Executive Summary / Key Takeaways

• CF Bankshares (CFBK) reported strong Q1 2025 results, with net income increasing 43% year-over-year, driven by significant net interest margin expansion and lower credit loss provisions.
• The company's net interest margin improved substantially to 2.64% in Q1 2025, benefiting from a decrease in the average cost of funds on interest-bearing liabilities.
• Credit quality metrics showed improvement in Q1 2025, with a decrease in nonperforming loans and criticized/classified assets, contributing to a lower provision for credit losses.
• CFBK's strategy focuses on serving closely held businesses and entrepreneurs in specific Ohio and Indiana markets, differentiating itself through personalized service and direct access to decision-makers.
• While facing competition from larger, more technologically advanced banks, CFBK's regional focus and relationship banking model provide a competitive advantage in its target markets, supported by solid capital and liquidity positions.

A Regional Focus in a Competitive Landscape

CF Bankshares Inc. (CFBK), through its subsidiary CFBank, National Association, operates as a regional financial institution with roots tracing back to 1892 in Ohio. Over its long history, the bank has evolved, converting from a mutual to a stock institution in 1998 and later transitioning from a federal savings association to a national bank and financial holding company in 2016. These structural changes have shaped its current operational framework and strategic direction.

Today, CFBK centers its business model on catering to the financial needs of closely held businesses and entrepreneurs within its principal market areas across specific counties in Ohio and Indiana. The bank offers a comprehensive suite of services, including commercial loans and equipment leases, commercial and residential real estate lending, treasury management, residential mortgage lending, construction financing, and full-service retail banking. CFBK aims to stand out in the crowded banking sector by emphasizing individualized service, providing customers with direct access to decision-makers, and simplifying the banking process. Management suggests this approach allows CFBank to offer the sophistication of larger banks without the associated bureaucracy.

The banking industry is subject to significant influence from general economic conditions, market interest rates, real estate values, and regulatory actions. CFBK's concentration of business activities in Ohio means its financial performance is particularly tied to economic conditions in that state. The competitive landscape includes much larger national banks like Bank of America (BAC), Wells Fargo (WFC), and JPMorgan Chase (JPM), as well as other regional players such as US Bancorp (USB) and PNC Financial Services Group (PNC), and increasingly, fintech firms. These larger institutions often possess significant scale advantages, extensive branch networks, and substantial investments in technology that can drive efficiency and offer competitive pricing.

While CFBK offers standard digital banking tools like online banking, mobile banking, and remote deposit capabilities for customer convenience, the company appears to lack a unique, proprietary technological moat that provides quantifiable performance benefits over alternatives. Larger competitors like BAC, WFC, and JPM leverage advanced digital platforms and AI for efficiency gains, potentially leading to faster processing times and lower operating costs per transaction compared to CFBK's more traditional methods. CFBK's strategic response to this technological disparity appears to be its focus on personalized relationship banking and regional expertise, aiming to build customer loyalty that can offset the efficiency advantages of larger, more technologically advanced rivals.

Financial Performance Reflecting Strategic Execution

CFBK delivered a strong financial performance in the first quarter of 2025. Net income for the quarter totaled $4.4 million, or $0.68 per diluted common share, a significant increase from $3.1 million, or $0.47 per diluted common share, in the first quarter of 2024. This improvement was primarily driven by growth in net interest income and a notable decrease in the provision for credit losses.

Net interest income, a core driver of profitability, increased by $1.6 million, or 14.4%, to $12.9 million in Q1 2025 compared to $11.3 million in Q1 2024. This expansion was largely attributable to an 8.5% decrease in interest expense, despite a slight 0.4% increase in average interest-bearing liabilities. The average cost of funds on interest-bearing liabilities decreased by 37 basis points, contributing significantly to the lower interest expense. Interest income saw a modest 0.4% increase, reaching $29.2 million, primarily benefiting from a 3.1% increase in average loans and leases outstanding and loans held for sale, although this was partially offset by a 10 basis point decrease in the average yield on interest-earning assets. The net result was a healthy expansion of the net interest margin to 2.64% in Q1 2025, up 28 basis points from 2.36% in Q1 2024.

The loan portfolio saw net growth, increasing by $28.1 million, or 1.6%, from December 31, 2024, to $1.75 billion at March 31, 2025. This growth was led by increases in commercial real estate ($47.7 million), construction ($6.4 million), and home equity lines of credit ($2.5 million), partially offset by decreases in single-family residential ($23.9 million) and commercial and industrial loans ($4.1 million). Deposit balances also grew, increasing by $27.9 million, or 1.6%, to $1.78 billion at March 31, 2025. This growth was balanced between noninterest-bearing ($18.1 million increase) and interest-bearing ($9.8 million increase) accounts. The proportion of deposits exceeding the FDIC insurance limit increased slightly to 31.0% at March 31, 2025, from 29.8% at December 31, 2024. The bank utilizes CDARS and ICS programs to provide extended FDIC coverage for larger deposit balances.

Credit quality showed signs of improvement in the first quarter. The provision for credit losses expense decreased significantly to $582,000 in Q1 2025 from $1.2 million in Q1 2024. Net charge-offs were minimal at $23,000 for the quarter, compared to net recoveries of $16,000 in the prior year period. Nonperforming loans decreased by $484,000 to $14.6 million, resulting in a lower ratio of nonperforming loans to total loans (0.82% vs. 0.87%). Total criticized and classified loans also decreased by 11.5%. Management believes the allowance for credit losses is adequate, but acknowledges that future economic conditions and real estate values could necessitate additions. Concentrations in interest-only loans, particularly in the commercial portfolio (31.9% of commercial loans) and HELOCs (97.8% of HELOCs), represent a potential risk if collateral values decline.

Noninterest income increased by 33.3% to $1.2 million, primarily due to higher other noninterest income, despite lower net gains on commercial loan sales. Noninterest expense rose by 10.7% to $8.0 million, mainly driven by increases in salaries and employee benefits and professional fees. The effective tax rate increased to 20.6% from 18.5%, reflecting the higher pre-tax income.

Capital Strength and Strategic Flexibility

CFBK maintains a solid capital position, with stockholders equity totaling $172.7 million at March 31, 2025, an increase of 2.5% from December 31, 2024. CFBank remains well-capitalized under regulatory standards, exceeding minimum requirements across all key ratios (Total Capital, Tier 1 Capital, Common Equity Tier 1 Capital, and Leverage Ratio). This strong capital base provides a foundation for continued balance sheet growth and strategic initiatives.

The company manages its liquidity through a combination of cash, unpledged securities, and available borrowing capacity. At March 31, 2025, CFBank had approximately $596.4 million in total available liquidity from these sources, although borrowing capacity at the FHLB and FRB saw slight decreases compared to year-end 2024, partly due to changes in pledged collateral. The Holding Company also manages its liquidity, primarily to cover operating expenses and debt service on its subordinated debentures and credit facility. A subsequent event in April 2025 saw the Holding Company secure a new $10 million revolving line of credit, providing additional flexibility to inject Tier 1 capital into CFBank if needed.

CFBK actively manages its capital structure and shareholder returns. The company has a stock repurchase program authorized for up to 325,000 shares. While no specific quantitative guidance for future financial performance was provided, the strong Q1 results suggest positive momentum. However, management notes that Q1 performance is not necessarily indicative of the full year, highlighting the dynamic nature of the banking environment. The company's recent addition to the Russell 3000® Index is a notable development that could increase its visibility among institutional investors.

Competitive Dynamics and Outlook

CFBK operates in a highly competitive banking market. While larger national and regional banks benefit from scale and technological advantages, CFBK's focus on personalized service and deep relationships with closely held businesses and entrepreneurs provides a key differentiator. This niche strategy allows CFBK to compete effectively by offering tailored solutions and faster decision-making, which can be particularly valuable to small and medium-sized businesses.

Comparing CFBK's TTM financial performance to larger peers reveals differences in scale and efficiency. While CFBK's TTM Net Profit Margin of 12.02% is respectable, it trails larger, more diversified institutions like BAC (14%), WFC (16%), and JPM (22%), which benefit from economies of scale and broader revenue streams. CFBK's TTM P/E ratio of 10.31 is lower than that of BAC (12.54), WFC (13.08), JPM (11.78), USB (11.85), and PNC (13.07), potentially reflecting its smaller size and regional concentration, but also suggesting a potentially more attractive valuation relative to earnings compared to some peers. The TTM P/B ratio of 0.88 is below 1.0, indicating the stock is trading below its book value, a common characteristic for some regional banks but also potentially signaling market concerns or undervaluation relative to peers like BAC (1.15), WFC (1.44), JPM (2.00), USB (1.27), and PNC (1.41).

The competitive landscape is further complicated by the rise of fintech companies offering specialized, often lower-cost, digital-only services. While CFBK offers digital tools, the lack of a clearly articulated, differentiated technology platform could make it vulnerable to competitors who can process transactions more efficiently or offer more advanced digital features. CFBK's strategy of focusing on relationship banking and local expertise is its primary defense against these pressures, aiming to retain customers who value personalized service over purely transactional efficiency.

The outlook for CFBK will depend on its ability to maintain net interest margin in a potentially changing interest rate environment, manage credit risk effectively, particularly within its commercial and interest-only loan portfolios, and continue to execute its niche growth strategy. The recent improvement in credit quality and NIM expansion in Q1 2025 are positive indicators, but the competitive pressures and sensitivity to regional economic conditions remain key factors to monitor.

Conclusion

CF Bankshares demonstrated solid performance in the first quarter of 2025, marked by significant net interest margin expansion and improved credit quality metrics. The company's focused strategy on serving closely held businesses and entrepreneurs through personalized service provides a clear differentiation in its regional markets. While operating in a competitive environment against larger, more technologically advanced institutions, CFBK's relationship-based approach and strong capital position offer a foundation for continued execution.

The investment thesis for CFBK rests on its ability to leverage its niche market position, maintain profitability through effective balance sheet management and credit risk control, and potentially enhance shareholder value through initiatives like its stock repurchase program. Investors should closely monitor trends in net interest margin, asset quality, and the company's ability to defend its market share against larger, more efficient competitors, particularly as economic conditions evolve. The Q1 results suggest positive momentum, but the long-term success will depend on consistent execution of its targeted strategy in a dynamic banking landscape.