NOTE 4 – LOANS AND LEASES

The following table presents the recorded investment in loans and leases by portfolio segment. The recorded investment in loans and leases includes the principal balance outstanding adjusted for purchase premiums and discounts, and deferred loan fees and costs.



	December 31, 2020		December 31, 2019
Commercial (1)	$	338,286	$	170,646
Real estate:
Single-family residential		147,860		120,256
Multi-family residential		45,375		39,229
Commercial		277,028		247,543
Construction		80,426		67,652
Consumer:
Home equity lines of credit		20,962		20,941
Other		2,429		4,174
Subtotal		912,366		670,441
Less: ALLL		(17,022)		(7,138)
Loans and Leases, net	$	895,344	$	663,303

⁽¹⁾

Includes $4,133 and $4,779 of commercial leases at December 31, 2020 and December 31, 2019, respectively.

Included in Commercial loans at December 31, 2020, were $105,269 of loans originated under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). The Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), authorized the SBA to temporarily guarantee PPP loans to provide funding to small businesses to pay certain payroll costs and benefits, and other expenses, during the COVID-19 pandemic. These loans are 100% guaranteed by the SBA and the full principal amount of the loans may qualify for forgiveness. The loans we originated have a maturity of two years, an interest rate of 1.00% and loan payments are deferred for the initial six months (which deferral period was subsequently extended to 10 months pursuant to the Paycheck Protection Program Flexibility Act of 2020). The majority of these loans have been pledged as collateral on borrowings under the FRB Paycheck Protection Program Lending Facility (“PPPLF”). See Note 10 - FHLB Advances and Other Debt for additional information.

Mortgage Purchase Program:

CFBank has participated in a Mortgage Purchase Program with Northpointe Bank (Northpointe), a Michigan banking corporation, since December 2012. Pursuant to the terms of a participation agreement, CFBank purchases participation interests in loans made by Northpointe related to fully underwritten and pre-sold mortgage loans originated by various prescreened mortgage brokers located throughout the U.S. The underlying loans are individually (MERS) registered loans which are held until funded by the end investor. The mortgage loan investors include Fannie Mae and Freddie Mac, and other major financial institutions. This process on average takes approximately 14 days. Given the short-term holding period of the underlying loans, common credit risks (such as past due, impairment and TDR, nonperforming, and nonaccrual classification) are substantially reduced. Therefore, no allowance is allocated by CFBank to these loans. These loans are 100% risk rated for CFBank capital adequacy purposes. Under the participation agreement, CFBank agrees to purchase a 95% ownership/participation interest in each of the aforementioned loans, and Northpointe maintains a 5% ownership interest in each loan it participates. At December 31, 2020 and 2019, CFBank held $15,713 and $26,046, respectively, of such loans which have been included in single-family residential loan totals above.

Allowance for Loan and Lease Losses:

The ALLL is a valuation allowance for probable incurred credit losses in the loan and lease portfolio based on management’s evaluation of various factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. A provision for loan and lease losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors described in Note 1.

The following tables present the activity in the ALLL by portfolio segment for the years ended December 31, 2020 and 2019:


	December 31, 2020
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	2,054	$	948	$	447	$	2,604	$	759	$	265	$	61	$	7,138
Addition to (reduction in) provision for loan losses		2,005		745		20		6,580		1,495		15		55		10,915
Charge-offs		(648)		(425)		-		-		-		(21)		-		(1,094)
Recoveries		15		31		-		-		-		17		-		63
Ending balance	$	3,426	$	1,299	$	467	$	9,184	$	2,254	$	276	$	116	$	17,022


	December 31, 2019
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	1,819	$	1,061	$	612	$	2,274	$	739	$	410	$	97	$	7,012
Addition to (reduction in) provision for loan losses		235		(120)		(165)		225		20		(195)		-		-
Charge-offs		-		-		-		-		-		-		(36)		(36)
Recoveries		-		7		-		105		-		50		-		162
Ending balance	$	2,054	$	948	$	447	$	2,604	$	759	$	265	$	61	$	7,138

The following table presents the balance in the ALLL and the recorded investment in loans and leases by portfolio segment and based on impairment method as of December 31, 2020:



			Real Estate								Consumer
	Commercial		Single- family		Multi- family		Commercial		Construction		Home Equity lines of credit		Other		Total
ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	23	$	-	$	-	$	-	$	23
Collectively evaluated for impairment		3,426		1,299		467		9,161		2,254		276		116		16,999
Total ending allowance balance	$	3,426	$	1,299	$	467	$	9,184	$	2,254	$	276	$	116	$	17,022

Loans:
Individually evaluated for impairment	$	268	$	104	$	-	$	2,718	$	-	$	-	$	-	$	3,090
Collectively evaluated for impairment		338,018		147,756		45,375		274,310		80,426		20,962		2,429		909,276
Total ending loan balance	$	338,286	$	147,860	$	45,375	$	277,028	$	80,426	$	20,962	$	2,429	$	912,366

The following table presents the balance in the ALLL and the recorded investment in loans and leases by portfolio segment and based on impairment method as of December 31, 2019:



			Real Estate								Consumer
	Commercial		Single- family		Multi- family		Commercial		Construction		Home Equity lines of credit		Other		Total
ALLL:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1	$	1	$	-	$	33	$	-	$	-	$	-	$	35
Collectively evaluated for impairment		2,053		947		447		2,571		759		265		61		7,103
Total ending allowance balance	$	2,054	$	948	$	447	$	2,604	$	759	$	265	$	61	$	7,138

Loans:
Individually evaluated for impairment		85	$	107	$	-	$	4,420	$	-	$	-	$	-	$	4,612
Collectively evaluated for impairment		170,561		120,149		39,229		243,123		67,652		20,941		4,174		665,829
Total ending loan balance	$	170,646	$	120,256	$	39,229	$	247,543	$	67,652	$	20,941	$	4,174	$	670,441

The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2020. The unpaid principal balance is the contractual principal balance outstanding. The recorded investment is the unpaid principal balance adjusted for partial charge-offs, purchase premiums and discounts, deferred loan fees and costs. Cash payments of interest on these loans during the twelve months ended December 31, 2020 totaled $159.


	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate:
Commercial:
Owner occupied	$	-	$	-	$	-	$	-	$	-
Total with no allowance recorded		-		-		-		-		-

With an allowance recorded:
Commercial (1)		533		268		-		489		10
Real estate:
Single-family residential (1)		104		104		-		106		4
Commercial:
Non-owner occupied		2,718		2,718		23		2,728		150
Total with an allowance recorded		3,355		3,090		23		3,323		164
Total	$	3,355	$	3,090	$	23	$	3,323	$	164

⁽¹⁾

Allowance recorded is less than $1 resulting in rounding to zero

The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2019. The unpaid principal balance is the contractual principal balance outstanding. The recorded investment is the unpaid principal balance adjusted for partial charge-offs, purchase premiums and discounts, deferred loan fees and costs. Cash payments of interest on these loans during the twelve months ended December 31, 2019 totaled $168.


	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate:
Commercial:
Owner occupied	$	-	$	-	$	-	$	111	$	6
Total with no allowance recorded		-		-		-		111		6

With an allowance recorded:
Commercial		85		85		1		92		-
Real estate:
Single-family residential		107		107		1		108		6
Commercial:
Non-owner occupied		4,420		4,420		33		4,194		154
Total with an allowance recorded		4,612		4,612		35		4,394		160
Total	$	4,612	$	4,612	$	35	$	4,505	$	166

The following table presents the recorded investment in nonperforming loans by class of loans as of December 31, 2020 and 2019:


	2020		2019
Loans past due over 90 days still on accrual	$	-	$	-
Nonaccrual loans:
Commercial		190		85
Real estate:
Single-family residential		421		550
Commercial:
Non-owner occupied		-		1,689
Consumer:
Home equity lines of credit:
Originated for portfolio		12		36
Purchased for portfolio		72		79
Other consumer		-		-
Total nonaccrual		695		2,439
Total nonperforming loans	$	695	$	2,439

Nonaccrual loans include both single-family mortgage and consumer loans that are collectively evaluated for impairment and individually classified impaired loans. There were no loans 90 days or more past due and still accruing interest at December 31, 2020 or December 31, 2019.

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of December 31, 2020:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not > 90 days Past Due
Commercial	$	-	$	-	$	-	$	-	$	338,286	$	190
Real estate:
Single-family residential		1,747		-		315		2,062		145,798		106
Multi-family residential		-		-		-		-		45,375		-
Commercial:
Non-owner occupied		-		78		-		78		159,835		-
Owner occupied		-		-		-		-		90,049		-
Land		-		-		-		-		27,066		-
Construction		-		-		-		-		80,426		-
Consumer:
Home equity lines of credit:
Originated for portfolio		-		-		-		-		20,773		12
Purchased for portfolio		-		-		46		46		143		26
Other		-		-		-		-		2,429		-
Total	$	1,747	$	78	$	361	$	2,186	$	910,180	$	334

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of December 31, 2019:



	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not > 90 days Past Due
Commercial	$	-	$	71	$	-	$	71	$	170,575	$	85
Real estate:
Single-family residential		2,453		261		426		3,140		117,116		124
Multi-family residential		-		-		-		-		39,229		-
Commercial:
Non-owner occupied		-		-		1,689		1,689		138,762		-
Owner occupied		-		-		-		-		81,871		-
Land		-		-		-		-		25,221		-
Construction		304		-		-		304		67,348		-
Consumer:
Home equity lines of credit:
Originated for portfolio		-		-		22		22		20,713		14
Purchased for portfolio		-		-		-		-		206		79
Other		-		-		-		-		4,174		-
Total	$	2,757	$	332	$	2,137	$	5,226	$	665,215	$	302

Short-term Loan Deferrals

Under the CARES Act, financial institutions are permitted to not classify loan modifications as TDRs that were related to the impact of COVID-19 if:

The modifications were made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the public health emergency, and

The underlying loans were not more than 30 days past due as of December 31, 2019.

We implemented a loan modification program in accordance with the CARES Act to provide temporary relief to borrowers that meet the requirements under the CARES Act. The program allows for deferral of payments for up to 90 days, which we may extend for up to an additional 90 days at our option. The deferred payments and accrued interest during the deferral period are due and payable on or before the maturity of the loans. At December 31, 2020, loans with an outstanding balance of approximately $528 were on temporary deferrals. Under the provisions of the CARES Act, none of these loans were considered a TDR at December 31, 2020.

Troubled Debt Restructurings (TDRs):

From time to time, the terms of certain loans are modified as TDRs, where concessions are granted to borrowers experiencing financial difficulties. The modification of the terms of such loans may have included one or a combination of the following: a reduction of the stated interest rate of the loan; an increase in the stated rate of interest lower than the current market rate for new debt with similar risk; an extension of the maturity date; or a change in the payment terms.

As of December 31, 2020 and December 31, 2019, TDR’s totaled $3,090 and $2,923, respectively. The Company allocated $23 and $22 of specific reserves to loans modified in TDRs as of December 31, 2020 and 2019, respectively. The Company had not committed to lend any additional amounts as of December 31, 2020 or 2019 to customers with outstanding loans that were classified as nonaccrual TDRs.

During the year ended December 31, 2020, one commercial loan in the amount of $190 was modified as a TDR, where concessions were granted to a borrower experiencing financial difficulties. There were no loans modified as a TDR during the year ended December 31, 2019.

The TDR described above resulted in a $264 charge off during the year ended December 31, 2020 and no charge-offs during the year ended December 31, 2019.

There were no TDR’s that went into payment default during the years ended December 31, 2020 and December 31, 2019.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Nonaccrual loans include loans that were modified and identified as TDRs and the loans are not performing. At December 31, 2020 and 2019, nonaccrual TDRs were as follows:




	2020		2019
Commercial	$	190	$	85
Total	$	190	$	85

Nonaccrual loans at December 31, 2020 and 2019 did not include $2,900 and $2,838, respectively, of TDRs where customers had established a sustained period of repayment performance, generally six months, the loans were current according to their modified terms and repayment of the remaining contractual payments was expected. These loans are included in total impaired loans.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Management analyzes loans individually by classifying the loans as to credit risk. This analysis includes commercial, commercial real estate and multi-family residential real estate loans. Internal loan reviews for these loan types are performed at least annually, and more often for loans with higher credit risk. Adjustments to loan risk ratings are based on the reviews and at any time information is received that may affect risk ratings. The following definitions are used for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of CFBank’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that there will be some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, condition and values, highly questionable and improbable.

Loans not meeting the criteria to be classified into one of the above categories are considered to be not rated or pass-rated loans. Loans listed as not rated are included in groups of homogeneous loans. Past due information is the primary credit indicator for groups of homogenous loans. Loans listed as pass-rated loans are loans that are subject to internal loan reviews and are determined not to meet the criteria required to be classified as special mention, substandard, doubtful or loss.

The recorded investment in loans and leases by risk category and by class of loans as of December 31, 2020 and based on the most recent analysis performed follows.


	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	1	$	337,110	$	664	$	321	$	190	$	338,286
Real estate:
Single-family residential		147,439		-		-		421		-		147,860
Multi-family residential		-		45,249		-		126		-		45,375
Commercial:
Non-owner occupied		57		150,084		7,054		2,718		-		159,913
Owner occupied		-		87,636		1,537		876		-		90,049
Land		-		27,066		-		-		-		27,066
Construction		-		80,247		179		-		-		80,426
Consumer:
Home equity lines of credit:
Originated for portfolio		20,746		-		-		27		-		20,773
Purchased for portfolio		118		-		-		71		-		189
Other		2,429		-		-		-		-		2,429
	$	170,790	$	727,392	$	9,434	$	4,560	$	190	$	912,366

The recorded investment in loans and leases by risk category and class of loans as of December 31, 2019 follows. There were no loans rated doubtful at December 31, 2019.



	Not Rated		Pass		Special Mention		Substandard		Total
Commercial	$	-	$	168,617	$	1,424	$	605	$	170,646
Real estate:
Single-family residential		119,707		-		-		549		120,256
Multi-family residential		-		39,081		-		148		39,229
Commercial:
Non-owner occupied		67		134,466		1,498		4,420		140,451
Owner occupied		-		79,773		2,098		-		81,871
Land		-		25,221		-		-		25,221
Construction		1,855		65,797		-		-		67,652
Consumer:
Home equity lines of credit:
Originated for portfolio		20,681		-		-		54		20,735
Purchased for portfolio		127		-		-		79		206
Other		4,174		-		-		-		4,174
	$	146,611	$	512,955	$	5,020	$	5,855	$	670,441

Leases:

The following lists the components of the net investment in direct financing leases (1):


	December 31, 2020		December 31, 2019
Total minimum lease payments to be received	$	4,459	$	5,252
Less: unearned income		(326)		(473)
Net investment in direct financing leases	$	4,133	$	4,779

⁽¹⁾

There were no initial direct costs associated with these leases

The following summarizes the future minimum lease payments receivable in subsequent fiscal years:


2021		793
2022		793
2023		1,563
2024		1,310
	$	4,459