Loans And Leases

9 Months Ended

Sep. 30, 2022

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.




	September 30, 2022		December 31, 2021
	(unaudited)
Commercial ⁽¹⁾	$	415,153	$	336,881
Real estate:
Single-family residential		439,517		346,797
Multi-family residential		97,666		76,785
Commercial		375,833		359,562
Construction		129,936		83,360
Consumer:
Home equity lines of credit		29,576		24,228
Other		1,889		2,044
Subtotal		1,489,570		1,229,657
Less: ALLL		(15,687)		(15,508)
Loans and leases, net	$	1,473,883	$	1,214,149

⁽¹⁾Includes $22,571 and $23,157 of commercial leases at September 30, 2022 and December 31, 2021, respectively.

Included in Commercial loans at September 30, 2022 and December 31, 2021, were $50 and $445, respectively, 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 loans under 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 were 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). At December 31, 2021, the majority of these loans were pledged as collateral for borrowings by the Company under the FRB Paycheck Protection Program Lending Facility (“PPPLF”). At September 30, 2022, there were no loans pledged as collateral and all PPPLF borrowings were paid off. 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. CFBank exited this program during the first quarter of 2021 and had no loans outstanding under the program at September 30, 2022 and December 31, 2021.

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 2021 Audited Financial Statements.

The following tables present the activity in the ALLL by portfolio segment for the three and nine months ended September 30, 2022:



	Three months ended September 30, 2022 (unaudited)
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	4,727	$	3,715	$	787	$	3,984	$	1,894	$	279	$	146	$	15,532
Addition to (reduction in) provision for loan losses		-		-		185		-		-		-		(35)		150
Charge-offs		-		-		-		-		-		-		-		-
Recoveries		-		2		-		-		-		3		-		5
Ending balance	$	4,727	$	3,717	$	972	$	3,984	$	1,894	$	282	$	111	$	15,687



	Nine months ended September 30, 2022 (unaudited)
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	4,127	$	3,348	$	827	$	5,034	$	1,744	$	272	$	156	$	15,508
Addition to (reduction in) provision for loan losses		600		350		145		(1,050)		150		-		(45)		150
Charge-offs		-		-		-		-		-		-		-		-
Recoveries		-		19		-		-		-		10		-		29
Ending balance	$	4,727	$	3,717	$	972	$	3,984	$	1,894	$	282	$	111	$	15,687

The following table presents the activity in the ALLL by portfolio segment for the three and nine months ended September 30, 2021:



	Three months ended September 30, 2021 (unaudited)
			Real Estate								Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home Equity lines of credit		Other		Total
Beginning balance	$	3,377	$	2,431	$	777	$	6,834	$	1,679	$	236	$	161	$	15,495
Addition to (reduction in) provision for loan losses		200		365		150		(550)		(200)		25		10		-
Charge-offs		-		(17)		-		-		-		-		-		(17)
Recoveries		-		4		-		-		-		5		-		9
Ending balance	$	3,577	$	2,783	$	927	$	6,284	$	1,479	$	266	$	171	$	15,487

‎



	Nine months ended September 30, 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		95		1,490		460		(2,900)		(775)		(25)		55		(1,600)
Charge-offs		-		(17)		-		-		-		-		-		(17)
Recoveries		56		11		-		-		-		15		-		82
Ending balance	$	3,577	$	2,783	$	927	$	6,284	$	1,479	$	266	$	171	$	15,487

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 September 30, 2022 (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	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		4,727		3,717		972		3,984		1,894		282		111		15,687
Total ending allowance balance	$	4,727	$	3,717	$	972	$	3,984	$	1,894	$	282	$	111	$	15,687

Loans:
Individually evaluated for impairment	$	107	$	96	$	-	$	-	$	-	$	-	$	-	$	203
Collectively evaluated for impairment		415,046		439,421		97,666		375,833		129,936		29,576		1,889		1,489,367
Total ending loan balance	$	415,153	$	439,517	$	97,666	$	375,833	$	129,936	$	29,576	$	1,889	$	1,489,570

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, 2021:



			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	$	-	$	-	$	-	$	20	$	-	$	-	$	-	$	20
Collectively evaluated for impairment		4,127		3,348		827		5,014		1,744		272		156		15,488
Total ending allowance balance	$	4,127	$	3,348	$	827	$	5,034	$	1,744	$	272	$	156	$	15,508

Loans:
Individually evaluated for impairment	$	221	$	99	$	-	$	2,658	$	-	$	-	$	-	$	2,978
Collectively evaluated for impairment		336,660		346,698		76,785		356,904		83,360		24,228		2,044		1,226,679
Total ending loan balance	$	336,881	$	346,797	$	76,785	$	359,562	$	83,360	$	24,228	$	2,044	$	1,229,657

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2022. 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 also presents the average recorded investment and accrual basis interest income recognized during the three and nine months ended September 30, 2022. Cash payments of interest on these loans during the three and nine months ended September 30, 2022 totaled $5 and $46, respectively.


							Three months ended				Nine months ended
	As of September 30, 2022						September 30, 2022				September 30, 2022
	(unaudited)						(unaudited)				(unaudited)
	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized		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⁾		371		107		-		112		-		134		1
Real estate:
Single-family residential ⁽¹⁾		96		96		-		97		1		98		4
Commercial:
Non-owner occupied		-		-		-		-		-		466		17
Total with an allowance recorded		467		203		-		209		1		698		22
Total	$	467	$	203	$	-	$	209	$	1	$	698	$	22

⁽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, 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 also presents the average recorded investment and accrual basis interest income recognized during the three and nine months ended September 30, 2021. Cash payments of interest during the three and nine months ended September 30, 2021 totaled $38 and $127, respectively.


							Three months ended				Nine months ended
	As of December 31, 2021						September 30, 2021				September 30, 2021
							(unaudited)				(unaudited)
	Unpaid Principal Balance		Recorded Investment		ALLL Allocated		Average Recorded Investment		Interest Income Recognized		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⁾		485		221		-		235		2		247		7
Real estate:
Single-family residential ⁽¹⁾		99		99		-		101		2		102		4
Commercial:
Non-owner occupied		2,658		2,658		20		2,682		37		2,695		112
Total with an allowance recorded		3,242		2,978		20		3,018		41		3,044		123
Total	$	3,242	$	2,978	$	20	$	3,018	$	41	$	3,044	$	123

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




	September 30, 2022		December 31, 2021
	(unaudited)
Loans past due over 90 days still on accrual	$	-	$	-
Nonaccrual loans:
Commercial		206		147
Real estate:
Single-family residential		645		656
Consumer:
Home equity lines of credit:
Originated for portfolio		153		153
Purchased for portfolio		-		41
Total nonaccrual		1,004		997
Total nonaccrual and nonperforming loans	$	1,004	$	997

Nonaccrual loans include both smaller balance single-family mortgage, consumer loans and commercial leases 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 September 30, 2022 or December 31, 2021.

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of September 30, 2022 (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	$	9	$	156	$	99	$	264	$	414,889	$	107
Real estate:
Single-family residential		-		-		563		563		438,954		82
Multi-family residential		-		-		-		-		97,666		-
Commercial:
Non-owner occupied		-		-		-		-		182,625		-
Owner occupied		-		-		-		-		160,459		-
Land		-		-		-		-		32,749		-
Construction		-		-		-		-		129,936		-
Consumer:
Home equity lines of credit:
Originated for portfolio		334		-		153		487		29,089		-
Purchased for portfolio		-		-		-		-		-		-
Other		-		-		-		-		1,889		-
Total	$	343	$	156	$	815	$	1,314	$	1,488,256	$	189

‎

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



	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	$	-	$	-	$	-	$	-	$	336,881	$	147
Real estate:
Single-family residential		2,144		652		563		3,359		343,438		93
Multi-family residential		-		-		-		-		76,785		-
Commercial:
Non-owner occupied		-		-		-		-		185,130		-
Owner occupied		-		-		-		-		134,352		-
Land		-		-		-		-		40,080		-
Construction		-		-		-		-		83,360		-
Consumer:
Home equity lines of credit:
Originated for portfolio		2		-		153		155		23,909		-
Purchased for portfolio		-		-		41		41		123		-
Other		-		-		-		-		2,044		-
Total	$	2,146	$	652	$	757	$	3,555	$	1,226,102	$	240

Short-term Loan Deferrals

Under 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 met the requirements under the CARES Act. The program allowed for deferral of payments for up to 90 days, which we could extend for up to an additional 90 days at our option. The deferred payments and accrued interest during the deferral period were due and payable on or before the maturity of the loans. At September 30, 2022, there were no loans remaining on temporary deferrals under this program.

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 include 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 September 30, 2022 and December 31, 2021, TDRs totaled $203 and $2,978, respectively. The Company allocated $0 and $20 of specific reserves to loans whose terms had been modified in TDRs as of September 30, 2022 and December 31, 2021, respectively. The Company had not committed to lend any additional amounts as of September 30, 2022 or December 31, 2021 to customers with outstanding loans classified as nonaccrual TDRs.

During the three and nine months ended September 30, 2022 and September 30, 2021, there were no loans modified as a TDR.

There were no TDRs in payment default or that became nonperforming during the quarters ended September 30, 2022 and September 30, 2021. 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 September 30, 2022 and at December 31, 2021, nonaccrual TDRs were as follows:




	September 30, 2022		December 31, 2021
	(unaudited)
Commercial	$	107	$	147
Total	$	107	$	147

Nonaccrual loans at September 30, 2022 and December 31, 2021 do not include $96 and $2,831, 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 September 30, 2022 and based on the most recent analysis performed follows.


(unaudited)	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	-	$	414,791	$	156	$	99	$	107	$	415,153
Real estate:
Single-family residential		438,872		-		-		645		-		439,517
Multi-family residential		-		97,666		-		-		-		97,666
Commercial:
Non-owner occupied		-		182,625		-		-		-		182,625
Owner occupied		-		158,747		1,712		-		-		160,459
Land		-		32,749		-		-		-		32,749
Construction		2,038		127,375		523		-		-		129,936
Consumer:
Home equity lines of credit:
Originated for portfolio		29,423		-		-		153		-		29,576
Purchased for portfolio		-		-		-		-		-		-
Other		1,889		-		-		-		-		1,889
	$	472,222	$	1,013,953	$	2,391	$	897	$	107	$	1,489,570

The recorded investment in loans and leases by risk category and by class of loans and leases as of December 31, 2021 follows.



	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	-	$	336,660	$	-	$	74	$	147	$	336,881
Real estate:
Single-family residential		346,141		-		-		656		-		346,797
Multi-family residential		-		76,785		-		-		-		76,785
Commercial:
Non-owner occupied		-		182,472		-		2,658		-		185,130
Owner occupied		-		132,470		1,882		-		-		134,352
Land		-		40,080		-		-		-		40,080
Construction		-		82,825		535		-		-		83,360
Consumer:
Home equity lines of credit:
Originated for portfolio		23,911		-		-		153		-		24,064
Purchased for portfolio		123		-		-		41		-		164
Other		2,044		-		-		-		-		2,044
	$	372,219	$	851,292	$	2,417	$	3,582	$	147	$	1,229,657

Leases:

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


	September 30, 2022		December 31, 2021
	(unaudited)
Total minimum lease payments to be received	$	24,548	$	25,488
Less: Unearned income		(2,015)		(2,385)
Plus: Indirect initial costs		38		54
Net investment in direct financing leases	$	22,571	$	23,157

The following summarizes the future minimum lease payments receivable in fiscal year 2022 and in subsequent fiscal years:


2022, excluding the nine months ended September 30, 2022	$	1,869
2023		6,809
2024		6,420
2025		5,620
2026		2,928
Thereafter		902
Total future minimum payments	$	24,548