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.




	March 31, 2021		December 31, 2020
	(unaudited)
Commercial (1)	$	326,206	$	338,286
Real estate:
Single-family residential		186,022		147,860
Multi-family residential		51,509		45,375
Commercial		311,091		277,028
Construction		83,584		80,426
Consumer:
Home equity lines of credit		22,865		20,962
Other		2,611		2,429
Subtotal		983,888		912,366
Less: ALLL		(17,086)		(17,022)
Loans and leases, net	$	966,802	$	895,344

⁽¹⁾

Includes $4,723 and $4,133 of commercial leases at March 31, 2021 and December 31, 2020, respectively.

Included in Commercial loans at March 31, 2021 and December 31, 2020, were $86,157 and $105,269, respectively, of loans originated under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program, the PPP, 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 the 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 8- FHLB Advances and Other Debt for additional information.

Mortgage Purchase Program

CFBank previously participated in a Mortgage Purchase Program with Northpointe Bank (Northpointe), a Michigan banking corporation, from December 2012 until CFBank discontinued its participation in the program in the first quarter of 2021. Pursuant to the terms of a participation agreement, CFBank purchased 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 were individually (MERS) registered loans which were held until funded by the end investor. The mortgage loan investors included Fannie Mae and Freddie Mac, and other major financial institutions. This process on average took 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) were substantially reduced. Therefore, no allowance was allocated by CFBank to these loans. These loans were 100% risk rated for CFBank capital adequacy purposes. Under the participation agreement, CFBank agreed to purchase a 95% ownership/participation interest in each of the aforementioned loans, and Northpointe maintained a 5% ownership interest in each loan it participated. At March 31, 2021 and December 31, 2020, CFBank held $0 and $15,713, 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 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 to the 2020 Audited Financial Statements.

The following table presents the activity in the ALLL by portfolio segment for the three months ended March 31, 2021:



	Three months ended March 31, 2021 (unaudited)
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	3,426	$	1,299	$	467	$	9,184	$	2,254	$	276	$	116	$	17,022
Addition to (reduction in) provision for loan losses		(55)		525		10		(500)		(25)		-		45		-
Charge-offs		-		-		-		-		-		-		-		-
Recoveries		56		3		-		-		-		5		-		64
Ending balance	$	3,427	$	1,827	$	477	$	8,684	$	2,229	$	281	$	161	$	17,086

The following table presents the activity in the ALLL by portfolio segment for the three months ended March 31, 2020:



	Three months ended March 31, 2020 (unaudited)
			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		120		(45)		65		70		(185)		(20)		(5)		-
Charge-offs		(71)		-		-		-		-		-		-		(71)
Recoveries		-		2		-		-		-		4		-		6
Ending balance	$	2,103	$	905	$	512	$	2,674	$	574	$	249	$	56	$	7,073

The following table presents the balance in the ALLL and the recorded investment in loans and leases by portfolio segment and based on the impairment method as of March 31, 2021 (unaudited):



			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		3,427		1,827		477		8,661		2,229		281		161		17,063
Total ending allowance balance	$	3,427	$	1,827	$	477	$	8,684	$	2,229	$	281	$	161	$	17,086

Loans:
Individually evaluated for impairment	$	256	$	103	$	-	$	2,704	$	-	$	-	$	-	$	3,063
Collectively evaluated for impairment		325,950		185,919		51,509		308,387		83,584		22,865		2,611		980,825
Total ending loan balance	$	326,206	$	186,022	$	51,509	$	311,091	$	83,584	$	22,865	$	2,611	$	983,888

The following table presents the balance in the ALLL and the recorded investment in loans and leases by portfolio segment and based on the 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 loans individually evaluated for impairment by class of loans as of and for the period ended March 31, 2021. 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, and deferred loan fees and costs. The table presents accrual basis interest income recognized during the three months ended March 31, 2021. Cash payments of interest on these loans during the three months ended March 31, 2021 totaled $41.


							Three months ended
	As of March 31, 2021						March 31, 2021
	(unaudited)						(unaudited)
	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)		520		256		-		78		2
Real estate:
Single-family residential (1)		103		103		-		103		1
Commercial:
Non-owner occupied		2,704		2,704		23		2,711		38
Total with an allowance recorded		3,327		3,063		23		2,892		41
Total	$	3,327	$	3,063	$	23	$	2,892	$	41

⁽¹⁾

Allowance recorded in an amount less than $1 has been rounded down to zero.

The following table presents loans individually evaluated for impairment by class of loans as of 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, and deferred loan fees and costs. The table presents accrual basis interest income recognized during the three months ended March 31, 2020. Cash payments of interest during the months ended March 31, 2020 totaled $42.


							Three months ended
	As of December 31, 2020						March 31, 2020
							(unaudited)
	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Owner occupied	$	-	$	-	$	-	$	-	$	-
Total with no allowance recorded		-		-		-		-		-

With an allowance recorded:
Commercial (1)		533		268		-		144		2
Real estate:
Single-family residential (1)		104		104		-		106		1
Commercial:
Non-owner occupied		2,718		2,718		23		2,734		38
Total with an allowance recorded		3,355		3,090		23		2,984		41
Total	$	3,355	$	3,090	$	23	$	2,984	$	41

The following table presents the recorded investment in nonperforming loans by class of loans:




	March 31, 2021		December 31, 2020
	(unaudited)
Loans past due over 90 days still on accrual	$	-	$	-
Nonaccrual loans:
Commercial		178		190
Real estate:
Single-family residential		418		421
Consumer:
Home equity lines of credit:
Originated for portfolio		-		12
Purchased for portfolio		45		72
Total nonaccrual		641		695
Total nonaccrual and nonperforming loans	$	641	$	695

Nonaccrual loans include both smaller balance 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 March 31, 2021 or December 31, 2020.

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of March 31, 2021 (unaudited):


	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	$	39	$	-	$	-	$	39	$	326,167	$	178
Real estate:
Single-family residential		-		18		315		333		185,689		103
Multi-family residential		-		-		-		-		51,509		-
Commercial:
Non-owner occupied		-		-		-		-		167,528		-
Owner occupied		-		-		-		-		110,677		-
Land		-		-		-		-		32,886		-
Construction		-		-		-		-		83,584		-
Consumer:
Home equity lines of credit:
Originated for portfolio		-		-		-		-		22,680		-
Purchased for portfolio		45		-		-		45		140		45
Other		-		-		-		-		2,611		-
Total	$	84	$	18	$	315	$	417	$	983,471	$	326

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

Short-term Loan Deferrals

Under the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), as amended by the Consolidated Appropriations Act 2021, 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 January 1, 2022 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 March 31, 2021, loans with an outstanding balance of approximately $3.6 million were on temporary deferrals. Under the provisions of the CARES Act, none of these loans were considered a TDR at March 31, 2021.

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 March 31, 2021 and December 31, 2020, TDRs totaled $3,063 and $3,090, respectively. The Company allocated $23 and $23 of specific reserves to loans whose terms had been modified in TDRs as of March 31, 2021 and December 31, 2020, respectively. The Company had not committed to lend any additional amounts as of March 31, 2021 or December 31, 2020 to customers with outstanding loans classified as nonaccrual TDRs.

During the three months ended March 31, 2021 and March 31, 2020, there were no loans modified as a TDR.

There were no TDRs in payment default or that became nonperforming during the quarters ended March 31, 2021 and March 31, 2020. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms, at which time the loan is re-evaluated to determine whether an impairment loss should be recognized, either through a write-off or specific valuation allowance, so that the loan is reported, net, at the present value of estimated future cash flows, or at the fair value of collateral, less cost to sell, if repayment is expected solely from the collateral.

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 March 31, 2021 and at December 31, 2020, nonaccrual TDRs were as follows:




	March 31, 2021		December 31, 2020
	(unaudited)
Commercial	$	178	$	190
Total	$	178	$	190

Nonaccrual loans at March 31, 2021 and December 31, 2020 do not include $2,885 and $2,900, respectively, of TDRs where customers have established a sustained period of repayment performance, generally six months, the loans are current according to their modified terms and repayment of the remaining contractual payments is 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 made 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, conditions 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 primarily 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 or doubtful.

The recorded investment in loans and leases by risk category and by class of loans and leases as of March 31, 2021 and based on the most recent analysis performed follows.


(unaudited)	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	-	$	325,316	$	481	$	231	$	178	$	326,206
Real estate:
Single-family residential		185,604		-		-		418		-		186,022
Multi-family residential		-		51,389		-		120		-		51,509
Commercial:
Non-owner occupied		55		157,737		7,031		2,705		-		167,528
Owner occupied		-		106,982		2,829		866		-		110,677
Land		-		32,886		-		-		-		32,886
Construction		-		83,349		235		-		-		83,584
Consumer:
Home equity lines of credit:
Originated for portfolio		22,666		-		-		14		-		22,680
Purchased for portfolio		140		-		-		45		-		185
Other		2,611		-		-		-		-		2,611
	$	211,076	$	757,659	$	10,576	$	4,399	$	178	$	983,888

The recorded investment in loans and leases by risk category and by class of loans and leases as of December 31, 2020 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

Leases:

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


	March 31, 2021		December 31, 2020
	(unaudited)
Total minimum lease payments to be received	$	5,254	$	4,459
Less: unearned income		(531)		(326)
Net investment in direct financing leases	$	4,723	$	4,133

⁽¹⁾

There were no initial direct costs associated with these leases.

The following summarizes the future minimum lease payments receivable in fiscal year 2021 and in subsequent fiscal years:


2021	$	943
2022		1,239
2023		1,198
2024		1,018
2025		720
Thereafter		136
	$	5,254