Executive Summary

Q2 2024 EPS fell to $0.26 as a $3.6M provision for credit losses (driven by additional specific reserves on two noncore loan participations acquired from regional banks) outweighed a modest NIM improvement; adjusted diluted EPS would have been $0.65 excluding these reserves .
Core operating trends were resilient: NIM ticked up 3 bps sequentially to 2.39%, PPNR rose to $5.5M from $5.0M in Q1, and the efficiency ratio improved to 56.35% vs. 58.96% in Q1 .
Credit costs and asset quality metrics worsened on the noncore participations (NPLs rose to 0.64% of loans; net charge-offs $2.1M), while management emphasized continued strong performance in the core portfolio and expanding commercial pipelines across key markets .
No formal guidance was provided; the Board maintained the $0.06 quarterly dividend. We see near-term stock reaction hinging on clarity around the noncore participations and evidence of lower payoff activity translating to net loan growth in 2H24 .

What Went Well and What Went Wrong

What Went Well
- NIM expanded 3 bps q/q to 2.39%, reflecting a 9 bps increase in average yield on interest-earning assets and stable balance sheet dynamics q/q .
- Strong core earnings power: PPNR increased to $5.5M vs. $5.0M in Q1; efficiency ratio improved to 56.35% from 58.96% in Q1 .
- Fee momentum: service charges rose 64% y/y and 11% q/q; leadership in Treasury Management increased fee income by 64% y/y, with broader regional banking hiring driving pipeline growth. “We remain bullish about our business opportunities for the second half of 2024” .
What Went Wrong
- Elevated credit costs: provision for credit losses surged to $3.6M (vs. $1.2M in Q1), with $3.1M additional specific reserves on two acquired loan participations; net charge-offs were $2.1M .
- Asset quality metrics deteriorated: NPLs/loans rose to 0.64% (from 0.46% in Q1), and loans >30 days past due increased to $7.6M (from $5.4M in Q1) .
- Deposits declined $26.6M q/q; noninterest-bearing balances fell $19.1M q/q; FHLB/other debt increased $26.2M q/q, partly offsetting deposit outflows .

Financial Results

Metric	Q2 2023	Q1 2024	Q2 2024
Net Interest Income ($MM)	$11.49	$11.28	$11.37
Noninterest Income ($MM)	$0.98	$0.91	$1.22
Provision for Credit Losses ($MM)	$0.01	$1.24	$3.56
Net Income ($MM)	$4.22	$3.07	$1.70
Diluted EPS ($)	$0.66	$0.47	$0.26
PPNR ($MM, Non-GAAP)	$5.29	$5.00	$5.49
NIM (FTE, %)	2.52%	2.36%	2.39%
Efficiency Ratio (%)	57.55%	58.96%	56.35%
ROA (annualized, %)	0.88%	0.61%	0.34%
ROE (annualized, %)	11.60%	7.80%	4.23%

KPIs and Balance Sheet

Metric	Q2 2023	Q1 2024	Q2 2024
Deposits ($MM, EOP)	$1,660.1	$1,723.1	$1,696.5
Noninterest-Bearing Deposits ($MM, EOP)	$217.0	$236.8	$217.8
Interest-Bearing Deposits ($MM, EOP)	$1,443.1	$1,486.2	$1,478.7
FHLB Advances & Other Debt ($MM, EOP)	$110.0	$111.0	$137.2
Stockholders’ Equity ($MM, EOP)	$147.3	$158.0	$159.6
Cash & Equivalents ($MM, EOP)	$231.6	$236.9	$241.8
Nonperforming Loans ($MM)	$0.80	$7.90	$10.91
NPLs / Total Loans (%)	0.05%	0.46%	0.64%
ACL / Loans (%)	0.97%	1.06%	1.13%
Net Charge-offs ($MM)	$(0.11)	$(0.02)	$2.11

Additional Operating Details

Notional loans sold: $3.17M (Q2’23), $9.04M (Q1’24), $10.84M (Q2’24) .
Uninsured deposits: 29.2% (Dec-23), 29.8% (Mar-24), 28.6% (Jun-24) of total deposits .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Quarterly Dividend per Share	Q3 2024 payout (declared Jul-1)	$0.06 (Q1 2024)	$0.06 (declared, paid Jul-19, 2024)	Maintained

Note: No formal quantitative guidance (revenue, margins, OpEx, tax rate, etc.) was provided; management highlighted expectations for fewer loan payoffs ahead and stronger net loan growth, and remained “bullish” on 2H24 opportunities .

Earnings Call Themes & Trends

No Q2 2024 earnings call transcript was available in our document set; themes below reflect management commentary from Q2 press release and prior quarter releases .

Topic	Previous Mentions (Q4’23 and Q1’24)	Current Period (Q2’24)	Trend
NIM trajectory	Q1: “remained relatively stable,” down 8 bps q/q to 2.36%; seeing signs of stabilization . Q4: NIM 2.44%, stable sequentially .	NIM up 3 bps q/q to 2.39% on higher asset yields .	Stabilizing to slightly improving q/q.
Credit quality	Q4: minimal losses historically; charge-offs concentrated in trucking; reserves adequate . Q1: “credit quality remains strong in core customer portfolios” .	Provision elevated by $3.1M specific reserves on two noncore participations; core metrics remain solid (core 30+ DPD 0.23%) .	Noncore-driven stress; core stable.
Loan growth & pipelines	Q4: loans +$34M q/q; strong opportunities . Q1: new production $37.3M; net growth offset by payoffs; expect improved interest income with higher pricing .	New production $16.8M; expect fewer payoffs → stronger net loan growth ahead .	Pipeline building; net growth expected in 2H.
Fee income	Q4: traction in salable mortgage, treasury mgmt, credit cards . Q1: fee growth opportunities in treasury mgmt and mortgage .	Service charges +64% y/y; treasury mgmt fee income +64% y/y .	Positive momentum.
Deposits & funding	Q4: deposits +$59M; NIB +$22M . Q1: core deposits +$30.8M; brokered down $51.1M .	Deposits −$26.6M q/q; uninsured % down to 28.6%; FHLB/other debt +$26.2M q/q .	Mixed; reliance on wholesale up q/q.
Capital	Tier 1 leverage 9.76% (Q4) → 10.05% (Q1) .	10.11% (Q2) .	Improving modestly.

Management Commentary

“Net After Tax Consolidated Earnings for Q2 were $1.7 million (or $0.26 per diluted common share), which included the impact from $3.6 million in elevated loan provision expense… related mostly to two acquired loan participations… led by regional banks.”
“Our core customer loan book continues to perform well… core loans past due 30+ days equaled 0.23% of core loans and core classified assets equaled 0.13% of core assets.”
“Commercial loan generation and loan pipelines remain strong… we foresee lessening amounts of loan payoff’s, which would contribute to stronger net loan growth performance.”
“New leadership in Treasury Management has increased fee income by 64% year over year.”
Chairman: “Our underpinning business fundamentals remain very strong… business model… resonates strongly with entrepreneurs and closely held businesses.” .

Q&A Highlights

No Q2 2024 earnings call transcript was available in our document set, so there are no Q&A highlights to report this quarter [ListDocuments: earnings-call-transcript = 0].

Estimates Context

We attempted to retrieve S&P Global consensus estimates for EPS and revenue for Q2 2024, Q1 2024, and Q2 2023, but the request failed due to a data-source limit today; coverage for micro-cap community banks can also be sparse. As a result, we cannot assess beats/misses versus Wall Street consensus this quarter using S&P Global data [SPGI error: Daily Request Limit of 250000 Exceeded].

Key Takeaways for Investors

Core earnings capacity intact: PPNR improved q/q and NIM edged higher, signaling stabilization in the rate backdrop and pricing, even as balance sheet averages were roughly flat q/q .
Noncore credit events are the primary earnings swing factor near term; resolution path and any additional reserve needs for the two participations will likely drive stock volatility .
Asset quality in the core book remains sound with low delinquency/criticism rates; watchlisted noncore items are ring-fenced by management and disclosed via non-GAAP core metrics .
Funding mix bears monitoring: deposits declined and wholesale borrowings rose q/q; further progress on core deposit growth (and mix) could support NIM durability and reduce funding beta risk .
Fee income trajectory is improving, led by treasury management; incremental fee growth diversifies revenue and supports the efficiency ratio if sustained .
Capital continues to build modestly; dividend maintained at $0.06 per share, indicating confidence in capital and earnings power through transition .
Setup into 2H24: if payoffs abate as expected and pipelines convert, net loan growth plus NIM stability could lift earnings ex-credit; conversely, additional noncore credit costs would pressure reported EPS despite solid PPNR .

CF BANKSHARES INC. (CFBK)·Q2 2024 Earnings Summary