Central Federal Corporation Announces 3rd Quarter 2018 Financial Results

11/7/2018 3:51:32 PM

Originally published on Nov 02, 2018 9:00 ET

 

Highlights

  • Net income increased 54% for the quarter, compared to the same quarter in 2017.
  • EPS (fully diluted) increased by 60% for the quarter to $0.24 compared to $0.15 per share during the same quarter in 2017 (adjusted for a 1.0-for-5.5 reverse stock split effective August 20, 2018).
  • Net loans grew by $87.1 million, or 21.4%, year to date.
  • Assets topped $600 million at September 30, 2018.
  • Book value at September 30, 2018 of $10.25 per share is up $0.77 year to date from December 31, 2017.
  • Net interest income grew by 33.6% compared to the same quarter of 2017.
  • Credit quality remains strong, and the ratio of ALLL to total loans is 1.40%.


Overview of Results

 

The Company's income before income tax expense for the quarter ended September 30, 2018, totaled $1.3 million, and increased $277,000, or 27.2%, compared to $1.0 million for the quarter ended September 30, 2017. The increase in income before income tax expense was due to a $1.2 million increase in net interest income and a $448,000 increase in noninterest income, partially offset by a $1.4 million increase in noninterest expense.

 

Net income for the three months ended September 30, 2018 totaled $1.1 million and increased $370,000, or 54.0%, compared to net income of $685,000 for the three months ended September 30, 2017. The increase in net income was due to a $1.2 million increase in net interest income, a $448,000 increase in noninterest income, and a $93,000 decrease in income tax expense, partially offset by a $1.4 million increase in noninterest expense. The decrease in income tax expense was due to the reduction in the federal corporate tax rate, effective January 1, 2018, as a result of the Tax Cuts and Jobs Act.

 

Net income attributable to common stockholders for the three months ended September 30, 2018, totaled $1.0 million or $0.24 per diluted common share, and increased $558,000, or 118.5%, compared to net income attributable to common stockholders of $471,000, or $0.15 per diluted common share, for the three months ended September 30, 2017. For the three months ended September 30, 2018, the accretion of discount from the Company's Series B Preferred Stock reduced net income attributable to common stockholders by $26,000. For the three months ended September 30, 2017, preferred dividends on the Company's Series B Preferred Stock and accretion of discount reduced net income attributable to common stockholders by $214,000. The decrease in the preferred dividends on the Series B Preferred Stock and accretion of discount is due to the conversion of the Company's Preferred Stock into shares of Common Stock of the Company, effective October 6, 2017, resulting in the elimination of the preferred dividend payments beginning with the fourth quarter of 2017 of approximately $187,500 quarterly.

 

Income before income tax expense for the nine months ended September 30, 2018 totaled $3.7 million and increased $1.2 million, or 49.9%, compared to $2.5 million for the nine months ended September 30, 2017. The increase in income before income tax expense was due to a $3.0 million increase in net interest income and a $1.3 million increase in noninterest income, partially offset by a $3.1 million increase in noninterest expense.

 

Net income for the nine months ended September 30, 2018 totaled $3.0 million and increased $1.3 million, or 81.0%, compared to net income of $1.6 million for the nine months ended September 30, 2017. The increase in net income was due to a $3.0 million increase in net interest income, a $1.3 million increase in noninterest income, and a decrease in income tax expenses of $106,000, partially offset by $3.1 million increase in noninterest expense. As discussed above, the decrease in income tax expense was due to the reduction in the federal corporate tax rate, effective January 1, 2018, as a result of the Tax Cuts and Jobs Act.

 

Net income attributable to common stockholders for the nine months ended September 30, 2018, totaled $2.9 million or $0.67 per diluted common share, and increased $1.9 million, or 190.7%, compared to net income attributable to common stockholders of $1.0 million, or $0.31 per diluted common share, for the nine months ended September 30, 2017. For the nine months ended September 30, 2018, the accretion of discount from the Company's Series B Preferred Stock reduced net income attributable to common stockholders by $64,000. For the nine months ended September 30, 2017, preferred dividends on the Company's Series B Preferred Stock and accretion of discount reduced net income attributable to common stockholders by $643,000. The decrease in the preferred dividends on the Series B Preferred Stock and accretion of discount is due to the conversion of the Company's Preferred Stock into shares of Common Stock of the Company, effective October 6, 2017, as discussed above.

 

Timothy T. O'Dell, President and CEO, commented, "We continue to be extremely gratified with our ability to attract quality business customers which is helping to drive our strong growth. Net loans grew by $87 million year to date, with assets topping $600 million. In addition to balance sheet growth, we believe that we are creating significant franchise value through increases in book value coupled with the expansion of our geographic footprint. Book value per share increased $0.77, or 8.1%, year to date, while our second Cincinnati location is expected to open in the Blue Ash (Cincinnati) market by year end. Also, we are balancing well those investments being made in growth and expansion, including the hiring of experienced business lenders and bankers, with current earnings growth."

 

Net interest income. Net interest income totaled $4.7 million for the quarter ended September 30, 2018 and increased $1.2 million, or 33.6%, compared to $3.5 million for the quarter ended September 30, 2017. The increase in net interest income was primarily due to a $2.2 million, or 50.6%, increase in interest income, partially offset by a $1.0 million, or 117.0%, increase in interest expense. The increase in interest income was primarily attributed to a $142.2 million, or 35.2%, increase in average interest-earning assets outstanding, resulting primarily from an increase in net loans, and a 49bp increase in average yield on interest-earning assets. The increase in interest expense was primarily attributed to a $120.0 million, or 38.8%, increase in average interest-bearing liabilities and a 65bps increase in the average cost of funds on interest-bearing liabilities. As a result, net interest margin of 3.43% for the quarter ended September 30, 2018 decreased 4bps compared to the net interest margin of 3.47% for the quarter ended September 30, 2017.

 

Net interest income totaled $12.9 million for the nine months ended September 30, 2018 and increased $2.9 million, or 29.8%, compared to $10.0 million for the nine months ended September 30, 2017. The increase in net interest income was primarily due to a $5.2 million, or 41.4%, increase in interest income, partially offset by a $2.2 million or 88.6%, increase in interest expense. The increase in interest income was primarily attributed to a $109.4 million, or 27.7%, increase in average interest-earning assets outstanding, resulting primarily from an increase in net loans, and a 45bp increase in average yield on interest-earning assets. The increase in interest expense was primarily attributed to an $87.7 million, or 28.9%, increase in average interest-bearing liabilities and a 51bps increase in the average cost of funds on interest-bearing liabilities. As a result, net interest margin of 3.42% for the nine months ended September 30, 2018 increased 5bps compared to the net interest margin of 3.37% for the nine months ended September 30, 2017.

 

Robert E. Hoeweler, Chairman of the Board, added "Our team has evolved into a high performing sales and business development culture at CFBank as evidenced by our loan growth exceeding 21% year to date. We are a much stronger and deeper organization, well positioned and pursuing aggressively continued growth and expansion. Additionally, we are gaining traction in our third and newest major metro Ohio market (Cincinnati)."

 

Provision for loan and lease losses. There was no provision for loan and lease losses for either the quarter ended September 30, 2018 or the quarter ended September 30, 2017, which is due to strong credit quality, favorable trends in certain qualitative factors and net recoveries. Net recoveries for the quarter ended September 30, 2018 totaled $24,000, compared to net recoveries of $6,000 for the quarter ended September 30, 2017.

 

There was no provision for loan and lease losses for either the nine months ended September 30, 2018 or the nine months ended September 30, 2017, which is due to strong credit quality, favorable trends in certain qualitative factors and net recoveries. Net recoveries for the nine months ended September 30, 2018 totaled $35,000, compared to net recoveries of $39,000 for the nine months ended September 30, 2017.

 

Noninterest income. Noninterest income for the quarter ended September 30, 2018 totaled $643,000 and increased $448,000, or 229.7%, compared to $195,000 for the quarter ended September 30, 2017. The increase was primarily due to a $428,000 increase in net gain on sale of loans and a $22,000 increase in service charges on deposit accounts. The increase in net gain on sale of loans was a result of increased sales volume due to the expansion of the mortgage business. The increase in service charges on deposit accounts was related to increased account relationships and pricing.

 

Noninterest income for the nine months ended September 30, 2018 totaled $1.9 million and increased $1.3 million, or 245.0%, compared to $538,000 for the nine months ended September 30, 2017. The increase was primarily due to a $1.2 million increase in net gain on sale of loans and a $74,000 increase in service charges on deposit accounts. The increase in net gain on sale of loans was a result of increased sales volume due to the expansion of the mortgage business. The increase in service charges on deposit accounts was related to increased account relationships and pricing.

 

Noninterest expense. Noninterest expense for the quarter ended September 30, 2018 totaled $4.0 million and increased $1.4 million, or 50.3%, compared to $2.7 million for the quarter ended September 30, 2017. The increase in noninterest expense during the three months ended September 30, 2018 was primarily due to a $572,000 increase in salaries and employee benefits expense, a $319,000 increase in advertising and marketing expense and a $140,000 increase in professional fees. The increase in salaries and employee benefits was primarily due to the hiring of mortgage personnel in connection with the expansion of our mortgage business, consistent with our focus on driving noninterest income. The increase in salaries and employee benefits also resulted from an increase in personnel associated with the opening of our Glendale branch in the Cincinnati market, the addition of experienced treasury management personnel, and an increase in credit and finance personnel to support our growth, infrastructure and risk management practices. The increase in advertising and marketing expense is primarily due to increased expenditures related to the expansion of our mortgage business, coupled with increased advertising focused on increasing core deposits. Professional fees increased primarily due to the reverse stock split that occurred during the third quarter and professional fees associated with the expansion of our mortgage business.

 

Noninterest expense for the nine months ended September 30, 2018 totaled $11.1 million and increased $3.0 million, or 38.0%, compared to $8.1 million for the nine months ended September 30, 2017. The increase in noninterest expense during the nine months ended September 30, 2018 was primarily due to a $1.6 million increase in salaries and employee benefits expense, a $907,000 increase in advertising and marketing expense and a $168,000 increase in professional fees. The increase in salaries and employee benefits was primarily due to the hiring of mortgage personnel in connection with the expansion of our mortgage business, consistent with our focus on driving noninterest income. The increase in salaries and employee benefits also resulted from an increase in personnel associated with the opening of our Glendale branch in the Cincinnati market, the addition of experienced treasury management personnel, and an increase in credit and finance personnel to support our growth, infrastructure and risk management practices. The increase in advertising and marketing expense is primarily due to increased expenditures related to the expansion of our mortgage business, coupled with increased advertising focused on increasing core deposits. Professional fees increased primarily due to the reverse stock split that occurred during the third quarter and professional fees associated with the expansion of our mortgage business.

 

Income tax expense. Income tax expense was $239,000 for the quarter ended September 30, 2018, a decrease of $93,000 compared to $332,000 for the quarter ended September 30, 2017. The decrease was due primarily to the reduction of the federal corporate tax rate to 21%, effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act, which was partially offset by an increase in earnings. As a result, the effective tax rate for the quarter ended September 30, 2018 decreased to approximately 18.4%, as compared to approximately 32.6% for the quarter ended September 30, 2017.

 

Income tax expense was $704,000 for the nine months ended September 30, 2018, a decrease of $106,000 compared to $810,000 for the nine months ended September 30, 2017. The decrease was due primarily to the reduction of the federal corporate tax rate to 21%, effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act, which was partially offset by an increase in earnings. As a result, the effective tax rate for the nine months ended September 30, 2018 decreased to approximately 19.1%, as compared to approximately 33.0% for the nine months ended September 30, 2017.

 

Balance Sheet Activity

 

General. Assets totaled $606.4 million at September 30, 2018 and increased $125.0 million, or 26.0%, from $481.4 million at December 31, 2017. The increase was primarily due to an $87.1 million increase in net loan balances, a $23.0 million increase in loans held for sale, and a $13.9 million increase in cash and cash equivalents.

 

Cash and cash equivalents. Cash and cash equivalents totaled $59.4 million at September 30, 2018, and increased $13.9 million, or 30.5%, from $45.5 million at December 31, 2017. The increase in cash and cash equivalents was primarily attributed to increased deposits.

 

Securities. Securities available for sale totaled $11.1 million at September 30, 2018, and decreased $709,000, or 6.0%, compared to $11.8 million at December 31, 2017. The decrease was primarily due to principal maturities.

 

Loans and Leases. Net loans and leases totaled $493.5 million at September 30, 2018, and increased $87.1 million, or 21.4%, from $406.4 million at December 31, 2017. The increase was primarily due to a $39.5 million increase in commercial real estate loan balances, a $29.2 million increase in commercial loan balances and a $12.7 million increase in multi-family residential loan balances. The increases in the aforementioned loan balances were primarily due to increased sales activity and new relationships. Single-family residential mortgage loan balances declined slightly as a result of a decrease in balances in our Northpointe mortgage purchase program, partially offset by an increase in balances due to the purchase of residential mortgage loan-pools and organic growth in the residential mortgage portfolio due to sales activity.

Allowance for loan and lease losses (ALLL). The allowance for loan and lease losses totaled $7.0 million at September 30, 2018, and increased $35,000, or 0.5%, from $7.0 million at December 31, 2017. The increase in the ALLL is due to net recoveries during the nine months ended September 30, 2018. The ratio of the ALLL to total loans was 1.40% at September 30, 2018, compared to 1.69% at December 31, 2017. In addition, the ratio of the ALLL to nonperforming loans was 1858.1% at September 30, 2018, compared to 1483.0% at December 31, 2017.

 

Deposits. Deposits totaled $532.1 million at September 30, 2018, an increase of $113.0 million, or 27.0%, from $419.0 million at December 31, 2017. The increase is primarily attributed to a $77.0 million increase in certificate of deposit account balances, a $29.6 million increase in checking account balances, and a $6.1 million increase in money market account balances. The increase in certificate of deposit account balances was primarily attributed to a combination of management's use of short-term CDARs (1-way) deposits in anticipation of quarter end fluctuations associated with our mortgage business and the timing of loan fundings, an increase in core certificate of deposits due to on-going sales and marketing activities, and to a lesser extent, the use of brokered CDs for longer term duration in its certificate of deposit portfolio. The increase in checking accounts is due to an increase in customer relationships and balances from on-going sales activities.

 

Stockholders' equity. Stockholders' equity totaled $43.6 million at September 30, 2018, an increase of $3.3 million, or 8.3%, from $40.3 million at December 31, 2017. The increase in total stockholders' equity was primarily attributed to net income.

 

About Central Federal Corporation and CFBank

 

Central Federal Corporation is a financial holding company that owns 100% of the stock of CFBank, National Association (CFBank), which was formed in Ohio in 1892 and converted from a federal savings association to a national bank on December 1, 2016. CFBank has a branch presence in four major metro Ohio markets – Columbus, Cleveland, Cincinnati and Akron markets – as well as its two branch locations in Columbiana County, Ohio. Additionally, in February 2018, CFBank opened an additional loan production office in Columbus, Ohio in Franklin County. CFBank provides personalized Business Banking products and services including commercial loans and leases, commercial and residential real estate loans and treasury management depository services. As a full service commercial bank, our business, along with our products and services, is focused on serving the banking and financial needs of closely held businesses. Our business model emphasizes personalized service, customer access to decision makers, quick execution, and the convenience of online internet banking, mobile banking, remote deposit and corporate treasury management. In addition, CFBank provides residential lending and full service retail banking services and products.

 

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

 

FORWARD LOOKING STATEMENTS

 

This earnings release and other materials we have filed or may file with the Securities and Exchange Commission ("SEC") contain or may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Reform Act of 1995, which are made in good faith by us. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per common share, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of Central Federal Corporation or CFBank, National Association; (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 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 Form 10-K filed with SEC for the year ended December 31, 2017.

 

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

 

Consolidated Statements of Income

Consolidated Statements of Financial Condition

Consolidated Financial Highlights

 

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SOURCE Central Federal Corporation

http://www.cfbankonline.com