Executive Summary / Key Takeaways

• CF Bankshares is successfully executing a strategy centered on serving closely held businesses and entrepreneurs, leveraging a community-centric model that prioritizes individualized service and direct access to decision-makers.
• The company demonstrated robust financial performance in Q2 and H1 2025, marked by significant net interest income growth, net interest margin expansion, and a notable reduction in provision for credit losses.
• Strategic balance sheet management, including targeted loan portfolio growth in commercial and multi-family real estate, coupled with active capital planning and a recent Tier 1 capital injection, underpins its financial strength.
• CFBK's commitment to shareholder value is evident in its recent 14% dividend increase and inclusion in the Russell 3000® Index, signaling growing market recognition and confidence.
• While maintaining a differentiated service model, CFBK must continuously enhance its digital banking capabilities to effectively compete with larger regional banks and agile fintechs, particularly in deposit acquisition and operational efficiency.

The Enduring Promise of Community Banking: CFBK's Strategic Evolution

CF Bankshares Inc., the parent company of CFBank, National Association, has a rich history dating back to its formation in Ohio in 1892. This deep-rooted legacy as a federal savings association evolved significantly with its conversion to a national bank in December 2016, concurrently becoming a registered bank holding company with financial holding company status. This transformation marked a strategic pivot towards a comprehensive financial services model, primarily targeting closely held businesses and entrepreneurs across key markets in Ohio and Marion County, Indiana. CFBank's core value proposition lies in its commitment to "individualized service coupled with direct customer access to decision-makers, and ease of doing business," aspiring to match the "sophistication of much larger banks, without the bureaucracy."

The banking industry today is characterized by intense competition, rapid technological advancements, and evolving customer expectations. Larger regional players like Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), KeyCorp (KEY), and PNC Financial Services Group (PNC) dominate with expansive branch networks and substantial digital investment. These institutions typically exhibit stronger revenue growth and higher profitability margins due to their scale and diversified operations. Indirect competitors, including online banks like Ally Financial (ALLY) and fintech innovators such as Block (SQ), further intensify the landscape by offering streamlined digital experiences and often lower fees, challenging traditional banking models across the board.

Against this backdrop, CFBK carves out its niche by emphasizing relationship-based banking. While it may not boast the same scale or R&D budgets as its larger counterparts, its focus on local expertise and personalized service aims to foster deep customer loyalty and potentially command pricing power in its chosen markets. CFBank offers online banking, mobile banking, and remote deposit capabilities, which are crucial for meeting modern customer demands and supporting its "ease of doing business" differentiator. These digital tools, while not proprietary "core differentiated technology," are vital operational enablers that allow CFBK to deliver efficient services without the overhead of larger, more bureaucratic institutions. This strategic blend of high-touch service and accessible digital platforms is fundamental to its competitive positioning.

CFBK's historical journey, marked by a 2012 recapitalization and a 2018 private placement of subordinated notes, demonstrates a proactive approach to capital management. More recently, the company divested two portfolios of single-family residential loans totaling $18.1 million in Q1 2025, reflecting a dynamic approach to optimizing its loan book. This strategic agility, combined with its community focus, positions CFBK to capitalize on local economic growth, particularly in commercial and real estate sectors, while carefully managing its balance sheet.

Financial Resilience and Growth Momentum

CF Bankshares' financial performance in the first half of 2025 underscores its strategic effectiveness. For the three months ended June 30, 2025, net income reached $5.0 million, or $0.77 per diluted common share, a substantial increase from $1.7 million, or $0.26 per diluted common share, in Q2 2024. This growth was primarily fueled by a significant increase in net interest income and a decrease in provision for credit losses. For the six months ended June 30, 2025, net income totaled $9.5 million, or $1.45 per diluted common share, compared to $4.8 million, or $0.74 per diluted common share, in the prior year period.

Net interest income, the bedrock of CFBK's profitability, increased by $2.6 million (23.2%) to $14.0 million in Q2 2025, driven by a $1.6 million (8.9%) decrease in interest expense and a $1.0 million (3.6%) increase in interest income. The average cost of funds on interest-bearing liabilities decreased by 41 basis points, contributing significantly to this improvement. The net interest margin expanded by 44 basis points to 2.83% in Q2 2025, and by 37 basis points to 2.74% for the first six months of 2025, demonstrating effective interest rate management.

The loan portfolio saw strategic growth, with net loans and leases increasing by $32.8 million (1.9%) to $1.75 billion at June 30, 2025. This growth was largely concentrated in commercial and multi-family real estate loans, which collectively increased by $52.8 million. Home equity lines of credit, commercial and industrial loans, and construction loans also contributed to this expansion. This targeted growth reflects CFBK's focus on its core commercial and real estate segments.

Credit quality, a critical indicator for any bank, showed positive trends with the provision for credit losses expense decreasing by $2.2 million in Q2 2025 and $2.8 million for the six-month period compared to the prior year. Net charge-offs also saw a significant reduction, totaling $51,000 in Q2 2025 compared to $2.1 million in Q2 2024. While nonperforming loans increased slightly to $16.6 million (0.94% of total loans) at June 30, 2025, the overall level of total criticized and classified loans decreased by $5.0 million (15.1%), indicating diligent credit monitoring.

Noninterest income also contributed to the strong results, increasing by $362,000 (29.7%) in Q2 2025. This was primarily driven by a $196,000 increase in swap fee income, a $119,000 increase in gains on residential mortgage loan sales, and a $98,000 increase in service charges on deposit accounts. These diverse revenue streams highlight the company's ability to generate income beyond traditional lending.

Total assets grew by $68.0 million (3.3%) to $2.13 billion at June 30, 2025. This expansion was supported by a $54.1 million increase in deposits, with both interest-bearing and noninterest-bearing accounts contributing. The company also bolstered its capital, with a $10.0 million injection of additional Tier 1 capital into CFBank during Q2 2025 via an amended credit facility. This proactive capital management ensures the bank remains "well capitalized" under regulatory standards, providing a strong foundation for future growth.

Navigating Credit Quality and Market Dynamics

While CFBK's financial performance demonstrates strength, the banking sector inherently carries risks that warrant close attention. The company's results are significantly influenced by general economic conditions, market interest rates, and real estate values, particularly given its concentration in Ohio. Regulatory policies and actions also hold substantial sway, with authorities possessing broad discretion to impose restrictions or require increased allowance for credit losses.

A key area of focus for CFBK is its exposure to interest-only loans. These loans, primarily commercial lines of credit ($126.3 million, or 29.9% of the commercial portfolio) and home equity lines of credit ($41.9 million, or 97.8% of total home equity lines), carry a higher risk profile. A decline in collateral values without corresponding principal reductions could impact credit quality. Management acknowledges this, stating, "We believe the ACL - Loans is adequate to absorb current expected credit losses in the loan portfolio as of June 30, 2025 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."

In the competitive landscape, CFBK's smaller scale and more traditional operational model present vulnerabilities. Larger regional banks like HBAN and FITB, with their extensive digital investments and broader market reach, can often achieve greater operational efficiencies and offer more advanced digital solutions. This could make it challenging for CFBK to attract and retain deposits if it cannot match the convenience and speed offered by these larger players or agile fintechs. The company's ability to attract and retain deposits is directly affected by "rates offered by competing financial institutions," highlighting the constant pressure on its cost of funds.

Furthermore, dividend payments by the Holding Company are subject to banking regulations and the terms of its subordinated debentures and notes, which could limit financial flexibility. The existence of a federal income tax thrift bad debt reserve from before 1988 also presents a contingent tax liability if certain conditions, such as liquidation or changes in tax laws, were to occur.

Outlook: Reinforcing Shareholder Value

CF Bankshares' outlook remains positive, anchored by its strategic focus and recent achievements. Management expresses confidence in its liquidity position, believing that both the Holding Company and CFBank have sufficient funds to meet daily operating needs and execute strategic plans. The recent injection of $10.0 million in Tier 1 capital further strengthens this position.

The company's commitment to shareholder returns was prominently highlighted by the Board of Directors' declaration on July 1, 2025, of an $0.08 per share quarterly cash dividend on its common stock, representing a 14% increase over the previous quarter. This dividend increase, alongside its inclusion in the Russell 3000® Index, signals growing market confidence and recognition of CFBK's sustained performance and strategic trajectory. These developments are critical for attracting and retaining investor interest, reflecting a positive assessment of its financial health and future prospects.

CFBK's strategy of leveraging its community-centric model to attract closely held businesses and entrepreneurs, combined with a disciplined approach to loan growth and credit risk management, positions it for continued profitable expansion. The flexibility to manage its balance sheet, including the ability to "deploy those assets into higher earning assets to improve net interest income," provides optionality in varying economic cycles. While the company does not provide specific quantitative guidance figures, its actions and commentary indicate a focus on organic growth through its core lending segments, supported by prudent capital allocation and a commitment to enhancing shareholder value.

Conclusion

CF Bankshares Inc. stands as a compelling investment narrative, successfully transforming its legacy into a dynamic regional banking model. Its unwavering focus on individualized service for closely held businesses and entrepreneurs, coupled with a disciplined approach to financial management, has yielded impressive results in the first half of 2025. The significant growth in net interest income, expanding margins, and reduced credit loss provisions demonstrate operational effectiveness and strategic acuity.

While the competitive landscape, dominated by larger regional banks and innovative fintechs, presents ongoing challenges, CFBK's differentiation through personalized service and accessible digital tools provides a distinct advantage. The recent dividend increase and inclusion in the Russell 3000® Index are clear signals of its growing stature and commitment to shareholder returns. Investors should recognize CFBK as a regional bank with a clear strategy, strong financial momentum, and a proactive management team poised to capitalize on its unique market position, even as it diligently manages inherent banking risks and adapts to evolving industry dynamics.