<PAGE>
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 June 30, 2000
------------------------------------------------
[ ] 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: 3,590,784 as of August 8, 2000.
-------------------------------
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information Page
------------------------------ ----
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999.......................... 1
Consolidated Statements of Income -
Three months and six months ended June 30, 2000 and 1999..... 2
Consolidated Statements of Shareholders' Equity
Six months ended June 30, 2000 and 1999...................... 3
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999...................... 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...14
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............................................15
Item 6. Exhibits and Reports on Form 8-K.............................15
Signatures................................................................16
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS June 30, 2000 December 31, 1999
--------------------------------------------------------- -------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 10,196 $ 13,424
Interest -bearing deposits in other banks 3,660 2,062
-------- --------
Total cash and cash equivalents 13,856 15,486
Securities -available for sale at fair value, amortized
cost of $32,435 and $32,112, respectively 30,553 30,208
Securities-held to maturity at amortized cost,
fair value of $34,371 and $34,976,
respectively 34,158 34,791
Loans held for sale, net 20,977 24,886
Loans, net 224,415 206,116
Federal Home Loan Bank stock 1,585 1,585
Corporate premises and equipment,
net of accumulated depreciation 8,988 8,404
Accrued interest receivable 2,212 2,136
Other assets 6,279 5,629
-------- --------
Total assets $343,023 $329,241
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits
Non-interest-bearing demand deposits $ 36,997 $ 34,827
Savings and interest-bearing demand deposits 113,841 121,646
Time deposits 119,512 104,381
-------- --------
Total deposits 270,350 260,854
Borrowings 33,104 30,035
Accrued interest payable 718 566
Other liabilities 2,766 2,656
-------- --------
Total liabilities 306,938 294,111
-------- --------
Shareholders' Equity
Preferred stock ($1.00 par value,
3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000
shares authorized, 3,590,784 and 3,644,456
shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively) 3,591 3,645
Additional paid-in capital - 14
Retained earnings 33,737 32,728
Accumulated other comprehensive loss
net of tax of $640 and $647, respectively (1,243) (1,257)
-------- --------
Total shareholders' equity 36,085 35,130
-------- --------
Total liabilities and
shareholders' equity $343,023 $329,241
======== ========
</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 Six Months Ended
---------------------- ----------------------
June 30, June 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
Interest Income 2000 1999 2000 1999
---------- ---------- ---------- ----------
Interest and fees on loans $ 5,437 $ 4,505 $ 10,538 $ 9,509
Interest on other market investments
and fed funds 36 173 80 404
Interest on investment securities
U.S. Treasury Securities 20 20 40 69
U.S. Government agencies and corporations 239 200 477 363
Tax-exempt obligations of states and political
subdivisions 616 587 1,238 1,116
Corporate bonds and other 113 107 235 221
---------- ---------- ---------- ----------
Total interest income 6,461 5,592 12,608 11,682
Interest Expense
Savings and interest-bearing deposits 798 744 1,613 1,443
Certificates of deposit, $100,000 or more 304 216 531 438
Other time deposits 1,193 1,116 2,272 2,253
Short-term borrowings and other 404 131 736 313
---------- ---------- ---------- ----------
Total interest expense 2,699 2,207 5,152 4,447
Net interest income 3,762 3,385 7,456 7,235
Provision for loan losses 100 75 175 250
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 3,662 3,310 7,281 6,985
Other Operating Income
Gain on sale of loans 1,214 1,719 2,287 3,883
Service charges on deposit accounts 323 273 630 542
Other service charges and fees 534 625 927 1,110
Other income 235 328 529 588
---------- ---------- ---------- ----------
Total other operating income 2,306 2,945 4,373 6,123
Other Operating Expenses
Salaries and employee benefits 2,417 2,403 4,748 4,663
Occupancy expenses 624 521 1,208 997
Goodwill amortization 69 69 137 138
Other expenses 1,039 1,099 1,977 2,101
---------- ---------- ---------- ----------
Total other operating expenses 4,149 4,092 8,070 7,899
Income before income taxes 1,819 2,163 3,584 5,209
Income tax expense 421 529 817 1,429
---------- ---------- ---------- ----------
Net Income $ 1,398 $ 1,634 $ 2,767 $ 3,780
========== ========== ========== ==========
Per Share Data
Net Income - Basic $ .38 $ .45 $ .76 $ 1.02
Net Income - Assuming Dilution .38 $ .44 .75 $ 1.00
Cash Dividends Paid and Declared .13 $ .12 .26 $ .24
Weighted average number of shares and
common stock equivalents outstanding 3,652,452 3,698,418 3,665,231 3,780,164
</TABLE>
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)
<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 $3,780 3,780 3,780
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment1 (527) (527) (527)
--------
Comprehensive income $3,253
========
Stock options exercised 15 129 144
Repurchase of
Common Stock (235) (482) (3,971) (4,688)
Cash dividends (886) (886)
------ ----- ------- ----- --------
Balance June 30, 1999 $3,647 $ 123 $30,662 $ 38 $34,470
====== ===== ======= ===== ========
</TABLE>
---------------------------
1 There were no reclassification adjustments for the six months ended June 30,
1999.
The Company's notes are an integral part of the
consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands of dollars)
(Unaudited)
<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, 2000 $3,645 $ 14 $32,728 $(1,257) $35,130
Comprehensive Income
Net income $2,767 2,767 2,767
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment
(See disclosure below) 14 14 14
------
Comprehensive income $2,781
======
Stock options exercised 7 64 71
Repurchase of
common stock (61) (78) (814) (953)
Cash dividends (944) (944)
------ ------ -------- -------- --------
Balance June 30, 2000 $3,591 $ -- $33,737 $(1,243) $36,085
====== ====== ======= ======== ========
----------------------------
Disclosure of Reclassification Amount:
Unrealized net holding gains arising during period $ 87
Less: reclassification adjustment for gains
Included in net income (73)
------
Net unrealized gains on securities $ 14
======
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,767 $ 3,780
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 509 455
Amortization of goodwill 137 138
Provision for loan losses 175 250
Accretion of discounts and amortization of
premiums on investment securities, net (23) (41)
Proceeds from sale of loans 146,402 285,138
Origination of loans held for sale (142,493) (257,722)
Change in other assets and liabilities:
Accrued interest receivable (76) 435
Other assets (836) (379)
Accrued interest payable 152 11
Other liabilities 151 (3,289)
--------- ---------
Net cash provided by operating activities 6,865 28,776
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and calls of investments
held to maturity 650 1,227
Proceeds from sales, maturities, and calls of
investments available for sale 372 10,185
Purchase of investments available for sale (690) (16,155)
Net increase in customer loans (18,473) (11,974)
Purchase of corporate premises and equipment (1,093) (1,282)
Sale of Federal Home Loan Bank stock -- 121
--------- ---------
Net cash used in investing activities (19,234) (17,878)
--------- ---------
Cash flows from financing activities:
Net(decrease) increase in demand,
interest-bearing demand and savings deposits (5,635) 5,871
Net (decrease) increase in time deposits 15,131 (864)
Net (decrease) increase in other borrowings 3,069 (12,625)
Proceeds from exercise of stock options 71 144
Repurchase of common stock (953) (4,688)
Cash dividends (944) (886)
--------- ---------
Net cash provided by (used in) financing activities 10,739 (13,048)
--------- ---------
Net (decrease) in cash and cash equivalents (1,630) (2,150)
Cash and cash equivalents at beginning of period 15,486 8,473
--------- ---------
Cash and cash equivalents at end of period $ 13,856 $ 6,323
========= =========
Supplemental disclosure
Interest paid $ 5,001 $ 4,436
Income taxes paid $ 545 $ 1,457
</TABLE>
The Company's notes are an integral part of the consolidated financial
statements.
5
<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 June 30, 2000, the
results of operations for the three and six months ended June 30, 2000 and 1999,
and cash flows for the six months ended June 30, 2000 and 1999 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, 1999.
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 3,652,452 and 3,698,418
for the three months ended June 30, 2000 and 1999, respectively, and 3,665,231
and 3,780,164 for the six months ended June 30, 2000 and 1999, respectively.
Note 3
During the first quarter of 2000 the board of directors of C&F Financial
Corporation authorized management to buy up to 10% of the Company's outstanding
common stock in the open market at prices that management and the board of
directors determine are prudent. The Company will consider current market
conditions and the Company's current capital level, in addition to other
factors, when deciding whether to repurchase stock.
During the first quarter of 2000 the Company repurchased 3,000 shares of its
common stock in the open market at prices between $14.625 and $16.50 per share.
The Company repurchased 58,000 shares of its common stock in the open market
during the second quarter of 2000 at prices between $12.375 and $17.00 per
share. 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.
6
<PAGE>
Note 4
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 June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- -------- ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 6,347 $ 313 $ -- $ (199) $ 6,461
Gain on sale of loans -- 1,214 -- -- 1,214
Other 566 315 211 -- 1,092
-------------------------------------------------------------------------------------------
Total operating income 6,913 1,842 211 (199) 8,767
-------------------------------------------------------------------------------------------
Expenses:
Interest expense 2,699 199 -- (199) 2,699
Salaries and employee benefits 1,461 842 114 -- 2,417
Other 1,215 580 37 -- 1,832
-------------------------------------------------------------------------------------------
Total operating expenses 5,375 1,621 151 (199) 6,948
-------------------------------------------------------------------------------------------
Income before income taxes 1,538 221 60 -- 1,819
-------------------------------------------------------------------------------------------
Total assets 337,609 22,268 48 (16,902) 343,023
Capital expenditures $ 340 $ 43 $ -- $ -- $ 383
Three Months Ended June 30, 1999
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- -------- ----- ------------ ------------
Revenues:
Interest income $ 5,498 $ 435 $ -- $ (341) $ 5,592
Gain on sale of loans -- 1,719 -- -- 1,719
Other 468 530 228 -- 1,226
-------------------------------------------------------------------------------------------
Total operating income 5,966 2,684 228 (341) 8,537
-------------------------------------------------------------------------------------------
Expenses:
Interest expense 2,207 341 -- (341) 2,207
Salaries and employee benefits 1,291 1,033 79 -- 2,403
Other 1,052 667 45 -- 1,764
-------------------------------------------------------------------------------------------
Total operating expenses 4,550 2,041 124 (341) 6,374
-------------------------------------------------------------------------------------------
Income before income taxes 1,416 643 104 -- 2,163
-------------------------------------------------------------------------------------------
Total assets 303,859 39,287 54 (35,493) 307,707
Capital expenditures $ 847 $ 65 $ -- $ -- $ 912
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- -------- ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 12,386 $ 578 $ -- $ (356) $ 12,608
Gain on sale of loans -- 2,287 -- -- 2,287
Other 1,151 573 362 -- 2,086
-----------------------------------------------------------------------------------------
Total operating income 13,537 3,438 362 (356) 16,981
-----------------------------------------------------------------------------------------
Expenses:
Interest expense 5,152 356 -- (356) 5,152
Salaries and employee benefits 2,928 1,622 198 -- 4,748
Other 2,298 1,133 66 -- 3,497
-----------------------------------------------------------------------------------------
Total operating expenses 10,378 3,111 264 (356) 13,397
-----------------------------------------------------------------------------------------
Income before income taxes 3,159 327 98 -- 3,584
-----------------------------------------------------------------------------------------
Total assets 337,609 22,268 48 (16,902) 343,023
Capital expenditures $ 1,021 $ 72 $ -- $ -- $ 1,093
Six Months Ended June 30, 1999
Retail Mortgage
Banking Banking Other Eliminations Consolidated
-------- -------- ----- ------------ ------------
Revenues:
Interest income $ 11,425 $ 1,013 $ -- $ (756) $ 11,682
Gain on sale of loans -- 3,883 -- -- 3,883
Other 909 924 407 -- 2,240
-----------------------------------------------------------------------------------------
Total operating income 12,334 5,820 407 (756) 17,805
-----------------------------------------------------------------------------------------
Expenses:
Interest expense 4,447 756 -- (756) 4,447
Salaries and employee benefits 2,443 2,072 148 -- 4,663
Other 2,077 1,329 80 -- 3,486
-----------------------------------------------------------------------------------------
Total operating expenses 8,967 4,157 228 (756) 12,596
-----------------------------------------------------------------------------------------
Income before income taxes 3,367 1,663 179 -- 5,209
-------------------------------------------------------------------------------- --------
Total assets 303,859 39,287 54 (35,493) 307,707
Capital expenditures $ 1,147 $ 135 $ -- $ -- $ 1,282
</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.
8
<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 decreased 14.4% to $1,398,000 for the three months ended June
30, 2000 compared to $1,634,000 for the same period of 1999. Earnings per share
were $.38 for the three month period, down 13.6% from $.44 per share for the
three months ended June 30, 1999. Net income for the first six months ended
June 30, 2000 was $2,767,000 compared to $3,780,000 for the same period of 1999.
Included in earnings for the first six months of 1999 is $370,000 in interest
income (after taxes) which was collected in February 1999 resulting from the
payoff of a non-accrual loan which had been on the Bank's books for the past
several years. Excluding this interest income, net income decreased 18.9% and
earnings per share decreased 16.7% over the six months ended June 30, 1999.
Profitability as measured by the Company's annualized return on average
assets (ROA) was 1.72% for the three months ended June 30, 2000 compared to
2.15% for the same period of 1999. For the first six months of 2000 ROA was
1.72% compared to 2.23%, excluding the one-time interest income, for the first
six months of 1999. Another key indicator of performance, the annualized return
on average equity (ROE) for the three months ended June 30, 2000 was 15.52%
compared to 19.09% for the three months ended June 30, 1999. For the first six
months of 2000 ROE was 15.48% compared to 19.38%, excluding the one-time
interest income, for the first six months of 1999.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended June 30, 2000 was $3.8
million, an increase of $377,000, or 11%, from $3.4 million for the three months
ended June 30, 1999. The increase in net interest income is a result of an
increase in the average balance of interest earning assets to $308.5 million for
the three months ended June 30, 2000 compared to $286.7 million for the same
period in 1999 and an increase in the net interest margin on a taxable
equivalent basis to 5.33% for the quarter ended June 30, 2000 from 5.18% for the
same quarter in 1999.
The increase in average earning assets is a result of the increase in the
average balance of loans held in the Bank's portfolio and an increase in the
average balance of investment securities offset by a decrease in the average
balance of loans held for sale by C&F Mortgage Corporation, a decrease in
interest bearing deposits in other institutions and a decrease in fed funds
sold. The increase in the Bank's loan portfolio is a result of increased loan
demand resulting from an increased emphasis on commercial and consumer lending.
The increase in the average balance of the securities portfolio and the decrease
in interest bearing balances in other institutions and fed funds sold was a
result of those excess funds being invested in loans and securities during the
second and third quarters of 1999. During the fourth quarter of 1998 and the
9
<PAGE>
first quarter of 1999 interest rates were at the lowest levels in years. As a
result, numerous securities were called and the excess funds were deposited in
interest bearing accounts at the Federal Home Loan Bank or sold as fed funds.
When rates began to rise during the second and third quarters of 1999, those
funds that were not used to support growth in the loan portfolio were invested
in securities.
The decrease in loans held for sale is a result of decreased production at
C&F Mortgage Corporation due to increasing interest rates during the first half
of 2000. Loans closed at C&F Mortgage Corporation for the three months ended
June 30, 2000 were $84,072,000 compared to $141,618,000 for the comparable
period in 1999. Loans sold during the second quarter of 2000 were $75,953,000
compared to $128,511,000 for the second quarter of 1999.
The increase in the company's net interest margin on a taxable equivalent
basis for the three months ended June 30, 2000 compared to the same period in
1999 was a result of an increase in the yield on interest earning assets to
8.83% for the second quarter of 2000 from 8.26% for the same period in 1999
offset by an increase in the cost of funds to 4.21% for the second quarter of
2000 compared to 3.89% for the same period in 1999. The increase in the yield
on interest earning assets is a result of an increase in the yield on loans held
by the Bank, a decrease in the average balance of lower yielding loans held for
sale at C&F Mortgage corporation and a decrease in the significantly lower
yielding, deposits at the Federal Home Loan Bank (FHLB) offset by a small
decrease in the yield on the securities portfolio. The increase in the yield on
loans held by the Bank is a result of the rising interest rate environment. The
decrease in the yield on the securities portfolio is a result of the fact that
the investments that were purchased during 1999 yielded less than those
securities which were called during 1999. The increase in the cost of funds is
a result of an increase in rates paid on certificates of deposit and an increase
in the rates paid and average balance of higher cost borrowings from the FHLB.
Net interest income for the six months ended June 30, 2000 was $7.5
million, an increase of $781,000, or 11.7%, from $6.7 million, excluding the
one-time interest income of approximately $560,000 before taxes, for the six
months ended June 30, 1999. The increase in net interest income is a result of
an increase in the average balance of interest earning assets and an increase in
the net interest margin on a taxable equivalent basis to 5.38% for the six
months ended June 30, 2000 from 5.08% for the first six months of 1999.
The average balance of interest earning assets increased $15.3 million to
$303.2 million for the first six months of 2000 from $287.9 million for the
first six months of 1999. The increase in average earning assets is a result of
an increase in the average balance of the Bank's loan portfolio and securities
portfolio offset by a decrease in the average balance of loans held for sale by
C&F Mortgage Corporation and a decrease in the average balance in interest
earning deposits in other banks and fed funds sold. The increase in the Bank's
loan portfolio is the result of increased loan demand.
The decrease in loans held for sale is a result of decreased production at
C&F Mortgage Corporation due to increasing interest rates during the first half
of 2000. Loans closed at C&F Mortgage Corporation for the six months ended June
30, 2000 were $142,493,000 compared to $257,722,000 for the comparable period in
1999. Loans sold during the first half of 2000 were $146,402,000 compared to
$285,138,000 for the first half of 1999.
The increase in the company's net interest margin on a taxable equivalent
basis for the six months ended June 30, 2000 compared to the same period in 1999
was a result of an increase in the yield on interest earning assets to 8.78% for
the first half of 2000 from 8.17% for the same period in 1999 offset by an
increase in the cost of funds to 4.08% for the first half of 2000 compared to
3.93% for the same period in 1999. The increase in the yield on interest
earning assets is a result of an increase in the yield on loans held by the
Bank, a decrease in the average balance of lower yielding loans held for sale at
C&F Mortgage Corporation and a decrease in the significantly lower yielding
10
<PAGE>
deposits at the Federal Home Loan Bank (FHLB) offset by a small decrease in the
yield on the securities portfolio. The increase in the yield on loans held by
the Bank is a result of the rising interest rate environment. The decrease in
the yield on the securities portfolio is a result of the fact that the
investments that were purchased during 1999 yielded less than those securities
which were called during 1999. The increase in the cost of funds is a result of
an increase in rates paid on certificates of deposit and an increase in the
rates paid and average balance of higher cost borrowings from the FHLB.
Non-Interest Income
Other operating income decreased $639,000, or 21.7%, to $2,306,000 for the
second quarter of 2000 from $2,945,000 for the second quarter of 1999. Other
operating income decreased $1,750,000, or 28.6%, to $4,373,000 for the first six
months of 2000 from $6,123,000 for the first six months of 1999. The decrease
in other income is mainly attributed to a decrease in gain on sale of loans
resulting from decrease in volume of loans sold by C&F Mortgage Corporation
Non-Interest Expense
Other operating expenses increased $57,000, or 1.4%, to $4,149,000 for the
second quarter of 2000 from $4,092,000 for the second quarter of 1999. Other
operating expenses increased $171,000, or 2.2%, to $8,070,000 for the first six
months of 2000 from $7,899,000 for the first six months of 1999. This increase
is mainly attributable to an additional branch office at the Bank, during the
first half of 2000, the creation of Citizens and Commerce Bank, a division of
the Bank, in the fourth quarter of 1999 and the overall growth of the Bank
offset by a decrease in salaries expense at C&F Mortgage Corporation.
Year 2000 Issue
The Y2K issue involved the risk that computer programs and computer systems
would not be able to perform without interruption into the year 2000. If
computer systems did 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. All computer programs and systems at the
Company operated without problems when the date changed from December 31, 1999
to January 2000. While the Company will continue to monitor computer programs
and systems, no problems are expected.
The Company, to date, has expensed $150,000 related to the Year 2000 issue.
Remaining expenditures are not expected to have a material effect on the
Company's consolidated financial statements.
Income Taxes
Income tax expense for the three months ended June 30, 2000 amounted to
$421,000, resulting in an effective tax rate of 23.1% compared to $529,000, or
24.5%, for the three months ended June 30, 1999. Income tax expense for the six
months ended June 30, 2000 amounted to $817,000, resulting in an effective tax
rate of 22.8% compared to $1,429,000, or 27.4%, for the six months ended June
30, 1999. The decrease in the effective tax rate for the quarter and for the
six months is a result of the increase in earnings subject to no taxes, such as
loans to municipalities or investment obligations of state and political
subdivisions, as a percentage of total income. This increase in earnings
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subject to no taxes as a percentage of total income is primarily a result of the
decrease in income at C&F Mortgage Corporation.
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Asset Quality-Allowance /Provision For Loan Losses
The Company had $175,000 in provision expense for the first six months of
2000 and $250,000 for the first six months of 1999. Loans charged off amounted
to $26,000 for the six months ended June 30, 2000 and $6,000 for the same period
in 1999. Recoveries amounted to $2,000 and $18,000 for the six months ended
June 30, 2000 and 1999, respectively. The allowance for loan losses was $3.5
million at June 30, 2000 and $3.3 million at December 31, 1999. The allowance
approximates 1.51% and 1.57% of total loans outstanding at June 30, 2000 and
December 31, 1999. 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 $288,000 at June 30, 2000 compared to
$49,000 at December 31, 1999.
FINANCIAL CONDITION
Summary
At June 30, 2000, the Company had total assets of $343.0 million compared
to $329.2 million at December 31, 1999.
Interest-Bearing Deposits in Other Banks and Fed Funds
At June 30, 2000, interest-bearing deposits in other banks and fed funds
amounted to $3,660,000 compared to $2,062,000 at December 31, 1999.
Loan Portfolio
At June 30, 2000, loans held for sale amounted to $20.9 million compared to
$24.9 million held at December 31, 1999. The decrease is a result of the
continued increase in interest rates for the first half of 2000.
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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>
June 30, 2000 December 31, 1999
(Dollars in Thousands)
Amount Percent Amount Percent
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Real estate - mortgage $ 91,591 40% $ 90,947 43%
Real estate - construction 10,370 4 7,980 4
Commercial, financial and
agricultural 103,017 45 89,139 42
Equity lines 11,007 5 10,272 5
Consumer 12,913 6 12,091 6
-------- --- -------- ---
Total loans 228,898 100% 210,429 100%
=== ===
Less unearned loan fees (1,030) (1,011)
Less allowance for possible
loan losses (3,453) (3,302)
-------- --------
Total loans, net $224,415 $206,116
======== ========
</TABLE>
Investment Securities
At June 30, 2000, total investment securities were $64,711,000 compared to
$64.999,000 for December 31, 1999. Securities of U.S. Government agencies and
corporations represent 22.1% of the total securities portfolio, obligations of
state and political subdivisions were 68.3%, U.S. Treasury securities were 1.5%,
and preferred stocks were 8.1% at June 30, 2000.
Deposits
Deposits totaled $270.4 million at June 30, 2000 compared to $260.9 at
December 31, 1999. Non-interest bearing deposits totaled $36.9 million at June
30, 2000 compared to $34.8 million at December 31, 1999.
Liquidity
At June 30, 2000, 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 Tier I capital ratio was 13.6% at June 30, 2000 compared to
14.0% at December 31, 1999. The total risk-based capital ratio was 14.9% at
June 30, 2000 compared to 15.2% at December 31, 1999. These ratios are in
excess of the mandated minimum requirements. The decrease in the Tier I capital
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ratio and the total risked based capital ratio was a result of the repurchase of
stock throughout the year and the increase in total assets.
Shareholders' equity was $36.1 million at the end of the second quarter of
2000 compared to $35.1 million at December 31, 1999. The leverage ratio
consists of Tier I capital divided by quarterly average assets. At June 30,
2000, the Company's leverage ratio was 10.3% compared to 11.3% at December 31,
1999. Each of these exceeds the required minimum leverage ratio of 4%. The
decrease in the leverage ratio is a result of the repurchase of stock throughout
the year and the increase in total assets.
New Accounting Pronouncements
There have been no significant pronouncements since the December 31, 1999 10K
was filed.
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 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 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, 1999 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
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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.
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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 August 8, 2000 /s/ Larry G. Dillon
-------------- ------------------------------------------------------
Larry G. Dillon, President and Chief Executive Officer
Date August 8, 2000 /s/ Thomas F. Cherry
------------- -------------------------------------------------------
Thomas F. Cherry, Chief Financial Officer
