Loans And Leases

12 Months Ended

Dec. 31, 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.



	December 31, 2022		December 31, 2021
Commercial ⁽¹⁾	$	427,423	$	336,881
Real estate:
Single-family residential		465,057		346,797
Multi-family residential		104,148		76,785
Commercial		375,092		359,562
Construction		184,122		83,360
Consumer:
Home equity lines of credit		30,748		24,228
Other		1,727		2,044
Subtotal		1,588,317		1,229,657
Less: ALLL		(16,062)		(15,508)
Loans and Leases, net	$	1,572,255	$	1,214,149

⁽¹⁾Includes $20,768 and $23,157 of commercial leases at December 31, 2022 and December 31, 2021, respectively.

Included in Commercial loans at December 31, 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 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 had 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). The majority of our PPP loans were pledged as collateral on borrowings under the FRB’s Paycheck Protection Program Lending Facility (“PPPLF”). At December 31, 2022, there were no loans pledged as collateral and all PPPLF borrowings were paid off. See Note 10 - 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 Mortgage Electronic Registered Systems (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 December 31, 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 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, 2022, 2021 and 2020:


	December 31, 2022
			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		900		547		170		(1,650)		900		50		(130)		787
Charge-offs		(263)		-		-		-		-		-		-		(263)
Recoveries		-		19		-		-		-		11		-		30
Ending balance	$	4,764	$	3,914	$	997	$	3,384	$	2,644	$	333	$	26	$	16,062


	December 31, 2021
			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		645		2,040		360		(4,150)		(510)		(25)		40		(1,600)
Charge-offs		-		(17)		-		-		-		-		-		(17)
Recoveries		56		26		-		-		-		21		-		103
Ending balance	$	4,127	$	3,348	$	827	$	5,034	$	1,744	$	272	$	156	$	15,508


	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

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, 2022:



			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		4,764		3,914		997		3,384		2,644		333		26		16,062
Total ending allowance balance	$	4,764	$	3,914	$	997	$	3,384	$	2,644	$	333	$	26	$	16,062

Loans:
Individually evaluated for impairment	$	80	$	95	$	-	$	-	$	-	$	-	$	-	$	175
Collectively evaluated for impairment		427,343		464,962		104,148		375,092		184,122		30,748		1,727		1,588,142
Total ending loan balance	$	427,423	$	465,057	$	104,148	$	375,092	$	184,122	$	30,748	$	1,727	$	1,588,317

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, 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 tables present loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2022, 2021 and 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, 2022, 2021 and 2020 totaled $47, $169 and $159, respectively.


At or for the year ended December 31, 2022:
	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⁾		371		80		-		125		1
Real estate:
Single-family residential ⁽¹⁾		95		95		-		97		5
Commercial:
Non-owner occupied		-		-		-		350		17
Total with an allowance recorded		466		175		-		572		23
Total	$	466	$	175	$	-	$	572	$	23

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


At or for the year ended December 31, 2021:
	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⁾		485		221		-		241		9
Real estate:
Single-family residential ⁽¹⁾		99		99		-		101		6
Commercial:
Non-owner occupied		2,658		2,658		20		2,688		150
Total with an allowance recorded		3,242		2,978		20		3,030		165
Total	$	3,242	$	2,978	$	20	$	3,030	$	165

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

‎


At or for the year ended December 31, 2020:
	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 the recorded investment in nonperforming loans by class of loans as of December 31, 2022 and 2021:


	2022		2021
Loans past due over 90 days still on accrual	$	-	$	-
Nonaccrual loans:
Commercial		99		147
Real estate:
Single-family residential		641		656
Commercial:
Consumer:
Home equity lines of credit:
Originated for portfolio		18		153
Purchased for portfolio		-		41
Other consumer		3		-
Total nonaccrual		761		997
Total nonperforming loans	$	761	$	997

Nonaccrual loans include both 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 December 31, 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 December 31, 2022:


	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	$	255	$	-	$	99	$	354	$	427,069	$	-
Real estate:
Single-family residential		966		167		563		1,696		463,361		78
Multi-family residential		-		-		-		-		104,148		-
Commercial:
Non-owner occupied		-		-		-		-		169,686		-
Owner occupied		-		-		-		-		172,698		-
Land		-		-		-		-		32,708		-
Construction		-		-		-		-		184,122		-
Consumer:
Home equity lines of credit:
Originated for portfolio		29		-		18		47		30,701		-
Purchased for portfolio		-		-		-		-		-		-
Other		-		-		3		3		1,724		-
Total	$	1,250	$	167	$	683	$	2,100	$	1,586,217	$	78

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

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, 2022 and December 31, 2021, TDRs totaled $175 and $2,978, respectively. The Company allocated $0 and $20 of specific reserves to loans modified in TDRs as of December 31, 2022 and 2021 respectively. The Company had not committed to lend any additional amounts as of December 31, 2022 or 2021 to customers with outstanding loans that were classified as nonaccrual TDRs.

During the year ended December 31, 2022 and December 31, 2021, there were no loans modified as a TDR.

There was one TDR that went into payment default during the year ended December 31, 2022. There were no TDR’s that went into payment default during the year ended December 31, 2021.

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, 2022 and 2021, nonaccrual TDRs were as follows:




	2022		2021
Commercial	$	80	$	147
Total	$	80	$	147

Nonaccrual loans at December 31, 2022 and 2021 did not include $95 and $2,831, 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 typically performed 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 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, 2022 and based on the most recent analysis performed follows.


	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	-	$	422,673	$	4,651	$	19	$	80	$	427,423
Real estate:
Single-family residential		451,939		12,477		-		641		-		465,057
Multi-family residential		-		104,148		-		-		-		104,148
Commercial:
Non-owner occupied		-		168,731		955		-		-		169,686
Owner occupied		-		171,998		700		-		-		172,698
Land		-		32,708		-		-		-		32,708
Construction		3,084		180,520		518		-		-		184,122
Consumer:
Home equity lines of credit:
Originated for portfolio		30,730		-		-		18		-		30,748
Purchased for portfolio		-		-		-		-		-		-
Other		1,724		-		-		3		-		1,727
	$	487,477	$	1,093,255	$	6,824	$	681	$	80	$	1,588,317

The recorded investment in loans and leases by risk category and class of loans 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:


	December 31, 2022		December 31, 2021
Total minimum lease payments to be received	$	22,533	$	25,488
Less: unearned income		(1,798)		(2,385)
Plus: Indirect initial costs		33		54
Net investment in direct financing leases	$	20,768	$	23,157

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


2023	$	6,903
2024		6,375
2025		5,606
2026		2,975
2027		624
Thereafter		50
	$	22,533