Loans And Leases

6 Months Ended

Jun. 30, 2024

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.




	June 30, 2024		December 31, 2023
	(unaudited)
Commercial ⁽¹⁾	$	422,011	$	439,895
Real estate:
Single-family residential		467,802		478,224
Multi-family residential		128,332		130,778
Commercial		459,860		433,026
Construction		184,899		190,722
Consumer:
Home equity lines of credit		40,884		35,960
Other		3,192		2,393
Subtotal		1,706,980		1,710,998
Less: ACL – Loans		(19,285)		(16,865)
Loans and leases, net	$	1,687,695	$	1,694,133

⁽¹⁾Includes $10,423 and $13,497 of commercial leases at June 30, 2024 and December 31, 2023, respectively.

Allowance for Credit Losses on Loans (ACL – Loans)

The ACL - Loans is a valuation account that is deducted from the amortized cost basis of loans and leases to present the net amount expected to be collected on loans over the contractual term. Loans and leases are collectively referred to as “loans” for the purpose of discussing the allowance for credit losses. The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge offs for loans, net of recoveries. Provision for credit losses on loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Loans are charged off against the allowance when the uncollectibility of the loan is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

The ACL - Loans represents the Company's best estimate of current expected credit losses (CECL) on loans using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The CECL calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan. The level of the ACL - Loans is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the ACL - Loans, the loan portfolio was pooled into loan segments with similar risk characteristics. Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns. In developing the loan segments, the Company analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors.

The expected credit losses are measured over the life of each loan segment utilizing the average charge-off methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio. This approach is also leveraged to estimate the expected credit losses associated with non-cancellable unfunded loan commitments incorporating expected utilization rates.

The Company sub-segmented certain commercial portfolios by risk level where appropriate. The Company utilized a one-year reasonable and supportable economic forecast period.

The Company qualitatively adjusts model results for risk factors that are not inherently considered in the historical losses, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in economic conditions, (ii) changes in the nature and volume of the loan portfolio, (iii) changes in the existence, growth and effect of any concentrations in credit, (iv) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (v) changes in the quality of the credit review function, (vi) changes in the experience, ability and depth of lending management and staff, (vii) changes in the volume and severity of past due and adversely classified loans and the volume of non-accrual loans, (viii) changes in the value of underlying collateral for collateral-dependent loans, and (ix) other environmental factors such as regulatory, legal and technological considerations, as well as competition.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserves in the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.

The following tables present the activity in the ACL - Loans by portfolio segment for the three and six months ended June 30, 2024 and 2023 (unaudited).


	Three Months Ended June 30, 2024 (unaudited)
			Real Estate									Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home equity lines of credit		Other		Total
Allowance for credit losses
Balances, April 1, 2024	$	7,518	$	3,331	$	1,147	$	4,298	$	1,279	$	335	$	290	$	18,198
Provision of credit losses		3,105		(32)		(132)		(10)		(43)		46		261		3,195
Recoveries on loans		6		7		-		-		-		2		-		15
Loans charged off		(1,873)		-		-		-		-		-		(250)		(2,123)
Balances, June 30, 2024	$	8,756	$	3,306	$	1,015	$	4,288	$	1,236	$	383	$	301	$	19,285


	Six Months Ended June 30, 2024 (unaudited)
			Real Estate									Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home equity lines of credit		Other		Total
Allowance for credit losses
Balances, January 1, 2024	$	5,884	$	3,371	$	1,231	$	4,105	$	1,707	$	334	$	233	$	16,865
Provision of credit losses		4,733		(80)		(216)		183		(471)		45		318		4,512
Recoveries on loans		12		15		-		-		-		4		-		31
Loans charged off		(1,873)		-		-		-		-		-		(250)		(2,123)
Balances, June 30, 2024	$	8,756	$	3,306	$	1,015	$	4,288	$	1,236	$	383	$	301	$	19,285

‎


	Three Months Ended June 30, 2023 (unaudited)
			Real Estate									Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home equity lines of credit		Other		Total
Allowance for credit losses
Balances, April 1, 2023	$	5,438	$	3,194	$	1,045	$	4,123	$	1,679	$	331	$	105	$	15,915
Provision of credit losses		(184)		(112)		(96)		(44)		422		(9)		(40)		(63)
Recoveries on loans		85		19		-		-		-		1		3		108
Balances, June. 30, 2023	$	5,339	$	3,101	$	949	$	4,079	$	2,101	$	323	$	68	$	15,960


	Six Months Ended June 30, 2023 (unaudited)
			Real Estate									Consumer
	Commercial		Single-family		Multi-family		Commercial		Construction		Home equity lines of credit		Other		Total
Allowance for credit losses
Balances, December 31, 2022	$	4,764	$	3,914	$	997	$	3,384	$	2,644	$	333	$	26	$	16,062
Impact of adoption of ASC 326		877		(958)		66		726		(1,019)		(129)		28		(409)
Balances, January 1, 2023 Post-ASC 326 adoption		5,641		2,956		1,063		4,110		1,625		204		54		15,653
Provision of credit losses		(382)		123		(114)		(31)		476		118		14		204
Recoveries on loans		85		22		-		-		-		1		3		111
Loans charged off		(5)		-		-		-		-		-		(3)		(8)
Balances, June 30, 2023	$	5,339	$	3,101	$	949	$	4,079	$	2,101	$	323	$	68	$	15,960

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. The fair value of other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

The tables below present the amortized cost basis of collateral dependent loans by loan class and their respective collateral types, which are individually evaluated to determine expected credit losses.


	June 30, 2024 (unaudited)
	Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial	$	-	$	1,760	$	1,760	$	511
Real estate:
Single-family residential		88		-		88		-
Total	$	88	$	1,760	$	1,848	$	511

‎


	December 31, 2023
	Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial	$	-	$	449	$	449	$	44
Real estate:
Single-family residential		90		-		90		-
Total	$	90	$	449	$	539	$	44

The following table presents the recorded investment in non-accrual loans by class of loans at June 30, 2024 (unaudited):



	Non-Accrual Loans		Non-Accrual loans with no Allowance for Credit Losses
Commercial	$	9,328	$	233
Real estate:
Single-family residential		1,537		1,537
Consumer:
Home equity lines of credit:		14		14
Other consumer		30		30
Total nonaccrual loans	$	10,909	$	1,814

The following table presents the recorded investment in non-accrual loans by class of loans at December 31, 2023.


	Non-Accrual Loans		Non-Accrual loans with no Allowance for Credit Losses
Commercial	$	5,048	$	1,658
Real estate:
Single-family residential		627		627
Consumer:
Home equity lines of credit:		17		17
Other consumer		30		30
Total nonaccrual loans	$	5,722	$	2,332

Nonaccrual loans include both smaller balance single-family mortgage loans, consumer loans and commercial loans and 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 June 30, 2024 or December 31, 2023.

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of June 30, 2024 (unaudited):


	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or more Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not 90 days or more Past Due
Commercial	$	53	$	4,095	$	1,931	$	6,079	$	415,932	$	7,397
Real estate:
Single-family residential		-		547		936		1,483		466,319		601
Multi-family residential		-		-		-		-		128,332		-
Commercial:
Non-owner occupied		-		-		-		-		239,862		-
Owner occupied		-		-		-		-		202,951		-
Land		-		-		-		-		17,047		-
Construction		-		-		-		-		184,899		-
Consumer:
Home equity lines of credit:		28		-		-		28		40,856		14
Other		-		-		30		30		3,162		-
Total	$	81	$	4,642	$	2,897	$	7,620	$	1,699,360	$	8,012

The following table presents the aging of the recorded investment in past due loans and leases by class of loans as of December 31, 2023:



	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or more Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans Not 90 days or more Past Due
Commercial	$	98	$	-	$	622	$	720	$	439,175	$	4,426
Real estate:
Single-family residential		165		372		563		1,100		477,124		64
Multi-family residential		-		-		-		-		130,778		-
Commercial:
Non-owner occupied		-		-		-		-		228,548		-
Owner occupied		-		-		-		-		183,773		-
Land		-		-		-		-		20,705		-
Construction		-		-		-		-		190,722		-
Consumer:
Home equity lines of credit:
Originated for portfolio		97		-		17		114		35,846		-
Purchased for portfolio		-		-		-		-		-		-
Other		-		-		30		30		2,363		-
Total	$	360	$	372	$	1,232	$	1,964	$	1,709,034	$	4,490

Loan Modifications:

During the three and six months ended June 30, 2024, the Company modified one commercial loan, totaling $4.4 million, where the borrower was experiencing financial difficulty. The loan was modified to defer principal and interest payments, increase the interest rate, extend the maturity date and institute a minimum EBITDA covenant. The loan was not past due during the six months ended June 30, 2024. During the three and six months ended June 30, 2023, the Company did not modify any loans to borrowers experiencing financial difficulties.

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 following table summarizes the risk grading of the Company’s loan portfolio by loan class and by year of origination for the years indicated as of June 30, 2024. Consumer and Single-family residential loans are not risk graded. For purposes of this disclosure, those loans are classified in the following manner: loans that are 89 days or less past due and accruing are “performing” loans and loans greater than 89 days past due or in nonaccrual are “nonperforming” loans.


	Term Loans (amortized cost basis by origination year)
(unaudited)	2024		2023		2022		2021		2020		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
Commercial
Pass	$	14,708	$	31,749	$	76,526	$	87,176	$	44,153	$	11,859	$	136,588	$	3,944	$	406,703
Special Mention		-		-		7,000		-		-		81		-		-		7,081
Substandard		-		-		485		7,692		-		-		50		-		8,227
Total Commercial		14,708		31,749		84,011		94,868		44,153		11,940		136,638		3,944		422,011
Current period gross charge-offs		-		-		1,755		118		-		-		-		-		1,873
Real estate loans:
Single-family residential
Payment performance
Performing		12,372		35,622		126,041		223,580		44,062		24,588		-		-		466,265
Nonperforming		-		547		372		-		-		618		-		-		1,537
Total Single-family residential loans		12,372		36,169		126,413		223,580		44,062		25,206		-		-		467,802
Multi-family residential
Pass		-		24,822		8,724		52,081		7,249		35,456		-		-		128,332
Total Multi-family residential loans		-		24,822		8,724		52,081		7,249		35,456		-		-		128,332
Commercial:
Non-owner occupied
Pass		10,189		52,955		33,731		68,558		14,486		59,438		-		-		239,357
Special Mention		-		-		-		-		-		505		-		-		505
Total Non-owner occupied loans		10,189		52,955		33,731		68,558		14,486		59,943		-		-		239,862
Owner occupied
Pass		5,408		23,518		69,781		48,651		19,365		35,549		-		-		202,272
Special Mention		-		-		-		-		-		679		-		-		679
Total Owner occupied loans		5,408		23,518		69,781		48,651		19,365		36,228		-		-		202,951
Land
Pass		5,895		4,792		401		5,456		-		503		-		-		17,047
Total Land loans		5,895		4,792		401		5,456		-		503		-		-		17,047
Construction
Pass		10,196		42,810		69,360		58,903		3,630		-		-		-		184,899
Total Construction loans		10,196		42,810		69,360		58,903		3,630		-		-		-		184,899
Total Real Estate loans		44,060		185,066		308,410		457,229		88,792		157,336		-		-		1,240,893
Consumer:
Home equity lines of credit:
Payment performance
Performing		-		-		-		-		-		-		37,218		3,652		40,870
Nonperforming		-		-		-		-		-		-		-		14		14
Total Home equity lines of credit		-		-		-		-		-		-		37,218		3,666		40,884
Other
Payment performance																		-
Performing		497		-		-		-		9		187		2,469		-		3,162
Nonperforming		-		-		-		-		-		-		30		-		30
Total Other consumer loans		497		-		-		-		9		187		2,499		-		3,192
Current period gross charge-offs		-		-		-		-		-		-		250		-		250
Total loans	$	59,265	$	216,815	$	392,421	$	552,097	$	132,954	$	169,463	$	176,355	$	7,610	$	1,706,980
Total current period gross charge-offs	$	-	$	-	$	1,755	$	118	$	-	$	-	$	250	$	-	$	2,123

‎

The following table summarizes the risk grading of the Company’s loan portfolio by loan class and by year of origination for the years indicated as of December 31, 2023. Consumer and Single-family residential loans are not risk graded. For purposes of this disclosure, those loans are classified in the following manner: loans that are 89 days or less past due and accruing are “performing” loans and loans greater than 89 days past due or in nonaccrual are “nonperforming” loans.


	Term Loans (amortized cost basis by origination year)
	2023		2022		2021		2020		2019		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total

Commercial
Pass	$	32,965	$	86,433	$	90,297	$	45,670	$	3,189	$	9,888	$	159,065	$	1,078	$	428,585
Special Mention		-		-		2,807		-		84		-		-		-		2,891
Substandard		-		384		7,537		-		-		-		50		-		7,971
Doubtful		-		448		-		-		-		-		-		-		448
Total Commercial		32,965		87,265		100,641		45,670		3,273		9,888		159,115		1,078		439,895
Current period gross charge-offs		-		564		211		-		-		-		-		-		775
Real estate loans:
Single-family residential
Payment performance
Performing		42,655		131,416		231,379		45,785		9,584		16,778		-		-		477,597
Nonperforming		-		-		-		-		-		627		-		-		627
Total Single-family residential loans		42,655		131,416		231,379		45,785		9,584		17,405		-		-		478,224
Multi-family residential
Pass		24,839		8,776		53,815		7,311		15,772		20,265		-		-		130,778
Total Multi-family residential loans		24,839		8,776		53,815		7,311		15,772		20,265		-		-		130,778
Commercial:
Non-owner occupied
Pass		57,092		27,068		61,990		15,085		20,101		45,725		982		-		228,043
Special Mention		-		-		-		-		505		-		-		-		505
Total Non-owner occupied loans		57,092		27,068		61,990		15,085		20,606		45,725		982		-		228,548
Owner occupied
Pass		20,353		55,169		50,210		19,775		18,751		18,768		68		-		183,094
Special Mention		-		-		-		-		679		-		-		-		679
Total Owner occupied loans		20,353		55,169		50,210		19,775		19,430		18,768		68		-		183,773
Land
Pass		7,932		6,037		6,177		-		149		410		-		-		20,705
Total Land loans		7,932		6,037		6,177		-		149		410		-		-		20,705
Construction
Pass		31,739		78,602		61,435		4,174		-		-		14,772		-		190,722
Total Construction loans		31,739		78,602		61,435		4,174		-		-		14,772		-		190,722
Total Real Estate loans		184,610		307,068		465,006		92,130		65,541		102,573		15,822		-		1,232,750
Consumer:
Home equity lines of credit:
Payment performance
Performing		-		-		-		-		-		-		33,510		2,433		35,943
Nonperforming		-		-		-		-		-		-		-		17		17
Total Home equity lines of credit		-		-		-		-		-		-		33,510		2,450		35,960
Other
Payment performance
Performing		-		-		-		12		-		216		2,135		-		2,363
Nonperforming		-		-		-		-		-		-		-		30		30
Total Other consumer loans		-		-		-		12		-		216		2,135		30		2,393
Current period gross charge-offs		-		-		-		-		-		3		-		-		3
Total loans	$	217,575	$	394,333	$	565,647	$	137,812	$	68,814	$	112,677	$	210,582	$	3,558	$	1,710,998
Total current period gross charge-offs	$	-	$	564	$	211	$	-	$	-	$	3	$	-	$	-	$	778

Direct Financing Leases:

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


	June 30, 2024		December 31, 2023
	(unaudited)
Total minimum lease payments to be received	$	10,976	$	14,343
Less: Unearned income		(564)		(863)
Plus: Indirect initial costs		11		17
Net investment in direct financing leases	$	10,423	$	13,497

The following summarizes the future minimum lease payments receivable in fiscal year 2024 and in subsequent fiscal years:


2024, excluding the six months ended June 30, 2024	$	2,827
2025		4,899
2026		2,657
2027		543
2028		50
Thereafter		-
Total future minimum payments	$	10,976