CF BANKSHARES INC. - Quarter Report: 2022 September (Form 10-Q)

cfbk-20220930x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from __________ to______________

Commission File Number 0-25045

CF BANKSHARES INC.

(Exact name of registrant as specified in its charter)


Delaware	34-1877137
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

7000 North High St., Worthington, Ohio 43085

(Address of principal executive offices) (Zip Code)

(614) 334-7979

(Registrant’s telephone number, including area code)

______________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
(Voting) Common Stock, $.01 par value	CFBK	The NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ] Accelerated Filer [X] Non-accelerated Filer [ ] Smaller Reporting Company [X]

Emerging Growth Company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of November 1, 2022, there were 5,225,292 shares of the registrant’s (Voting) Common Stock outstanding and 1,260,700 shares of the registrant’s Non-Voting Common Stock outstanding.

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CF BANKSHARES INC.

INDEX


PART I. Financial Information		Page

Item 1. Financial Statements		3

	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6

	Consolidated Statements of Cash Flows for the ninemonths ended September 30, 2022 and 2021 (unaudited)	8

	Notes to Consolidated Financial Statements (three and nine months ended September 30, 2022 and 2021 (unaudited))	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3. Quantitative and Qualitative Disclosures About Market Risk		53

Item 4. Controls and Procedures		54

PART II. Other Information		55

Item 1. Legal Proceedings		55

Item 1A. Risk Factors		55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 3. Defaults Upon Senior Securities		55

Item 4. Mine Safety Disclosures		55

Item 5. Other Information		55

Item 6. Exhibits		56

Signatures		57

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CF BANKSHARES INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share data)


	September 30,		December 31,
	2022		2021
	(unaudited)
ASSETS
Cash and cash equivalents	$	198,066	$	166,591
Interest-bearing deposits in other financial institutions		100		100
Securities available for sale		11,436		16,347
Equity securities		5,000		5,000
Loans held for sale, at fair value		-		27,988
Loans and leases, net of allowance of $15,687 and $15,508		1,473,883		1,214,149
FHLB and FRB stock		7,633		7,315
Premises and equipment, net		3,792		5,869
Other assets held for sale		1,930		-
Operating lease right-of-use assets		1,499		1,925
Bank owned life insurance		26,189		25,743
Accrued interest receivable and other assets		34,514		24,562
Total assets	$	1,764,042	$	1,495,589

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing	$	270,945	$	284,935
Interest bearing		1,219,038		961,417
Total deposits		1,489,983		1,246,352
FHLB advances and other debt		102,803		89,727
Advances by borrowers for taxes and insurance		2,573		2,752
Operating lease liabilities		1,588		2,032
Accrued interest payable and other liabilities		17,311		14,513
Subordinated debentures		14,912		14,883
Total liabilities		1,629,170		1,370,259

Commitments and contingent liabilities		-		-

Stockholders' equity
Common stock, $0.01 par value;
shares authorized: 9,090,909, including 1,260,700 shares of non-voting common stock
Voting common stock, $0.01 par value; shares issued: 5,567,377 at September 30, 2022 and 5,485,980 at December 31, 2021		56		55
Non-voting common stock, $0.01 par value;
shares issued: 1,260,700 at September 30, 2022 and 1,260,700 at December 31, 2021		13		13
Series C preferred stock, $0.01 par value; 12,607 shares authorized;
0 issued at September 30, 2022 and 0 shares issued at December 31, 2021		-		-
Additional paid-in capital		89,307		88,528
Retained earnings		56,742		44,084
Accumulated other comprehensive loss		(1,654)		(170)
Treasury stock, at cost; 360,799 shares of voting common stock at September 30, 2022 and 246,432 shares of voting common stock at December 31, 2021		(9,592)		(7,180)
Total stockholders' equity		134,872		125,330
Total liabilities and stockholders' equity	$	1,764,042	$	1,495,589

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands except per share data)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest and dividend income
Loans and leases, including fees	$	16,876	$	12,397	$	43,746	$	38,452
Securities		219		230		664		529
FHLB and FRB stock dividends		98		55		238		167
Federal funds sold and other		813		21		1,215		73
		18,006		12,703		45,863		39,221
Interest expense
Deposits		3,992		1,777		8,177		6,382
FHLB advances and other debt		446		289		1,340		1,096
Subordinated debentures		252		224		711		673
		4,690		2,290		10,228		8,151
Net interest income		13,316		10,413		35,635		31,070
Provision for loan and lease losses		150		-		150		(1,600)
Net interest income after provision for loan and lease losses		13,166		10,413		35,485		32,670

Noninterest income
Service charges on deposit accounts		268		213		823		612
Net gains (losses) on sales of residential mortgage loans		-		(268)		678		5,348
Net gains (losses) on sales of commercial loans		134		(1)		277		1,158
Swap fee income		24		-		42		182
Gain on redemption of life insurance policies		-		-		-		383
Earnings on bank owned life insurance		151		142		446		370
Gain on sale of deposits		-		1,893		-		1,893
Other		128		98		293		312
		705		2,077		2,559		10,258
Noninterest expense
Salaries and employee benefits		4,112		4,250		11,311		13,410
Occupancy and equipment		324		254		955		835
Data processing		1,126		520		2,175		1,580
Franchise and other taxes		178		241		839		723
Professional fees		896		959		2,148		3,555
Director fees		171		156		465		466
Postage, printing and supplies		45		34		126		120
Advertising and marketing		108		45		287		2,572
Telephone		66		65		180		191
Loan expenses		296		99		502		187
Depreciation		134		108		375		311
FDIC premiums		312		476		690		1,095
Regulatory assessment		70		66		201		196
Other insurance		45		45		135		113
Impairment of property and equipment		570		-		570		-
Other		146		111		389		311
		8,599		7,429		21,348		25,665
Income before incomes taxes		5,272		5,061		16,696		17,263
Income tax expense		1,023		985		3,203		3,277
Net income	$	4,249	$	4,076	$	13,493	$	13,986

Earnings per common share:
Basic	$	0.66	$	0.63	$	2.11	$	2.14
Diluted	$	0.65	$	0.61	$	2.06	$	2.10

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands except per share data)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	4,249	$	4,076	$	13,493	$	13,986
Other comprehensive loss:
Unrealized holding losses arising during the period related to securities available for sale, net of tax of ($57) and ($3), and ($394) and ($15)		(217)		(13)		(1,484)		(59)
Other comprehensive loss, net of tax		(217)		(13)		(1,484)		(59)
Comprehensive income	$	4,032	$	4,063	$	12,009	$	13,927

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands except per share data)

(Unaudited)


			Non-voting		Additional				Accumulated Other				Total
	Common		Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders'
Three months ended September 30, 2022	Stock		Stock		Capital		Earnings		Loss		Stock		Equity
Balance at July 1, 2022	$	56	$	13	$	89,061	$	52,814	$	(1,437)	$	(7,816)	$	132,691
Net income								4,249						4,249
Other comprehensive loss										(217)				(217)
Issuance of 4,000 stock based incentive plan shares, net of forfeitures		-				-								-
Restricted stock expense, net of forfeitures						246								246
Acquisition of 1,244 treasury shares surrendered upon vesting of restricted stock for payment of taxes												(25)		(25)
Purchase of 83,333 treasury shares												(1,751)		(1,751)
Cash dividends declared on common stock ($0.05 per share)								(321)						(321)
Balance at September 30, 2022	$	56	$	13	$	89,307	$	56,742	$	(1,654)	$	(9,592)	$	134,872



			Non-voting		Additional				Accumulated Other				Total
	Common		Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders'
Nine months ended September 30, 2022	Stock		Stock		Capital		Earnings		Loss		Stock		Equity
Balance at January 1, 2022	$	55	$	13	$	88,528	$	44,084	$	(170)	$	(7,180)	$	125,330
Net income								13,493						13,493
Other comprehensive loss										(1,484)				(1,484)
Issuance of 69,648 stock based incentive plan shares, net of forfeitures		1				(1)								-
Restricted stock expense, net of forfeitures						648								648
Stock options exercised						132								132
Acquisition of 3,424 treasury shares surrendered upon vesting of restricted stock for payment of taxes												(73)		(73)
Purchase of 110,988 treasury shares												(2,339)		(2,339)
Cash dividends declared on common stock ($0.13 per share)								(835)						(835)
Balance at September 30, 2022	$	56	$	13	$	89,307	$	56,742	$	(1,654)	$	(9,592)	$	134,872

‎

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands except per share data)

(Unaudited)



			Non-voting		Additional				Accumulated Other				Total
	Common		Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders'
Three months ended September 30, 2021	Stock		Stock		Capital		Earnings		Income		Stock		Equity
Balance at July 1, 2021	$	54	$	13	$	88,099	$	35,997	$	50	$	(4,354)	$	119,859
Net income								4,076						4,076
Other comprehensive loss										(13)				(13)
Issuance of 1,500 stock based incentive plan shares, net of forfeitures		-				-								-
Restricted stock expense, net of forfeitures						171								171
Acquisition of 1,092 treasury shares surrendered upon vesting of restricted stock for payment of taxes												(20)		(20)
Purchase of 36,691 treasury shares												(708)		(708)
Cash dividends declared on common stock ($0.03 per share)								(196)						(196)
Balance at September 30, 2021	$	54	$	13	$	88,270	$	39,877	$	37	$	(5,082)	$	123,169




			Non-voting		Additional				Accumulated Other				Total
	Common		Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders'
Nine Months ended September 30, 2021	Stock		Stock		Capital		Earnings		Income		Stock		Equity
Balance at January 1, 2021	$	54	$	13	$	87,637	$	26,479	$	96	$	(4,069)	$	110,210
Net income								13,986						13,986
Other comprehensive loss										(59)				(59)
Issuance of 69,960 stock based incentive plan shares, net of forfeitures		-				-								-
Restricted stock expense, net of forfeitures						527								527
Stock options exercised						106								106
Acquisition of 2,261 treasury shares surrendered upon vesting of restricted stock for payment of taxes						-						(43)		(43)
Purchase of 50,292 treasury shares				-		-						(970)		(970)
Cash dividends declared on common stock ($0.09 per share)				-		-		(588)						(588)
Balance at September 30, 2021	$	54	$	13	$	88,270	$	39,877	$	37	$	(5,082)	$	123,169

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)

(Unaudited)


	Nine months ended September 30,
	2022		2021
Net Income	$	13,493	$	13,986
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan and lease losses		150		(1,600)
Depreciation		375		311
Amortization, net		(674)		(2,047)
Deferred income tax (benefit)		57		307
Originations of loans held for sale		(94,548)		(2,228,104)
Proceeds from sale of loans held for sale		121,540		2,422,060
Net gains on sales of residential mortgage loans		(678)		(5,348)
Net gains on sales of commercial loans		(277)		(1,158)
Gain on sale of deposits		-		(1,893)
Impairment property and equipment		570		-
Loss on disposal of premises and equipment		-		17
Earnings on bank owned life insurance		(446)		(370)
Gain on redemption of life insurance policies		-		(383)
Stock-based compensation expense		648		527
Net change in:
Accrued interest receivable and other assets		(6,915)		16,853
Operating lease right-of-use asset		426		337
Operating lease right-of-use liability		(444)		(366)
Accrued interest payable and other liabilities		(299)		(14,268)
Net cash from operating activities		32,978		198,861
Cash flows used by investing activities:
Available-for-sale securities:
Maturities, prepayments and calls		3,013		4,522
Purchases		-		(13,070)
Purchase of bank owned life insurance		-		(8,000)
Loan and lease originations and payments, net		(263,938)		(218,170)
Purchase of loans and leases		(3,698)		(18,677)
Proceeds from the sale of loans		10,451		29,972
Additions to premises and equipment		(798)		(913)
Purchase of FRB and FHLB stock		(318)		(628)
Purchase of other investments		-		(500)
Return of investment-joint ventures		398		501
Proceeds from the redemption of life insurance policies		-		661
Proceeds from the sale of premises and equipment		-		371
Net cash used by investing activities		(254,890)		(223,931)
Cash flows from financing activities:
Net change in deposits		243,631		148,031
Cash paid for assumption of deposits in branch sale		-		(102,418)
Proceeds from FHLB advances and other debt		33,500		125,769
Repayments on FHLB advances and other debt		(20,450)		(228,964)
Net change in warehouse line of credit		-		(70,013)
Net change in advances by borrowers for taxes and insurance		(179)		727
Cash dividends paid on common stock		(835)		(588)
Proceeds from exercise of stock options		132		106
Acquisition of treasury shares surrendered upon vesting of restricted stock for payment of taxes		(73)		(43)
Purchase of treasury shares		(2,339)		(970)
Net cash from (used by) financing activities		253,387		(128,363)
Net change in cash and cash equivalents		31,475		(153,433)
Beginning cash and cash equivalents		166,591		221,594
Ending cash and cash equivalents	$	198,066	$	68,161

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)

(Unaudited)





	Nine months ended September 30,
	2022		2021
Supplemental cash flow information:
Interest paid	$	9,818	$	8,111
Income tax paid		2,450		3,125

Supplemental noncash disclosures:
Loans transferred from held for sale to portfolio		1,674		16,611
Transfer of premises and equipment to other assets held for sale		1,930		-
Investment payable on limited partnerships		3,097		7,955
Initial recognition of operating right-of-use lease asset		-		412
Initial recognition of operating right-of-use lease liability		-		412

See accompanying notes to consolidated financial statements.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The consolidated financial statements include CF Bankshares Inc. (the “Holding Company”) and its wholly-owned subsidiary, CFBank, National Association (“CFBank”). The Holding Company and CFBank are sometimes collectively referred to herein as the “Company”. Intercompany transactions and balances are eliminated in consolidation. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in compliance with U.S. generally accepted accounting principles (GAAP). Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of the management of the Company, the accompanying unaudited interim consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The financial performance reported for the Company for the nine months ended September 30, 2022 is not necessarily indicative of the results that may be expected for the full year. This information should be read in conjunction with the Company’s latest Annual Report to Stockholders and Annual Report on Form 10-K on file with the SEC. Reference is made to the accounting policies of the Company described in Note 1 to the Audited Consolidated Financial Statements contained in the Company’s 2021 Annual Report to Stockholders included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (referred to herein as the “2021 Audited Financial Statements”). The Company has consistently followed those policies in preparing this Form 10-Q.

Loans and Leases: Loans and leases that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, adjusted for purchase premiums and discounts, deferred loan fees and costs and an allowance for loan and lease losses (ALLL). Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level yield method without anticipating prepayments.

The accrual of interest income on all classes of loans, except other consumer loans, is discontinued and the loan is placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Other consumer loans are typically charged off no later than 90 days past due. Past due status is based on the contractual terms of the loan for all classes of loans. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Commercial, multi-family residential real estate loans and commercial real estate loans placed on nonaccrual status are individually classified as impaired loans.

All interest accrued but not received for each loan placed on nonaccrual status is reversed against interest income in the period in which it is placed on nonaccrual status. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual status. Loans are considered for return to accrual status provided all the principal and interest amounts that are contractually due are brought current, there is a current and well documented credit analysis, there is reasonable assurance of repayment of principal and interest, and the customer has demonstrated sustained, amortizing payment performance of at least six months.

Allowance for Loan and Lease Losses (ALLL): The ALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using 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. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans within any loan class for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Factors considered by management in determining impairment for all loan classes include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

All substandard loans within the commercial, multi-family residential, commercial real estate and construction segments are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer, single-family residential real estate loans and commercial leases, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

TDRs of all classes of loans are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using each loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. If the payment of the loan is dependent on the sale of the collateral, then costs to liquidate the collateral are included when determining the impairment. For TDRs that subsequently default, the amount of reserve is determined in accordance with the accounting policy for the ALLL.

Interest income on all classes of impaired loans that are on nonaccrual status is recognized in accordance with the accounting policy for nonaccrual loans. Cash receipts on all classes of impaired loans that are on nonaccrual status are generally applied to the principal balance outstanding. Interest income on all classes of impaired loans that are not on nonaccrual status is recognized on the accrual method. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note.

The general reserve component covers non-impaired loans of all classes and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by loan class and is based on the actual loss history experienced by the Company over a three-year period. The general component is calculated based on CFBank’s loan balances and actual three-year historical loss rates. For loans with little or no actual loss experience, industry estimates are used based on loan segment. This loss experience is supplemented with other economic and judgmental factors based on the risks present for each loan class. These economic and judgmental factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

CFBank’s charge-off policy for commercial loans, single-family residential real estate loans, multi-family residential real estate loans, commercial real estate loans, construction loans and home equity lines of credit requires management to record a specific reserve or charge-off as soon as it is apparent that the borrower is troubled and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing the loan. Other consumer loans are typically charged off no later than 90 days past due.

Joint Ventures: The Holding Company has contributed funds into a series of joint ventures (equity stake) for the purpose of allocating excess liquidity into higher earning assets while diversifying its revenue sources. The joint ventures are engaged in shorter term operating activities related to single family real estate developments. Income is recognized based on a rate of return on the outstanding investment balance. As units are sold, the Holding Company receives an additional incentive payment, which is recognized as income. Under ASU 2016-15, the Company has elected the nature of distribution approach to recognize returns from equity method investments. Returns on investment are classified as cash flows from operating activities and returns of investment are classified as investing activities.

Low Income Housing Tax Credits (LIHTC): CFBank has invested in low income housing tax credits through funds that assist corporations in investing in limited partnerships and limited liability companies that own, develop and operate low income residential rental properties for purposes of qualifying for the Housing Tax credit. These investments are accounted for under the proportional amortization method which recognizes the amortization of the investment in proportion to the tax credit and other tax benefits received.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Earnings Per Common Share: The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common stockholders for the period are allocated between common stockholders and participating securities (unvested share-based payment awards) according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
Basic
Net income	$	4,249	$	4,076	$	13,493	$	13,986
Earnings allocated to participating securities		-		-		-		-
Net income allocated to common stockholders	$	4,249	$	4,076	$	13,493	$	13,986

Weighted average common shares outstanding including unvested share-based payment awards		6,518,633		6,609,962		6,515,929		6,625,699
Less: Unvested share-based payment awards-2019 Plan		(125,102)		(99,458)		(107,587)		(97,573)
Average shares		6,393,531		6,510,504		6,408,342		6,528,126
Basic earnings per common share	$	0.66	$	0.63	$	2.11	$	2.14

Diluted
Net earnings allocated to common stockholders	$	4,249	$	4,076	$	13,493	$	13,986
Add back: Preferred Dividends on Series B preferred stock and accretion of discount		-		-		-		-
Net earnings allocated to common stockholders	$	4,249	$	4,076	$	13,493	$	13,986

Weighted average common shares outstanding for basic earnings per common share		6,393,531		6,510,504		6,408,342		6,528,126
Add: Dilutive effects of assumed exercises of stock options		29,158		47,288		33,762		46,615
Add: Dilutive effects of unvested share-based payment awards-2019 Plan		125,102		99,458		107,587		97,573
Average shares and dilutive potential common shares		6,547,791		6,657,250		6,549,691		6,672,314
Diluted earnings per common share	$	0.65	$	0.61	$	2.06	$	2.10

Dividend Restrictions: Banking regulations require us to maintain certain capital levels and may limit the dividends paid by CFBank to the Holding Company or by the Holding Company to stockholders. The ability of the Holding Company to pay dividends on its common stock is dependent upon the amount of cash and liquidity available at the Holding Company level, as well as the receipt of dividends and other distributions from CFBank to the extent necessary to fund such dividends. The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. The Holding Company also is subject to various legal and regulatory policies and guidelines impacting the Holding Company’s ability to pay dividends on its stock. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities. Finally, under the terms of the Holding Company’s fixed-to-floating rate subordinated notes, the Holding Company’s ability to pay dividends on its stock is conditioned upon the Holding Company continuing to make required principal and interest payments, and not incurring an event of default, with respect to the subordinated notes.

Future Accounting Matters:

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Once effective, ASU 2016-13 will significantly change current guidance for recognizing impairment of financial instruments. Current guidance requires an "incurred loss" methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the incurred loss impairment methodology with a new methodology that reflects expected credit losses over the lives of the loans and requires consideration of a broader range of information to inform credit loss estimates. The ASU requires an organization to estimate all expected credit losses for financial assets measured at amortized cost, including loans and held-to-maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. Additional disclosures are required. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

assets with credit deterioration. Under the new guidance, entities will determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Any credit loss will be recognized as an allowance for credit losses on available-for-sale debt securities rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings rather than as interest income over time, as currently required. ASU 2016-13 eliminates the current accounting model for purchased credit impaired loans and debt securities. Instead, purchased financial assets with credit deterioration will be recorded gross of estimated credit losses as of the date of acquisition and the estimated credit losses amounts will be added to the allowance for credit losses. Thereafter, entities will account for additional impairment of such purchased assets using the models listed above. In October 2019, the FASB voted to extend the implementation of ASU No. 2016-13 for certain financial institutions including smaller reporting companies. As a result, ASU 2016-13 will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is continuing to evaluate the potential impact on the Company’s financial statements and disclosures. Management has been running and evaluating various scenarios and does not expect the adoption of ASU 2016-13 to have significant impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is continuing to assess ASU 2020-04 and its impact on the Company's transition away from LIBOR for its loan and other financial instruments.

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. In the opinion of management, the disposition or ultimate resolution of such claims and lawsuits is not anticipated to have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

NOTE 2 – REVENUE RECOGNITION

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue generated from our mortgage activities related to net gains on sale of loans.

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of Noninterest Income are as follows:

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity, or transaction-based fees, and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payments for such performance obligations are generally received at the time the performance obligations are satisfied.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 3 – SECURITIES

The following tables summarize the amortized cost and fair value of the available-for-sale securities portfolio at September 30, 2022 and December 31, 2021 and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income (loss):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022 (unaudited)
Corporate debt	$	9,978	$	-	$	1,978	$	8,000
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		3,531		-		116		3,415
Mortgage-backed securities - residential		21		-		-		21
Total	$	13,530	$	-	$	2,094	$	11,436


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021
Corporate debt	$	9,976	$	-	$	226	$	9,750
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		6,551		31		21		6,561
Mortgage-backed securities - residential		35		1		-		36
Total	$	16,562	$	32	$	247	$	16,347

There was no other-than-temporary impairment recognized in accumulated other comprehensive income (loss) for securities available for sale at September 30, 2022 or September 30, 2021.

There were no sales of securities during the three and nine months ended September 30, 2022 and 2021.

The amortized cost and fair value of debt securities at September 30, 2022 and December 31, 2021 are shown in the table below by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.



	September 30, 2022					December 31, 2021
	(unaudited)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,003	$	1,976	$	3,504	$	3,518
Due from one to five years		1,528		1,439		3,047		3,043
Due from five to ten years		9,978		8,000		9,976		9,750
Mortgage-backed securities - residential		21		21		35		36
Total	$	13,530	$	11,436	$	16,562	$	16,347

Fair value of securities pledged as collateral was as follows:


	September 30, 2022		December 31, 2021
	(unaudited)
Pledged as collateral for:
FHLB advances	$	964	$	1,016
Public deposits		479		501
Mortgage banking derivatives		-		1,504
Total	$	1,443	$	3,021

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

At September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders’ equity.

The following table summarizes securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position.



September 30, 2022 (unaudited)	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate debt	$	8,000	$	1,978	$	-	$	-	$	8,000	$	1,978
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		1,976		27		1,439		89		3,415		116
Mortgage-backed securities - residential ⁽¹⁾		16		-		-		-		16		-
Total temporarily impaired	$	9,992	$	2,005	$	1,439	$	89	$	11,431	$	2,094

⁽¹⁾Unrealized loss is less than $1 resulting in rounding to zero.




December 31, 2021	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate debt	$	9,750	$	226	$	-	$	-	$	9,750	$	226
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		3,024		21		-		-		3,024		21
Total temporarily impaired	$	12,774	$	247	$	-	$	-	$	12,774	$	247

The unrealized losses at September 30, 2022 were related to one corporate debt security, multiple U.S. Treasuries and one mortgage-backed security. The unrealized losses at December 31, 2021 were related to one corporate debt security and multiple U.S. Treasuries. Because the decline in fair value was attributable to changes in market conditions, and not credit quality, and because the Company did not have the intent to sell these securities and it was likely that it would not be required to sell these securities before their anticipated recovery, the Company did not consider these securities to be other-than-temporarily impaired at September 30, 2022 and December 31, 2021.

‎

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

‎

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)



	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

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

‎

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

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

NOTE 5 – LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

The leases in which the Company is the lessee are comprised of real estate property for branches and offices and for equipment with terms extending through 2032. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset and a corresponding operating lease liability. The Company does not have any leases classified as finance leases.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion which were considered, as applicable, in the calculation of the ROU assets and lease liabilities. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is not readily determinable in our operating leases, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. At September 30, 2022, the weighted-average remaining lease term for the Company’s operating leases was 4.3 years and the weighted-average discount rate was 5.51%.

The Company’s operating lease costs were $139 and $426 for the three and nine months ended September 30, 2022, respectively, and $122 and $337 for the three and nine months ended September 30, 2021, respectively. The variable lease costs totaled $86 and $233 for the three and nine months ended September 30, 2022, respectively, and $67 and $217 for the three and nine months ended September 30, 2021, respectively. As the Company elected not to separate lease and non-lease components for all classes of underlying assets and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

Future minimum operating lease payments as of September 30, 2022 are as follows:


2022, excluding the nine months ended September 30, 2022	$	171
2023		553
2024		458
2025		209
2026		114
Thereafter		276
Total future minimum rental commitments		1,781
Less - amounts representing interest		(193)
Total operating lease liabilities	$	1,588

‎

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 6 - FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of asset and liability:

Securities available for sale: The fair value of securities available for sale is determined using pricing models that vary based on asset class and include available trade, bid and other market information or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Derivatives: The fair value of derivatives, which includes yield maintenance provisions, interest rate lock commitments and interest rate swaps, is based on valuation models using observable market data as of the measurement date (Level 2).

TBA mortgage – back securities: To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into either a forward sales contract to sell loans to investors when using best efforts or a trade of “to be announced (TBA)” mortgage-backed securities for mandatory delivery. The forward sales contracts lock in a price for the sale of loans with similar characteristics to the specific rate lock commitments based on a valuation model using observable market data for pricing commitments (Level 2).

Impaired loans: The fair value of impaired loans with specific allocations of the ALLL is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by a third-party appraisal management company approved by the Board of Directors annually. Once received, the loan officer or a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are updated as needed based on facts and circumstances associated with the individual properties. Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management applies an additional discount to real estate appraised values, typically to reflect changes in market conditions since the date of the appraisal if warranted and to cover disposition costs (including selling expenses) based on the intended disposition method of the property. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Loans held for sale: Loans held for sale are carried at fair value, as determined by outstanding commitments from third party investors (Level 2).

Table of Contents

CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:


	Fair Value Measurements at ‎ September 30, 2022 using Significant ‎Other Observable Inputs
	(Level 2)
	(unaudited)
Financial Assets:
Securities available for sale:
Corporate debt	$	8,000
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		3,415
Mortgage-backed securities - residential		21
Total securities available for sale	$	11,436
Derivative assets	$	4,316

Financial Liabilities:
Derivative liabilities	$	4,316


	Fair Value Measurements at ‎ December 31, 2021 using Significant ‎Other Observable Inputs
	(Level 2)
Financial Assets:
Securities available for sale:
Corporate debt	$	9,750
Issued by U.S. government-sponsored entities and agencies:
U.S. Treasury		6,561
Mortgage-backed securities - residential		36
Total securities available for sale	$	16,347
Loans held for sale	$	27,988
Derivative assets	$	538
Interest rate lock commitments	$	555
Financial Liabilities:
Derivative liabilities		538
TBA Mortgage-backed securities	$	73

The Company had no assets or liabilities measured at fair value on a recurring basis that were measured using Level 1 or Level 3 inputs at September 30, 2022 or December 31, 2021. There were no transfers of assets or liabilities measured at fair value between levels during the periods ended September 30, 2022 and December 31, 2021.

There were no assets or liabilities measured at fair value on a non-recurring basis at September 30, 2022 and December 31, 2021.

There were no write-downs of impaired collateral dependent loans during the three or nine months ended September 30, 2022 or 2021.

Financial Instruments Recorded Using Fair Value Option

The Company has elected the fair value option for loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due or on nonaccrual as of September 30, 2022 or December 31, 2021.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

As of September 30, 2022 and December 31, 2021, the aggregate fair value, contractual balance and gain or loss on loans held for sale were as follows:



	September 30, 2022		December 31, 2021
	(unaudited)
Aggregate fair value	$	-	$	27,988
Contractual balance		-		27,632
Gain (loss)	$	-	$	356

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2022 and 2021 for loans held for sale were:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
Interest income	$	-	$	1,008	$	165	$	5,347
Interest expense		-		-		-		-
Change in fair value		-		(1,916)		(356)		(7,841)
Total change in fair value	$	-	$	(908)	$	(191)	$	(2,494)

The carrying amounts and estimated fair values of financial instruments at September 30, 2022 were as follows:


	Fair Value Measurements at September 30, 2022 Using:
	Carrying
(unaudited)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	198,066	$	198,066	$	-	$	-	$	198,066
Interest-bearing deposits in other financial institutions		100		100		-		-		100
Securities available for sale		11,436		-		11,436		-		11,436
Equity Securities		5,000		-		5,000		-		5,000
Loans and leases, net		1,473,883		-		-		1,431,042		1,431,042
FHLB and FRB stock		7,633		n/a		n/a		n/a		n/a
Accrued interest receivable		7,179		154		223		6,802		7,179
Other assets held for sale		1,930		-		-		1,930		1,930
Derivative assets		4,316		-		4,316		-		4,316

Financial liabilities
Deposits	$	(1,489,983)	$	(889,986)	$	(586,002)	$	-	$	(1,475,988)
FHLB advances and other borrowings		(102,803)		-		(98,503)		-		(98,503)
Advances by borrowers for taxes and insurance		(2,573)		-		-		(2,573)		(2,573)
Subordinated debentures		(14,912)		-		(13,508)		-		(13,508)
Accrued interest payable		(638)		-		(638)		-		(638)
Derivative liabilities		(4,316)		-		(4,316)		-		(4,316)

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The carrying amounts and estimated fair values of financial instruments at December 31, 2021 were as follows:



	Fair Value Measurements at December 31, 2021 Using:
	Carrying
	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	166,591	$	166,591	$	-	$	-	$	166,591
Interest-bearing deposits in other financial institutions		100		100		-		-		100
Securities available for sale		16,347		-		16,347		-		16,347
Equity Securities		5,000		-		5,000		-		5,000
Loans held for sale		27,988		-		27,988		-		27,988
Loans and leases, net		1,214,149		-		-		1,231,228		1,231,228
FHLB and FRB stock		7,315		n/a		n/a		n/a		n/a
Accrued interest receivable		4,143		2		91		3,947		4,040
Derivative assets		538		-		538		-		538
Interest rate lock commitments		555		-		555		-		555

Financial liabilities
Deposits	$	(1,246,352)	$	(661,818)	$	(585,214)	$	-	$	(1,247,032)
FHLB advances and other borrowings		(89,727)		-		(90,670)		-		(90,670)
Advances by borrowers for taxes and insurance		(2,752)		-		-		(2,752)		(2,752)
Subordinated debentures		(14,883)		-		(16,051)		-		(16,051)
Accrued interest payable		(228)		-		(228)		-		(228)
Derivative liabilities		(538)		-		(538)		-		(538)
TBA mortgage-backed securities		(73)		-		(73)		-		(73)

The methods and assumptions, not previously presented, used to estimate fair values are described below.

Cash and Cash Equivalents and Interest-Bearing Deposits in Other Financial Institutions

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

FHLB and FRB Stock

It is not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on its transferability.

Loans and Leases

Fair values of loans and leases as of September 30, 2022, excluding loans held for sale, are estimated utilizing an exit pricing methodology as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. The discount rate for the discounted cash flow analyses includes a credit quality adjustment. Impaired loans are valued at the lower of cost or fair value as described previously.

Other Assets Held for Sale

The carrying amount of other assets held for sale approximates fair value and is classified as Level 3.

Deposits

The fair values disclosed for demand deposits (e.g., interest and noninterest bearing checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

FHLB Advances and Other Debt

The fair values of the Company’s long-term FHLB and credit facility advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The PPPLF funding has a fixed rate of 0.35% for all participants; thus the carrying value approximates the estimated fair value and represents a Level 2 measurement.

Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 1, 2 or 3 classification, consistent with the asset or liability with which they are associated.

Advances by Borrowers for Taxes and Insurance

The carrying amount of advances by borrowers for taxes and insurance approximates fair value resulting in a Level 3 classification, consistent with the liability with which they are associated.

Off-Balance-Sheet Instruments

The fair value of off-balance-sheet items is not considered material.

NOTE 7 – SUBORDINATED DEBENTURES

2003 Subordinated debentures:

In December 2003, Central Federal Capital Trust I, a trust formed by the Holding Company, closed a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1 per security. The Holding Company issued $5,155 of subordinated debentures to the trust in exchange for ownership of all of the common stock of the trust and the proceeds of the preferred securities sold by the trust. The Holding Company is not considered the primary beneficiary of this trust (which is classified as a variable interest entity); therefore, the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Holding Company’s investment in the common stock of the trust was $155 and is included in other assets.

The Holding Company may redeem the subordinated debentures, in whole or in part, in a principal amount with integral multiples of $1, at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on December 30, 2033. The subordinated debentures are also redeemable in whole or in part from time to time, upon the occurrence of specific events defined within the trust indenture. There are no required principal payments on the subordinated debentures over the next five years. The Holding Company has the option to defer interest payments on the subordinated debentures for a period not to exceed five consecutive years.

The subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month London Interbank Offered Rate (LIBOR) plus 2.85%, which was 5.10% at September 30, 2022 and 3.07% at December 31, 2021.

2018 Fixed-to-floating rate subordinated notes:

In December 2018, the Holding Company entered into subordinated note purchase agreements with certain qualified institutional buyers and completed a private placement of $10 million of fixed-to-floating rate subordinated notes with a maturity date of December 30, 2028 pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder. After payment of approximately $388 of debt issuance costs, the Holding Company’s net proceeds were approximately $9,612.

The subordinated notes initially bear interest at 7.00%, from and including December 20, 2018, to but excluding December 30, 2023, payable semi-annually in arrears on June 30 and December 30 of each year. From and including December 30, 2023, to but excluding December 30, 2028 or the earlier redemption of the notes, the interest rate will reset quarterly to an interest rate equal to the then current three-month LIBOR (but not less than zero) plus 4.14%, payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year. The Holding Company may, at its option, redeem the notes beginning on December 30, 2023 and on any scheduled interest payment date thereafter. At September 30, 2022, the balance of the subordinated notes, net of unamortized debt issuance costs, was $9,757.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 8 – FHLB ADVANCES AND OTHER DEBT

FHLB advances and other debt were as follows:


	Weighted
	Average Rate	September 30, 2022		December 31, 2021
		(unaudited)
FHLB fixed rate advances:
Maturities:
2022		$	-	$	10,000
2023	0.92%		3,500		3,500
2024	1.46%		18,500		18,500
2026	1.45%		16,000		16,000
2028	3.88%		12,500		-
Thereafter	2.64%		29,500		17,000
Total FHLB fixed rate advances			80,000		65,000

Fixed rate other debt:
FRB PPPLF advances			-		450

Variable rate other debt:
Holding Company credit facility	3.85%		22,803		24,277
Total		$	102,803	$	89,727

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed-rate advances.

Prior to May 21, 2021, the Holding Company had a term loan in the original principal amount of $5,000 with an additional $10,000 revolving line-of-credit with a third-party bank. That credit facility was refinanced into a new $35 million facility on May 21, 2021. The credit facility is revolving until May 21, 2024, at which time any then-outstanding balance will be converted to a 10-year term note on a graduated 10-year amortization. Borrowings on the credit facility bear interest at a fixed rate of 3.85% until May 21, 2026, and the interest rate then converts to a floating rate equal to PRIME with a floor of 3.25%. The purpose of the credit facility is to provide an additional source of liquidity for the Holding Company and to provide funds for the Holding Company to downstream as additional capital to CFBank to support growth. At September 30, 2022, the Company had an outstanding balance, net of unamortized debt issuance costs, of $22,803 on the facility.

At September 30, 2022, CFBank had availability in unused lines of credit at two commercial banks in amounts of $50,000 and $15,000. There were no outstanding borrowings on either line at September 30, 2022 and December 31, 2021. Interest on any principal amounts outstanding from time to time under these lines accrues daily at a variable rate based on the commercial bank’s cost of funds and current market returns.

During 2019, CFBank entered into a $25,000 warehouse facility with a commercial bank. The warehouse facility was used to periodically fund loans held for sale from the close (funding) date until they were sold in the secondary market. Borrowings on the facility bore interest at the greater of (a) the 30-day LIBOR plus 2.00% or (b) 4.00% and were secured by the specific loans that were funded. This warehouse facility, which was closed during the third quarter of 2021, had no outstanding balance at September 30, 2022 and December 31, 2021.

During 2020, CFBank entered into an additional $75,000 warehouse facility with a commercial bank. The purpose of the warehouse facility was to periodically fund loans held for sale from the close (funding) date until sold in the secondary market. Borrowings on the facility bore interest at the greater of (a) the 30-day LIBOR plus 2.35% or (b) 2.90% and were secured by the specific loans that were funded. This warehouse facility, which was closed during the second quarter of 2021, had no outstanding balance at September 30, 2022 and December 31, 2021.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The CARES Act amended the SBA loan program, in which CFBank participates, to create the PPP as a guaranteed, unsecured loan program to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. During 2020, CFBank processed 558 PPP loans totaling approximately $126 million. To support the effectiveness of the PPP, the Federal Reserve Board (the “FRB”) introduced the PPPLF to extend credit to financial institutions that made PPP loans, with the related PPP loans used as collateral on the borrowings. The PPPLF borrowings have a fixed interest rate of 0.35% and a maturity equal to the maturity date of the related PPP loans, with the PPP loans maturing two years from the origination date of the PPP loan. If a PPP loan pays off early, the corresponding PPPLF borrowing must be paid off as well. At September 30, 2022 and December 31, 2021, the principal balance of PPPLF advances outstanding was $0 and $450, respectively. At December 31, 2021, the Company’s PPP loans and related PPPLF funding had a weighted average life of approximately 0.2 years.

There were no outstanding borrowings with the FRB at September 30, 2022. Other than the PPPLF borrowing, there were no outstanding borrowings with the FRB at December 31, 2021.

NOTE 9 – STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans (collectively, the “Plans”), as described below, under which awards are outstanding or may be granted in the future. Total compensation cost that has been charged against income for those Plans totaled $246 and $648, respectively, for the three and nine months ended September 30, 2022 and $171 and $527, respectively, for the three and nine months ended September 30, 2021. The total income tax effect was $52 and $136, respectively, for the three and nine months ended September 30, 2022 and $36 and $111, respectively, for the three months ended September 30, 2021.

Both Plans are stockholder-approved plans and authorize stock option grants and restricted stock awards to be made to directors, officers and employees. The 2009 Equity Compensation Plan (the “2009 Plan”), which was approved by stockholders on May 21, 2009, replaced the Company’s 2003 equity compensation plan (the “2003 Plan”) and provided for 36,363 shares, plus any remaining shares available to grant or that were later forfeited or expired under the 2003 Plan, to be made available to be issued as stock option grants, stock appreciation rights or restricted stock awards. On May 16, 2013, the Company’s stockholders approved the First Amendment to the 2009 Plan to increase the number of shares of common stock reserved for stock option grants and restricted stock awards thereunder to 272,727. The 2009 Plan terminated in accordance with its terms on March 19, 2019 and, as a result, no further awards may be granted under the 2009 Plan.

The 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by stockholders on May 29, 2019, authorizes up to 300,000 shares (plus any shares that are subject to grants under the 2009 Plan and that are later forfeited or expire), to be awarded pursuant to stock options, stock appreciation rights, restricted stock or restricted stock units. There were 115,273 shares remaining available for awards of stock options, stock appreciation rights, restricted stock or restricted stock units under the 2019 Plan at September 30, 2022.

Stock Options:

The Plans permit the grant of stock options to directors, officers and employees of the Holding Company and CFBank. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally have vesting periods ranging from one year to three years, and are exercisable for ten years from the date of grant. Unvested stock options immediately vest upon a change of control.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. Employee and management options are tracked separately. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the nine months ended September 30, 2022 and September 30, 2021. There were 18,180 options exercised during the nine months ended September 30, 2022 and 14,544 options exercised during the nine months ended September 30, 2021.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

A summary of stock option activity in the Plans for the nine months ended September 30, 2022 follows (unaudited):



	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Intrinsic Value
Outstanding at beginning of year	63,992	$	7.43
Exercised	(18,180)		7.27
Expired	-		-
Cancelled or forfeited	-		-
Outstanding at end of period	45,812	$	7.50	0.8	$	601

Exercisable at end of period	45,812	$	7.50	0.8	$	601

During the nine months ended September 30, 2022, there were no stock options canceled, forfeited or expired. Stock options to purchase a total of 1,454 common shares were canceled, forfeited or expired during the nine months ended September 30, 2021. As of September 30, 2022, all stock options granted under the Plans were vested.

Restricted Stock Awards:

The Plans also permit the grant of restricted stock awards to directors, officers and employees. Compensation is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock is determined using the closing share price on the date of grant and shares generally have vesting periods of one year to three years. There were 69,648 shares of restricted stock granted under the Plan during the nine months ended September 30, 2022. There were 69,960 shares of restricted stock granted during the nine months ended September 30, 2021.

A summary of changes in the Company’s nonvested restricted stock awards as of September 30, 2022 follows (unaudited):



Nonvested Shares	Shares	Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2022	89,895	$	16.32
Granted	69,648		21.09
Vested	(30,187)		16.01
Forfeited	(6,431)		20.38
Nonvested at September 30, 2022	122,925	$	18.89

As of September 30, 2022 and 2021, the unrecognized compensation cost related to nonvested restricted stock awards granted under the Plans was $1,731 and $1,233, respectively.

There were 6,431 shares of restricted stock forfeited during the nine month period ended September 30, 2022, and 7,912 shares of restricted stock forfeited during the nine months ended September 30, 2021. There were 30,187 shares of restricted stock that vested during the nine months ended September 30, 2022, and 11,955 shares of restricted stock that vested during the nine months ended September 30, 2021.

NOTE 10 – REGULATORY CAPITAL MATTERS

CFBank is subject to regulatory capital requirements administered by federal banking agencies. Prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications for banking organizations: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a banking organization is classified as adequately capitalized, regulatory approval is required to accept brokered deposits. If a banking organization is classified as undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

In July 2013, the Holding Company’s primary federal regulator, the FRB, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee's December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules provide higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place. In addition, in order to avoid limitations on capital distributions, such as dividend payments and certain bonus payments to executive officers, the Basel III Capital Rules require insured financial institutions to hold a capital conservation buffer of common equity tier 1 capital above the minimum risk-based capital requirements. The capital conservation buffer was phased in over time, became fully effective on January 1, 2019, and consists of an additional amount of common equity equal to 2.5% of risk-weighted assets. The Basel III Capital Rules revise the regulatory agencies' prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of common equity. The Basel III Capital Rules became effective for CFBank on January 1, 2015, and were fully phased in effective January 1, 2019. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”).

The Basel III Capital Rules require CFBank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%.

The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.

The following tables present actual and required capital ratios as of September 30, 2022 and December 31, 2021 for CFBank under the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


	Actual			Minimum Capital Required-Basel III Fully Phased-In			To Be Well Capitalized Under Applicable ‎Regulatory Capital Standards
	Amount		Ratio	Amount		Ratio	Amount		Ratio
September 30, 2022 (unaudited)
Total Capital to risk weighted assets	$	181,560	12.78%	$	149,183	10.50%	$	142,079	10.00%
Tier 1 (Core) Capital to risk weighted assets		165,484	11.65%		120,767	8.50%		113,663	8.00%
Common equity tier 1 capital to risk-weighted assets		165,484	11.65%		99,455	7.00%		92,351	6.50%
Tier 1 (Core) Capital to adjusted total assets (Leverage ratio)		165,484	10.00%		66,163	4.00%		82,704	5.00%


	Actual			Minimum Capital Required-Basel III Fully Phased-In			To Be Well Capitalized Under Applicable ‎Regulatory Capital Standards
	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2021
Total Capital to risk weighted assets	$	170,392	14.02%	$	127,588	10.50%	$	121,512	10.00%
Tier 1 (Core) Capital to risk weighted assets		155,195	12.77%		103,286	8.50%		97,210	8.00%
Common equity tier 1 capital to risk-weighted assets		155,195	12.77%		85,059	7.00%		78,983	6.50%
Tier 1 (Core) Capital to adjusted total assets (Leverage ratio)		155,195	11.29%		54,984	4.00%		68,730	5.00%

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

CFBank converted from a mutual to a stock institution in 1998, and a “liquidation account” was established in the amount of $14,300, which was the net worth reported in the conversion prospectus. The liquidation account represents a calculated amount for the purposes described below, and it does not represent actual funds included in the consolidated financial statements of the Company. Eligible depositors who have maintained their accounts, less annual reductions to the extent they have reduced their deposits, would be entitled to a priority distribution from this account if CFBank liquidated and its assets exceeded its liabilities. Dividends may not reduce CFBank’s stockholder’s equity below the required liquidation account balance.

Dividend Restrictions:

Banking regulations require us to maintain certain capital levels and may limit the dividends paid by CFBank to the Holding Company or by the Holding Company to stockholders. The ability of the Holding Company to pay dividends on its stock is dependent upon the amount of cash and liquidity available at the Holding Company level, as well as the receipt of dividends and other distributions from CFBank to the extent necessary to fund such dividends. The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. The Holding Company also is subject to various legal and regulatory policies and guidelines impacting the Holding Company’s ability to pay dividends on its stock. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities. Finally, under the terms of the Holding Company’s fixed-to-floating rate subordinated debt, the Holding Company’s ability to pay dividends on its stock is conditioned upon the Holding Company continuing to make required principal and interest payments, and not incurring an event of default, with respect to the subordinated debt.

Additionally, CFBank does not intend to make distributions to the Holding Company that would result in a recapture of any portion of its thrift bad debt reserve as discussed in Note 12-Income Taxes.

NOTE 11 – DERIVATIVE INSTRUMENTS

Interest-rate swaps:

CFBank utilizes interest-rate swaps as part of its asset/liability management strategy to help manage its interest rate risk position, and does not use derivatives for trading purposes. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements. CFBank was party to interest-rate swaps with a combined notional amount of $36,438 at September 30, 2022 and $44,887 at December 31, 2021.

The objective of the interest-rate swaps is to protect the related fixed-rate commercial real estate loans from changes in fair value due to changes in interest rates. CFBank has a program whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision, which will be invoked in the event of prepayment of the loan, and is expected to exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded derivative which is bifurcated from the host loan contract and, as such, the swaps and embedded derivatives are not designated as hedges. Accordingly, both instruments are carried at fair value and changes in fair value are reported in current period earnings. CFBank currently does not have any derivatives designated as hedges.

The counterparty to CFBank’s interest-rate swaps is exposed to credit risk whenever the interest-rate swaps are in a liability position. At September 30, 2022, CFBank had $2,744 in cash pledged as collateral for these derivatives. Should the liability increase beyond the collateral value, CFBank will be required to pledge additional collateral.

Additionally, CFBank’s interest-rate swap instruments contain provisions that require CFBank to remain well capitalized under regulatory capital standards and to comply with certain other regulatory requirements. The interest-rate swaps may be called by the counterparty if CFBank fails to maintain well-capitalized status under regulatory capital standards or becomes subject to certain adverse regulatory events such as a regulatory cease and desist order. As of September 30, 2022, CFBank was well-capitalized under regulatory capital standards and was not subject to any adverse regulatory events specified in CFBank’s interest-rate swap instruments.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Summary information about the derivative instruments is as follows:



	September 30, 2022		December 31, 2021
	(unaudited)
Notional amount	$	36,438	$	44,887
Weighted average pay rate on interest-rate swaps		4.21%		4.21%
Weighted average receive rate on interest-rate swaps		5.48%		3.00%
Weighted average maturity (years)		6.3		6.9
Fair value of derivative asset	$	4,316	$	538
Fair value of yield derivative liability		(4,316)		(538)

The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other liabilities, respectively, in the consolidated balance sheet. Changes in the fair value of the yield maintenance provisions and interest-rate swaps are reported currently in earnings, as other noninterest income in the consolidated statements of income. There were no net gains or losses recognized in earnings related to yield maintenance provisions and interest-rate swaps for the nine months ended September 30, 2022 or 2021.

Mortgage banking derivatives:

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market are considered derivatives. These mortgage banking derivatives are not designated in hedge relationships. During the second quarter of 2022, we exited the direct-to-consumer mortgage business in favor of portfolio lending in our regional markets with servicing retained. The Company had no interest lock commitments related to residential mortgage loans at September 30, 2022 and approximately $50,312 of interest rate lock commitments related to residential mortgage loans at December 31, 2021. The fair value was reflected by a derivative asset of $555 at December 31, 2021, which was included in other assets in the consolidated balance sheet. Fair values were estimated based on anticipated gains on the sale of the underlying loans. Changes in the fair values of these mortgage banking derivatives are included in net gains on sales of loans.

Mortgage banking activities included two types of commitments: rate lock commitments and forward loan commitments. Rate lock commitments were loans in our pipeline that had an interest rate locked with the customer. The commitments were generally for periods of 30-60 days and were at market rates. In order to mitigate the effect of the interest rate risk inherent in providing rate lock commitments, we economically hedged our commitments by entering into either a forward loan sales contract under best efforts or a trade of “to be announced (TBA)” mortgage-backed securities (“notional securities”) for mandatory delivery. The Company had $0 and approximately $53,250 of TBA mortgage-backed securities at September 30, 2022 and December 31, 2021, respectively. The fair value of the TBA mortgage-backed securities at December 31, 2021 was ($73) and is included in other liabilities in the consolidated balance sheet. The changes in fair value related to movements in market rates of the rate lock commitments and the forward loan sales contracts and notional securities generally move in opposite directions, and the net impact of changes in these valuations on net income during the loan commitment period is generally inconsequential. The Company has not formally designated these derivatives as a qualifying hedge relationship and, accordingly, accounts for such forward contracts as freestanding derivatives with changes in fair value recorded to earnings each period.

The following table reflects the amount and market value of mortgage banking derivatives included in the consolidated balance sheet as of the period end (in thousands):


	September 30, 2022				December 31, 2021
	(unaudited)
	Notional Amount		Fair Value		Notional Amount		Fair Value
Assets (Liabilities):
Interest rate commitments	$	-	$	-	$	50,312	$	555
TBA mortgage-back securities		-		-		53,250		(73)

‎

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table represents the notional amount of loans sold during the three and nine months ended September 30, 2022 and 2021 (unaudited):


	Three Months ended				Nine Months ended
	September 30,				September 30,
	2022		2021		2022		2021
Notional amount of loans sold	$	-	$	498,968	$	94,548	$	2,228,104

The following table represents the revenue recognized on mortgage activities for the three and nine months ended September 30, 2022 and 2021 (unaudited):


	Three Months ended				Nine Months ended
	September 30,				September 30,
	2022		2021		2022		2021
Gain (loss) on loans sold		-		6,415		(42)		20,621
Gain (loss) from change in fair value of loans held-for-sale		-		(1,916)		(356)		(7,841)
Gain (loss) from change in fair value of derivatives		-		(4,767)		1,076		(7,432)
	$	-	$	(268)	$	678	$	5,348

NOTE 12 – INCOME TAXES

At September 30, 2022, the Company had a deferred tax asset recorded in the amount of approximately $4,438. At December 31, 2021, the Company had a deferred tax asset recorded of approximately $4,044. At September 30, 2022 and December 31, 2021, the Company had no unrecognized tax benefits recorded. The Company is subject to U.S. federal income tax and is no longer subject to federal examination for years prior to 2018.

Our deferred tax assets are composed of U.S. net operating losses (“NOLs”), and other temporary book to tax differences. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined as of September 30, 2022 that no valuation allowance was required against the net deferred tax asset.

In 2012, the Company completed a recapitalization program pursuant to which the Holding Company sold $22,500 in common stock, which improved the capital levels of CFBank and provided working capital for the Holding Company. The result of the change in stock ownership associated with the stock offering, however, was that the Company incurred an ownership change within the guidelines of Section 382 of the Internal Revenue Code of 1986. At September 30, 2022, the Company had net operating loss carryforwards of $22,253, which expire at various dates from 2024 to 2032. As a result of the ownership change, the Company's ability to utilize carryforwards that arose before the 2012 stock offering closed is limited to $163 per year. Due to this limitation, management determined it is more likely than not that $20,520 of net operating loss carryforwards will expire unutilized. As required by accounting standards, the Company reduced the carrying value of deferred tax assets, and the corresponding valuation allowance, by the $6,977 tax effect of this lost realizability.

Federal income tax laws provided additional deductions, totaling $2,250, for thrift bad debt reserves established before 1988. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would have totaled $473 at year-end 2021. However, if CFBank were wholly or partially liquidated or otherwise ceases to be a bank, or if tax laws were to change, this amount would have to be recaptured and a tax liability recorded. Additionally, any distributions in excess of CFBank’s current or accumulated earnings and profits would reduce amounts allocated to its bad debt reserve and create a tax liability for CFBank.

The Company records income tax expense based on the federal statutory rate adjusted for the effect of low income housing credits, bank owned life insurance, dividends on equity securities and other miscellaneous items. The effective tax rate was approximately 19.4% and 19.2%, respectively, for the three and nine months ended September 30, 2022 and 19.5% and 19.0%, respectively, for the three and nine months ended September 30, 2021, which management believes were reasonable estimates for the effective tax rates for such periods.

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CF BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The following table summarizes the major components creating differences between income taxes at the federal statutory tax rate and the effective tax rate recorded in the consolidated statements of income for the three and nine months ended September 30, 2022 and 2021:


	For the three months ended ‎September 30,		For the nine months ended ‎September 30,
	2022	2021	2022	2021
	(unaudited)		(unaudited)
Statutory tax rate	21.0%	21.0%	21.0%	21.0%
Increase (decrease) resulting from:
Restricted stock	-	(0.1%)	(0.3%)	(0.3%)
Tax exempt earnings on bank owned life insurance	(0.6%)	(0.5%)	(0.6%)	(0.4%)
Gain on redemption of life insurance policies	-	-	-	(0.4%)
Dividends on equity securities	(0.2%)	(0.2%)	(0.2%)	(0.2%)
Low income housing credits	(0.9%)	(0.8%)	(0.8%)	(0.7%)
Other, net	0.1%	0.1%	0.1%	-
Effective tax rate	19.4%	19.5%	19.2%	19.0%

NOTE 13- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes within each classification of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2022 and 2021 and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income (loss):


Changes in Accumulated Other Comprehensive Income (Loss) by Component ⁽¹⁾

	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
	Unrealized Gains and Losses on Available-for-Sale Securities				Unrealized Gains and Losses on Available-for-Sale Securities

Accumulated other comprehensive income (loss), beginning of period	$	(1,437)	$	50	$	(170)	$	96
Other comprehensive loss before reclassifications ⁽²⁾		(217)		(13)		(1,484)		(59)
Net current-period other comprehensive loss		(217)		(13)		(1,484)		(59)
Accumulated other comprehensive income (loss), end of period	$	(1,654)	$	37	$	(1,654)	$	37

⁽¹⁾All amounts are net of tax. Amounts in parentheses indicate a reduction of other comprehensive income.

⁽²⁾There were no amounts reclassified out of other comprehensive income for the three months ended September 30, 2022 and 2021.

NOTE 14 - PREFERRED STOCK

On October 25, 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors in a private placement for an aggregate offering price of approximately $25 million, pursuant to which on October 31, 2019, the Holding Company sold shares of the Company’s common stock and shares of a new series of the Company’s Non-Voting Convertible Perpetual Preferred Stock, Series C, par value $0.01 per share (the “Series C Preferred Stock”).

Effective as of the close of business on May 28, 2020, all outstanding shares of the Company’s Series C Preferred Stock were converted into shares of a newly-authorized class of Non-Voting Common Stock of the Company following approval of an amendment to the Company’s Certificate of Incorporation, as amended, by the stockholders of the Company. As of September 30, 2022, there were no shares of Series C Preferred Stock outstanding and an aggregate of 1,260,700 shares of Non-Voting Common Stock outstanding.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

NOTE 15- BRANCH SALE

On December 29, 2020, CFBank entered into a Branch Purchase and Assumption Agreement (the “P&A Agreement”) with Consumers National Bank (“Consumers”) providing for the acquisition by Consumers of two branches of CFBank in Columbiana County, Ohio – CFBank’s drive-up branch location in Wellsville, Ohio and CFBank’s branch location in Calcutta, Ohio (the “Branches”).

On July 16, 2021, CFBank completed its sale of the Branches to Consumers. Pursuant to the terms of the P&A Agreement, Consumers assumed certain deposit liabilities and acquired certain loans, as well as cash, real property, personal property and other fixed assets associated with the Branches.

During the third quarter of 2021, the Company recognized a combined gain on sale of deposits of $1.9 million related to the sale of the Branches.

NOTE 16- OTHER ASSETS HELD FOR SALE

During the three months ended September 30, 2022, the Company began marketing its Worthington headquarters building for sale as it prepared to move its headquarters to New Albany, Ohio. During September 2022, the Company verbally accepted an offer for $2,010. As a result, impairment expense of $542 was recorded during September 2022 to adjust the building and land value to the offered price, less costs to sell and the associated assets were transferred to other assets held for sale on the consolidated balance sheet.

NOTE 17 – SUBSEQUENT EVENTS

On October 4, 2022, the Company’s Board of Directors declared a Cash Dividend of $0.05 per share payable on October 25, 2022 to shareholders of record as of the close of business on October 14, 2022.

In October 2022, we opened two new banking locations, Ohio City (Cleveland) and Red Bank (Cincinnati), after opening full-service Retail branches in Polaris (Columbus, Ohio) and Indianapolis earlier this year.

On October 25, 2022 the Company entered into a contract to sell its building in Worthington with an anticipated close date in the first quarter of 2023.

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FORWARD LOOKING STATEMENTS

This quarterly report 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. (the “Holding Company”) or CFBank, National Association (“CFBank” and, together with the Holding Company, the “Company”); (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, those 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, 2021, as supplemented by “Item 1A. Risk Factors” of Part II of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022.

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 quarterly report speak only as of the date of the report. 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.

Business Overview

The Holding Company is a financial holding company that owns 100% of the stock of CFBank, which was formed in Ohio in 1892 and converted from a federal savings association to a national bank on December 1, 2016. Prior to December 1, 2016, the Holding Company was a registered savings and loan holding company. Effective as of December 1, 2016 and in conjunction with the conversion of CFBank to a national bank, the Holding Company became a registered bank holding company and elected financial holding status with the Federal Reserve Board (the “FRB”). Effective as of July 27, 2020, the Company changed its name from Central Federal Corporation to CF Bankshares Inc.

CFBank focuses on serving the financial needs of closely held businesses and entrepreneurs, by providing comprehensive Commercial, Retail, and Mortgage Lending services presence. In all regional markets, CFBank provides commercial loans and equipment leases, commercial and residential real estate loans and treasury management depository services, residential mortgage lending, and full-service commercial and retail banking services and products. CFBank is differentiated by our penchant for individualized service coupled with direct customer access to decision-makers, and ease of doing business. CFBank matches the sophistication of much larger banks, without the bureaucracy.

Most of our deposits and loans come from our market areas. Our principal market area for loans and deposits includes the following counties: Franklin County, Ohio through our office in Worthington, Ohio and our loan production office in Columbus, Ohio; Delaware County, Ohio through our Polaris office in Columbus, Ohio; Hamilton County, Ohio through our offices in Glendale and Blue Ash, Ohio; Cuyahoga County, Ohio, through our office in Woodmere, Ohio; Summit County, Ohio through our office in Fairlawn, Ohio; and Marion County, Indiana through our office in Indianapolis. In addition, we opened two new banking offices in Ohio City (Cleveland) and Red Bank (Cincinnati) in October 2022. Because of CFBank’s concentration of business activities in Ohio, the Company’s financial condition and results of operations depend in large part upon economic conditions in Ohio.

COVID-19 Impact. The World Health Organization declared the coronavirus COVID-19 a pandemic in March 2020. COVID-19 negatively impacted global, national and local economies, disrupted global and national supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. While the direct impacts related to the COVID-19 pandemic have waned, certain economic concerns remain due to the continued disruption of supply chains, workforce shortages, rising inflationary pressures and the prospects of recession. In addition, a resurgence in the spread of COVID-19, including new variants thereof, or a new pandemic could result in similar, or potentially greater, impacts in the future which could adversely affect our business, financial condition, liquidity, and results of operations.

During the COVID-19 pandemic, we assisted numerous existing and new customers through our participation in the Paycheck Protection Program (“PPP”) and by providing temporary loan modifications to loan customers. CFBank originated approximately $126 million of PPP loans during the second quarter of 2020 to over 550 borrowers. The PPP loans provided low interest rates (1%) and potentially forgivable funds to small businesses and are fully guaranteed by the SBA, warranting no credit loss provision. Using the PPP loans as collateral, CFBank funded nearly all of the PPP loans through loans obtained under the FRB’s Paycheck Protection

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Program Liquidity Facility (“PPPLF”), which carried a low interest rate of 0.35%. CFBank’s loans outstanding through the PPP totaled $50,000 at September 30, 2022 and $450,000 at December 31, 2021. PPP loans are given a zero risk-weight in regulatory risk-based capital ratios. Also, to the extent the PPP loans are funded through the PPPLF, they are also excluded from average assets for purposes of calculating CFBank’s regulatory leverage ratio. Since the pandemic started, CFBank has granted payment deferrals on loans totaling approximately $100 million (or approximately 12% of outstanding loan balances). At September 30, 2022, there were no remaining loans on payment deferrals.

Repositioning of Residential Mortgage Business Model. In early 2021, a shift in the mortgage industry resulted in significantly fewer refinance opportunities and lower margins on residential mortgage loans. In response, the Company strategically scaled down and repositioned its Residential Mortgage Business and exited the direct-to-consumer mortgage business in favor of portfolio lending in our regional markets with servicing retained. Our Commercial Banking Business continues to experience strong growth and has become the primary driver of our earnings and performance.

General

Our net income is dependent primarily on net interest income, which is the difference between the interest income earned on loans and securities and our cost of funds, consisting of interest paid on deposits and borrowed funds. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand, the level of nonperforming assets and deposit flows.

Net income is also affected by, among other things, provisions for loan and lease losses, loan fee income, service charges, gains on loan sales, operating expenses, and taxes. Operating expenses principally consist of employee compensation and benefits, occupancy, advertising and marketing, data processing, professional fees, FDIC insurance premiums and other general and administrative expenses. Our results of operations are significantly affected by general economic and competitive conditions, changes in market interest rates and real estate values, government policies and actions of regulatory authorities. Our regulators have extensive discretion in their supervisory and enforcement activities, including the authority to impose restrictions on our operations, to classify our assets and to require us to increase the level of our allowance for loan and lease losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our business, financial condition, results of operations and/or cash flows.

Management’s discussion and analysis represents a review of our consolidated financial condition and results of operations for the periods presented. This review should be read in conjunction with our consolidated financial statements and related notes.

Financial Condition

General. Assets totaled $1.8 billion at September 30, 2022 and increased $268.5 million, or 18.0%, from $1.5 billion at December 31, 2021. The increase was primarily due to a $259.7 million increase in net loan balances and a $31.5 million increase in cash and cash equivalents, partially offset by a $28.0 million decrease in loans held for sale.

Cash and cash equivalents. Cash and cash equivalents totaled $198.1 million at September 30, 2022, and increased $31.5 million, or 18.9%, from $166.6 million at December 31, 2021. The increase in cash and cash equivalents was primarily attributed to an increase in net deposit balances, an increase in FHLB advances and other debt, securities maturities and a decrease in loans held for sale, partially offset by increases in net loan balances.

Securities. Securities available for sale totaled $11.4 million at September 30, 2022, and decreased $4.9 million, or 30.0%, compared to $16.3 million at December 31, 2021. The decrease was due to principal maturities and unrealized losses.

Loans held for sale. Loans held for sale totaled $0 at September 30, 2022 and decreased $28.0 million, or 100.0%, from $28.0 million at December 31, 2021. The decrease is the result of the Company’s decision to exit the direct-to-consumer mortgage business in favor of portfolio lending in our regional markets with servicing retained.

Loans and Leases. Net loans and leases totaled $1.5 billion at September 30, 2022, and increased $259.7 million, or 21.4%, from $1.2 billion at December 31, 2021. The increase in net loans was primarily due to a $92.7 million increase in single-family residential loan balances, a $78.3 million increase in commercial loan balances, a $46.6 million increase in construction loan balances, a $20.9 million increase in multi-family loan balances, a $16.3 million increase in commercial real estate loan balances, and a $5.3 million increase in home equity lines of credit. The increases in the aforementioned loan balances were related to increased sales activity and new relationships.

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Allowance for loan and lease losses (ALLL). The allowance for loan and lease losses totaled $15.7 million at September 30, 2022, and increased $179,000, or 1.2%, from $15.5 million at December 31, 2021. The increase in the ALLL is due to $150,000 in provision expense and net recoveries during the nine months ended September 30, 2022. The ratio of the ALLL to total loans was 1.05% at September 30, 2022, compared to 1.26% at December 31, 2021.

The ALLL is a valuation allowance for probable incurred credit losses. The ALLL methodology is designed as part of a thorough process that incorporates management’s current judgments about the credit quality of the loan portfolio into a determination of the ALLL in accordance with generally accepted accounting principles and supervisory guidance. Management analyzes the adequacy of the ALLL quarterly through reviews of the loan portfolio, including the nature and volume of the loan portfolio and segments of the portfolio; industry and loan concentrations; historical loss experience; delinquency statistics and the level of nonperforming loans; specific problem loans; the ability of borrowers to meet loan terms; an evaluation of collateral securing loans and the market for various types of collateral; various collection strategies; current economic conditions, trends and outlook; and other factors that warrant recognition in providing for an adequate ALLL. Based on the variables involved and the significant judgments management must make about outcomes that are uncertain, the determination of the ALLL is considered to be a critical accounting policy. See the section titled “Critical Accounting Policies” for additional discussion.

The ALLL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Substandard loans of all classes within the commercial, commercial real estate, construction and multi-family residential loan segments, regardless of size, are individually evaluated for impairment when they are 90 days past due, or earlier than 90 days past due if information regarding the payment capacity of the borrower indicates that payment in full according to the loan terms is doubtful. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance loans, such as consumer and single-family residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Loans within any class for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and are classified as impaired. See Notes 1 and 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the ALLL.

Individually evaluated impaired loans totaled $203,000 at September 30, 2022, and decreased $2.8 million, or 93.2%, from $3.0 million at December 31, 2021. The decrease was primarily due to the payoffs of three impaired loans during the nine months ended September 30, 2022. The amount of the ALLL specifically allocated to individually impaired loans totaled $178 at September 30, 2022 and $20,000 at December 31, 2021.

The specific reserve on impaired loans is based on management’s estimate of the present value of estimated future cash flows using the loan’s effective rate or the fair value of collateral, if repayment is expected solely from the collateral. On at least a quarterly basis, management reviews each impaired loan to determine whether it should have a specific reserve or partial charge-off. Management relies on appraisals or internal evaluations to help make this determination. Determination of whether to use an updated appraisal or internal evaluation is based on factors including, but not limited to, the age of the loan and the most recent appraisal, condition of the property and whether we expect the collateral to go through the foreclosure or liquidation process. Management considers the need for a downward adjustment to the valuation based on current market conditions and on management’s analysis, judgment and experience. The amount ultimately charged-off for these loans may be different from the specific reserve, as the ultimate liquidation of the collateral and/or projected cash flows may be different from management’s estimates.

Nonperforming loans, which are nonaccrual loans and loans at least 90 days past due but still accruing interest, totaled $1.0 million at September 30, 2022, and increased $7,000 from $997,000 at December 31, 2021. The increase was primarily due to two equipment finance leases going into nonaccrual in the third quarter of 2022, partially offset by one consumer loan paying off in the second quarter of 2022 and principal payments. The ratio of nonperforming loans to total loans was 0.07% at September 30, 2022 compared to 0.08% at December 31, 2021.

Nonaccrual loans include some loans that were modified and identified as TDRs and are not performing. TDRs included in nonaccrual loans totaled $107,000 at September 30, 2022 and $147,000 at December 31, 2021.

Nonaccrual loans at September 30, 2022 and December 31, 2021 do not include $96,000 and $2.8 million, 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. See Notes 1 and 4 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding impaired loans and nonperforming loans.

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The general reserve component of our ALLL covers non-impaired loans of all classes and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by loan class and is based on the actual loss history experienced by CFBank over a three-year period. The general component is calculated based on CFBank’s loan balances and actual three-year historical loss rates. For loans with little or no actual loss experience, industry estimates are used based on loan segment. This actual loss experience is supplemented with other economic and judgmental factors based on the risks present for each loan class. These economic and judgmental factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

Management’s loan review process is an integral part of identifying problem loans and determining the ALLL. We maintain an internal credit rating system and loan review procedures specifically developed as the primary credit quality indicator to monitor credit risk for commercial, commercial real estate and multi-family residential real estate loans. We analyze these loans individually and categorize 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. Credit reviews for these loan types are generally performed at least annually, and more often for loans with higher credit risk. Loan officers maintain close contact with borrowers between reviews. Adjustments to loan risk ratings are based on the reviews and at any time information is received that may affect risk ratings. Additionally, an independent third party review of commercial, commercial real estate and multi-family residential loans is performed at least annually. Management uses the results of these reviews to help determine the effectiveness of the existing policies and procedures and to provide an independent assessment of our internal loan risk rating system.

We have incorporated the regulatory asset classifications as a part of our credit monitoring and internal loan risk rating system. In accordance with regulations, problem loans are classified as special mention, substandard, doubtful or loss, and the classifications are subject to review by the regulators. Assets designated as special mention are considered criticized assets. Assets designated as substandard, doubtful or loss are considered classified assets. See Note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the regulatory asset classifications.

The level of total criticized and classified loans decreased by $2.8 million, or 44.8%, during the nine months ended September 30, 2022. Loans designated as special mention decreased $26,000, or 1.1%, and totaled $2.4 million at September 30, 2022. Loans classified as substandard decreased $2.7 million, or 75.0%, and totaled $897,000 at September 30, 2022, compared to $3.6 million at December 31, 2021. Loans designated as doubtful decreased $40,000, or 27.2%, and totaled $107,000 at September 30, 2022, compared to $147,000 at December 31, 2021. See Note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding risk classification of loans.

In addition to credit monitoring through our internal loan risk rating system, we also monitor past due information for all loan segments. Loans that are not rated under our internal credit rating system include groups of homogenous loans, such as single-family residential real estate loans and consumer loans. The primary credit indicator for these groups of homogenous loans is past due information.

Total past due loans decreased $2.3 million and totaled $1.3 million at September 30, 2022, compared to $3.6 million at December 31, 2021. Past due loans totaled 0.1% of the loan portfolio at September 30, 2022, compared to 0.3% at December 31, 2021. See Note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding loan delinquencies.

All lending activity involves risk of loss. Certain types of loans, such as option adjustable-rate mortgage (ARM) products, junior lien mortgages, high loan-to-value ratio mortgages, interest only loans, subprime loans and loans with initial teaser rates, can have a greater risk of non-collection than other loans. CFBank has not engaged in subprime lending or used option ARM products.

Loans that contain interest only payments may present a higher risk than those loans with an amortizing payment that includes periodic principal reductions. Interest only loans are primarily commercial lines of credit secured by business assets and inventory, and consumer home equity lines of credit secured by the borrower’s primary residence. Due to the fluctuations in business assets and inventory of our commercial borrowers, CFBank has increased risk due to a potential decline in collateral values without a corresponding decrease in the outstanding principal. Interest only commercial lines of credit totaled $117.8. million, or 28.4%, of CFBank’s commercial portfolio at September 30, 2022, compared to $120.1 million, or 35.6%, at December 31, 2021. Interest only home equity lines of credit totaled $28.3 million, or 95.6%, of the total home equity lines of credit at September 30, 2022 compared to $23.9 million, or 98.7%, at December 31, 2021.

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We believe the ALLL is adequate to absorb probable incurred credit losses in the loan portfolio as of September 30, 2022; however, future additions to the allowance may be necessary based on factors including, but not limited to, deterioration in client business performance, recessionary economic conditions, declines in borrowers’ cash flows and market conditions which result in lower real estate values, including any of the foregoing that may result from the ongoing COVID-19 pandemic and/or the effects of various governmental responses to the pandemic, including stimulus packages and programs. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. Such agencies may require additional provisions for loan losses based on judgments and estimates that differ from those used by management, or on information available at the time of their review. Management continues to diligently monitor credit quality in the existing portfolio and analyze potential loan opportunities carefully in order to manage credit risk. An increase in loan losses could occur if economic conditions and factors which affect credit quality, real estate values and general business conditions worsen or do not improve.

Foreclosed assets. The Company held no foreclosed assets at September 30, 2022 or December 31, 2021. The level of foreclosed assets and charges to foreclosed assets expense may change in the future in connection with workout efforts related to foreclosed assets, nonperforming loans and other loans with credit issues.

Deposits. Deposits totaled $1.5 billion at September 30, 2022, an increase of $243.6 million, or 19.6%, when compared to $1.2 billion at December 31, 2021. The increase when compared to December 31, 2021 is primarily due to a $242.0 million increase in money market account balances, which included several new Public Funds deposit relationships totaling approximately $147 million, and a $15.5 million increase in certificate of deposit account balances, partially offset by a $12.9 million decrease in checking account balances. Noninterest-bearing deposit accounts decreased $14.0 million from $284.9 million at December 31, 2021 to $270.9 million at September 30, 2022.

CFBank is a participant in the Certificate of Deposit Account Registry Service® (CDARS) and Insured Cash Sweep (ICS) programs offered through Promontory Interfinancial Network. Promontory works with a network of banks to offer products that can provide FDIC insurance coverage in excess of $250,000 through these innovative products. Brokered deposits, including CDARS and ICS deposits that qualify as brokered, totaled $296.8 million at September 30, 2022, and increased $18.7 million, or 6.7%, from $278.1 million at December 31, 2021. Customer balances in the CDARS reciprocal and ICS reciprocal programs, which do not qualify as brokered, totaled $151.2 million at September 30, 2022 and increased $92.8 million, or 159.1%, from $58.4 million at December 31, 2021.

FHLB advances and other debt. FHLB advances and other debt totaled $102.8 million at September 30, 2022 and increased $13.1 million, or 14.6%, compared to $89.7 million at December 31, 2021. The increase was due to a $15.0 million increase in FHLB advances, partially offset by net reductions of $1.5 million on the Holding Company’s line of credit.

Prior to May 21, 2021, the Holding Company had a term loan in the original principal amount of $5.0 million with an additional $10.0 million revolving line-of-credit with a third-party bank. That credit facility was refinanced into a new $35.0 million facility on May 21, 2021. The credit facility is revolving until May 21, 2024, at which time any then-outstanding balance is converted to a 10-year term note on a graduated 10-year amortization. Borrowings on the credit facility bear interest at a fixed rate of 3.85% until May 21, 2026, and the interest rate then converts to a floating rate equal to PRIME with a floor of 3.25%. The purpose of the credit facility is to provide an additional source of liquidity for the Holding Company and to provide funds for the Holding Company to downstream as additional capital to CFBank to support growth. As of September 30, 2022, the Company had an outstanding balance of $22.8 million on the facility.

At September 30, 2022, CFBank had availability in unused lines of credit at two commercial banks in the amounts of $50.0 million and $15.0 million. There were no outstanding borrowings on either line at September 30, 2022 or December 31, 2021.

CFBank participated in the PPPLF, which provides liquidity through term financing backed by PPP loans. Principal payments are due on PPPLF advances when the related PPP loans are repaid or forgiven by the SBA. CFBank had no outstanding balance on PPPLF advances at September 30, 2022 and an outstanding principal balance on PPPLF advances of $450,000 at December 31, 2021. See the section titled “Liquidity and Capital Resources” for additional information regarding FHLB advances and other debt.

Subordinated debentures. Subordinated debentures totaled $14.9 million at September 30, 2022 and $14.9 million at December 31, 2021. In December 2018, the Holding Company entered into subordinated note purchase agreements with certain qualified institutional buyers and completed a private placement of $10.0 million of fixed-to-floating rate subordinated notes, resulting in net proceeds of $9,612,000 after deducting unamortized debt issuance costs of approximately $388,000. In 2003, the Holding Company issued subordinated debentures in exchange for the proceeds of a $5.0 million trust preferred securities offering issued by a trust formed by the Holding Company. The terms of the subordinated debentures allow for the Holding Company to defer interest payments for a period not to exceed five years. Interest payments on the subordinated debentures were current at September 30, 2022 and December 31, 2021.

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Stockholders’ equity. Stockholders’ equity totaled $134.9 million at September 30, 2022, an increase of $9.6 million, or 7.6%, from $125.3 million at December 31, 2021. The increase in total stockholders’ equity was primarily attributed to net income, partially offset by share repurchases of $2.3 million and a $1.5 million other comprehensive loss. The other comprehensive loss was the result of the mark-to-market adjustment of our investment portfolio.

Management continues to proactively monitor capital levels and ratios in its on-going capital planning process. CFBank has leveraged its capital to support balance sheet growth and drive increased net interest income. Management remains focused on growing capital though earnings; however, should the need arise, CFBank has additional sources of capital and alternatives it could utilize as further discussed in the “Liquidity and Capital Resources” section in this Quarterly Report on Form 10-Q.

Currently, the Holding Company has excess cash or sources of liquidity to cover its expenses for the foreseeable future, and could inject capital into CFBank if necessary. Also, CFBank has the flexibility to manage its balance sheet size as a result of the short duration of the loans held for sale, as well as to deploy those assets into higher earning assets to improve net interest income as the opportunity presents itself.

Comparison of the Results of Operations for the Three Months Ended September 30, 2022 and 2021.

General. Net income for the three months ended September 30, 2022 totaled $4.2 million (or $0.65 per diluted common share) and increased $173,000, or 4.2%, compared to net income of $4.1 million (or $0.61 per diluted common share) for the three months ended September 30, 2021. The increase in net income was primarily the result of an increase in net interest income, partially offset by an increase in other noninterest expense and a decrease in noninterest income.

Net interest income. Net interest income is a significant component of net income, and consists of the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. The tables in the sections below titled “Average Balances, Interest Rates and Yields” and “Rate/Volume Analysis of Net Interest Income” provide important information on factors impacting net interest income and should be read in conjunction with this discussion of net interest income.

Net interest income totaled $13.3 million for the quarter ended September 30, 2022 and increased $2.9 million, or 27.9%, compared to net interest income of $10.4 million for the quarter ended September 30, 2021. The increase in net interest income was primarily due to a $5.3 million, or 41.7%, increase in interest income, partially offset by a $2.4 million, or 104.8%, increase in interest expense. The increase in interest income was primarily attributed to a 62bps increase in the average yield on interest-earning assets, coupled with a $286.2 million, or 22.1%, increase in average interest-earning assets outstanding. The increase in interest expense was attributed to a 57bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $267.6 million, or 27.3%, increase in average interest-bearing liabilities. The net interest margin of 3.36% for the quarter ended September 30, 2022 increased 15bps compared to the net interest margin of 3.21% for the third quarter of 2021.

Interest income totaled $18.0 million for the quarter ended September 30, 2022, and increased $5.3 million, or 41.7%, compared to $12.7 million for the quarter ended September 30, 2021. The increase in interest income was primarily attributed to a 69bps increase in the average yield on loans and leases and loans held for sale, coupled with a $200.5 million, or 16.4% increase in average loans and leases outstanding and loans held for sale.

Interest expense totaled $4.7 million for the quarter ended September 30, 2022, and increased $2.4 million, or 104.8%, compared to $2.3 million for the quarter ended September 30, 2021. The increase in interest expense was primarily attributed to a 60bps increase in the average rate of interest-bearing deposits, coupled with a $242.1 million, or 26.5%, increase in average interest-bearing deposits.

Provision for loan and lease losses. There was $150,000 in provision for loan and lease losses expense for the quarter ended September 30, 2022 and no provision for the quarter ended September 30, 2021. Net recoveries for the quarter ended September 30, 2022 totaled $5,000, compared to net charge-offs of $8,000 for the quarter ended September 30, 2021.

The following table presents information regarding net charge-offs (recoveries) for the three months ended September 30, 2022 and 2021.


	For the three months ended September 30,
	2022		2021
(unaudited)		(Dollars in thousands)
Single-family residential real estate		(2)		13
Home equity lines of credit		(3)		(5)
Total	$	(5)	$	8

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Noninterest income. Noninterest income for the quarter ended September 30, 2022 totaled $705,000 and decreased $1.4 million, or 66.1%, compared to $2.1 million for the quarter ended September 30, 2021. The decrease was primarily due to a $1.9 million decrease in gain on sale of deposits, which was attributable to the $1.9 million gain on sale of deposits in connection with the sale of our two Columbiana County branches in July 2021, partially offset by a $135,000 increase in net gain on sales of commercial loans and a $55,000 increase in service charges on deposit accounts.

Noninterest expense. Noninterest expense for the quarter ended September 30, 2022 totaled $8.6 million and increased $1.2 million, or 15.7%, compared to $7.4 million for the quarter ended September 30, 2021. The increase in noninterest expense was primarily due to a $606,000 increase in data processing expense and a $570,000 impairment of property and equipment. The increase in data processing expense was primarily related to the conversion of our core processing system during the third quarter of 2022 and the impairment of property and equipment was related to the pending sale of our Worthington headquarters building as we prepare to move our headquarters to New Albany, Ohio.

Income tax expense. Income tax expense was $1.0 million for the quarter ended September 30, 2022, an increase of $38,000 compared to $985,000 for the quarter ended September 30, 2021. The effective tax rate for the quarter ended September 30, 2022 was approximately 19.4%, as compared to approximately 19.5% for the quarter ended September 30, 2021.

Our deferred tax assets are composed of NOLs, and other temporary book to tax differences. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined as of September 30, 2022 that no valuation allowance was required against the net deferred tax asset.

The Company records income tax expense based on the federal statutory rate adjusted for the effect of other items such as low income housing credits, bank owned life insurance and other miscellaneous items.

Comparison of the Results of Operations for the Nine Months Ended September 30, 2022 and 2021.

General. Net income for the nine months ended September 30, 2022 totaled $13.5 million (or $2.06 per diluted common share) and decreased $493,000, or 3.5%, compared to net income of $14.0 million (or $2.10 per diluted common share) for the nine months ended September 30, 2021. The decrease in net income was primarily the result of decreased volumes on Direct-to-Consumer (DTC) residential mortgage loans and a decrease on gain on sale of deposits, attributable to the sale of our Columbiana County branches in July 2021, partially offset by an increase in net interest income and a decrease in other noninterest expense.

Net interest income totaled $35.6 million for the nine months ended September 30, 2022 and increased $4.5 million, or 14.7%, compared to net interest income of $31.1 million for the nine months ended September 30, 2021. The increase in net interest income was primarily due to a $6.7 million, or 16.9%, increase in interest income, partially offset by a $2.0 million, or 25.5%, increase in interest expense. The increase in interest income was primarily attributed to a 36bps increase in average yield on interest-earning assets, coupled with a $89.1 million, or 6.3%, increase in average interest-earning assets outstanding. The increase in interest expense was attributed to a 20bps increase in average interest-bearing liabilities, coupled with a $49.2 million, or 4.4%, increase in average interest-bearing liabilities. The net interest margin of 3.17% for the nine months ended September 30, 2022 increased 23bps compared to the net interest margin of 2.94% for the nine months ended September 30, 2021.

Interest income totaled $45.9 million for the nine months ended September 30, 2022, and increased $6.7 million, or 16.9%, compared to $39.2 million for the nine months ended September 30, 2021. The increase in interest income was primarily attributed to a 41bps increase in the average yield on loans and leases and loans held for sale, coupled with a $38.6 million, or 3.0%, increase in average loans and leases outstanding and loans held for sale.

Interest expense totaled $10.2 million for the nine months ended September 30, 2022, and increased $2.0 million, or 25.5%, compared to $8.2 million for the nine months ended September 30, 2021. The increase in interest expense was primarily attributed to a 17bps increase in the average rate of interest-bearing deposits, coupled with a $77.9 million, or 7.8%, increase in average interest-bearing deposits.

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Provision for loan and lease losses. There was $150,000 in provision for loan and lease losses expense for the nine months ended September 30, 2022 compared to negative provision expense of $1.6 million for the nine months ended September 30, 2021. Net recoveries for the nine months ended September 30, 2022 totaled $29,000, compared to net recoveries of $65,000 for the nine months ended September 30, 2021.

The following table presents information regarding net charge-offs (recoveries) for the nine months ended September 30, 2022 and 2021.


	For the nine months ended September 30,
	2022		2021
(unaudited)	(Dollars in thousands)
Commercial	$	-	$	(56)
Single-family residential real estate		(19)		6
Home equity lines of credit		(10)		(15)
Total	$	(29)	$	(65)

Noninterest income. Noninterest income for the nine months ended September 30, 2022 totaled $2.6 million and decreased $7.7 million, or 75.1%, compared to $10.3 million for the nine months ended September 30, 2021. The decrease was primarily due to a $4.7 million decrease in net gain on sale of residential mortgage loans, a $1.9 million decrease in gain on sale of deposits and an $881,000 decrease in gain on sales of commercial loans. The decrease in the net gain on sale of residential mortgage loans was the result of the Company’s decision to scale down and exit the direct-to-consumer mortgage business in favor of portfolio lending in our regional markets with servicing retained. The decrease in gain on sale of deposits was a result of the sale of CFBank’s two Columbiana County branches in July 2021.

Noninterest expense. Noninterest expense for the nine months ended September 30, 2022 totaled $21.3 million and decreased $4.4 million, or 16.8%, compared to $25.7 million for the nine months ended September 30, 2021. The decrease in noninterest expense was primarily due to a $2.3 million decrease in advertising and marketing expense, a $2.1 million decrease in salaries and employee benefits and a $1.4 million decrease in professional fee expense, partially offset by a $595,000 increase in data processing expense and a $570,000 increase on impairment of property and equipment. The decreases in advertising and marketing expense, salaries and employee benefits expense, and professional fee expense were primarily the result of the Company’s decision to scale down and exit the direct-to-consumer mortgage business in favor of portfolio lending in our regional markets with servicing retained as previously discussed. As mentioned above, the increase in data processing expense was primarily related to the conversion of our core processing system during the third quarter of 2022 and the impairment of property and equipment was related to the pending sale of our Worthington headquarters building.

Income tax expense. Income tax expense was $3.2 million for the nine months ended September 30, 2022, a decrease of $74,000 compared to $3.3 million for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 was approximately 19.2%, as compared to approximately 19.0% for the nine months ended September 30, 2021.

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Average Balances, Interest Rates and Yields. The following tables present, for the periods indicated, the total dollar amount of fully taxable equivalent interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Average balances are computed using month-end balances.


	For Three Months Ended September 30,
	2022						2021
	Average		Interest		Average		Average		Interest		Average
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Interest-earning assets:
Securities ^{(1) (2)}	$	17,044	$	219		4.64%	$	22,312	$	230		4.13%
Loans and leases and loans held for sale ⁽³⁾		1,424,326		16,876		4.74%		1,223,868		12,397		4.05%
Other earning assets		135,240		813		2.40%		45,174		21		0.19%
FHLB and FRB stock		7,192		98		5.45%		6,221		55		3.54%
Total interest-earning assets		1,583,802		18,006		4.54%		1,297,575		12,703		3.92%
Noninterest-earning assets		78,222						81,674
Total assets	$	1,662,024					$	1,379,249

Interest-bearing liabilities:
Deposits	$	1,154,605		3,992		1.38%	$	912,533		1,777		0.78%
FHLB advances and other borrowings		93,397		698		2.99%		67,853		513		3.02%
Total interest-bearing liabilities		1,248,002		4,690		1.50%		980,386		2,290		0.93%

Noninterest-bearing liabilities		279,383						277,469
Total liabilities		1,527,385						1,257,855

Equity		134,639						121,394
Total liabilities and equity	$	1,662,024					$	1,379,249

Net interest-earning assets	$	335,800					$	317,189
Net interest income/interest rate spread			$	13,316		3.04%			$	10,413		2.99%
Net interest margin						3.36%						3.21%
Average interest-earning assets
to average interest-bearing liabilities		126.91%						132.35%

⁽¹⁾Average balance is computed using the carrying value of securities. Average yield is computed using the historical amortized cost average balance for available for sale securities.

⁽²⁾Average yields and interest earned are stated on a fully taxable equivalent basis.

⁽³⁾Average balance is computed using the recorded investment in loans net of the ALLL and includes nonperforming loans.

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	For Nine Months Ended September 30,
	2022						2021
	Average		Interest		Average		Average		Interest		Average
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(Dollars in thousands)
Interest-earning assets:
Securities ^{(1) (2)}	$	18,353	$	664		4.52%	$	18,492	$	529		3.83%
Loans and leases and loans held for sale ⁽³⁾		1,339,590		43,746		4.35%		1,301,027		38,452		3.94%
Other earning assets		131,020		1,215		1.24%		81,473		73		0.12%
FHLB and FRB stock		7,280		238		4.36%		6,120		167		3.64%
Total interest-earning assets		1,496,243		45,863		4.08%		1,407,112		39,221		3.72%
Noninterest-earning assets		76,937						80,743
Total assets	$	1,573,180					$	1,487,855

Interest-bearing liabilities:
Deposits	$	1,074,075		8,177		1.02%	$	996,192		6,382		0.85%
FHLB advances and other borrowings		96,255		2,051		2.84%		124,923		1,769		1.89%
Total interest-bearing liabilities		1,170,330		10,228		1.17%		1,121,115		8,151		0.97%

Noninterest-bearing liabilities		271,961						249,910
Total liabilities		1,442,291						1,371,025

Equity		130,889						116,830
Total liabilities and equity	$	1,573,180					$	1,487,855

Net interest-earning assets	$	325,913					$	285,997
Net interest income/interest rate spread			$	35,635		2.91%			$	31,070		2.75%
Net interest margin						3.17%						2.94%
Average interest-earning assets
to average interest-bearing liabilities		127.85%						125.51%

⁽¹⁾Average balance is computed using the carrying value of securities. Average yield is computed using the historical amortized cost average balance for available for sale securities.

⁽²⁾Average yields and interest earned are stated on a fully taxable equivalent basis.

⁽³⁾Average balance is computed using the recorded investment in loans net of the ALLL and includes nonperforming loans.

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MANAGEMENT DISCUSSION AND ANALYSIS

Rate/Volume Analysis of Net Interest Income. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase and decrease related to changes in balances and/or changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the prior rate) and (ii) changes in rate (i.e., changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.



	Three Months Ended						Nine Months Ended
	September 30, 2022						September 30, 2022
	Compared to Three Months Ended						Compared to Nine Months Ended
	September 30, 2021						September 30, 2021
	Increase (decrease)						Increase (decrease)
	due to						due to
	Rate		Volume		Net		Rate		Volume		Net
	(Dollars in thousands)						(Dollars in thousands)
Interest-earning assets:
Securities ⁽¹⁾	$	146	$	(157)	$	(11)	$	140	$	(5)	$	135
Loans and leases		2,279		2,200		4,479		4,128		1,166		5,294
Other earning assets		679		113		792		1,072		70		1,142
FHLB and FRB Stock		33		10		43		36		35		71
Total interest-earning assets		3,137		2,166		5,303		5,376		1,266		6,642

Interest-bearing liabilities:
Deposits		1,650		565		2,215		1,269		526		1,795
FHLB advances and other borrowings		(41)		226		185		938		(656)		282
Total interest-bearing liabilities		1,609		791		2,400		2,207		(130)		2,077

Net change in net interest income	$	1,528	$	1,375	$	2,903	$	3,169	$	1,396	$	4,565

⁽¹⁾ Securities amounts are presented on a fully taxable equivalent basis.

Critical Accounting Policies

We follow financial accounting and reporting policies that are in accordance with U.S. generally accepted accounting principles and conform to general practices within the banking industry. These policies are presented in Note 1 to our 2021 Audited Financial Statements. Some of these accounting policies are considered to be critical accounting policies, which are those policies that are both most important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Application of assumptions different than those used by management could result in material changes in our financial condition or results of operations. These policies, current assumptions and estimates utilized, and the related disclosure of this process, are determined by management and routinely reviewed with the Audit Committee of the Board of Directors. We believe that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements were appropriate given the factual circumstances at the time.

We have identified accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand our financial statements. The following discussion details the critical accounting policies and the nature of the estimates made by management.

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MANAGEMENT DISCUSSION AND ANALYSIS

Determination of the ALLL. The ALLL represents management’s estimate of probable incurred credit losses in the loan portfolio at each balance sheet date. The allowance consists of general and specific components. The general component covers loans not classified as impaired and is based on historical loss experience, adjusted for current factors. Current factors considered include, but are not limited to, management’s oversight of the portfolio, including lending policies and procedures; nature, level and trend of the portfolio, including past due and nonperforming loans, loan concentrations, loan terms and other characteristics; current economic conditions and outlook; collateral values; and other items. The specific component of the ALLL relates to loans that are individually classified as impaired. Loans exceeding policy thresholds are regularly reviewed to identify impairment. A loan is impaired when, based on current information and events, it is probable that CFBank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Determining whether a loan is impaired and whether there is an impairment loss requires judgment and estimates, and the eventual outcomes may differ from estimates made by management. The determination of whether a loan is impaired includes: review of historical data; judgments regarding the ability of the borrower to meet the terms of the loan; an evaluation of the collateral securing the loan and estimation of its value, net of selling expenses, if applicable; various collection strategies; and other factors relevant to the loan or loans. Impairment is measured based on the fair value of collateral, less costs to sell, if the loan is collateral dependent, or alternatively, the present value of expected future cash flows discounted at the loan’s effective rate, if the loan is not collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment loss is recorded. As a result, determining the appropriate level for the ALLL involves not only evaluating the current financial situation of individual borrowers or groups of borrowers, but also current predictions about future events that could change before an actual loss is determined. Based on the variables involved and the fact that management must make judgments about outcomes that are inherently uncertain, the determination of the ALLL is considered to be a critical accounting policy. Additional information regarding this policy is included in the previous section titled “Financial Condition - Allowance for loan losses”, in Note 4 to the consolidated financial statements included in this Quarterly Report on Form 10-Q and in Notes 1, 4 and 6 to our 2021 Audited Financial Statements.

Fair value of financial instruments. Another critical accounting policy relates to fair value of financial instruments, which are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Additional information is included in Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q and in Notes 1 and 6 to our 2021 Audited Financial Statements.

Mortgage banking derivatives. Another critical accounting policy relates to the fair value of mortgage banking derivatives. Mortgage banking derivatives include two types of commitments: rate lock commitments and forward loan commitments. The fair values of these mortgage derivatives are based on anticipated gains on the underlying loans and are based on valuation models using observable market data as of the measurement date. Changes in the fair value of the derivatives are reported currently in earnings, as other noninterest income. Changes in assumptions or in market conditions could significantly affect the estimates. Additional information is included in Notes 1, 6 and 11 to the consolidated financial statements included in this Quarterly Report on Form 10-Q and in Notes 1, 6 and 18 to our 2021 Audited Financial Statements.

Liquidity and Capital Resources

In general terms, liquidity is a measurement of an enterprise’s ability to meet cash needs. The primary objective in liquidity management is to maintain the ability to meet loan commitments and to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts of securities available for sale; borrowings; and operations. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

CFBank is required by regulation to maintain sufficient liquidity to ensure its safe and sound operation. Thus, adequate liquidity may vary depending on CFBank’s overall asset/liability structure, market conditions, the activities of competitors, the requirements of our own deposit and loan customers and regulatory considerations. Management believes that each of the Holding Company’s and CFBank’s current liquidity is sufficient to meet its daily operating needs and fulfill its strategic planning.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets, primarily cash, short-term investments and other assets that are widely traded in the secondary market, based on our ongoing assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities and the objective of our asset/liability management program. In addition to liquid assets, we have other sources of liquidity available including, but not limited to, access to advances from the FHLB and borrowings from the FRB and our commercial bank lines of credit.

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MANAGEMENT DISCUSSION AND ANALYSIS

The following table summarizes CFBank’s cash available from liquid assets and borrowing capacity at September 30, 2022 and December 31, 2021.



	September 30, 2022		December 31, 2021
	(Dollars in thousands)
Cash, unpledged securities and deposits in other financial institutions	$	201,709	$	168,953
Additional borrowing capacity at the FHLB		162,085		113,077
Additional borrowing capacity at the FRB		105,885		72,195
Unused commercial bank lines of credit		65,000		65,000
Total	$	534,679	$	419,225

Cash, unpledged securities and deposits in other financial institutions increased $32.7 million, or 19.4%, to $201.7 million at September 30, 2022, compared to $169.0 million at December 31, 2021. The increase is primarily attributed to an increase in deposits and a decrease in loans held for sale, partially offset by an increase in loans and leases.

CFBank’s additional borrowing capacity with the FHLB increased $49.0 million, or 43.3%, to $162.1 million at September 30, 2022, compared to $113.1 million at December 31, 2021. The increase is primarily attributed to an increase in pledged collateral.

CFBank’s additional borrowing capacity at the FRB increased $33.7 million, or 46.7%, to $105.9 million at September 30, 2022 from $72.2 million at December 31, 2021. CFBank is eligible to participate in the FRB’s primary credit program, providing CFBank access to short-term funds at any time, for any reason, based on the collateral pledged.

CFBank’s borrowing capacity with both the FHLB and FRB may be negatively impacted by changes such as, but not limited to, further tightening of credit policies by the FHLB or FRB, deterioration in the credit performance of CFBank’s loan portfolio or CFBank’s financial performance, or a decrease in the balance of pledged collateral.

CFBank had $65.0 million of availability in unused lines of credit with two commercial banks at September 30, 2022 and at December 31, 2021.

Deposits are obtained predominantly from the markets in which CFBank’s offices are located. We rely primarily on a willingness to pay market-competitive interest rates to attract and retain retail deposits. Accordingly, rates offered by competing financial institutions may affect our ability to attract and retain deposits.

CFBank relies on competitive interest rates, customer service, and relationships with customers to retain deposits. In 2010, the FDIC, pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, permanently increased deposit insurance coverage from $100,000 to $250,000 per depositor.

The Holding Company has more limited sources of liquidity than CFBank. In general, in addition to its existing liquid assets, sources of liquidity include funds raised in the securities markets through debt or equity offerings, funds borrowed from third party banks or other lenders, dividends received from CFBank or the sale of assets.

Management believes that the Holding Company had adequate funds and sources of liquidity at September 30, 2022 to meet its current and anticipated operating needs at this time. The Holding Company’s current cash requirements include operating expenses and interest on subordinated debentures and other debt. The Company may also pay dividends on its common stock if and when declared by the Board of Directors.

Currently, annual debt service on the subordinated debentures underlying the Company’s trust preferred securities is approximately $270,000. The subordinated debentures have a variable rate of interest, reset quarterly, equal to the three-month LIBOR plus 2.85%. The total rate in effect was 5.10% at September 30, 2022.

Currently, the annual debt service on the Company’s $10 million of fixed-to-floating rate subordinated notes is $700,000. The subordinated notes have a fixed rate of 7.00% until December 2023, at which time the interest rate will reset quarterly to a rate equal to the then current three-month LIBOR plus 4.14%.

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PART 1. Item 2

MANAGEMENT DISCUSSION AND ANALYSIS

Prior to May 21, 2021, the Holding Company had a term loan in the original principal amount of $5.0 million with an additional $10.0 million revolving line-of-credit with a third-party bank. That credit facility was refinanced into a new $35.0 million facility on May 21, 2021. The credit facility is revolving until May 21, 2024 at which time any then-outstanding balance will be converted to a 10-year term note on a graduated 10-year amortization. Borrowings on the credit facility bear interest at a fixed rate of 3.85% until May 21, 2026, and the interest rate then converts to a floating rate equal to PRIME with a floor of 3.75%. The purpose of the credit facility is to provide an additional source of liquidity for the Holding Company and to provide funds for the Holding Company to downstream as additional capital to CFBank to support growth. At September 30, 2022, the Company had an outstanding balance, net of unamortized debt issuance costs, of $22.8 million on the facility.

The ability of the Holding Company to pay dividends on its common stock is dependent upon the amount of cash and liquidity available at the Holding Company level, as well as the receipt of dividends and other distributions from CFBank to the extent necessary to fund such dividends.

The Holding Company is a legal entity that is separate and distinct from CFBank, which has no obligation to make any dividends or other funds available for the payment of dividends by the Holding Company. Banking regulations limit the amount of dividends that can be paid to the Holding Company by CFBank without prior regulatory approval. Generally, financial institutions may pay dividends without prior approval as long as the dividend does not exceed the total of the current calendar year-to-date earnings plus any earnings from the previous two years not already paid out in dividends, and as long as the financial institution remains well capitalized after the dividend payment.

The Holding Company also is subject to various legal and regulatory policies and requirements impacting the Holding Company’s ability to pay dividends on its stock. In addition, the Holding Company’s ability to pay dividends on its stock is conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities. Finally, under the terms of the Company’s fixed-to-floating rate subordinated debt, the Holding Company’s ability to pay dividends on its stock is conditioned upon the Holding Company continuing to make required principal and interest payments, and not incurring an event of default, with respect to the subordinated debt.

Federal income tax laws provided deductions, totaling $2.3 million, for thrift bad debt reserves established before 1988. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would have totaled $473,000 at year-end 2021. However, if CFBank were wholly or partially liquidated or otherwise ceases to be a bank, or if tax laws were to change, this amount would have to be recaptured and a tax liability recorded. Additionally, any distributions in excess of CFBank’s current or accumulated earnings and profits would reduce amounts allocated to its bad debt reserve and create a tax liability for CFBank.

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PART 1. Item 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management believes that, as of September 30, 2022, there has been no material change in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021.

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CF BANKSHARES INC.

PART 1. Item 4

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (Exchange Act) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of and for the quarter ended September 30, 2022.

Changes in internal control over financial reporting. We made no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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CF BANKSHARES INC.

PART II. Item 1 to 6

OTHER INFORMATION

Item 1. Legal Proceedings

The Holding Company and CFBank may, from time to time, be involved in various legal proceedings in the normal course of business. Periodically, there have been various claims and lawsuits involving CFBank, such as claims to enforce liens, condemnation proceedings on properties in which CFBank holds security interests, claims involving the making and servicing of real property loans and other claims and lawsuits incident to our banking business.

We are not a party to any pending legal proceeding that management believes would have a material adverse effect on our financial condition or results of operations, if decided adversely to us.

Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by “Item 1A. Risk Factors” of Part II of the Quarterly Reports on Form 10-Q filed with the SEC for the quarterly periods ended March 31, 2022 and June 30, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)Not applicable.

(c)The following table provides information concerning purchases of the Holding Company’s shares of common stock made by or on behalf of the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during the three months ended September 30, 2022.


Period	Total number of common shares purchased		Average price paid per common share		Total number of common shares purchased as part of publicly announced plans or programs	Maximum number of common shares that may yet be purchased under the plans or programs
July 1, 2022 through July 31, 2022	1,143	⁽¹⁾		20.55	-	-
August 1, 2022 through August 31, 2022	83,434	⁽²⁾		21.00	-	-
September 1, 2022 through September 30, 2022	-			-	-	-
Total	84,577		$	20.99	-

⁽¹⁾Reflects shares of common stock surrendered to the Company for the payment of taxes upon the vesting of restricted stock .

⁽²⁾Reflects 83,333 shares of common stock purchased by the Company in a block purchae from a non-affiliated shareholder in a privately-negotiated transaction authorized and approved by the Board of Directors and 101 shares of common stock surrendered to the Company for the payment of taxes upon the vesting of restricted stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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CF BANKSHARES INC.

PART II. Item 1 to 6

OTHER INFORMATION

Item 6. Exhibits


Exhibit Number	Description of Exhibit
3.1	Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed with the Commission on November 9, 2017 (File No. 0-25045))
3.2	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-2, filed with the Commission on October 28, 2005 (File No. 333-129315))
3.3	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.4 to the registrant’s Form 10-Q for the quarter ended June 30, 2009, filed with the Commission on August 14, 2009 (File No. 0-25045))
3.4	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.5 to the registrant’s Form 10-Q for the quarter ended September 30, 2011, filed with the Commission on November 10, 2011 (File No. 0-25045))
3.5	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.5 to the registrant’s Post-Effective Amendment to the Registration Statement on Form S-1, filed with the Commission on May 4, 2012 (File No. 333-177434))
3.6	Certificate of Designations to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated May 7, 2014 and filed with the Commission on May 13, 2014 (File No. 0-25045))
3.7	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated August 20, 2018, filed with the commission on August 20, 2018 (File No. 0-25045)
3.8	Certificate of Designations to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated October 25, 2019, filed with the Commission on October 31, 2019 (File No. 0-25045))
3.9	Certificate of Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated May 29, 2020, filed with the Commission on June 2, 2020 (File No. 0-25045))
3.10	Amendment to Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated July 28, 2020, filed with the commission on July 20, 2020 (File No. 0-25045)
3.11	Certificate of Incorporation, as amended, of the registrant (incorporated by reference to Exhibit 3.10 to the registrant’s Form 10-Q for the quarter ended June 30, 2020, filed with the Commission on August 12, 2020 (File No. 0-25045)) [This document represents the Certificate of Incorporation of the registrant in compiled form incorporating all amendments. This compiled document has not been filed with the Delaware Secretary of State.]
3.12	Second Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.3 to the registrant’s Form 10-K for the fiscal year ended December 31, 2007, filed with the Commission on March 27, 2008 (File No. 0-25045))
31.1	Rule 13a-14(a) Certifications of the Chief Executive Officer
31.2	Rule 13a-14(a) Certifications of the Principal Financial Officer
32.1	Section 1350 Certifications
101.1	Interactive Data File (Inline XBRL)
104	Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101

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CF BANKSHARES INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CF BANKSHARES INC.


Dated: November 9, 2022	By:	/s/ Timothy T. O’Dell
		Timothy T. O’Dell
		President and Chief Executive Officer


Dated: November 9, 2022	By:	/s/ Kevin J. Beerman
		Kevin J. Beerman
		Executive Vice President and Chief Financial Officer