UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended September 30, 1998
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
---------------------- ------------------------
Commission file number 000-23423
---------------------------------------------------------
C&F Financial Corporation
- -------------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Virginia 54-1680165
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Eighth and Main Streets West Point VA 23181
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (804) 843-2360
----------------------------------------------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable
date: 3,863,588 as of November 10, 1998.
-------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997.......................................................1
Consolidated Statements of Income -
Three months and nine months ended September 30, 1998 and 1997.................................2
Consolidated Statements of Shareholders' Equity
Nine months ended September 30, 1998 ..........................................................3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997..................................................4
Notes to Consolidated Financial Statements.........................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ......................................................................5
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................11
Part II - Other Information
Item 1. Legal Proceedings ................................................................................11
Item 2. Changes in Securities ............................................................................11
Item 3. Defaults Upon Senior Securities...................................................................11
Item 4. Submission of Matters to a Vote of Security Holders ..............................................11
Item 5. Other Information ................................................................................11
Item 6. Exhibits and Reports on Form 8-K..................................................................11
Signatures ..................................................................................................12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS September 30, 1998 December 31, 1997
- ------ ------------------ -----------------
(Unaudited)
Cash and due from banks $ 6,925 $ 7,844
Interest -bearing deposits in other banks 4,014 1,027
----------- -----------
Total cash and cash equivalents 10,939 8,871
Investment securities
Available for sale securities at fair value,
amortized cost of $28,048 and $29,498,
respectively 28,636 29,793
Held to maturity at amortized cost,
fair value of $41,655 and $47,686,
respectively 39,370 45,927
Loans held for sale, net 47,498 24,479
Loans, net 159,816 154,745
Federal Home Loan Bank stock 1,706 1,062
Corporate premises and equipment,
net of accumulated depreciation 6,463 6,581
Accrued interest receivable 2,218 2,196
Other assets 4,190 4,452
----------- -----------
Total assets $ 300,836 $ 278,106
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest-bearing demand deposits $ 45,968 $ 35,295
Savings and interest-bearing demand deposits 93,045 95,105
Time deposits 107,380 101,113
----------- -----------
Total deposits 246,393 231,513
Other borrowings 12,070 9,336
Accrued interest payable 717 592
Other liabilities 5,919 4,865
----------- -----------
Total liabilities 265,099 246,306
----------- -----------
Shareholders' Equity
Preferred stock ($1.00 par value,
3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000 shares
authorized, 3,863,588 and 1,916,190 shares
issued and outstanding at September 30, 1998
and December 31, 1997, respectively) 3,864 1,916
Additional paid-in capital 385 118
Retained earnings 30,794 29,236
Accumulated other comprehensive
income, net of tax of
$358 and $273, respectively 694 530
----------- -----------
Total shareholders' equity 35,737 31,800
----------- -----------
Total liabilities and
shareholders' equity $ 300,836 $ 278,106
=========== ===========
The Company's notes are an integral part of the consolidated financial
statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except for per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Interest Income 1998 1997 1998 1997
---- ---- ---- ----
Interest and fees on loans $ 4,539 $ 3,839 $ 13,114 $ 10,731
Interest on other market investments 28 13 45 59
Interest on investment securities
U.S. Treasury Securities 50 50 149 149
U.S. Government agencies and corporations 490 549 1,747 1,846
Tax-exempt obligations of states and political
subdivisions 529 494 1,562 1,540
Corporate bonds and other 120 68 317 282
------------- ------------- ------------- -------------
Total interest income 5,756 5,013 16,934 14,607
Interest Expense
Savings and interest-bearing deposits 683 689 2,041 2,009
Certificates of deposit, $100,000 or more 205 102 591 318
Other time deposits 1,178 1,173 3,429 3,336
Short-term borrowings and other 442 86 1,181 265
------------- ------------- ------------- -------------
Total interest expense 2,508 2,050 7,242 5,928
Net interest income 3,248 2,963 9,692 8,679
Provision for loan losses 175 75 425 165
------------- ------------- ------------- -------------
Net interest income after provision for loan losses 3,073 2,888 9,267 8,514
Other Operating Income
Gain on sale of loans 2,108 1,263 5,250 2,634
Service charges on deposit accounts 250 249 767 749
Other service charges and fees 485 301 1,310 725
Other income 282 167 777 437
------------- ------------- ------------- -------------
Total other operating income 3,125 1,980 8,104 4,545
Other Operating Expenses
Salaries and employee benefits 2,180 1,721 5,964 4,546
Occupancy expenses 504 449 1,509 1,290
Goodwill amortization 69 69 206 206
Other expenses 1,085 811 3,166 2,147
------------- ------------- ------------- -------------
Total other operating expenses 3,838 3,050 10,845 8,189
Income before income taxes 2,360 1,818 6,526 4,870
Income tax expense 687 484 1,802 1,139
------------- ------------- ------------- -------------
Net Income $ 1,673 $ 1,334 $ 4,724 $ 3,731
============= ============= ============= =============
Per Share Data
Net Income - Assuming Dilution $ .43 $ .35 $ 1.21 $ .94
Cash Dividends Paid and Declared $ .11 $ .09 $ .32 .26
Weighted average number of shares and
common stock equivalents outstanding 3,929,414 3,841,174 3,917,936 3,984,428
The Company's notes are an integral part of the consolidated financial
statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands of dollars)
<CAPTION>
Accumulated
Additional Other
Common Pain-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
----- ------- ------ -------- ------ -----
Balance January 1, 1998 $ 1,916 $ 118 $ 29,236 $ 530 $ 31,800
Comprehensive Income
Net income $ 4,724 4,724 4,724
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment(1) 164 164 164
---------
Comprehensive income $ 4,888
==========
Stock options exercised 16 267 283
Stock dividends 1,932 (1,932)
Cash dividends (1,234) (1,234)
------- ------ ---------- ------- ----------
Balance September 30, 1998 $ 3,864 $ 385 $ 30,794 $ 694 $ 35,737
======== ====== ========= ======= =========
---------------------------
(1) There were no reclassification adjustments for the nine months ended September 30, 1998.
The Company's notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 4,724 $ 3,731
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 718 635
Amortization of goodwill 206 206
Provision for loan losses 425 165
Accretion of discounts and amortization of
premiums on investment securities, net (33) (72)
Net realized (gain) loss on securities -- 7
Proceeds from sale of loans 346,981 187,115
Origination of loans held for sale (370,000) (198,321)
Change in other assets and liabilities:
Accrued interest receivable (22) 221
Other assets 20 (541)
Accrued interest payable 124 127
Other liabilities 1,005 194
---------- ----------
Net cash (used in) operating activities (15,852) (6,533)
---------- ----------
Cash flows from investing activities:
Proceeds from maturities of investments
held to maturity 14,758 18,198
Proceeds from sales and maturities of
investments available for sale 9,113 5,577
Purchase of investment securities (2,573) (2,250)
Purchase of investments available for sale (13,303) (8,942)
Net decrease (increase) in customer loans (5,496) (14,817)
Purchase of corporate premises and equipment (599) (1,049)
Proceeds from sale of corporate premises and equipment -- 170
Purchase of Federal Home Loan Bank stock (644) (205)
---------- ----------
Net cash provided by (used in) investing activities 1,256 (3,318)
---------- ----------
Cash flows from financing activities:
Net increase in demand, interest-bearing
demand and savings deposits 8,613 7,178
Net increase in time deposits 6,268 5,809
Net increase in other borrowings 2,734 15
Proceeds from exercise of stock options 283 --
Repurchase of common stock -- (4,331)
Cash dividends (1,234) (1,026)
---------- ----------
Net cash provided by financing activities 16,664 7,645
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,068 (2,206)
Cash and cash equivalents at beginning of period 8,871 8,799
---------- ----------
Cash and cash equivalents at end of period $ 10,939 $ 6,593
========== ==========
Supplemental disclosure
Interest paid $ 7,118 $ 5,801
Income taxes paid $ 2,005 $ 1,103
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of C&F Financial Corporation's management,
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the financial position as of September 30, 1998, the results of
operations for the three and nine months ended September 30, 1998 and 1997, and
cash flows for the nine months ended September 30, 1998 and 1997 have been made.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the full year.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the C&F
Financial Annual Report on Form 10-K for the year ended December 31, 1997.
Certain previously reported amounts have been reclassified to agree with the
current presentation.
The consolidated financial statements include the accounts of the Company
and its subsidiary, with all significant intercompany transactions and accounts
being eliminated in consolidation.
Note 2
On June 16, 1998, the Company declared a 100% stock dividend in the form
of a two-for-one stock split. All the financial data included in this Form 10-Q
has been retroactively restated to reflect the effect of the stock split.
Net income per share assuming dilution has been calculated on the basis
of the weighted average number of shares of common stock and common stock
equivalents outstanding for the applicable periods. Weighted average number of
shares of common stock and common stock equivalents was 3,929,414 and 3,841,174
for the three months ended September 30, 1998 and 1997, respectively, and
3,917,936 and 3,984,428 for the nine months ended September 30, 1998 and 1997,
respectively.
Note 3
During the first quarter of 1998, the Company adopted Financial
Accounting Standards ("FAS") 130, "Reporting Comprehensive Income." Adoption of
this standard did not impact the Company's consolidated financial position,
results of operations or cash flow. The consolidated statement of shareholders'
equity has been changed to include columns for comprehensive income and
accumulated other comprehensive income. Comprehensive income for the Company
includes net income plus the change in the unrealized gain or loss on securities
available for sale. Accumulated other comprehensive income includes the
cumulative changes in unrealized gain or loss on securities available for sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion supplements and provides information about the
major components of the results of operations and financial condition, liquidity
and capital resources of C&F Financial Corporation (the "Company"). This
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements, and supplemental financial data.
5
<PAGE>
Overview
Net income increased 25% to $1,673,000 for the three months ended
September 30, 1998 compared to $1,334,000 for the same period of 1997. Earnings
per share was $.43 for the three month period, up 23% from $.35 per share for
the three months ended September 30, 1997. Net income for the first nine months
ended September 30, 1998 increased 27% to $4,724,000 compared to $3,731,000 for
the same period of 1997. Earnings per share were $1.21 for the nine month
period, up 29% from $.94 per share for the nine months ended September 30, 1997.
Profitability, as measured by the Company's annualized return on
average assets (ROA), increased to 2.19% for the three months ended September
30, 1998, up from 2.03% for the same period of 1997. For the first nine months
of 1998, ROA increased to 2.10%, up from 1.94% for the first nine months of
1997. Another key indicator of performance, the annualized return on average
equity (ROE) for the three months ended September 30, 1998 was 19.10%, compared
to 17.84% for the three months ended September 30, 1997. For the first nine
months of 1998, ROE was 18.63% compared to 16.14% for the first nine months of
1997.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended September 30, 1998 was
$3.2 million, an increase of $285,000, or 9.6%, from $2.9 million for the three
months ended September 30, 1997. Net interest income for the nine months ended
September 30, 1998 was $9.7 million, an increase of $1,013,000, or 11.71%, from
$8.7 million for the nine months ended September 30, 1997. The increase in net
interest income is a result of an increase in the average balance of interest
earning assets. For the three months ended September 30, 1998 the average
balance of interest earning assets increased to $288.1 million from $246.1
million for the same period in 1997. For the nine months ended September 30,
1998 the average balance of interest earning assets increased to $281.7 million
from $240.1 million for the same period in 1997. The increase in average earning
assets is a result of an increase in the average balance of loans held in
Citizens and Farmers Bank's ("the Bank") loan portfolio and an increase in the
average balance of loans held for sale by C&F Mortgage Corporation (a wholly
owned subsidiary of Citizens and Farmers Bank). For the three months ended
September 30, 1998 loans held in the Bank's loan portfolio increased 11% from
the comparable period in 1997 and the average balance of loans held for sale by
C&F Mortgage Corporation increased 83% from the comparable period in 1997. For
the nine months ended September 30, 1998 loans held in the Bank's loan portfolio
increased 13% from the comparable period of 1997 while the balance of loans held
for sale by C&F Mortgage Corporation increased 119% from the comparable period
in 1997.
The increase in loans at the Bank is a result of increased loan demand.
The increase in loans held for sale is a result of increased production at C&F
Mortgage Corporation. Loan closings at C&F Mortgage Corporation increased to
$133,237,000 and $370,000,000 for the three and nine months ended September 30,
1998, respectively, compared to $85,806,000 and $199,370,000 for the three and
nine months ended September 30, 1997, respectively. The increase in production
at C&F Mortgage is a result of overall growth and an increase in refinancings
attributed to the lower interest rate environment.
The increase in the average balance of interest earning assets was
offset by a decrease in the Company's interest rate spread on a taxable
equivalent basis to 4.02% for the three months ended September 30, 1998 from
4.38% for the same period in 1997, and a decrease in the Company's net interest
margin on a taxable equivalent basis to 4.93% for the three months ended
September 30, 1998 from 5.23% for the same period in 1997. The interest rate
spread on a taxable equivalent basis for the nine months ended September 30,
1998 decreased to 4.14% from 4.45% for the same period in 1997 and the net
interest margin on a taxable equivalent basis decreased to 5.01% from 5.26% for
the nine month period ended September 30, 1998 compared to the same period in
1997. The decrease in the net interest margin is a result of a decrease in the
6
<PAGE>
yield on interest earning assets to 8.41% for the third quarter of 1998 from
8.56% for the same period in 1997 and an increase in the cost of funds to 4.39%
for the three months ended September 30, 1998 compared to 4.18% for the same
period in 1997. For the nine months ended September 30, 1998, the yield on
interest earning assets decreased to 8.44% from 8.55% for the same period in
1997 and the cost of funds increased to 4.30% for the nine months ended
September 30, 1998 from 4.10% for the same period in 1997. The decrease in the
yield on interest earning assets is a result of the overall lower interest rate
environment and the increase in the average balance of loans held for sale which
has a lower yield than the Bank's loan portfolio. The increase in the cost of
funds is mainly attributed to increased borrowings from the Federal Home Loan
Bank ("FHLB") to fund loans originated and subsequently sold by C&F Mortgage.
Non-Interest Income
Other operating income increased $1,145,000, or 58%, to $3,125,000 for
the third quarter of 1998 from $1,980,000 for the third quarter of 1997. Other
operating income increased $3,559,000, or 78%, to $8,104,000 for the first nine
months of 1998 from $4,545,000 for the first nine months of 1997. The increase
in other income is mainly attributed to an increase in gain on sale of loans
resulting from increased production at C&F Mortgage Corporation.
Non-Interest Expense
Other operating expenses increased $788,000, or 26%, to $3,838,000 for
the third quarter of 1998 from $3,050,000 for the third quarter of 1997. Other
operating expenses increased $2,656,000, or 32%, to $10,845,000 for the first
nine months of 1998 from $8,189,000 for the first nine months of 1997. The
increase in other expenses is mainly attributed to increases in salaries and
employee benefits due to increased production at C&F Mortgage Corporation.
Year 2000 Issue
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The mainframe processing systems and related
communication networks include various software packages licensed to the Bank by
outside vendors. All of these systems are vulnerable to the Year 2000 issue.
In 1997, the Bank initiated a review and assessment of all hardware and
software to confirm that it will function properly in the year 2000. Based on
this assessment, the Bank's mainframe hardware and banking software are
currently Year 2000 compliant. However, testing is required to confirm this.
Testing began this quarter and will continue through the fourth quarter of 1998.
For certain other systems, the Company has determined that it will have to
replace or modify certain pieces of hardware and/or software so that the systems
will properly function in the year 2000. For systems that the Company relies on
third party vendors, these vendors have been contacted and have indicated that
the hardware and/or software will be Year 2000 compliant.
7
<PAGE>
The Company has also initiated formal communications with all
significant loan and deposit customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remedy their own Year
2000 issue. The Company believes that exposure to customers not being Year 2000
compliant is minimal.
The Company plans to complete the majority of the Year 2000 project by
March 31, 1999. To date, the Company has expensed $150,000 related to the
assessment of and efforts in connection with the Year 2000 issue. Remaining
expenditures are not expected to have a material effect on the Company's
consolidated financial statements.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel trained in this area, the ability of third
party vendors to correct their software and hardware, the ability of significant
customers to remedy their Year 2000 issues, and similar uncertainties.
Income Taxes
Income tax expense for the three months ended September 30, 1998
amounted to $687,000, resulting in an effective tax rate of 29.1% compared to
$484,000, or 26.6%, for the three months ended September 30, 1997. Income tax
expense for the nine months ended September 30, 1998 amounted to $1,802,000,
resulting in an effective tax rate of 27.6% compared to $1,139,000, or 23.4%,
for the nine months ended September 30, 1997. The increase in the effective tax
rate for the quarter and for the year is a result of the increase in earnings
subject to a 34% tax rate versus earnings subject to no taxes such as certain
loans to municipalities or investment obligations of state and political
subdivisions.
Asset Quality-Allowance /Provision For Loan Losses
The Company had $425,000 in provision expense for the first nine months
of 1998 compared to $165,000 for the same period in 1997. Loans charged off
amounted to $61,000 and $11,000 for the nine months ended September 30, 1998 and
1997, respectively. Recoveries amounted to $25,000 and $4,000 for the nine
months ended September 30, 1998 and 1997, respectively. The ratio of net
charge-offs to average outstanding loans was .02% for the nine months ended
September 30, 1998. The allowance for loan losses was $2.6 million at September
30, 1998 and $2.2 million at December 31, 1997. The allowance approximates 1.6%
and 1.4% of total loans outstanding at September 30, 1998 and December 31, 1997,
respectively. Management feels that the reserve is adequate to absorb any losses
on existing loans which may become uncollectible.
Nonperforming Assets
Total non-performing assets, which consist of the Company's non-accrual
loans and other real estate owned was $470,000 at September 30, 1998, a decrease
of $471,000 from December 31, 1997. This decrease is mainly a result of a
decrease in the balance of other real estate owned. The balance in other real
estate owned consisted of one piece of property which was sold in the second
quarter of 1998.
8
<PAGE>
FINANCIAL CONDITION
Summary
At September 30, 1998, the Company had total assets of $300.8 million
compared to $278.1 million at December 31, 1997.
Loans
At September 30, 1998, loans held for sale amounted to $47.5 million, a
94% increase over the $24.5 million held at December 31, 1997. This increase is
a result of increased loan production at C&F Mortgage Corporation. At September
30, 1998, the Bank's loans net of unearned income and reserve for loan losses,
totaled $159.8 million, an increase of 3% over the 1997 year-end total of $154.7
million.
The following table sets forth the composition of the Company's loans
in dollar amounts and as a percentage of the Company's total gross loans held
for investment at the dates indicated:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real estate - mortgage $ 87,636 54.0% $ 88,974 56.7%
Real estate - construction 4,883 3.0 4,454 2.8
Commercial, financial and
agricultural 52,471 32.3 48,737 31.1
Equity lines 8,189 5.0 7,131 4.5
Consumer 9,261 5.7 7,683 4.9
------------- ----- ----------- -----
Total loans 162,440 100.0% 156,979 100.0%
===== =====
Less unearned discount (1) (1)
Less allowance for possible
loan losses (2,623) (2,233)
------------- -----------
Total loans, net $ 159,816 $ 154,745
============= ===========
</TABLE>
Investment Securities
At September 30, 1998, total investment securities were $68.0 million
compared to $75.7 million for December 31, 1997. Securities of U.S. Government
agencies and corporations represent 30.3% of the total securities portfolio,
obligations of state and political subdivisions were 58.2%, U.S. Treasury
securities were 4.4%, and preferred stocks were 7.1% at September 30, 1998. The
decrease in investment securities is a result of securities being called due in
the lower interest rate environment.
Deposits
Deposits totaled $246.4 million at September 30, 1998 compared to
$231.5 at December 31, 1997. Non-interest bearing deposits totaled $46.0 million
at September 30, 1998 compared to $35.3 million at December 31, 1997.
9
<PAGE>
Liquidity
At September 30, 1998, cash, securities classified as available for
sale and interest-bearing deposits were 14.1% of total earning assets. Asset
liquidity is also provided by managing the investment maturities.
Additional sources of liquidity available to the Company include its
subsidiary bank's capacity to borrow additional funds through an established
federal funds line with a regional correspondent bank and through an established
line with the Federal Home Loan Bank.
Capital Resources
The Company's capital position continues to exceed regulatory
requirements. The Company's Tier I capital ratio was 13.5% at September 30, 1998
compared to 14.1% at December 31, 1997. The total risk-based capital ratio was
14.6% at September 30, 1998 compared to 15.2% at December 31, 1997. These ratios
are in excess of the mandated minimum requirements.
Shareholders' equity was $35.7 million at the end of the third quarter of
1998 compared to $31.8 million at December 31, 1997. The leverage ratio consists
of Tier I capital divided by average assets. At September 30, 1998, the
Company's leverage ratio was 11.0% compared to 11.4% at December 31, 1997. Each
of these exceeds the required minimum leverage ratio of 3%.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards ("FAS") 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. It also requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. FAS 131 is effective for fiscal years beginning after
December 15, 1997. Adoption of this statement will not impact the Corporation's
consolidated financial position, results of operations or cash flow, and any
effect will be limited to the form and content of its disclosures.
In February 1998, the FASB issued FAS 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits." FAS 132 revises employers'
disclosures about pension and other post-retirement benefits. It does not change
the measurement or recognition of those plans. FAS 132 is effective for fiscal
years beginning after December 15, 1997. Adoption of this statement will not
impact the Corporation's consolidated financial position, results of operations
or cash flow, and any effect will be limited to the form and content of its
disclosures.
In June 1998, FASB issued FAS 133, "Accounting for Derivative Instruments
and Hedging Activities." FAS 133 establishes accounting and reporting standards
for derivative financial instruments and other similar financial instruments and
for hedging activities. The standard also allows securities classified as
held-to-maturity to be transferred to the available-for-sale category at the
date of initial application of this standard. FAS 133 is effective for all
fiscal quarters of years beginning after June 15, 1999. Management is currently
reviewing this statement to determine the impact, if any, it will have since the
Company currently has no derivative instruments.
10
<PAGE>
Effects of Inflation
The effect of changing prices on financial institutions is typically
different from other industries as the Company's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes is directly related to price
level indices. Impacts of inflation on interest rates, loan demands, and
deposits are reflected in the consolidated financial statements.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements contained in this report that are not historical facts may
be forward looking statements. The forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes from the quantitative and
qualitative disclosures made in the December 31, 1997 Form 10K.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party of or which property of the Company is subject.
ITEM 2 - CHANGES IN SECURITIES - Inapplicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - Inapplicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5 - OTHER INFORMATION - Inapplicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
C&F FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Registrant)
Date November 10, 1998 /s/ Larry G. Dillon
---------------------------- ----------------------------------
Larry G. Dillon, President
and Chief Executive Officer
Date November 10, 1998 /s/ Thomas F. Cherry
---------------------------- ----------------------------------
Thomas F. Cherry, Chief
Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,180
<INT-BEARING-DEPOSITS> 3,577
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,636
<INVESTMENTS-CARRYING> 39,370
<INVESTMENTS-MARKET> 41,655
<LOANS> 162,439
<ALLOWANCE> 2,623
<TOTAL-ASSETS> 300,836
<DEPOSITS> 246,393
<SHORT-TERM> 2,070
<LIABILITIES-OTHER> 6,636
<LONG-TERM> 10,000
0
0
<COMMON> 3,864
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 300,836
<INTEREST-LOAN> 13,114
<INTEREST-INVEST> 3,820
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,934
<INTEREST-DEPOSIT> 6,061
<INTEREST-EXPENSE> 7,242
<INTEREST-INCOME-NET> 9,692
<LOAN-LOSSES> 425
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,845
<INCOME-PRETAX> 6,526
<INCOME-PRE-EXTRAORDINARY> 6,526
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,724
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 8.44
<LOANS-NON> 460
<LOANS-PAST> 1,046
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,234
<CHARGE-OFFS> 61
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 2,623
<ALLOWANCE-DOMESTIC> 2,623
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
