CF Bankshares (US:CFBK)2025-03-14 15:19Credit Losses and Loan Performance - The Allowance for Credit Losses on Loans (ACL - Loans) totaled $17.5 million at December 31, 2024, reflecting an increase of $609,000, or 3.6%, from $16.9 million at December 31, 2023[65]. - The ratio of ACL - Loans to total loans was 1.00% at December 31, 2024, compared to 0.99% at December 31, 2023[65]. - Nonperforming loans increased by $9.3 million in 2024, primarily due to three commercial loans totaling $11.3 million becoming nonaccrual[59]. - The company recognized no interest income on nonaccrual loans in 2024, with an estimated additional interest income of approximately $1.2 million if these loans had performed as per their contractual terms[60]. - The net charge-offs for the year ended December 31, 2024, were $5.5 million, with a provision for credit losses on loans amounting to $6.1 million[65]. - The ACL - Loans to nonperforming loans ratio was 116.13% at December 31, 2024, down from 294.74% at December 31, 2023[67]. Securities and Investments - The securities available for sale portfolio totaled $8.7 million at December 31, 2024, with all U.S. Treasury securities guaranteed by the U.S. government[74]. - The amortized cost of corporate debt securities was $9.98 million at December 31, 2024, with a fair value of $7.7 million[77]. - The company modified one commercial loan with an amortized cost basis of $4.3 million, representing 1% of commercial loans, due to the borrower's financial difficulty[62]. Deposits and Borrowings - CFBank's total average deposits reached $1.694 billion in 2024, an increase from $1.624 billion in 2023, reflecting a growth of 4.3%[88]. - Money market accounts constituted 40.6% of average deposit balances in 2024, while certificates of deposit accounted for 38.5%[88]. - Brokered deposits totaled $420.8 million at December 31, 2024, a decrease of $19.6 million, or 4.4%, from $440.4 million at December 31, 2023[86]. - CFBank had $58.0 million in FHLB advances at December 31, 2024, with a borrowing capacity of up to $244.6 million based on collateral pledged[89]. - The Holding Company's available cash and cash equivalents totaled $1.0 million at December 31, 2024, indicating adequate liquidity to meet operating needs[82]. - Average interest-bearing deposits amounted to $1.454 billion in 2024, with a weighted average interest rate of 4.62%[88]. - CFBank's certificate accounts exceeding the FDIC insured limit of $250,000 totaled $464.0 million at December 31, 2024[87]. - The Holding Company had an outstanding balance of $34.7 million on a $35.0 million credit facility as of December 31, 2024[90]. - Customer balances in the CDARS and ICS reciprocal programs increased by $33.9 million, or 14.3%, to $271.7 million at December 31, 2024[86]. Employment and Corporate Structure - CFBank employed 102 full-time employees as of December 31, 2024[94]. - The Holding Company became a financial holding company effective December 1, 2016, allowing it to engage in a broader range of financial activities[105]. Capital Requirements and Regulatory Compliance - The Basel III Capital Rules require a minimum common equity tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0%, and a minimum total capital ratio of 8.0%[116]. - As of December 31, 2024, the Company believes it met the requirements to be deemed "well-capitalized" with a common equity tier I capital ratio of at least 6.5%[127]. - The Economic Growth, Regulatory Relief and Consumer Protection Act eased restrictions for bank holding companies with consolidated assets of less than $100 billion, including the Company[110]. - The FRB's Small Bank Holding Company Policy Statement now allows qualifying bank holding companies with total consolidated assets up to $3 billion to be exempt from certain capital rules[128]. - The Company is subject to regular examinations by the FRB and must file reports as required, ensuring compliance with extensive regulations[102]. - The FRB has the authority to require a financial holding company to contribute additional capital to an undercapitalized subsidiary bank[103]. - The Company is prohibited from engaging in certain tying arrangements in connection with extensions of credit or services[109]. - The federal banking agencies have established a system of prompt corrective action based on five capital level categories for insured depository institutions[126]. - The Holding Company qualifies under the FRB's Small Bank Holding Company Policy Statement for exemption from consolidated risk-based capital and leverage rules[128]. Insurance and Ratings - CFBank's deposits are insured up to $250,000 per separately insured depositor by the FDIC[129]. - The FDIC's designated reserve ratio (DRR) was 1.26% as of September 30, 2022, and increased to 1.21% as of June 30, 2024[130]. - The FDIC plans to restore the DRR to 1.35% by September 30, 2028, following a restoration plan[130]. - CFBank's CRA rating is "Needs to Improve," primarily due to its legacy direct-to-consumer residential mortgage business[143]. - The OCC's evaluation covering 2020 through 2022 led to the "Needs to Improve" rating, with the next evaluation expected in 2026[143]. Taxation and Financial Regulations - Federal income tax laws provided deductions totaling $2.3 million for the Company's thrift bad debt reserves established before 1988[136]. - The reserve requirement ratio for depository institutions remained at 0% as of December 31, 2024, in response to the COVID-19 pandemic[137]. - The Dodd-Frank Act requires federal banking agencies to issue rules related to incentive-based compensation, with no final rule adopted yet[150]. - The FRB, OCC, and FDIC issued guidance in June 2010 to ensure incentive compensation policies do not encourage excessive risk-taking[151]. - CFBank's net operating loss carryforwards at year-end 2023 amount to $21.9 million, expiring between 2024 and 2032, with a limitation of $163,000 per year due to an ownership change[171]. Interest Rate Risk and Economic Value - The economic value of equity (EVE) ratio at December 31, 2024, is projected to be 10.9% under current interest rates, with potential fluctuations ranging from 9.4% to 12.9% based on interest rate changes of +400 bps to -400 bps[378]. - CFBank's clawback policy for incentive compensation payments was adopted effective November 29, 2023, in compliance with SEC regulations[154]. - The company has not detected significant data loss or material financial losses related to cybersecurity attacks, but risks remain high due to evolving threats[166]. - CFBank's hedging policy allows for economic hedging activities, such as interest-rate swaps, up to a notional amount of 10% of total assets[374]. - The company is subject to various state taxation regulations, including the Ohio Financial Institutions Tax and the Indiana Financial Institution Tax[175][176]. - Federal income tax laws provided additional deductions totaling $2.3 million for thrift bad debt reserves established before 1988[172]. - CFBank's management actively monitors interest rate risk to limit adverse impacts on net interest income and capital[375]. - The company is required to disclose material cybersecurity incidents within four business days of determination, as per SEC rules adopted in July 2023[163]. - CFBank's cybersecurity controls include multiple layers of security to protect against threats, although the risk of cyber attacks is increasing[159]. Mortgage Loan Origination - Residential mortgage loan origination volumes are negatively impacted by rising interest rates, leading to lower loan originations[380]. - The company originates various types of mortgage loans, including commercial and residential, many of which have adjustable interest rates[381]. - Adjustable-rate loans may lead to increased delinquencies and defaults in a rising interest rate environment due to higher payment requirements[381]. - Cash flows are influenced by market interest rate changes, with prepayment rates declining in rising interest rate environments[382].