8-K: CF Bankshares Inc. Addresses 'Needs to Improve' CRA Rating with Increased Lending to Lowand Moderate-Income Borrowers

CF Bankshares Inc. reports significant improvements in lending to lowand moderate-income (LMI) borrowers following a 'Needs to Improve' Community Reinvestment Act (CRA) rating, with a focus on new programs and initiatives.

Summary

• CF Bankshares Inc. received a 'Needs to Improve' rating from the Office of the Comptroller of the Currency (OCC) for its Community Reinvestment Act (CRA) performance for the 2020-2022 period.
• This rating was primarily attributed to the bank's legacy direct-to-consumer (DTC) national residential mortgage lending business, which was exited in 2021.
• Since 2022, CFBank has implemented several initiatives to improve its CRA performance, including launching a Low-Income Housing Credit Permanent Loan Program, lowering rates on smaller residential mortgage loans, and applying to be an enrolled lender with the Ohio Housing Finance Agency (OHFA).
• These efforts have resulted in a significant increase in lending to lowand moderate-income (LMI) geographies, with the assessment area distribution of residential mortgage loans in LMI areas increasing to 34.31% in 2023, up from 11.23% in 2020 and 12.50% in 2021.
• CFBank has also opened a new branch in a moderate-income area and converted a lending office into a full-service branch to better serve its communities.
• The company expects the OCC to begin its next CRA performance evaluation in 2026 and anticipates significant improvement in its rating.

Sentiment

Score: 7

Explanation: The document highlights significant improvements in lending to LMI borrowers, which is a positive development. However, the initial 'Needs to Improve' rating and the uncertainty of the next evaluation temper the overall sentiment.

Positives

• CFBank has significantly increased its lending in LMI geographies, with a jump to 34.31% in 2023.
• The bank has taken proactive steps to address the issues identified in the CRA evaluation, including new loan programs and branch expansions.
• The company has established a CRA working group to ensure ongoing improvement.
• CFBank is actively pursuing partnerships with organizations like the Ohio Housing Finance Agency (OHFA) to further support LMI housing.
• The bank is targeting first responders, health care workers, and teachers with first-time homebuyer loans.

Negatives

• CFBank received a 'Needs to Improve' CRA rating for the 2020-2022 period, which could impact future applications for acquisitions, mergers, or new branches.
• The 'Needs to Improve' rating was a result of the bank's previous direct-to-consumer mortgage lending business.

Risks

• The company cannot guarantee the outcome of its next CRA performance evaluation, despite expecting significant improvement.
• The 'Needs to Improve' rating could potentially hinder the company's ability to expand through acquisitions or new branches.
• There is a risk that the bank's efforts to increase lending to LMI borrowers may not be sufficient to achieve a satisfactory rating in the next evaluation.

Future Outlook

The company expects significant improvement in its CRA performance for the next evaluation period (2023 to 2025), but cannot guarantee the timing or outcome of the next CRA performance evaluation.

Management Comments

• The Company believes that the Needs to Improve rating was primarily attributable to CFBanks legacy direct-to-consumer (DTC) national residential mortgage lending business.
• The Company expects the OCC to begin its next CRA performance evaluation of CFBank in 2026.
• While the Company expects significant improvement in CFBanks performance for the next evaluation period (2023 to 2025), the Company cannot make any assurances as to the timing or outcome of its next CRA performance evaluation.

Industry Context

The CRA rating is a critical factor for banks, influencing their ability to expand through acquisitions, mergers, or new branches. CFBank's efforts to improve its rating reflect a broader industry focus on community development and responsible lending practices.

Comparison to Industry Standards

• The 'Needs to Improve' CRA rating is below the industry standard of 'Satisfactory' or 'Outstanding'.
• Many banks strive for a 'Satisfactory' or better rating to ensure smooth regulatory approvals for growth initiatives.
• The increase in LMI lending to 34.31% is a positive step, but the bank will need to demonstrate sustained improvement to meet industry benchmarks.
• Other banks with strong CRA ratings often have well-established community development programs and a consistent track record of lending to LMI borrowers.
• For example, banks like JPMorgan Chase and Bank of America have invested heavily in community development initiatives and have consistently received 'Outstanding' or 'Satisfactory' CRA ratings.

Stakeholder Impact

• Shareholders may view the increased lending to LMI borrowers positively, as it addresses regulatory concerns and could lead to improved future performance.
• Employees may be impacted by the new initiatives and programs aimed at increasing LMI lending.
• Customers in LMI areas will benefit from increased access to mortgage loans and banking services.
• The community will benefit from the bank's increased focus on community development and lending to LMI borrowers.

Next Steps

• CFBank will continue its efforts to increase lending to LMI borrowers.
• The company will continue to work with its CRA working group to address areas identified in the CRA performance evaluation.
• The company will await the next CRA performance evaluation by the OCC, expected to begin in 2026.

Key Dates

Keywords

Community Reinvestment Act, CRA, Low-Income Housing, Mortgage Lending, LMI Borrowers, CFBank, OCC, Residential Mortgage, Ohio Housing Finance Agency, Branch Expansion