Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Statements in this Form 10-K that are not statements of historical fact are forward-looking statements 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 share of common stock, capital structure and other financial items; (2) plans and objectives of the management or Boards of Directors of Holding Company or CFBank; (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 set forth in the section captioned "RISK FACTORS" in Part I, Item 1A of this Form 10-K.

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 Form 10-K 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.

CONDENSED CONSOLIDATED FINANCIAL DATA

The following information is derived from and should be read in conjunction with our audited Consolidated Financial Statements, the related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.

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Business Overview

The Holding Company is a bank 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 subject to regulation and supervision by the Federal Reserve Board (the "Federal Reserve"). Effective as of July 27, 2020, the Holding 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, and full-service commercial and retail banking services and products. CFBank seeks to differentiate itself from its competitors by providing individualized service coupled with direct customer access to decision-makers, and ease of doing business. We believe that CFBank matches the sophistication of much larger banks, without the bureaucracy. CFBank also offers its clients the convenience of online banking, mobile banking and remote deposit capabilities.

Most of our deposits and loans come from our market area. Our principal market area for deposits and loans includes the following counties in Ohio and Indiana: Franklin County, Ohio through our offices in Columbus, Ohio; Delaware County, Ohio through our Polaris office in Columbus, Ohio; Cuyahoga County, Ohio through our office in Orange Village, Ohio and our Ohio City office in Cleveland, Ohio; Summit County, Ohio through our office in Fairlawn, Ohio; Hamilton County, Ohio through our offices in Blue Ash, Ohio and our Red Bank office in Cincinnati, Ohio; and Marion County, Indiana through our office in Indianapolis, Indiana. 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.

Critical Accounting Policies and Estimates

We follow financial accounting and reporting policies that are in accordance with GAAP and conform to general practices within the banking industry. These policies are presented in Note 1 to our Consolidated 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 the following accounting policy as a critical accounting policy, and an understanding of this policy is necessary to understand our financial statements. The following discussion details the critical accounting policy and the nature of the estimates made by management.

Determination of the allowance for credit losses on loans (ACL - Loans) . The ACL - Loans represents the Company's best estimate of current expected credit losses (CECL) on loans and leases using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The CECL calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan. The level of the ACL - Loans is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.

In calculating the ACL - Loans, the loan portfolio was pooled into loan segments with similar risk characteristics. Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns. In developing the loan segments, the Company analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors.

The expected credit losses are measured over the life of each loan segment utilizing the average charge-off methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio. This approach is also leveraged to estimate the expected credit losses associated with unfunded loan commitments incorporating expected utilization rates.

The Company sub-segmented certain commercial portfolios by risk level where appropriate. The Company utilized a one-year reasonable and supportable economic forecast period.

The Company qualitatively adjusts model results for risk factors that are not inherently considered in the historical losses, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in economic conditions, (ii) changes in the nature and volume of the loan portfolio, (iii) changes in the existence, growth and effect of any concentrations in credit, (iv) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (v) changes in the quality of the credit review function, (vi) changes in the experience, ability and depth of lending management and staff, (vii) changes in the volume and severity of past due and adversely classified loans and the volume of non-accrual loans, (viii) changes in the value of underlying collateral for collateral-dependent loans, and (ix) other environmental factors such as regulatory, legal and technological considerations, as well as competition.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis. Based on the variables involved and the fact that management must make judgments about outcomes that are inherently uncertain, the determination of the ACL - Loans is considered to be a critical accounting policy. Additional information regarding this policy is included in the section titled "Financial Condition - Allowance for Credit Losses on Loans" and in Notes 1, 4 and 6 to the Consolidated Financial Statements included in this Form 10-K.

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 credit 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 credit 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 $2.1 billion at December 31, 2025 and increased $51.8 million, or 2.5%, from $2.1 billion at December 31, 2024. The increase was primarily due to a $23.7 million increase in cash and cash equivalents and a $16.8 million increase in net loan balances.

Cash and cash equivalents. Cash and cash equivalents totaled $259.0 million at December 31, 2025, and increased $23.7 million, or 10.1%, from $235.3 million at December 31, 2024. The increase in cash and cash equivalents was primarily attributed to an increase in deposit balances and FHLB advances and other borrowings, partially offset by the increase in net loan balances.

Securities.Securities available for sale totaled $17.5 million at December 31, 2025, and increased $8.8 million, or 101.5%, compared to $8.7 million at December 31, 2024. The increase was primarily due to the purchase of a new security, partially offset by principal maturities. Equity securities totaled $0 at December 31, 2025 and $5.0 million at December 31, 2024. The decline in equity securities was due to the sale of the security during 2025.

Loans held for sale.Loans held for sale totaled $5.6 million at December 31, 2025 and increased $3.0 million, or 113.9%, from $2.6 million at December 31, 2024.

Loans and Leases.Net loans and leases totaled $1.74 billion at December 31, 2025 and increased $16.8 million, or 1.0%, from $1.72 billion at December 31, 2024. The increase in net loans and leases from December 31, 2024, was primarily due to a $73.9 million increase in commercial real estate loan balances, a $20.5 million increase in Multi-family residential loan balances, a $6.8 million increase in construction loan balances, and a $2.5 million increase in home equity lines of credit balances, partially offset by a $49.4 million decrease in commercial and industrial (C&I) loan balances and a $37.6 million decrease in single-family residential loan balances. The decrease in single-family residential loan balances included the sale of two portfolios of loans in the first quarter of 2025 totaling $18.1 million.

Allowance for Credit Losses on Loans (ACL - Loans).The ACL - Loans totaled $17.7 million at December 31, 2025, and increased $204,000, or 1.2%, from $17.5 million at December 31, 2024. The increase in ACL - Loans is due to $7.5 million in loan provision expense, partially offset by $7.3 million in net charge-offs during the year ended December 31, 2025. The ratio of the ACL - Loans to total loans was 1.01% at December 31, 2025, compared to 1.0% at December 31, 2024.

The ACL - Loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on loans over the expected remaining life. Loans are charged off against the allowance when the uncollectibility of the loan is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Adjustments to the ACL - Loans are reported in the income statement as a component of provision for credit loss. The Company has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding the policies and methodology used to estimate the ACL - Loans is detailed in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.

Individually evaluated loans totaled $12.4 million at December 31, 2025, and decreased $437,000, or 3.4%, from $12.8 million at December 31, 2024. The amount of the ACL - Loans specifically calculated for individually evaluated loans totaled $2.8 million at December 31, 2025 and $2.3 million at December 31, 2024.

The reserve on individually evaluated 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 individually evaluated loan to determine whether it should have a 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 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 $15.3 million at December 31, 2025, and increased $282,000 from $15.0 million at December 31, 2024. The increase in nonperforming loans in 2025 compared to 2024 was primarily driven by nine commercial loans, totaling $2.7 million, two commercial real estate loans, totaling $5.2 million, four single-family residential loans, totaling $913,000, and one home equity line of credit, totaling $87,000, becoming nonaccrual during the year ended December 31, 2025, partially offset by paydowns and approximately $7.1 million in charges-offs on loans that were in nonaccrual at December 31, 2024. The ratio of nonperforming loans to total loans was 0.87% at December 31, 2025 compared to 0.87% at December 31, 2024.

The following table presents information regarding the number and balance of nonperforming loans at December 31, 2025 and December 31, 2024:

During the year ended December 31, 2025, the Company did not modify any loans, where the borrower was experiencing financial difficulty. During the year ended December 31, 2024, the Company modified one commercial loan, with an amortized cost basis of $4.3 million at December 31, 2024, where the borrower was experiencing financial difficulty. The loan was modified to defer principal and interest payments, increase the interest rate, extend the maturity date and institute a minimum EBITDA covenant.

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 the Consolidated Financial Statements included in this Form 10-K for additional information regarding the regulatory asset classifications.

The level of total criticized and classified loans decreased by $4.3 million, or 13.0%, during the year ended December 31, 2025. Loans designated as special mention increased $72,000, or 0.4%, and totaled $18.5 million at December 31, 2025, compared to $18.5 million at December 31, 2024. Loans classified as substandard decreased $4.3 million and totaled $9.9 million at December 31, 2025, compared to $14.2 million at December 31, 2024. Loans designated as doubtful totaled $385,000 at December 31, 2025 and December 31, 2024. See Note 4 to the Consolidated Financial Statements included in this Form 10-K 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 increased $472,000 and totaled $12.9 million at December 31, 2025, compared to $12.5 million at December 31, 2024. Past due loans totaled 0.7% of the loan portfolio at December 31, 2025 and December 31, 2024. See Note 4 to the Consolidated Financial Statements 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 $111.2 million, or 30.1% of CFBank's commercial loan portfolio at December 31, 2025, compared to $131.2 million, or 31.3%, at December 31, 2024. Interest only home equity lines of credit totaled $41.1 million, or 98.5% of the total home equity lines of credit, at December 31, 2025 compared to $38.8 million, or 98.1%, at December 31, 2024.

We believe the ACL - Loans is adequate to absorb current expected credit losses in the loan portfolio as of December 31, 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. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the ACL - Loans. Such agencies may require additional provisions for credit 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 credit 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. There were no foreclosed assets at December 31, 2025 or December 31, 2024. The Company acquired a single-family residential property during the first quarter of 2025 by obtaining a deed in lieu of foreclosure. The property, which was valued at $524,000, was sold during the third quarter of 2025. 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.

Premises and equipment. Premises and equipment, net, totaled $3.5 million at December 31, 2025, and increased $11,000, or 0.3%, from $3.5 million at December 31, 2024. See Note 8 to the Consolidated Financial Statements included in this Form 10-K for additional information.

Deposits. Deposits totaled $1.78 billion at December 31, 2025, an increase of $24.9 million, or 1.4%, from $1.76 billion at December 31, 2024. The increase was primarily due to a $13.0 million increase in interest-bearing account balances, coupled with an $11.9 million increase in noninterest-bearing accounts balances.

At December 31, 2025, approximately 29.5% of our deposit balances exceeded the FDIC insurance limit of $250,000, as compared to approximately 29.8% at December 31, 2024.

CFBank is a participant in the Certificate of Deposit Account Registry Service® (CDARS) and Insured Cash Sweep (ICS) programs offered through IntraFi Network. IntraFi 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 $400.4 million at December 31, 2025, and decreased $20.4 million, or 4.9%, from $420.8 million at December 31, 2024. Customer balances in the CDARS reciprocal and ICS reciprocal programs, which do not qualify as brokered, totaled $278.7 million at December 31, 2025 and increased $7.0 million, or 2.6%, from $271.7 million at December 31, 2024.

FHLB advances and other debt. FHLB advances and other debt totaled $101.0 million at December 31, 2025, a increase of $8.3 million when compared to $92.7 million at December 31, 2024. The increase was primarily due to a $10 million increase in the outstanding balance on the Holding Company's credit facility.

The Holding Company has a credit facility with a third-party bank. Prior to April 30, 2025, the credit facility had a borrowing limit of $35 million with a revolving feature until May 21, 2024, at which time the outstanding balance was converted to a 10-year term note on a graduated 10-year amortization. Borrowings on the credit facility bore interest at a fixed rate of 3.85% until May 21, 2026, at which time the interest rate then would convert to a floating rate equal to PRIME with a floor of 3.25%. Effective April 30, 2025, an additional $10 million revolving line of credit was added to the credit facility and the interest rate was amended to reset the fixed rate to 6.00% until May 21, 2026, at which time the rate will convert to a floating rate equal to PRIME. The $10 million revolving line of credit matures on April 30, 2027. The revolving line of credit provided an additional $10 million that was injected as additional Tier 1 capital into CFBank during the second quarter of 2025. As of December 31, 2025, the Company had an outstanding balance, net of unamortized debt issuance costs, of $43.0 million on the facility.

At December 31, 2025 and 2024, 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 December 31, 2025 or December 31, 2024.

Subordinated debentures Subordinated debentures totaled $15.0 million at December 31, 2025 and December 31, 2024. 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 December 31, 2025 and December 31, 2024. See Note 11 to the Consolidated Financial Statements included in this Form 10-K for additional information.

Stockholders' equity. Stockholders' equity totaled $184.4 million at December 31, 2025, an increase of $16.0 million, or 9.5%, from $168.4 million at December 31, 2024. The increase in total stockholders' equity was primarily attributed to net income, partially offset by $1.9 million in dividend payments.

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 improving results from operations; 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 below.

Comparison of Results of Operations for 2025 and 2024

General.Net income for the year ended December 31, 2025 totaled $17.5 million (or $2.69 per diluted common share) and increased $4.1 million, or 31.0%, compared to net income of $13.4 million (or $2.06 per diluted common share) for the year ended December 31, 2024. The increase in net income was primarily due to an increase in net interest income and an increase in noninterest income, which was partially offset by an increase in provision expense and an increase in noninterest expense.

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 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 $55.0 million for the year ended December 31, 2025 and increased $8.4 million, or 18.0%, compared to net interest income of $46.6 million for the year ended December 31, 2024. The increase in net interest income was primarily due to a $6.8 million, or 9.4%, decrease in interest expense, coupled with a $1.6 million, or 1.4%, increase in interest income. The decrease in interest expense was attributed to a 46bps decrease in the average cost of funds on interest-bearing liabilities, partially offset by a $12.2 million, or 0.8%, increase in average interest-bearing liabilities. The increase in interest income was primarily attributed to a $68.7 million, or 3.6%, increase in average interest-earning assets outstanding, partially offset by a 13bps decrease in the average yield on interest-earning assets. The net interest margin of 2.77% for the year ended December 31, 2025 increased 34bps compared to the net interest margin of 2.43% for the year ended December 31, 2024.

Interest income totaled $120.0 million for the year ended December 31, 2025, and increased $1.6 million, or 1.4%, compared to $118.4 million for the year ended December 31, 2024. The increase in interest income was primarily attributed to a $39.6 million, or 2.3%, increase in average loans and leases and loans held for sale.

Interest expense totaled $65.0 million for the year ended December 31, 2025, and decreased $6.8 million, or 9.4%, compared to $71.7 million for the year ended December 31, 2024. The decrease in interest expense was primarily attributed to a 56bps decrease in the average rate of interest-bearing deposits, partially offset by a $24.9 million, or 1.7%, increase in average interest-bearing deposits.

Provision for credit losses. The provision for credit losses expense for the year ended December 31, 2025 was $8.2 million, and increased $1.5 million, or 22.4%, compared to $6.7 million for the year ended December 31, 2024. Net charge-offs for the year ended December 31, 2025 totaled $7.3 million, compared to net charge-offs of $5.5 million for the year ended December 31, 2024. The increase in charge-offs was driven by the full charge-off of a non-core loan in 2025 totaling $7.0 million. This loan relationship has no remaining book balance.

The following table presents information regarding net charge-offs (recoveries) for 2025 and 2024 (in thousands):

See the section above titled "Financial Condition - Allowance for Credit Losses on Loans" for additional information.

Noninterest income.Noninterest income for the year ended December 31, 2025 totaled $5.9 million and increased $752,000, or 14.5%, compared to $5.2 million for the year ended December 31, 2024. The increase was primarily due to a $371,000, or 14.8%, increase in service charges on deposit accounts.

Noninterest expense. Noninterest expense for the year ended December 31, 2025 totaled $31.2 million and increased $2.3 million, or 7.7%, compared to $28.9 million for the year ended December 31, 2024. The increase in noninterest expense during the year ended December 31, 2025 was primarily due to a $1.5 million increase in salaries and employee benefits expense and a $428,000 increase in professional fee expense.

Income taxes.Income tax expense was $4.0 million for the year ended December 31, 2025, an increase of $1.2 million, compared to $2.8 million for the year ended December 31, 2024. The effective tax rate for the year ended December 31, 2025 was approximately 18.5%, as compared to approximately 17.1% for the year ended December 31, 2024.

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 December 31, 2025 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, historic tax credits, bank owned life insurance and other miscellaneous items.

Comparison of Results of Operations for 2024 and 2023

General.Net income for the year ended December 31, 2024 totaled $13.4 million (or $2.06 per diluted common share) and decreased $3.5 million, or 21.0%, compared to net income of $16.9 million (or $2.63 per diluted common share) for the year ended December 31, 2023. The decrease in net income was primarily due to an increase in provision expense, a decrease in net interest income and an increase in noninterest expense, which was partially offset by an increase 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 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 $46.6 million for the year ended December 31, 2024 and decreased $996,000, or 2.1%, compared to net interest income of $47.6 million for the year ended December 31, 2023. The decrease in net interest income was primarily due to a $11.1 million, or 18.3%, increase in interest expense, partially offset by a $10.1 million, or 9.3%, increase in interest income. The increase in interest expense was attributed to a 55bps increase in the average cost of funds on interest-bearing liabilities, coupled with a $57.5 million, or 3.8%, increase in average interest-bearing liabilities. The increase in interest income was primarily attributed to a 28bps increase in the average yield on interest-earning assets, coupled with a $79.3 million, or 4.3%, increase in average interest-earning assets outstanding. The net interest margin of 2.43% for the year ended December 31, 2024 decreased 16bps compared to the net interest margin of 2.59% for the year ended December 31, 2023.

Interest income totaled $118.4 million for the year ended December 31, 2024, and increased $10.1 million, or 9.3%, compared to $108.3 million for the year ended December 31, 2023. The increase in interest income was primarily attributed to a 31bps increase in the average yield on loans and leases and loans held for sale, coupled with a $67.3 million, or 4.1%, increase in average loans and leases and loans held for sale.

Interest expense totaled $71.7 million for the year ended December 31, 2024, and increased $11.1 million, or 18.3%, compared to $60.6 million for the year ended December 31, 2023. The increase in interest expense was primarily attributed to a 58bps increase in the average rate of interest-bearing deposits, coupled with a $58.1 million, or 4.2%, increase in average interest-bearing deposits.

Provision for credit losses. The provision for credit losses expense for the year ended December 31, 2024 was $6.7 million, and increased $4.4 million, or 190.8%, compared to $2.3 million for the year ended December 31, 2023. Net charge-offs for the year ended December 31, 2024 totaled $5.5 million, compared to net charge-offs of $646,000 for the year ended December 31, 2023.

The following table presents information regarding net charge-offs (recoveries) for 2024 and 2023 (in thousands):

See the section above titled "Financial Condition - Allowance for Credit Losses on Loans" for additional information.

Noninterest income.Noninterest income for the year ended December 31, 2024 totaled $5.2 million and increased $1.2 million, or 28.4%, compared to $4.0 million for the year ended December 31, 2023. The increase was primarily due to a $939,000, or 60.0%, increase in service charges on deposit accounts.

Noninterest expense. Noninterest expense for the year ended December 31, 2024 totaled $28.9 million and increased $569,000, or 2.0%, compared to $28.4 million for the year ended December 31, 2023. The increase in noninterest expense during the year ended December 31, 2024 was primarily due to a $781,000 increase in loan expense.

Income taxes.Income tax expense was $2.8 million for the year ended December 31, 2024, a decrease of $1.2 million, compared to $4.0 million for the year ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was approximately 17.1%, as compared to approximately 19.3% for the year ended December 31, 2023. The reduction in the effective tax rate for the year ended December 31, 2024 was a result of a decrease in pre-tax net income combined with an increase in the benefits received from tax-credit investments and tax exempt income.

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 December 31, 2024 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, historic tax credits, bank owned life insurance and other miscellaneous items.

Average Balances, Interest Rates and Yields. The following table presents, 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.

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 the 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.

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.

The following table summarizes CFBank's cash available from liquid assets and borrowing capacity at December 31, 2025 and 2024.

Cash, unpledged securities and deposits in other financial institutions increased $35.4 million, or 14.8%, to $273.3 million at December 31, 2025, compared to $237.9 million at December 31, 2024. The increase was primarily attributed to an increase in deposits and an increase in FHLB borrowings and other debt, partially offset by an increase in net loans.

CFBank's additional borrowing capacity with the FHLB decreased $1.9 million, or 1.0%, to $184.4 million at December 31, 2025, compared to $186.3 million at December 31, 2024.

CFBank's additional borrowing capacity at the FRB decreased $5.1 million, or 4.0%, to $122.4 million at December 31, 2025 from $127.4 million at December 31, 2024. 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 December 31, 2025 and December 31, 2024.

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.

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 December 31, 2025 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 $385,000. Prior to July 1, 2023, the subordinated debentures had a variable rate of interest, which reset quarterly, equal to the three-month London Interbank Offered Rate (LIBOR) plus 2.85%. Effective July 1, 2023, the rate of interest on the subordinated debentures resets quarterly to the three-month Secured Overnight Financing Rate (SOFR) plus 3.112%, which was 6.80% at December 31, 2025.

Currently, the annual debt service on the Company's $10 million of fixed-to-floating rate subordinated notes is approximately $875,000. The subordinated notes initially bore a fixed rate of 7.00% until December 2023, and now the interest rate resets quarterly to a rate equal to the current three-month SOFR plus 4.402%, which was 8.09% at December 31, 2025.

The Holding Company has a credit facility with a third-party bank. Prior to April 30, 2025, the credit facility had a borrowing limit of $35 million with a revolving feature until May 21, 2024, at which time the outstanding balance was converted to a 10-year term note on a graduated 10-year amortization. Borrowings on the credit facility bore interest at a fixed rate of 3.85% until May 21, 2026, at which time the interest rate would convert to a floating rate equal to PRIME with a floor of 3.25%. Effective April 30, 2025, an additional $10 million revolving line of credit was added to the credit facility and the interest rate was amended to reset the fixed rate to 6.00% until May 21, 2026, at which time the rate will convert to a floating rate equal to PRIME. The $10 million revolving line of credit matures on April 30, 2027. The revolving line of credit provided an additional $10 million that was injected as additional Tier 1 capital into CFBank during the second quarter of 2025. At December 31, 2025, the Company had an outstanding balance, net of unamortized debt issuance costs, of $43.0 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 regulatory 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 2025. 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.

Impact of Inflation

The financial statements and related data presented herein have been prepared in accordance with GAAP, which presently require us to measure financial position and results of operations primarily in terms of historical dollars. Changes in the relative value of money due to inflation are generally not considered. In our opinion, changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate. While interest rates are generally influenced by changes in the inflation rate, they do not move concurrently. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as changes in monetary and fiscal policy. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its ability to perform in a volatile economic environment. In an effort to protect performance from the effects of interest rate volatility, we review interest rate risk frequently and take steps to minimize detrimental effects on profitability.