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 March 31, 1999
[ ] 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: 3,646,976 as of
May 12, 1999.
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998..............................1
Consolidated Statements of Income -
Three months ended March 31, 1999 and 1998........................2
Consolidated Statements of Shareholders' Equity
Three months ended March 31, 1999 and 1998 .......................3
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998........................5
Notes to Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis ................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........13
Part II - Other Information
Item 1. Legal Proceedings ..................................................14
Item 2. Changes in Securities ..............................................14
Item 3. Defaults Upon Senior Securities.....................................14
Item 4. Submission of Matters to a Vote of Security Holders ................14
Item 5. Other Information ..................................................14
Item 6. Exhibits and Reports on Form 8-K....................................14
Signatures...................................................................15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS March 31, 1999 December 31, 1998
- ------ -------------- -----------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 9,460 $ 8,140
Interest -bearing deposits in other banks 27,598 333
-------- --------
Total cash and cash equivalents 37,058 8,473
Available for sale securities at fair value, amortized
cost of $20,699 and $21,481, respectively 20,752 21,888
Held to maturity securities at amortized cost,
fair value of $39,880 and $40,865,
respectively 37,984 38,810
Loans held for sale, net 26,565 66,993
Loans, net 171,495 169,918
Federal Home Loan Bank stock 1,706 1,706
Corporate premises and equipment,
net of accumulated depreciation 6,612 6,466
Accrued interest receivable 1,741 2,374
Other assets 4,353 4,235
-------- --------
Total assets $308,266 $320,863
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits
Non-interest-bearing demand deposits $ 42,223 $ 40,908
Savings and interest-bearing demand deposits 107,133 101,631
Time deposits 108,531 109,134
-------- --------
Total deposits 257,887 251,673
Borrowings 11,791 24,661
Accrued interest payable 713 598
Other liabilities 4,446 7,284
-------- --------
Total liabilities 274,837 284,216
-------- --------
Shareholders' Equity
Preferred stock ($1.00 par value,
3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000
shares authorized, 3,633,688 and 3,866,888
shares issued and outstanding at March 31,
1999 and December 31, 1998, respectively) 3,634 3,867
Additional paid-in capital 8 476
Retained earnings 29,466 31,739
Accumulated other comprehensive,
net of tax of $165 and $291, respectively 321 565
-------- --------
Total shareholders' equity 33,429 36,647
-------- --------
Total liabilities and
shareholders' equity $308,266 $320,863
======== ========
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Interest Income 1999 1998
---- ----
<S> <C> <C>
Interest and fees on loans $ 5,004 $ 4,006
Interest on other market investments 230 10
Interest on investment securities
U.S. Treasury Securities 49 49
U.S. Government agencies and corporations 163 637
Tax-exempt obligations of states and political
subdivisions 529 508
Corporate bonds and other 115 104
---------- ----------
Total interest income 6,090 5,314
Interest Expense
Savings and interest-bearing deposits 699 683
Certificates of deposit, $100,000 or more 222 200
Other time deposits 1,137 1,110
Short-term borrowings and other 182 196
---------- ----------
Total interest expense 2,240 2,189
---------- ----------
Net interest income 3,850 3,125
Provision for loan losses 175 75
---------- ----------
Net interest income after provision for loan losses 3,675 3,050
Other Operating Income
Gain on sale of loans 2,164 1,277
Service charges on deposit accounts 269 261
Other service charges and fees 485 365
Other income 260 236
---------- ----------
Total other operating income 3,178 2,139
Other Operating Expenses
Salaries and employee benefits 2,260 1,797
Occupancy expenses 476 490
Goodwill amortization 69 69
Other expenses 1,003 880
---------- ----------
Total other operating expenses 3,808 3,236
---------- ----------
Income before income taxes 3,045 1,953
Income tax expense 899 518
---------- ----------
Net Income $ 2,146 $ 1,435
========== ==========
Per Share Data
Net Income - assuming dilution $ .56 $ .37
Cash Dividends Paid and Declared $ .12 $ .10
Weighted average number of shares and
common stock equivalents outstanding 3,861,910 3,894,892
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
------- ---------- ------------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 $ 1,916 $ 118 $ 29,236 $ 530 $ 31,800
Comprehensive Income
Net income $1,435 1,435 1,435
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment(1) (100) (100) (100)
-------
Comprehensive income $1,335
======
Stock options exercised 11 176 187
Cash dividends (385) (385)
--------- ------- --------- -------- ---------
Balance March 31, 1998 $ 1,927 $ 294 $ 30,286 $ 430 $ 32,937
========= ======= ========= ======== =========
</TABLE>
- --------------------
(1)There were no reclassification adjustments for the three months ended March
31, 1998.
The Company's notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
-------- ---------- ------------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1999 $ 3,867 $ 476 $ 31,739 $ 565 $ 36,647
Comprehensive Income
Net income $2,146 2,146 2,146
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment(1) (244) (244) (244)
--------
Comprehensive income $1,902
========
Stock options exercised 2 14 16
Repurchase of
common stock (235) (482) (3,971) (4,688)
Cash dividends (448) (448)
--------- -------- ---------- ------ -----------
Balance March 31, 1999 $ 3,634 $ 8 $ 29,466 $ 321 $ 33,429
========= ======== ========== ====== ===========
</TABLE>
- ----------------------------
(1)There were no reclassification adjustments for the three months ended March
31, 1999.
The Company's notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS ON CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,146 $1,435
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 224 248
Amortization of goodwill 69 69
Provision for loan losses 175 75
Accretion of discounts and amortization of
premiums on investment securities, net (12) (10)
Proceeds from sale of loans 156,892 85,144
Origination of loans held for sale (116,464) (104,092)
Change in other assets and liabilities:
Accrued interest receivable 633 (73)
Other assets (120) (249)
Accrued interest payable 115 103
Other liabilities (2,779) 774
--------- ---------
Net cash provided by (used in) operating activities 40,879 (16,576)
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of investments
held to maturity 819 3,306
Proceeds from sales and maturities of
investments available for sale 9,685 3,000
Purchase of investment securities -- (1,954)
Purchase of investments available for sale (8,900) (10,354)
Net increase in customer loans (1,752) (3,149)
Purchase of corporate premises and equipment (370) (210)
Purchase of Federal Home Loan Bank stock -- (291)
--------- ---------
Net cash used in investing activities (518) (9,652)
--------- ---------
Cash flows from financing activities:
Net increase in demand,
interest-bearing demand and savings deposits 8,215 4,377
Net (increase) decrease in time deposits (2,001) 1,988
Net (increase) decrease in other borrowings (12,870) 17,971
Repurchase of common stock (4,688) --
Proceeds from exercise of stock options 16 187
Cash dividends (448) (385)
--------- ---------
Net cash provided by (used in) financing activities (11,776) 24,138
--------- ---------
Net increase (decrease) in cash and cash equivalents 28,585 (2,090)
Cash and cash equivalents at beginning of period 8,473 8,871
--------- ---------
Cash and cash equivalents at end of period $ 37,058 $ 6,781
========= =========
Supplemental disclosure
Interest paid $ 2,125 $ 2,086
Income taxes paid $ 84 $ 79
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
<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 March 31, 1999, the results of
operations for the three months ended March 31, 1999 and 1998, and cash flows
for the three months ended March 31, 1999 and 1998 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, 1998.
The consolidated financial statements include the accounts of C&F Financial
Corporation ("the Company") and its subsidiary, Citizens and Farmers Bank ("the
Bank"), with all significant intercompany transactions and accounts being
eliminated in consolidation.
Note 2
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 3,861,910 and 3,894,892
for the three months ended March 31, 1999 and 1998, respectively.
Note 3
During March of 1999 the Company repurchased 235,000 shares of its common
stock from six shareholders at prices between $19.88 and $20.00 per share in
privately negotiated transactions.
Note 4
During April of 1999 Citizens and Farmers Bank announced that it has signed
a contract to purchase a piece of land in Williamsburg, Virginia. The site will
house the Bank's tenth office, the third in the James City County/Williamsburg
market. The Bank plans to open this office by late 1999.
Also, the Company announced the formation of a bank in Hanover County which
will be operated as a division of Citizens and Farmers Bank. The first branch
will be located in the Mechanicsville area of Hanover County. Two to three
additional locations are anticipated in the next two to three years. This
Hanover bank will have a President and a local board of directors with local
decision making responsibilities.
Note 5
The Company operates in a decentralized fashion in two principal business
activities, retail banking and mortgage banking. Revenues from retail banking
operations consist primarily of interest earned on loans and investment
securities. Mortgage banking operating revenues consist mainly of interest
earned on mortgage loans held for sale, gains on sales of loans in the secondary
mortgage market, and loan origination fee income. The Company also has an
investment company and a title company subsidiary which derive revenues from
brokerage and title insurance services, respectively. The results of these
subsidiaries are not significant to the Company as a whole and have been
included in "Other." The following table presents segment information for the
periods ended March 31, 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
Period Ended March 31, 1999
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 5,927 $ 578 $ -- $ (415) $ 6,090
Gain on sale of loans -- 2,164 -- -- 2,164
Other 441 394 179 -- 1,014
-------- --------- -------- --------- --------
Total operating income 6,367 3,136 179 (415) 9,267
-------- --------- -------- --------- --------
Expenses:
Interest expense 2,240 415 -- (415) 2,240
Salaries and employee benefits 1,152 1,039 69 --
2,260
Other 1,025 662 36 -- 1,723
--------- --------- -------- --------- --------
Total operating expenses 4,417 2,116 105 (415) 6,223
--------- --------- -------- --------- --------
Income before income taxes 1,951 1,020 74 -- 3,045
--------- --------- -------- --------- --------
Total assets 305,814 26,150 44 (23,742) 308,266
Capital expenditures $ 300 $ 70 $ -- $ -- $ 370
</TABLE>
<TABLE>
<CAPTION>
Period Ended March 31, 1998
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 5,254 $ 408 $ -- $ (348) $ 5,314
Gain on sale of loans -- 1,277 -- -- 1,277
Other 404 301 157 -- 862
-------- --------- -------- --------- --------
Total operating income 5,658 1,986 157 (348) 7,453
-------- --------- -------- --------- --------
Expenses:
Interest expense 2,189 348 -- (348) 2,189
Salaries and employee benefits 1,081 663 53 -- 1,797
-------- --------- -------- --------- --------
Other 977 509 28 -- 1,514
-------- --------- -------- --------- --------
Total operating expenses 4,247 1,520 81 (348) 5,500
-------- --------- -------- --------- --------
Income before income taxes 1,411 466 76 -- 1,953
-------- --------- -------- --------- --------
Total assets 300,729 43,462 15 (39,747) 304,459
Capital expenditures $ 186 $ 24 $ -- $ -- $ 210
</TABLE>
The retail banking segment provides the mortgage banking segment with the funds
needed to originate mortgage loans through a warehouse line of credit and
charges the mortgage banking segment interest at the daily FHLB advance rate
plus 50 basis points. These transactions are eliminated to reach consolidated
totals. Certain corporate overhead costs incurred by the retail banking segment
are not allocated to the mortgage banking and other segments.
<PAGE>
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.
Overview
Net income for the three months ended March 31, 1999 was $2,146,000
compared to $1,435,000 for the same period of 1998. Earnings per diluted share
was $.56 for the three months ended March 31, 1999 compared to $.37 per diluted
share for the same period of 1998. Included in earnings for the first quarter of
1999 is $370,000 in interest income (after taxes) resulting from the payoff of a
non-accrual loan which has been on the Bank's books for the past several years.
Excluding this interest income, both net income and earnings per share for the
first quarter of 1999 increased 24% over the first quarter of 1998.
As seen in the segment information in Note 5 to the Consolidated Financial
Statements, the increase in income was mainly attributed to increased income at
C&F Mortgage Corporation (Mortgage Banking), a wholly owned subsidiary of the
Bank. Excluding the one-time interest income mentioned above, retail banking
income was down slightly.
Profitability, as measured by the Company's annualized return on average
assets (ROA), increased to 2.32% for the three months ended March 31, 1999, up
from 2.03% for the same period of 1998. Another key indicator of performance,
the annualized return on average equity (ROE) for the three months ended March
31, 1999 was 23.75%, compared to 17.65% for the three months ended March 31,
1998. Excluding the one-time interest income mentioned above, ROA and ROE wsa
2.32% and 19.66%, respectively, for the three months ended March 31, 1999.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended March 31, 1999, excluding
the one-time interest income of approximately $560,000 before taxes, was $3.3
million, an increase of $165,000, or 5%, from $3.1 million for the three months
ended March 31, 1998. The increase in net interest income is a result of an
increase in the average balance of interest earning assets to $289.1 million for
the three months ended March 31, 1999 compared to $264.3 million for the same
period in 1998.
The increase in average earning assets is a result of the increase in the
average balance of loans and interest deposits in other banks offset by a
decrease in the average balance of investment securities. The average balance of
loans increased 15%. This was a result of an 11% increase in the average balance
of loans held in the Bank's loan portfolio and a 41% increase in the average
balance of loans held for sale by C&F Mortgage Corporation. The increase in the
average balance of loans held in the Bank's loan portfolio is a result of the
Bank's ongoing effort to increase its emphasis on commercial and consumer
lending. The increase in the average balance of loans held for sale is a result
of increased production at C&F Mortgage Corporation. Loan originations at C&F
Mortgage Corporation increased to $116,464,000 for the quarter ended March 31,
1999 compared to $104,092,000 for the first quarter of 1998. The increase in
production at C&F Mortgage is a result of overall growth and the lower interest
rate environment.
<PAGE>
As a result of the lower interest rate environment experienced during 1998
and the first quarter of 1999, numerous investment securities have been called
decreasing the average balance of the investment securities portfolio by 28%.
The cash resulting from the decrease in the investment securities portfolio has
been reinvested in loans when possible and in interest bearing deposit accounts
in other institutions such as the Federal Home Loan Bank (FHLB). The average
balance of interest bearing deposits in other banks has increased to $19,859,000
for the first quarter of 1999 compared to $638,000 for the first quarter of
1998. It is the Company's intention to invest these excess funds in loans when
possible and other investment securities when yields become more attractive.
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, excluding the one-time interest income mentioned above, to 4.11% for the
three months ended March 31, 1999 from 4.33% for the same period in 1998, and a
decrease in the Company's net interest margin on a taxable equivalent basis to
4.98% for the first three months of 1999 from 5.17% for the same period in 1998.
The decrease in the interest margin is a result of a decrease in the yield on
interest earning assets to 8.07% for the first quarter of 1999 from 8.48% for
the same period in 1998. The decrease in the yield on interest earning assets is
a result of the lower interest rate environment and excess funds being held in
interest bearing deposits of other banks which has significantly lower yields
than loans and investment securities.
The decrease in the yield on interest earning assets is offset by a
decrease in the cost of funds to 3.97% for the first quarter of 1999 from 4.15%
for the same period in 1998. This decrease is a result of the overall lower
interest rate environment.
Non-Interest Income
Non-interest income increased $1,039,000, or 49%, for the three months
ended March 31, 1999 from the same period of 1998. The majority of this increase
was a result of a $887,000 increase in the gain on sale of loans due to the
increase in volume of loans sold by C&F Mortgage Corporation. Loans sold during
the first quarter of 1999 amounted to $156,892,000 compared to $85,144,000 for
the first quarter of 1998.
Non-Interest Expense
Non-interest expense increased $572,000, or 18%, for the three month
period ended March 31, 1999 from the same period in 1998. This increase is
mainly attributable to increased production at C&F Mortgage Corporation and the
overall growth in the Company.
Year 2000 Issue
The Y2K issue involves the risk that computer programs and computer
systems may not be able to perform without interruption into the year 2000. If
computer systems do not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on the date field could
fail or create erroneous results. Such erroneous results could affect interst
payments or due dates and could cause the temporary inability to process
transactions and to engage in ordinary business activities. The failure of the
Company, its suppliers, and its borrowers to address the Y2K issue could have a
material adverse effect on the Company's financial condition, results of
operations, or liquidity.
In 1997, the Company 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, we believe the Company's mainframe hardware and banking
software are currently Y2K compliant. However, testing is required to confirm
this. Testing began in the first quarter of 1998 and will continue through the
second quarter of 1999. 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 Y2K
compliant.
<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 Y2K issue. The
Company believes that exposure to customers' not being Y2K compliant is minimal.
The Company plans to complete the majority of the Year 2000 project by
June 30, 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 Company continues to assess its risk from other environmental factors
over which it has little direct control, such as electrical power supply, and
voice and data transmission. Because of the nature of these external factors,
the Company is not actively engaged in any repair, replacement, or testing
efforts for these services. Based on its current assessments and remediation
plans, which are based in part on certain representations of third-party
services, the Company does not expect that it will experience a significant
disruption of its operations as a result of the change in the new millennium.
Although the Company has no reason to conclude that a failure will occur, the
most likely worst-case Y2K scenario would entail a disruption or failure of the
Company's power suppliers' or voice and data transmission suppliers' capability
to provide power to data transmission services to a computer system or a
facility. If such a failure were to occur, the Company would implement a
contingency plan as described below. While it is impossible to quantify the
impact of such a scenario, the most likely worst-case scenario would entail
diminishment of service levels, some customer inconvenience, and additional, as
yet not understood, costs associated with the implementation of the contingency
plan.
For the computer systems and facilities that it has determined to be most
critical, the Company expects to complete development, testing, and adoption and
testing of business contingency plans by June 30, 1999. These plans will conform
to recently issued guidelines from the FFIEC on business contingency planning
for Y2K readiness. Contingency plans will include, among other actions, manual
workarounds and identification of resource requirements and alternative
solutions for resuming critical business processes in the event of a Y2K-related
failure. While the Company will have contingency plans in place to address a
temporary disruption in these services, there can be no assurance that any
disruption or failure will be only temporary, that the Company's contingency
plans will function as anticipated, or that the results of operations, financial
condition, or liquidity of the Company will not be adversely affected in the
event of a prolonged disruption or failure.
Additionally, there can be no assurance that the FFIEC or other federal or
state regulators will not issue new regulatory requirements that require
additional work by the Company and, if issued, that new regulatory requirements
will not increase the cost or delay the completion of the Company's Y2K project.
The costs of the project and the date on which the Company plans to
complete the Y2K 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.
<PAGE>
Income Taxes
Applicable income taxes on earnings for the first three months of 1999
amounted to $899,000 resulting in an effective tax rate of 29.5% compared to
$518,000, or 26.5%, for the same period in 1998. The increase in the effective
tax rate 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 $175,000 in provision expense for the first three months
of 1999 compared to $75,000 for the same period in 1998. Loans charged off
amounted to $300 for the three months ended March 31, 1999 and $35,000 for the
same period of 1998. Recoveries amounted to $16,000 and $25,000 for the three
months ended March 31, 1999 and 1998, respectively. The allowance for loan
losses was $3.0 million and $2.8 million at March 31, 1999 and December 31,
1998, respectively. The allowance approximates 1.69% and 1.60% of total loans
outstanding at March 31, 1999 and December 31, 1998, 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 was $540,000 at March 31, 1999 compared to $463,000 at December 31, 1998.
FINANCIAL CONDITION
Summary
At March 31, 1999, the Company had total assets of $308.3 million compared
to $320.9 million at December 31, 1998.
Interest-Bearing Deposits in Other Banks
At March 31, 1999, interest-bearing deposits in other banks amounted to
$27,598,000 compared to $333,000 at December 31, 1998. This increase is a result
of excess funds resulting from an approximate $40.4 million decrease in loans
held for sale offset by an approximate $12.9 decrease in other borrowings.
Loan Portfolio
At March 31, 1999, loans held for sale amounted to $26.6 million compared
to $67.0 million at December 31, 1998. The decrease in the balance from December
31, 1998 is a result of a decrease in originations from $154,000,000 for the
fourth quarter of 1998 to $116,000,000 for the first quarter of 1999. The
decrease in originations for the first quarter of 1999 is a result of an
increase in interest rates for the first quarter of 1999 as compared to the
fourth quarter of 1998.
<PAGE>
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>
March 31, 1999 December 31, 1998
(Dollars in Thousands)
Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate - mortgage $ 84,269 48% $ 86,311 50%
Real estate - construction 3,893 2 5,359 3
Commercial, financial and
agricultural 67,055 39 62,885 36
Equity lines 8,667 5 8,580 5
Consumer 10,563 6 9,544 6
--------- --------- --------- ---------
Total loans 174,447 100% 172,679 100%
========= =========
Less unearned discount (1) (1)
Less allowance for possible
loan losses (2,951) (2,760)
--------- ---------
Total loans, net $ 171,495 $ 169,918
========= =========
</TABLE>
Investment Securities
At March 31, 1999, total investment securities were $58,736,000 million
compared to $60,698,000 at December 31, 1998. Securities of U.S. Government
agencies and corporations represent 17% of the total securities portfolio,
obligations of state and political subdivisions were 73%, U.S. Treasury
securities were 2%, and preferred stocks were 8% at March 31, 1999.
Deposits
Deposits totaled $257.9 million at March 31, 1999 compared to $251.7 at
December 31, 1998. Non-interest bearing deposits totaled $42.2 million at March
31, 1999 compared to $40.9 million at December 31, 1998.
Liquidity
At March 31, 1999, cash, securities classified as available for sale and
interest-bearing deposits were 20.2% 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 Tier I capital ratio was 13.2% at March 31, 1999 compared to
12.5% at December 31, 1998. The total risk-based capital ratio was 14.5% at
March 31, 1999 compared to 13.4% at December 31, 1998. These ratios are in
excess of the mandated minimum requirements. The increase in the Tier I capital
ratio and the total risked based capital ratio was a result of current quarter's
earnings and the reduction of risk-weighted assets offset by the repurchase of
235,000 shares of common stock at prices between $19.88 and $20.00 per share and
the first quarter dividend. The reduction in risk weighted assets is due to a
decline in the recourse exposure which results from loans being sold by C&F
Mortgage Corporation.
<PAGE>
Shareholders' equity was $33.4 million at the end of the first quarter of
1999 compared to $36.7 million at December 31, 1998. The leverage ratio consists
of Tier I capital divided by quarterly average assets. At March 31, 1999, the
Company's leverage ratio was 10.5% compared to 11.5% at December 31, 1998. Each
of these exceeds the required minimum leverage ratio of 3%. The decrease in the
leverage ratio is a result of the repurchase of common stock mentioned above and
current quarter dividends offset by current quarter's earnings.
New Accounting Pronouncements
There have been no significant pronouncements since the December 31, 1998
Form 10 K was filed.
Effects of Inflation
The effect of changing prices in financial institutions is typically
different from other industries because 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 are 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 may be
estimates or speak only as of the dates the statements were made.
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, 1998 Form 10 K.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of 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
C&F Financial Corporation's Annual Shareholders Meeting was held on April
20, 1999.
(a) J. P. Causey Jr. and William E. O'Connell Jr. were elected as Class III
Directors to the Board of Directors until the 2002 Annual Meeting of
Shareholders.
(b) The Company's Amended and Restated 1998 Non-Employee Director Stock
Compensation Plan was approved.
(c) Yount, Hyde & Barbour, P.C. was appointed as independent auditors of the
Company for 1999.
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.
<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 May 12, 1999 /s/ Larry G. Dillon
------------ ---------------------------------------
Larry G. Dillon, Chairman and President
Date May 12, 1999 /s/ Thomas F. Cherry
------------ ------------------------------------------
Thomas F. Cherry, Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,460
<INT-BEARING-DEPOSITS> 27,598
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,752
<INVESTMENTS-CARRYING> 37,984
<INVESTMENTS-MARKET> 39,880
<LOANS> 174,446
<ALLOWANCE> 2,951
<TOTAL-ASSETS> 308,266
<DEPOSITS> 257,887
<SHORT-TERM> 1,791
<LIABILITIES-OTHER> 4,446
<LONG-TERM> 10,000
0
0
<COMMON> 3,634
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 308,266
<INTEREST-LOAN> 5,004
<INTEREST-INVEST> 1,086
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,090
<INTEREST-DEPOSIT> 2,058
<INTEREST-EXPENSE> 2,240
<INTEREST-INCOME-NET> 3,850
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,808
<INCOME-PRETAX> 3,045
<INCOME-PRE-EXTRAORDINARY> 3,045
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,146
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 8.07
<LOANS-NON> 544
<LOANS-PAST> 599
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,760
<CHARGE-OFFS> 0
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 2,951
<ALLOWANCE-DOMESTIC> 2,951
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
