CF Bankshares Inc. Announces Record Net Income For 2nd Quarter, With First Half 2020 Net Income Surpassing Full Year 2019 Net Income Results

COLUMBUS, Ohio, July 28, 2020 /PRNewswire/ -- CF Bankshares Inc. (formerly known as Central Federal Corporation) (NASDAQ: CFBK) (the "Company"), the parent of CFBank, today announced financial results for the second quarter and year to date ended June 30, 2020.

Second Quarter 2020 Highlights

• Net income of $10.1 million, an increase of 342% when compared to the same quarter of 2019.
• Pre-Provision, Pre-Tax Net Revenue ("PPNR") of $15.8 million compared to $2.9 million in Q2 2019, which represents a 453% increase.
• Return of average assets (ROA) was 3.70% for the quarter and PPNR return on average assets was 5.81%.
• Return on average equity (ROE) for the quarter was 47.0% compared to 18.8% for the same quarter of 2019.
• Total assets topped $1 Billion as of June 30, 2020.
• Book value per common share increased to $14.14 at June 30, 2020, which represents a $1.29 per share increase during the second quarter.
• Noninterest-bearing deposit balances increased 42% during the 2nd quarter.
• Funded $126.2 million of Paycheck Protection Program ("PPP") Loans to 558 borrowers.

Timothy T. O'Dell, President and CEO, commented, "We are extremely pleased with our record Q2 net income of $10.1 million, up 342% over Q2 2019.  During the first six months of this year, we have surpassed our full year net income for 2019.  For the second quarter, we achieved ROA of 3.7% coupled with ROE of 47%.  Our record earnings also reflected increased provisioning, with over $3 million added to ALLL during Q2 (43% increase to ALLL).

"Our Q2 highlights also included our total assets topping $1 billion and book value surpassing $14/share.  During the second quarter, we also achieved noninterest income of nearly $20 million, driven mostly through successful expansion of our national mortgage lending business.

"You might recall, we went somewhat against the prevailing grain/consensus earlier when we invested in expanding our mortgage lending business. However, based upon earlier mortgage lending industry experience, and our commitment to expanding Noninterest Income, we concluded that having a strong mortgage lending business coupled with our Commercial Banking businesses would provide business balance and diversification along with providing for increased customer acquisition and greater cross-selling opportunities.  We believe the result of quality customer acquisition drives increased franchise value.

"Among our key initiatives for the second half of 2020, we will be looking to capitalize on cross-selling to new Commercial and Consumer banking customers.  Our successes with the PPP lending program opened doors to relationships with new to CFBank businesses, resulting in new commercial, deposit and cash management business.  Given the expected continuation of the current low interest rate environment, we remain optimistic about the outlook for our mortgage lending business.

"During the second half of 2020, we feel we are well positioned to continue capitalizing on our strong first half momentum, by investing in growing our core lines of businesses. Also, we are focused on increasing our market presence in those regional metro markets that we serve along with expanding our deposit gathering franchise.  The impact of COVID-19 on our borrowers and credit quality, remains unclear.  Our credit quality at June 30, 2020 remained strong, and our loan deferrals are modest at approximately 12% of outstanding loan balances at June 30, 2020.  We anticipate gaining greater clarity as we move forward in Q3 and Q4.  During Q2 we increased our ALLL by roughly 43%, while producing record earnings.  We will continue to monitor and adjust as we gain additional insights and experience.

"Onward & Upward!"

Robert E. Hoeweler, Chairman of the Board, added: "In late 2012 our group of investors provided funds and management to recapitalize the Company and CFBank. The assets of CFBank had decreased to approximately $230 million at the time of the recapitalization. Since then, we have increased CFBank's assets over four fold to $1.15 billion assets in just under 8 years. Our team has achieved this growth through very difficult economic times. Our growth was accomplished with a firm commitment to attracting top performing customers and strong credit quality.  We have built a banking team of which we are very proud. I would like to give thanks to Tim O'Dell for his clear vision and leadership for these past 8 years, thanks to my fellow directors for their support of management, and thanks to our employees for their dedication, long hours, and hard work. We are proud of reaching over a billion in assets but we are just getting started."

Overview of Results 

Net income for the three months ended June 30, 2020 totaled $10.1 million (or $1.53 per diluted common share) and increased $7.8 million, or 341.6%, compared to net income of $2.3 million (or $0.55 per diluted common share) for the three months ended June 30, 2019. 

Net income for the six months ended June 30, 2020 totaled $12.1 million (or $1.82 per diluted common share) and increased $8.1 million, or 204.8%, compared to net income of $4.0 million (or $0.93 per diluted common share) for the six months ended June 30, 2019. 

Net interest income.  Net interest income totaled $6.3 million for the quarter ended June 30, 2020 and increased $1.1 million, or 20.2%, compared to net interest income of $5.2 million for the quarter ended June 30, 2019.  The increase in net interest income was primarily due to a $1.4 million, or 16.0%, increase in interest income, partially offset by a $309,000, or 9.4%, increase in interest expense.  The increase in interest income was primarily attributed to a $360.7 million, or 53.2%, increase in average interest-earning assets outstanding, resulting primarily from an increase in net loans and loans held for sale, partially offset by a 121bps decrease in average yield on interest-earning assets.  The increase in interest expense was attributed to a $290.8 million, or 53.7%, increase in average interest-bearing liabilities, partially offset by a 70bps decrease in the average cost of funds on interest-bearing liabilities.  The net interest margin of 2.42% for the quarter ended June 30, 2020 decreased 66bps compared to the net interest margin of 3.08% for the quarter ended June 30, 2019.

Net interest income totaled $12.4 million for the six months ended June 30, 2020 and increased $2.1 million, or 20.1%, compared to net interest income of $10.3 million for the six months ended June 30, 2019.  The increase in net interest income was primarily due to a $3.4 million, or 20.1%, increase in interest income, partially offset by a $1.3 million, or 21.1%, increase in interest expense.  The increase in interest income was primarily attributed to a $288.7 million, or 43.9%, increase in average interest-earning assets outstanding, resulting primarily from an increase in net loans and loans held for sale, partially offset by an 81bps decrease in average yield on interest-earning assets.  The increase in interest expense was attributed to a $241.6 million, or 46.4%, increase in average interest-bearing liabilities, partially offset by a 41bps decrease in the average cost of funds on interest-bearing liabilities.  The net interest margin of 2.62% for the six months ended June 30, 2020 decreased 52bps compared to the net interest margin of 3.14% for the six months ended June 30, 2019.

Provision for loan and lease losses.  The provision for loan and lease losses expense for the quarter ended June 30, 2020 was $3.1 million compared to no provision for loan and lease losses expense for the quarter ended June 30, 2019. The increase in the provision for loan and lease losses was a reflection of the increased economic stress associated with the pandemic and specific consideration of its impact on certain industries.  Net charge-offs for the quarter ended June 30, 2020 totaled $91,000, compared to net recoveries of $5,000 for the quarter ended June 30, 2019.

The provision for loan and lease losses expense for the six months ended June 30, 2020 was $3.1 million compared to no provision for loan and lease losses expense for the six months ended June 30, 2019.  As noted above, the increase in the provision for loan and lease losses was a reflection of the increased economic stress associated with the pandemic and specific consideration of its impact on certain industries.  Net charge-offs for the six months ended June 30, 2020 totaled $156,000, compared to net recoveries of $17,000 for the six months ended June 30, 2019.

Noninterest income.  Noninterest income for the quarter ended June 30, 2020 totaled $19.9 million and increased $17.3 million, or 674.1%, compared to $2.6 million for the quarter ended June 30, 2019.  The increase was primarily due to a $17.3 million increase in net gain on sale of loans.  The increase in net gain on sale of loans was primarily a result of increased sales volume related to our residential mortgage lending business.

Noninterest income for the six months ended June 30, 2020 totaled $23.3 million and increased $19.0 million, or 447.1%, compared to $4.3 million for the quarter ended June 30, 2019.  The increase was primarily due to an $18.6 million increase in net gain on sale of loans, coupled with a $407,000 increase in swap fee income.  The increase in net gain on sale of loans was primarily a result of increased sales volume related to our residential mortgage lending business.  The increase in swap fee income was due to an increase in customer swap transactions. 

Noninterest expense.  Noninterest expense for the quarter ended June 30, 2020 totaled $10.3 million and increased $5.4 million, or 109.1%, compared to $4.9 million for the quarter ended June 30, 2019.  The increase in noninterest expense during the three months ended June 30, 2020 was primarily due to a $3.6 million increase in salaries and employee benefits expense, an $826,000 increase in professional fees expense, and a $632,000 increase in advertising and marketing expense. The increase in salaries and employee benefits expense was primarily due to the expansion of our residential mortgage lending business, consistent with our focus on driving noninterest income, coupled with an increase in personnel to support our growth, infrastructure and risk management practices.  The increase in professional fees was related to increased activities, volumes and outsourcing in our residential mortgage business.  The increase in advertising and marketing expense was primarily due to increased expenditures related to leads-based marketing to drive revenue growth in our residential mortgage lending business.

Noninterest expense for the six months ended June 30, 2020 totaled $17.4 million and increased $7.8 million, or 80.3%, compared to $9.6 million for the six months ended June 30, 2019.  The increase in noninterest expense during the six months ended June 30, 2020 was primarily due to a $4.2 million increase in salaries and employee benefits expense, a $1.5 million increase in professional fees expense, and a $1.3 million increase in advertising and marketing expense. The increase in salaries and employee benefits expense was primarily due to the expansion of our residential mortgage lending business, consistent with our focus on driving noninterest income, coupled with an increase in personnel to support our growth, infrastructure and risk management practices.  The increase in professional fees was related to increased activities, volumes and outsourcing in our residential mortgage business.  The increase in advertising and marketing expense was primarily due to increased expenditures related to leads-based marketing to drive revenue growth in our residential mortgage lending business.    

Income tax expense.  Income tax expense was $2.6 million for the quarter ended June 30, 2020, an increase of $2.0 million, compared to $583,000 for the quarter ended June 30, 2019.  The effective tax rate for the quarter ended June 30, 2020 was approximately 20.7%, as compared to approximately 20.4% for the quarter ended June 30, 2019.

Income tax expense was $3.2 million for the six months ended June 30, 2020, an increase of $2.2 million, compared to $1.0 million for the quarter ended June 30, 2019.  The effective tax rate for the quarter ended June 30, 2020 was approximately 20.7%, as compared to approximately 20.2% for the quarter ended June 30, 2019.

Balance Sheet Activity

General.  Assets totaled $1.1 billion at June 30, 2020 and increased $265.5 million, or 30.2%, from $880.5 million at December 31, 2019.  The increase was primarily due to a $183.2 million increase in net loan balances, a $31.5 million increase in cash and cash equivalents, and a $30.2 million increase in loans held for sale.

Cash and cash equivalents.  Cash and cash equivalents totaled $77.4 million at June 30, 2020, and increased $31.5 million, or 68.7%, from $45.9 million at December 31, 2019.  The increase in cash and cash equivalents was primarily attributed to increases in FHLB advances and other borrowings and deposits, partially offset by an increase in net loans and loans held for sale.

Securities.  Securities available for sale totaled $10.8 million at June 30, 2020, and increased $2.6 million, or 32.2%, compared to $8.2 million at December 31, 2019.  The increase was due to security purchases, partially offset by principal maturities.

Loans held for sale.  Loans held for sale totaled $165.9 million at June 30, 2020 and increased $30.2 million, or 22.2%, from $135.7 million at December 31, 2019. 

Loans and Leases.  Net loans and leases totaled $846.5 million at June 30, 2020, and increased $183.2 million, or 27.6%, from $663.3 million at December 31, 2019.  The increase was primarily due to a $156.9 million increase in commercial loan balances, a $24.7 million increase in commercial real estate loan balances, an $8.0 million increase in single-family residential loan balances, and a $7.4 million increase in multi-family loan balances, partially offset by an $8.1 million decrease in construction loan balances.  The increases in the aforementioned loan balances were primarily due to the origination and funding of $126.2 million of loans under the SBA's Paycheck Protection Program (PPP), coupled with increased sales activity and new relationships.  The decrease in construction loan balances was primarily due to the completion of construction projects. 

The following table presents the recorded investment in loans and leases for certain non-owner occupied loan types ($ in thousands)

Allowance for loan and lease losses (ALLL).  The allowance for loan and lease losses totaled $10.1 million at June 30, 2020, and increased $3.0 million, or 41.6%, from $7.1 million at December 31, 2019.  The increase in the ALLL is due to $3.1 million in the provision for loan and lease losses expense, partially offset by net charge-offs during the six months ended June 30, 2020.  The ratio of the ALLL to total loans was 1.18% at June 30, 2020, compared to 1.06% at December 31, 2019.  The ratio of the ALLL to total loans, excluding loan balances subject to SBA guarantees, was 1.40% at June 30, 2020, compared to 1.07% at December 31, 2019.

Deposits.  Deposits totaled $849.0 million at June 30, 2020, an increase of $102.7 million, or 13.8%, from $746.3 million at December 31, 2019.   The increase is due to a $70.0 million increase in interest-bearing deposit accounts and a $32.7 million increase in noninterest-bearing account balances.  Interest-bearing deposit accounts increased to $700.8 million at June 30, 2020, from $630.8 million at December 31, 2019.  The increase in interest-bearing accounts is primarily attributed to a $36.2 million increase in certificate of deposit account balances, a $16.9 million increase in money market account balances, and a $14.7 million increase in interest-bearing checking account balances. The increase in certificate of deposit account balances was due to increases in retail and listing service certificates of deposits, partially offset by a decrease in brokered certificates of deposit.  The increases in retail certificate of deposits and money market account balances were primarily due to increases in customer relationships and balances from on-going sales and marketing activities. The increase in interest-bearing checking is primarily related to the balances in the Insured Cash Sweep (ICS) programs offered through Promontory Interfinancial Network.  The increase in noninterest bearing checking account balances was primarily driven by PPP loan proceeds being deposited into customers' accounts.

Stockholders' equity. Stockholders' equity totaled $92.6 million at June 30, 2020, an increase of $11.9 million, or 14.8%, from $80.7 million at December 31, 2019.  The increase in total stockholders' equity was primarily attributed to net income.  

About CF Bankshares Inc. and CFBank

CF Bankshares Inc., formerly known as Central Federal Corporation, is a financial holding company that owns 100% of the stock of CFBank, National Association (CFBank). CFBank is a boutique Commercial bank headquartered in Columbus, Ohio. CFBank has focused on bettering the Ohio economy and serving the financial needs of closely held businesses since 1892. Over a century has passed, and yet, our focus remains the same: guide fellow Ohioans to financial stability and success with agility, ease, and care. CFBank grew from a Federal Savings Association to a National Bank in December of 2016. As CFBank has expanded, we've maintained our penchant for individualized service and direct customer access to decision makers. CFBank now has locations in four major metro Ohio markets - Columbus, Cleveland, Cincinnati, and Akron, as well as branch locations in Columbiana Country (two locations).  In every location, CFBank provides commercial loans and leases, commercial and residential real estate loans and treasury management depository services, corporate treasury management, residential lending, and full service retail banking services and products. In addition, CFBank also has a national residential lending platform.  CFBank is also glad to offer its clients the convenience of online internet banking, mobile banking, and remote deposit.

Additional information about the Company and CFBank is available at www.CFBankOnline.com

USE OF NON-GAAP FINANCIAL MEASURES

This earnings release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP).  Management uses these "non-GAAP" financial measures in its analysis of the Company's performance and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and peers.  These disclosures should not be viewed as substitutes for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Non-GAAP financial measures included in this earnings release include Pre-Provision, Pre-Tax Net Revenue (PPNR) and PPNR Return on Average Assets.  A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included at the end of this earnings release under the heading "GAAP TO NON-GAAP RECONCILIATION."

FORWARD LOOKING STATEMENTS

This earnings release and other materials we have filed or may file with the Securities and Exchange Commission ("SEC") contain or may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Reform Act of 1995, which are made in good faith by us.  Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of CF Bankshares Inc. or CFBank; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements.  Words such as "estimate," "strategy," "may," "believe," "anticipate," "expect," "predict," "will," "intend," "plan," "targeted," and the negative of these terms, or similar expressions, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements, including, without limitation, impacts from the ongoing COVID-19 pandemic on local, national and global economic conditions in general and on our industry and business in particular, including adverse impacts on our customer's operations, financial condition and ability to repay loans, changes in interest rates or disruptions in the mortgage market, and the effects of various governmental responses to the pandemic, including stimulus packages and programs;  potential litigation or other risks related to participating in the U.S. Small Business Administration Paycheck Protection Program; and those additional risks detailed from time to time in our reports filed with the SEC, including those identified in "Item 1A.  Risk Factors" of Part I of our Annual Report on Form 10-K filed with SEC for the year ended December 31, 2019, and in "Item 1A. Risk Factors" of Part II of our Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2020.

Forward-looking statements are not guarantees of performance or results.  A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement.  We believe that we have chosen these assumptions or bases in good faith and that they are reasonable.  We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material.  The forward-looking statements included in this earnings release speak only as of the date hereof.  We undertake no obligation to publicly release revisions to any forward-looking statements to reflect events or circumstances after the date of such statements, except to the extent required by law.

GAAP TO NON-GAAP RECONCILIATION

This press release contains certain non-GAAP disclosures for: (1) PPNR and (2) PPNR return on average assets.  The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operations performance and to enhance investors' overall understanding of such financial performance.  In particular, the use of PPNR is prevalent among banking regulators, investors, and analysts.  Accordingly, we disclose the non-GAAP measures in addition to the related GAAP measures of: (1) net earnings and (2) return on average assets.

The table below presents the reconciliation of these GAAP financial measures to the related non-GAAP financial measures:

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