Loans And Leases

12 Months Ended

Dec. 31, 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.



	December 31, 2024		December 31, 2023
Commercial ⁽¹⁾	$	418,804	$	439,895
Real estate:
Single-family residential		465,517		478,224
Multi-family residential		150,434		130,778
Commercial		460,064		433,026
Construction		202,166		190,722
Consumer:
Home equity lines of credit		39,520		35,960
Other		2,988		2,393
Subtotal		1,739,493		1,710,998
Less: ACL – Loans		(17,474)		(16,865)
Loans and Leases, net	$	1,722,019	$	1,694,133

⁽¹⁾Includes $7,680 and $13,497 of commercial leases at December 31, 2024 and December 31, 2023, respectively.

‎

Allowance for Credit Losses on Loans (ACL – Loans)

As discussed in Note 1, effective January 1, 2023, the Company adopted ASC 326. Results for the periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the “incurred loss” model under previously applicable GAAP.

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. 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 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 year ended December 31, 2024 and December 31, 2023.


	December 31, 2024
			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		6,353		(612)		151		(187)		34		31		317		6,087
Recoveries on loans		91		28		-		-		-		6		-		125
Loans charged off		(5,323)		-		-		-		-		-		(280)		(5,603)
Balances, December 31, 2024	$	7,005	$	2,787	$	1,382	$	3,918	$	1,741	$	371	$	270	$	17,474


	December 31, 2023
			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		933		375		168		(5)		82		126		179		1,858
Recoveries on loans		85		40		-		-		-		4		3		132
Loans charged off		(775)		-		-		-		-		-		(3)		(778)
Balances, December 31, 2023	$	5,884	$	3,371	$	1,231	$	4,105	$	1,707	$	334	$	233	$	16,865

Allowance for Loan and Lease Losses under prior GAAP (Incurred Loss Model):

Prior to the adoption of ASC 326 on January 1, 2023, the Company maintained an allowance for loan and lease losses (ALLL) in accordance with the incurred loss model.

The following table presents the activity in the ALLL by portfolio segment for the year ended December 31, 2022:


	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

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 the borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

‎

The following tables 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.


	December 31, 2024
	Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial	$	-	$	8,486	$	8,486	$	1,397
Real estate:
Single-family residential		86		-		86		-
Total	$	86	$	8,486	$	8,572	$	1,397


	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 loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 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, deferred loan fees and costs. Cash payments of interest on these loans during the twelve months ended December 31, 2022 totaled $47.


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

‎

The following table presents the recorded investment in non-accrual loans by class of loans at December 31, 2024:



	Non-Accrual Loans		Non-Accrual loans with no Allowance for Credit Losses
Commercial	$	12,876	$	135
Real estate:
Single-family residential		1,649		1,649
Consumer:
Home equity lines of credit:		13		13
Total nonaccrual loans	$	14,538	$	1,797

Of the $14.5 million of nonaccrual loans at December 31, 2024, $1.1 million was guaranteed by the SBA.

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

Of the $5.7 million of nonaccrual loans at December 31, 2023, $1.1 million was guaranteed by the SBA.

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 two loans, totaling $509 that were 90 days or more past due and still accruing at December 31, 2024. There were no loans 90 days or more past due and still accruing interest at 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 December 31, 2024:


	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	$	3,231	$	202	$	5,948	$	9,381	$	409,423	$	7,256
Real estate:
Single-family residential		1,112		-		1,649		2,761		462,756		-
Multi-family residential		-		-		-		-		150,434		-
Commercial:
Non-owner occupied		-		-		-		-		229,831		-
Owner occupied		-		-		181		181		205,030		-
Land		-		-		-		-		25,022		-
Construction		-		-		-		-		202,166		-
Consumer:
Home equity lines of credit		-		109		-		109		39,411		13
Other		41		-		-		41		2,947		-
Total	$	4,384	$	311	$	7,778	$	12,473	$	1,727,020	$	7,269

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:

The Company adopted ASU 2022-02 during the first quarter of 2023. This amendment eliminated the TDR recognition and measurement guidance and, instead, required that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loans. The amendments also enhanced existing disclosure requirements and introduced new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

During the year ended December 31, 2024, the Company modified one commercial loan, with an amortized cost basis of $4.3 million at December 31, 2024, where the borrower was experiencing financial difficulty. The amortized cost basis of this loan represented 1% of commercial loans at December 31, 2024. The loan was modified to increase the interest rate by 75bps, extend the maturity date by six months, and allow for an amortization holiday and deferred interest options. The loan was not past due during the year ended December 31, 2024.

During the year ended December 31, 2023, the Company modified one commercial loan, totaling $2.9 million, where the borrower was experiencing financial difficulty. The amortized cost basis of this loan represented 0.7% of commercial loans at December 31, 2023. The loan was modified to defer principal and interest payments for up to one year. For any period where the payments are deferred, the note will accrue at a higher rate of interest. The loan was deemed uncollectible during the year ended December 31, 2024 and was charged off.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan), is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

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 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, 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)
	2024		2023		2022		2021		2020		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
Commercial
Pass	$	39,955	$	26,619	$	67,069	$	82,579	$	43,556	$	8,224	$	132,853	$	-	$	400,855
Special Mention		-		-		285		-		-		2,922		2,966		-		6,173
Substandard		-		-		7,085		4,256		-		-		50		-		11,391
Doubtful		-		-		385		-		-		-		-		-		385
Total Commercial		39,955		26,619		74,824		86,835		43,556		11,146		135,869		-		418,804
Gross charge-offs during the year ended December 31, 2024		-		-		1,755		3,568		-		-		-		-		5,323
Real estate loans:
Single-family residential
Payment performance
Performing		29,278		33,749		121,984		215,330		42,272		21,255		-		-		463,868
Nonperforming		-		547		371		168		-		563		-		-		1,649
Total Single-family residential loans		29,278		34,296		122,355		215,498		42,272		21,818		-		-		465,517
Multi-family residential
Pass		30,570		24,798		7,628		49,647		2,520		26,424		-		-		141,587
Special Mention		-		-		-		-		4,252		4,595						8,847
Total Multi-family residential loans		30,570		24,798		7,628		49,647		6,772		31,019		-		-		150,434
Commercial:
Non-owner occupied
Pass		10,169		49,053		33,204		67,360		14,019		52,679		-		-		226,484
Special Mention		-		-		-		-		-		2,842		-		-		2,842
Substandard		-		-		-		-		-		505		-		-		505
Total Non-owner occupied loans		10,169		49,053		33,204		67,360		14,019		56,026		-		-		229,831
Owner occupied
Pass		18,424		42,191		51,788		47,174		17,707		26,659		-		-		203,943
Special Mention		-		-		-		-		589		-		-		-		589
Substandard		-		-		-		-		-		679						679
Total Owner occupied loans		18,424		42,191		51,788		47,174		18,296		27,338		-		-		205,211
Land
Pass		16,853		3,190		-		4,979		-		-		-		-		25,022
Total Land loans		16,853		3,190		-		4,979		-		-		-		-		25,022
Construction
Performing		420		-		-		1,607										2,027
Pass		51,031		57,409		68,536		19,632		3,531		-		-		-		200,139
Total Construction loans		51,451		57,409		68,536		21,239		3,531		-		-		-		202,166
Total Real Estate loans		156,745		210,937		283,511		405,897		84,890		136,201		-		-		1,278,181
Consumer:
Home equity lines of credit:
Payment performance
Performing		-		-		-		-		-		-		36,253		3,254		39,507
Nonperforming		-		-		-		-		-		-		-		13		13
Total Home equity lines of credit		-		-		-		-		-		-		36,253		3,267		39,520
Other
Payment performance																		-
Performing		488		-		-		-		6		178		2,316		-		2,988
Nonperforming		-		-		-		-		-		-		-		-		-
Total Other consumer loans		488		-		-		-		6		178		2,316		-		2,988
Gross charge-offs during the year ended December 31, 2024		-		-		-		-		-		-		280		-		280
Total loans	$	197,188	$	237,556	$	358,335	$	492,732	$	128,452	$	147,525	$	174,438	$	3,267	$	1,739,493
Total gross charge-offs during the year ended December 31, 2024	$	-	$	-	$	1,755	$	3,568	$	-	$	-	$	280	$	-	$	5,603

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
Gross charge-offs for the year ended December 31, 2023		-		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
Doubtful																		-
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
Not Rated																		-
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
Gross charge-offs for the year ended December 31, 2023		-		-		-		-		-		3		-		-		3
Total loans	$	217,575	$	394,333	$	565,647	$	137,812	$	68,814	$	112,677	$	210,582	$	3,558	$	1,710,998
Total gross charge-offs during the year ended December 31, 2023	$	-	$	564	$	211	$	-	$	-	$	3	$	-	$	-	$	778

‎

Direct Financing Leases:

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


	December 31, 2024		December 31, 2023
Total minimum lease payments to be received	$	8,009	$	14,343
Less: unearned income		(336)		(863)
Plus: Indirect initial costs		7		17
Net investment in direct financing leases	$	7,680	$	13,497

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


2025	$	4,875
2026		2,575
2027		513
2028		46
	$	8,009