benefits was primarily due to a decline in deferred salary costs related to lower origination volumes.

Income Tax Expense

Income tax expense was $1.1 million for the quarter ended June 30, 2023 (effective tax rate of 20.0%), compared to $1.1 million for the prior quarter (effective tax rate of 19.5%) and $1.2 million for the quarter ended June 30, 2022 (effective tax rate of 19.6%).

Loans and Loans Held For Sale

Net loans and leases totaled $1.6 billion at June 30, 2023 and increased $15.1 million, or 0.9%, from the prior quarter and increased $58.9 million, or 3.7%, from December 31, 2022. The increase in net loans during the quarter was primarily due to a  $9.6 million increase in commercial loan balances, a $5.9 million increase in construction loan balances, and a $1.2 million increase in commercial real estate loan balances, partially offset by a $1.0 million decrease in single-family residential loan balances.  The increases in the aforementioned loan balances were related to increased sales activity and new relationships.

The increase in net loans and leases from December 31, 2022 was primarily due to a $17.8 million increase in commercial real estate loan balances, a $12.4 million increase in commercial loan balances, a $10.1 million increase in construction loan balances, an $8.0 million increase in single-family residential loan balances, a $5.8 million increase in home equity lines of credit, and a $5.4 million increase in multi-family loan balances.  The increases in the aforementioned loan balances were related to increased sales activity and new relationships.

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





*CFBank possesses a core competency and deep expertise in Construction Lending.  The construction lending business sector has produced many full banking relationships with proven developers with long successful track records.

Asset Quality

Nonaccrual loans were $799,000, or 0.05%, of total loans at June 30, 2023,  an increase of $81,000 from nonaccrual loans at March 31, 2023 and an increase of $38,000 from nonaccrual loans at December 31, 2022. Loans past due more than 30 days totaled $1.9 million at June 30, 2023 compared to $1.0 million at March 31, 2023 and $2.1 million at December 31, 2022.

The allowance for credit losses on loans and leases totaled $16.0 million at June 30, 2023 compared to $15.9 million at March 31, 2023 and $16.1 million at December 31, 2022.  The ratio of the allowance for credit losses on loans and leases to total loans and leases was 0.97% at June 30, 2023 compared to 0.98% at March 31, 2023 and 1.01% at December 31, 2022.

On January 1, 2023, the Company adopted CECL, which resulted in an increase to the reserve for credit losses of $49,000.  There was $12,000 in provision for credit loss expense for the quarter ended June 30, 2023, a  $237,000 provision for credit loss expense for the quarter ended March 31, 2023 and no provision for credit loss expense for the quarter ended June 30, 2022.  Net recoveries for the quarter ended June 30, 2023 totaled $108,000 compared to net charge-offs of $5,000 for the prior quarter and net recoveries of $12,000 for the quarter ended June 30, 2022.

Subsequent to June 30, 2023, CFBank was notified of a potential credit issue with the borrower on a participation loan of which we are not the lead bank.  The balance of CFBank’s participation was $2.9 million as of June 30, 2023.  The lead bank is currently gathering additional information to determine the impact.

Deposits

Deposits totaled $1.7 billion at June 30, 2023, an increase of $56.2 million, or 3.5%, when compared to $1.6 billion at March 31, 2023, and an increase of $132.2 million, or 8.6%, when compared to $1.5 billion at December 31 2022.    The increase when compared to the prior quarter end is primarily due to a $35.2 million increase in certificate of deposit account balances and a $28.6 million increase in money market account balances, partially offset by a $6.5 million decrease in checking account balances and a $1.1 million decrease in savings account balances.    

The increase in deposits when compared to December 31, 2022 is primarily due to a $98.0 million increase in money market account balances and a $56.5 million increase in certificate of deposit account balances, partially offset by a $21.1 million decrease in checking account balances and a $1.2 million decrease in savings account balances.

Noninterest-bearing deposit accounts totaled $217.0 million at June 30, 2023 and decreased $7.1 million from $224.1 million at March 31, 2023 and decreased $46.2 million from $263.2 million at December 31, 2022.  At June 30, 2023,  approximately 28.8% of our deposit balances exceeded the FDIC insurance limit of $250,000, as compared to approximately 30.5% at March 31, 2023 and 31.6% at December 31, 2022.

Borrowings

FHLB advances and other debt totaled $110.0 million at June 30, 2023, a decrease of $27.0 million, or 19.7%, when compared to $137.0 million at March 31, 2023 and an increase of $517,000 when compared to $109.5 million at December 31, 2022.   The decrease when compared to the prior quarter was due to the repayment of an FHLB short-term advance.  The increase when compared to December 31, 2022 was due to a $4.0 million increase on the Company’s line of credit with a third party financial institution, partially offset by a $3.5 million decrease in FHLB advances.    

Capital

Stockholders’ equity totaled $147.3 million at June 30, 2023, an increase of $4.0 million, or 2.8%, from $143.3 million at March 31, 2023.  Stockholders’ equity increased $8.1 million, or 5.8%, from $139.2  million at December 31, 2022.  The increase in total stockholders’ equity during the three months ended June 30, 2023 was primarily attributed to net income, partially offset by a $148,000 increase in other comprehensive loss.  The increase in total stockholders’ equity during the six months ended June 30, 2023 was primarily attributed to net income, partially offset by a $364,000 increase in other comprehensive loss.   The other comprehensive loss was the result of the mark-to-market adjustment of our investment portfolio.

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).  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.  Non-GAAP financial measures included in this earnings release include Tangible book value per common share, Pre-Provision, Pre-Tax Net Revenue (PPNR), PPNR Return on Average Assets (PPNR ROA) and PPNR Return on Average Equity (PPNR ROE).  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 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.

CFBank was recognized in CB Resource Inc.’s Durable Performance Index which highlighted banks who have maintained above average performance based on 11 key performance indicators over the three-year period ended September 30, 2022.  In addition, CFBank ranked #7 on American Banker’s listing of Top 200 Publicly Traded Community Banks based on 3-year average return on equity as of December 31, 2022.

Additional information about the Company and CFBank is available at www.CF.Bank



FORWARD LOOKING STATEMENTS

This press release and other materials we have filed or may file with the Securities and Exchange Commission (“SEC”) contain or may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Reform Act of 1995, which are made in good faith by us.  Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of CF Bankshares Inc. or CFBank; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements.  Words such as "estimate," "strategy," "may," "believe," "anticipate," "expect," "predict," "will," "intend," "plan," "targeted," and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements, including, without limitation those risks detailed from time to time in our reports filed with the SEC, including those risk factors identified in “Item 1A.  Risk Factors” of Part I of our Annual Report on Form 10-K filed with SEC for the year ended December 31, 2022, as supplemented by the risk factors identified in “Item 1A. Risk Factors” of Part II of our Quarterly Reports on Form 10-Q filed with the SEC for the quarter ended March 31, 2023.

Forward-looking statements are not guarantees of performance or results.  A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement.  We believe that we have chosen these assumptions or bases in good faith and that they are reasonable.  We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material.  The forward-looking statements included in this press release speak only as of the date hereof.  We undertake no obligation to publicly release revisions to any forward-looking statements to reflect events or circumstances after the date of such statements, except to the extent required by law.