UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
September 3, 2002
C&F FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Virginia | 000-23423 | 54-1680165 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
Eighth and Main Streets
P.O. Box 391
West Point, Virginia 23181
(Address of principal executive offices)
(Registrant’s telephone number,
including area code) (804-843-2360)
(Former name or former address, if changed since last report)
This Current Report on Form 8-K/A is being filed to amend Item 2 and Item 7 of the Form 8-K filed by C&F Financial Corporation (the “Company”) with the Securities and Exchange Commission on September 3, 2002 to include a more detailed description of Moore Loans, Inc. (Moore Loans), the financial statements of Moore Loans and the pro forma financial information reflecting the pro forma effects of the Company’s acquisition of Moore Loans.
Item 2. Acquisition or Disposition of Assets
On August 30, 2002, Moore Loans, Inc., a Virginia corporation, was purchased by Citizens and Farmers Bank (the “Bank”), a Virginia corporation and wholly owned subsidiary of C&F Financial Corporation, a Virginia corporation (the “Purchase”). The Purchase was consummated pursuant to a Stock Purchase Agreement, dated as of August 30, 2002, by and between Moore Loans, Inc., the Bank and the Company.
Under the terms of the Purchase, the outstanding shares of Moore Loans’ common stock, par value $5.00 per share were purchased from Abby W. Moore, John D. Moore and Joanne Moore for an aggregate of $14,000,000 cash, $3,000,000 in subordinated notes of the Bank, and 100,000 shares of the Company’s common stock. $3,000,000 of the cash payment will be deferred subject to Moore Loans meeting certain financial goals over the next three years. Also, the Company has guaranteed a stock price of $30 per share for all shares still held by the sellers on the three year anniversary date of the transaction. The cash used for the purchase will come from a $5,000,000 loan to the Company from an unrelated bank and federal funds held by the Bank. In determining the purchase price, the Company along with its independent financial advisor considered many factors including recent acquisitions in this industry, the potential for accretion to earnings to the Company, past history of Moore Loans and risks inherent in the industry.
Moore Loans is a leading regional consumer finance company focused on providing auto loans in Richmond, Roanoke, Hampton Roads and portions of eastern Tennessee. Moore Loans primarily finances late model used automobiles by acquiring loans from automobile dealerships made to consumers who often have credit problems or lack an adequate credit history to qualify for financing from traditional sources. However, as part of the underwriting procedures performed by Moore Loans, it is determined that these consumers have sufficient earnings to repay their debt and illustrated a past willingness to meet their automobile obligations in an acceptable manner. The loans made by Moore Loans typically range from $10,000 to $20,000 in value, mature within five years and are secured by cars that are less than three years old. Because of collection risk inherent in this type of lending, Moore Loans charges interest rates that typically range from 15% to 20%. Moore Loans has established relationships with approximately 285 auto dealers in its target markets, the majority of which are franchised from major auto manufacturers. As part of this transaction, Mr. Abby Moore executed an employment contract to continue as president of the loan company for three years.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
2
The following audited financial statements of Moore Loans are included in this Form 8-K/A on pages 4 through 15:
| • | Balance sheets as of December 31, 2001 and 2000 and the related statements of income, retained earnings, and cash flows for each of the years in the two year period ended December 31, 2001, notes to the financial statements and the independent auditor’s report. |
The following unaudited financial statements of Moore Loans are included in this Form 8-K/A on pages 16 through 21:
| • | Unaudited balance sheet as of June 30, 2002 and unaudited statements of income and cash flows for the six months ended June 30, 2002 and 2001, and the notes to the unaudited interim financial statements. |
(b) Pro forma financial information.
The following Unaudited pro forma combined financial statements, based on historical financial statements of the Company and Moore Loans, are included in this Form 8-K/A on pages 22 through 29:
| • | Pro forma combined balance sheet as of June 30, 2002, pro forma combined statements of income for the six months ended June 30, 2002 and the twelve months ended December 31, 2001 and the notes to the pro forma combined financial statements. |
(c) Exhibits.
2 Stock Purchase Agreement by and Between Citizens and Farmers Bank, C&F Financial Corporation, Moore Loans, Inc., Abby W. Moore, Joanne Moore and John D. Moore dated as of August 30, 2002. (Previously filed on September 3, 2002 as exhibit 2.1 of the Current Report on Form 8-K.)
4 Certain rights of security holders as a result of this transaction are described in the Stock Purchase Agreement included as Exhibit 2 herein.
99 Press release dated September 3, 2002, announcing that C&F Financial Corporation, through its subsidiary Citizens and Farmers Bank, has acquired Moore Loans, Inc. (Previously filed on September 3, 2002 as exhibit 99 of the Current Report on
Form 8-K.)
3
5501 PATTERSON AVENUE, RICHMOND, VA 23226 804-288-5888 FAX 804-288-4512
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of
Moore Loans, Inc.
Richmond, Virginia
We have audited the accompanying balance sheets of Moore Loans, Inc. (an S Corporation) as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimated used by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Moore Loans, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 7 to the financial statements, certain errors resulting in understatement of the allowance for credit losses were discovered by the management of the Company subsequent to the issuance of the December 31, 2001 financial statements. Accordingly, the 2001 and 2000 financial statements have been restated and an adjustment has been made to retained earnings as of December 31, 1999 to correct the error.
 | ||
Biegler & Associates, P.C. Richmond, VA January 17, 2002 July 22, 2002 with respect to note 7 STEVEN BIEGLER JULIA W. ROGERS MARILYN C. DOVE KATHERINE M. HOFFMANN WILLIAM T. DIDLAKE | ||
MOORE LOANS, INC.
BALANCE SHEETS
December 31, 2001 and 2000
2001 | 2000 | |||||||
ASSETS | ||||||||
Cash | $ | 132,207 | $ | 2,100 | ||||
Finance Receivables | ||||||||
| Small loans | 270,001 | 492,505 | ||||||
| Sales finance | 74,457,378 | 66,711,011 | ||||||
| Less—unearned finance charges, add-on fees and insurance commissions | (7,324,482 | ) | (8,368,903 | ) | ||||
| Principal of finance receivables | 67,402,897 | 58,834,613 | ||||||
| Less—allowance for credit losses | (2,251,875 | ) | (1,445,964 | ) | ||||
| Finance receivables—net | 65,151,022 | 57,388,649 | ||||||
Property and Equipment | ||||||||
| Furniture and fixtures | 250,604 | 225,331 | ||||||
| Software | 5,808 | 5,808 | ||||||
| Vehicles | 73,646 | 73,646 | ||||||
| Leasehold improvements | 58,430 | 54,180 | ||||||
| Accumulated depreciation | (316,035 | ) | (283,607 | ) | ||||
| Property and equipment—net | 72,453 | 75,358 | ||||||
Other Assets | ||||||||
| Cash surrender value of life insurance | 965,233 | 864,295 | ||||||
| Prepaid dealer commissions | 854,972 | 601,377 | ||||||
| Dealer holdback | 1,421,310 | 904,102 | ||||||
| Other assets | 28,332 | 18,664 | ||||||
| Total other assets | 3,269,847 | 2,388,439 | ||||||
| $ | 68,625,529 | $ | 59,854,546 | |||||
The accompanying notes are an integral
part of these financial statements
5
2001 | 2000 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Liabilities | ||||||
| Notes payable | $ | 57,048,906 | $ | 49,528,753 | ||
| Dealers reserve | 2,626,482 | 2,601,393 | ||||
| Accounts payable | 43,944 | 33,552 | ||||
| Accrued expenses | 52,886 | 59,315 | ||||
| Accrued interest | 32,231 | 29,713 | ||||
| Deferred revenue | 438,395 | 521,438 | ||||
| Total liabilities | 60,242,844 | 52,774,164 | ||||
Commitment | ||||||
Stockholders’ Equity | ||||||
| Common stock—Class A—$5 par value; 10,000 shares authorized, 3,043 shares issued and outstanding | 15,215 | 15,215 | ||||
| Common stock—Class B—$5 par value; 10,000 shares authorized, 2,799 shares issued and outstanding | 13,995 | 13,995 | ||||
| Paid-in-capital | 178,000 | 178,000 | ||||
| Retained earnings | 8,175,475 | 6,873,172 | ||||
| Total stockholders’ equity | 8,382,685 | 7,080,382 | ||||
| $ | 68,625,529 | $ | 59,854,546 | |||
The accompanying notes are an integral
part of these financial statements
6
MOORE LOANS, INC.
STATEMENTS OF INCOME
For the Years Ended December 31, 2001 and 2000
2001 | 2000 | ||||
Revenue | |||||
| Small loans | $ | 106,441 | 136,291 | ||
| Sales finance loans | 9,985,589 | 8,076,564 | |||
| Add-on fees | 163,339 | 141,488 | |||
| Late charges | 342,050 | 409,482 | |||
| Investment income and other income | 99,610 | 205,846 | |||
| Insurance commissions earned | 654 | 7,871 | |||
Total Revenue | 10,697,683 | 8,977,541 | |||
Operating Expenses | |||||
| Interest expense | 3,597,250 | 4,005,651 | |||
| Salaries | 1,382,440 | 1,256,603 | |||
| Bad debts—net of recoveries | 1,387,299 | 569,323 | |||
| Employee retirement plan | 36,000 | 36,000 | |||
| Professional fees | 60,803 | 58,238 | |||
| Printing and postage | 62,172 | 57,590 | |||
| Office expenses | 50,104 | 32,952 | |||
| Payroll taxes | 97,631 | 86,390 | |||
| Taxes and licenses | 79,310 | 72,500 | |||
| Sales promotion | 33,662 | 31,251 | |||
| Credit information | 99,806 | 89,057 | |||
| Rent | 75,070 | 71,485 | |||
| Collection expense | 120,921 | 109,506 | |||
| Dealer participation | 487,247 | 283,184 | |||
| Depreciation and amortization | 33,351 | 30,968 | |||
| Utilities | 8,421 | 6,799 | |||
| Telephone | 70,894 | 77,202 | |||
| Seminars, travel and vehicle expense | 19,333 | 27,346 | |||
| Expenses, forwarded | 7,701,714 | 6,902,045 | |||
The accompanying notes are an integral
part of these financial statements
7
MOORE LOANS, INC.
STATEMENTS OF INCOME (CONTINUED)
For the Years Ended December 31, 2001 and 2000
2001 | 2000 | |||||
| Expenses, brought forward | $ | 7,701,714 | $ | 6,902,045 | ||
| Health insurance | 35,512 | 28,092 | ||||
| Repairs and maintenance | 9,261 | 10,783 | ||||
| Insurance—general | 8,186 | 7,834 | ||||
| Repossession expenses | 25,066 | 10,856 | ||||
| Miscellaneous | 9,372 | 7,560 | ||||
| Contributions | 35,102 | 34,758 | ||||
| Bank service charges | 51,908 | 30,737 | ||||
| Janitorial services | 3,850 | 4,200 | ||||
| Computer maintenance and support | 33,247 | 22,986 | ||||
| Entertainment | 5,662 | 5,044 | ||||
Total expenses | 7,918,880 | 7,064,895 | ||||
Net income | $ | 2,778,803 | $ | 1,912,646 | ||
The accompanying notes are an integral
part of these financial statements.
8
MOORE LOANS, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 2001 and 2000
2001 | 2000 | |||||||
Accumulated Adjustments Account: | ||||||||
| Balance, beginning of year, as previously reported | $ | 7,932,963 | $ | 6,893,297 | ||||
| Adjustment for understatement of loss reserve and bad debt write offs | (1,796,000 | ) | (1,436,000 | ) | ||||
| Balance, beginning of year, as restated | 6,136,963 | 5,457,297 | ||||||
| Taxable income | 3,599,109 | 2,122,198 | ||||||
| Tax deferred revenue from discount loans | 124,147 | 186,410 | ||||||
| Book deferred revenue from loan fees | (177,229 | ) | (171,779 | ) | ||||
| Current reserve adjustment | (805,911 | ) | (266,463 | ) | ||||
| Non-deductible expenses | (4,383 | ) | (2,724 | ) | ||||
| Stockholder distributions | (1,476,500 | ) | (1,182,600 | ) | ||||
| Taxable interest, add-on fees and insurance commissions earned in excess of book income | (11,778 | ) | (5,375 | ) | ||||
| Balance, end of year | 7,384,418 | 6,136,964 | ||||||
Accumulated Earnings and Profits: | ||||||||
| Balance, beginning and end of year | 485,212 | 485,212 | ||||||
Other Retained Earnings: | ||||||||
| Balance, beginning of year | 250,996 | 200,614 | ||||||
| Tax exempt income | 54,849 | 50,382 | ||||||
| Balance, end of year | 305,845 | 250,996 | ||||||
Total Retained Earnings | $ | 8,175,475 | $ | 6,873,172 | ||||
The accompanying notes are an integral
part of these financial statements.
9
MOORE LOANS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001 and 2000
INCREASE (DECREASE) IN CASH
2001 | 2000 | |||||||
Cash Flows from Operating Activities | ||||||||
| Interest received | $ | 9,824,011 | $ | 8,388,646 | ||||
| Interest paid | (3,594,732 | ) | (4,263,052 | ) | ||||
| Cash paid to vendors and employees | (2,908,606 | ) | (2,456,456 | ) | ||||
| Other income received | 44,915 | 101,978 | ||||||
| Net cash provided by operating activities | 3,365,588 | 1,771,116 | ||||||
Cash Flows from Investing Activities | ||||||||
| Increase in cash surrender value of life insurance | (100,938 | ) | (95,360 | ) | ||||
| Principal collected on loans | 32,111,717 | ) | 29,905,396 | |||||
| Loans made to customers | (41,261,390 | ) | (36,271,992 | ) | ||||
| Proceeds from sale of investments | 1,000 | 106,366 | ||||||
| Purchase of property and equipment | (29,523 | ) | (8,978 | ) | ||||
| Net cash used by investing activities | (9,279,134 | ) | (6,364,568 | ) | ||||
Cash Flows from Financing Activities | ||||||||
| Net increase in line of credit | 6,440,322 | 5,748,106 | ||||||
| Notes payable proceeds | 1,962,607 | 576,364 | ||||||
| Notes payable curtailments | (882,776 | ) | (548,418 | ) | ||||
| Stockholder distributions | (1,476,500 | ) | (1,182,600 | ) | ||||
| Net cash provided by financing activities | 6,043,653 | 4,593,452 | ||||||
Net Increase (Decrease) In Cash | 130,107 | 0 | ||||||
Cash, Beginning of Year | 2,100 | 2,100 | ||||||
Cash, End of Year | $ | 132,207 | $ | 2,100 | ||||
The accompanying notes are an integral
part of these financial statements.
10
MOORE LOANS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, 2001 and 2000
2001 | 2000 | |||||||
Reconciliation of Net Income to Net Cash Provided by Operating Activities: | ||||||||
Net Income | $ | 2,778,803 | $ | 1,912,646 | ||||
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: | ||||||||
| Depreciation and amortization | 33,351 | 30,968 | ||||||
| Bad debts—net of recoveries | 581,388 | 302,860 | ||||||
| Allowance adjustments | 805,910 | 266,463 | ||||||
| Gain on sale of investments | (500 | ) | (106,366 | ) | ||||
| (Increase) decrease in: | ||||||||
| Other assets | (11,093 | ) | (7,793 | ) | ||||
| Prepaid dealer commission | (253,595 | ) | (295,813 | ) | ||||
| Dealer holdback | (517,208 | ) | (448,649 | ) | ||||
| Increase (decrease) in: | ||||||||
| Deferred revenue | (83,043 | ) | (27,824 | ) | ||||
| Dealer reserves | 25,089 | 398,076 | ||||||
| Accounts payable | 10,397 | (4,624 | ) | |||||
| Accrued expenses | (6,429 | ) | 8,572 | |||||
| Accrued interest | 2,518 | (257,400 | ) | |||||
Net Cash Provided by Operating Activities | $ | 3,365,588 | 1,771,116 | |||||
The accompanying notes are an integral
part of these financial statements.
11
MOORE LOANS, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2001 and 2000
NOTE 1—NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a Virginia Corporation organized in 1952 as a small loan company. Principal activities consist of small loan financing to consumers and sales contract financing for dealers. Principal markets are in the greater Richmond, Roanoke and Hampton, Virginia areas, as well as the Tri-Cities of Tennessee. The Company ceased new small loan financing during 2001.
Significant Accounting Policies
Estimates—The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.
Financial Reporting—The Company reports on the accrual basis of accounting for financial statements and federal income tax purposes.
Method of Income Recognition—The Company recognizes interest income by the constant yield method of accounting for financial reporting.
Finance Receivables—Receivables are carried at estimated realizable value, net of an allowance for credit losses. The allowance for credit losses is based upon a review of the loan portfolio.
Investments Securities—Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premium and accretion of discounts using methods approximating the interest method. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in shareholder’s equity. Cost of securities sold is recognized using the specific identification method.
Property and Equipment—Property and equipment are recorded at cost. Major renewals and betterments are capitalized. The cost of maintenance and repairs is charged to operations as incurred. Depreciation is provided for on the modified accelerated cost recovery method, based on estimated useful lives of five to seven years for furniture and fixtures, five years for vehicles, and thirty-one and one-half years for leasehold improvements.
Cash Equivalents—For purposes of the statement of cash flows, the Corporation considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Financial Instruments—The fair value of the Company’s accounts receivable and payable approximate their carrying value.
12
Concentration of Credit Risk—Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Concentration of credit risk with the respect to trade receivables is limited due to the number of customers and the close monitoring of customer payments. As of December 31, 2001, management does not believe they have any significant concentration of credit risk.
NOTE 2—CASH SURRENDER VALUE OF LIFE INSURANCE
The Company is owner and beneficiary of various policies on the life of the controlling stockholder of the Company. The death benefits of these policies total approximately $880,000 at December 31, 2001. The cash surrender value of these policies (net of loans of $30,719 for 2001 and 2000) is $546,322 and $468,748 at December 31, 2001 and 2000 respectively. Additionally, the controlling stockholder is insured through two split dollar policies with death benefits approximating $1,370,000. The remaining shareholders are the owners and beneficiaries of these policies. The Company’s portion of the cash surrender value of these policies is $449,630 and $395,547 at December 31, 2001 and 2000 respectively.
NOTE 3—NOTES PAYABLE
2001 | 2000 | |||||
Revolving line of credit to Bank of America due September 30, 2003. The line currently bears interest at prime minus 1/4% or the Eurodollar rate plus 2 1/4%. If the interest coverage ratio for any quarterly period is less than 1/5 to 1, the rate can increase to prime plus 1/4%. The loan is secured by all existing and future finance receivables, inventory and equipment. Availability is based on 85% of net eligible borrowings of $60,000,000. Included in the line balance at December 31, 2001 and 2000 are net outstanding checks of -0- and $311,548 respectively. | $ | 50,669,781 | $ | 44,229,459 | ||
| Unsecured notes to investors with interest rates varying from 8.0% to 12.00% which automatically renew on an annual basis unless otherwise notified. Of these notes, $6,080,114 represents notes that have been subordinated to the Bank of America line of credit during 2001. | 6,379,125 | 5,299,294 | ||||
| $ | 57,048,906 | $ | 49,528,753 | |||
Included in the notes to investors for 2001 and 2000 are various notes to members of the stockholders’ family totaling $1,612,747 and 1,199,529 respectively, all of which has been subordinated to Bank of America.
13
NOTE 4—PROFIT SHARING PLAN
The Company has a profit sharing plan for the benefit of all eligible employees. Contributions are discretionary, determined by the board of directors. The allocation of this contribution is based upon a percentage of eligible employee salaries. The Company contributed $36,000 to the profit sharing plan for each of the years ended December 31, 2001 and 2000. This resulted in a contribution percentage rate of 3.22% and 3.34%, respectively for the years ended 2001 and 2000.
NOTE 5—INCOME TAX EXPENSE
Tax returns for years not barred by the statute of limitations are subject to review and final determination by the taxing authorities.
The Company elected to be treated as a Subchapter “S” Corporation effective January 1, 1987. Under this election, the Corporation pays no income taxes. All income and credits flow through to the shareholders’ personal income tax returns. Accordingly, no provision for income taxes is included in these financial statements.
Due to the Subchapter “S” status of the Company, the stockholders may depend on the Corporation to fund all or some portion of the individual income tax liability related to the taxable income recognized at the stockholder level.
NOTE 6—COMMITMENT AND RELATED PARTY TRANSACTION
The Company leases its Richmond premises under a lease with the Company’s president. The lease calls for the Company to pay real estate taxes and insurance on the building. Rent expense on the facility was $33,000 for each of the two years ended December 31, 2001 and 2000. Additionally, the Company leases space in Roanoke and Hampton for branch offices and additional office space in Richmond. The Company is required to maintain insurance on the leased space. Rent expense on the facilities for the years ended December 31, 2001 and 2000 was as follows:
Expense | ||||||||
Term | 2001 | 2000 | ||||||
| Roanoke | 8/1/01-7/31/02 | $ | 13,490 | $ | 13,323 | |||
| Hampton | 5/1/01-4/30/22 | $ | 7,566 | $ | 6,497 | |||
| Richmond | 10/1/00-9/30/02 | $ | 42,625 | $ | 41,088 | |||
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NOTE 7—CORRECTION OF AN ERROR
In prior years, the Company has followed the practice of writing off the balance of deficient loan accounts (accounts with no remaining collateral after repossession) only when it became evident that no further recoveries were likely. Generally accepted accounting principles require that at the time of repossession, the amount should be removed from loans and transferred to repossessed assets at estimated fair value with any difference between the loan balance and collateral value charged to the allowance. If this practice had been followed, the allowance for credit losses would have been adjusted to reflect the increase in write offs. Accordingly, the financial statements have been restated to reflect the additional loan write off and increase in the allowance. The adjustments resulted in a decrease in previously reported net income as follows:
| Prior to January 1, 2000 | $ | 1,436,000 | |
| December 31, 2000 | 360,000 | ||
| December 31, 2001 | 1,095,000 |
15
MOORE LOANS, INC.
BALANCE SHEETS
Assets
June 30, 2002 | December 31, 2001 | |||||||
(Unaudited) | (Audited) | |||||||
Cash | $ | 2,100 | $ | 132,207 | ||||
Finance Receivables | ||||||||
| Small Loans | 158,443 | 270,001 | ||||||
| Sales finance | 73,564,018 | 74,457,378 | ||||||
| Less—unearned finance charges, add-on fees and insurance commissions | (6,434,106 | ) | (7,324,482 | ) | ||||
| Principal of finance receivables | 67,288,355 | 67,402,897 | ||||||
| Less—allowance for credit losses | (2,535,225 | ) | (2,251,875 | ) | ||||
| Finance receivables—net | 64,753,130 | 65,151,022 | ||||||
Property and Equipment | ||||||||
| Furniture and fixtures | 260,286 | 250,604 | ||||||
| Software | 5,808 | 5,808 | ||||||
| Vehicles | 73,646 | 73,646 | ||||||
| Leasehold improvements | 58,430 | 58,430 | ||||||
| Accumulated depreciation | (331,641 | ) | (316,035 | ) | ||||
| Property and equipment—net | 66,529 | 72,453 | ||||||
Other Assets | ||||||||
| Cash surrender value of life insurance | 1,011,642 | 965,233 | ||||||
| Prepaid dealer commissions | 878,928 | 854,972 | ||||||
| Dealer holdback | 1,479,753 | 1,421,310 | ||||||
| Other assets | 81,224 | 28,332 | ||||||
| Total other assets | 3,451,547 | 3,269,847 | ||||||
| $ | 68,273,306 | $ | 68,625,529 | |||||
The accompanying notes are an integral part of these financial statements.
16
MOORE LOANS, INC.
BALANCE SHEETS
Liabilities and Stockholders Equity
June 30, 2002 | December 31, 2001 | |||||
(Unaudited) | (Audited) | |||||
Liabilities | ||||||
| Notes payable—Bank | $ | 56,635,109 | $ | 57,048,906 | ||
| Dealers reserve | 2,376,825 | 2,626,482 | ||||
| Accounts payable | 121,741 | 43,944 | ||||
| Accrued expense | 47,612 | 52,886 | ||||
| Accrued interest | 13,627 | 32,231 | ||||
| Deferred revenue | 401,007 | 438,395 | ||||
| Total liabilities | 59,595,921 | 60,242,844 | ||||
Stockholders’ Equity | ||||||
| Common stock—Class A | 15,215 | 15,215 | ||||
| Common stock—Class B | 13,995 | 13,995 | ||||
| Paid-in-capital | 178,000 | 178,000 | ||||
| Retained earnings | 8,470,175 | 8,175,475 | ||||
| Total stockholders’ equity | 8,677,385 | 8,382,685 | ||||
| $ | 68,273,306 | $ | 68,625,529 | |||
The accompanying notes are an integral part of these financial statements.
17
MOORE LOANS, INC.
STATEMENTS OF INCOME
For the Periods Ended June 30, 2002 and 2001
(Unaudited)
6 Months Ended 6/30/02 | 6 Months Ended 6/30/01 | |||||||
Revenue | ||||||||
| Small loans | $ | 29,300 | $ | 61,900 | ||||
| Sales finance loans | 5,294,918 | 4,651,953 | ||||||
| Add-on fees | 77,445 | 77,057 | ||||||
| Late charges | 142,561 | 183,376 | ||||||
| Investment income and other income | 46,963 | 44,734 | ||||||
| Insurance commissions earned | (2,188 | ) | (1,094 | ) | ||||
Total revenue | 5,588,999 | 5,017,926 | ||||||
Operating Expenses | ||||||||
| Interest expense | 1,317,271 | 1,969,238 | ||||||
| Salaries | 717,140 | 660,476 | ||||||
| Bad debts—net of recoveries | 567,979 | 683,214 | ||||||
| Employee retirement plan | 18,000 | 18,000 | ||||||
| Professional fees | 34,800 | 30,190 | ||||||
| Printing and postage | 30,558 | 29,983 | ||||||
| Office expenses | 22,464 | 26,480 | ||||||
| Payroll taxes | 54,387 | 50,564 | ||||||
| Taxes and licenses | 33,773 | 39,315 | ||||||
| Sales promotion | 8,725 | 4,117 | ||||||
| Credit information | 49,901 | 49,267 | ||||||
| Rent | 40,434 | 36,949 | ||||||
| Collection expense | 79,409 | 55,345 | ||||||
| Dealer participation | 285,965 | 222,024 | ||||||
| Depreciation and amortization | 15,606 | 13,919 | ||||||
| Utilities | 4,132 | 4,529 | ||||||
| Telephone | 32,044 | 38,114 | ||||||
| Seminars, travel and vehicle expense | 16,878 | 15,077 | ||||||
| Health insurance | 12,001 | 17,133 | ||||||
| Repairs and maintenance | 6,853 | 5,799 | ||||||
| Insurance—general | 4,284 | 3,965 | ||||||
| Repossession expenses | 6,920 | 350 | ||||||
| Miscellaneous | 11,183 | 4,634 | ||||||
| Contributions | 20,926 | 18,000 | ||||||
| Bank service charges | 16,754 | 18,154 | ||||||
| Janitorial services | 1,400 | 1,750 | ||||||
| Computer maintenance and support | 16,856 | 18,373 | ||||||
| Entertainment | 2,653 | 2,731 | ||||||
Total expenses | 3,429,296 | 4,037,690 | ||||||
Net Income | $ | 2,159,703 | $ | 980,236 | ||||
The accompanying notes are an integral part of these financial statements.
18
MOORE LOANS, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
Increase (Decrease) In Cash
2002 | 2001 | |||||||
Cash Flows from Operating Activities | ||||||||
| Interest received | $ | 5,174,779 | $ | 4,830,558 | ||||
| Interest Paid | (1,335,875 | ) | (1,975,458 | ) | ||||
| Cash paid to vendors and employees | (1,485,831 | ) | (1,380,885 | ) | ||||
| Other income received | 21,796 | 20,582 | ||||||
| Net Cash provided by operating activities | 2,374,869 | 1,494,797 | ||||||
Cash flows from Investing Activities | ||||||||
| Increase in cash surrender value of life insurance | (46,409 | ) | (46,483 | ) | ||||
| Principal collected on loans | 16,432,876 | 15,952,639 | ||||||
| Loans made to customers | (16,602,964 | ) | (23,019,987 | ) | ||||
| Purchase of property and equipment | (9,682 | ) | (14,524 | ) | ||||
| Net cash used by investing activities | (226,179 | ) | (7,128,355 | ) | ||||
Cash flows from Financing Activities | ||||||||
| Net increase (decrease) in line of credit | (833,173 | ) | 5,978,450 | |||||
| Notes payable proceeds | 518,974 | 935,099 | ||||||
| Notes payable curtailments | (99,598 | ) | (418,491 | ) | ||||
| Stockholder distributions | (1,865,000 | ) | (861,500 | ) | ||||
| Net cash provided by financing activities | (2,278,797 | ) | 5,633,558 | |||||
Net Increase (Decrease) In Cash | (130,107 | ) | — | |||||
Cash, Beginning of Year | 132,207 | 2,100 | ||||||
Cash, End of Six Months | $ | 2,100 | $ | 2,100 | ||||
The accompanying notes are an integral part of these financial statements
19
MOORE LOANS, INC.
STATEMENTS OF CASH FLOWS (Continued)
For the Six Months Ended June 30, 2002 and 2001
2002 | 2001 | |||||||
Reconciliation of Net Income to Net Cash Provided by Operating Activities | ||||||||
Net Income | $ | 2,159,703 | $ | 980,236 | ||||
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities | ||||||||
| Depreciation and amortization | 15,606 | 13,919 | ||||||
| Bad debts—net of recoveries | 567,979 | 683,214 | ||||||
| (Increase) decrease in: | ||||||||
| Other assets | (52,893 | ) | (45,702 | ) | ||||
| Prepaid dealer commission | (23,956 | ) | (195,275 | ) | ||||
| Dealer holdback | (58,443 | ) | (366,727 | ) | ||||
| Increase (decrease) in: | ||||||||
| Deferred revenue | (37,388 | ) | (50,720 | ) | ||||
| Dealer reserves | (249,658 | ) | 468,992 | |||||
| Accounts payable | 77,797 | 2,046 | ||||||
| Accrued expenses | (5,274 | ) | 11,034 | |||||
| Accrued interest | (18,604 | ) | (6,220 | ) | ||||
Net Cash Provided by Operating Activities | $ | 2,374,869 | $ | 1,494,797 | ||||
The accompanying notes are an integral part of these financial statements
20
MOORE LOANS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(Unaudited)
General
The financial statements include the accounts of Moore Loans, Inc. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial positions as of June 30, 2002 and December 31, 2001, and the results of operations and cash flows for the six months ended June 30, 2002 and 2001.
The results of operations for the six months ended June 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year.
21
(b) Pro Forma Financial Information
The following unaudited pro forma financial statements have been prepared on a consolidated basis based upon the historical financial statements of the Company and Moore Loans. The pro forma combined information gives effect to the acquisition accounted for using purchase accounting. Accordingly, the assets and liabilities of Moore Loans have been recorded on the Company’s books at their fair market value and Moore Loans’ capital accounts have been eliminated. The amount by which the sum of the cash paid and the debt issued to the sellers by the Company and the fair value of the Company stock issued in the acquisition exceeds the net fair value of Moore Loans’ assets and liabilities has been allocated to goodwill.
The pro forma statement of condition combines the balance sheet of the Company and Moore Loans as of June 30, 2002 and assumes the acquisition was completed on June 30, 2002. The pro forma statements of income for the six months ended June 30, 2002 and for the year ended December 31, 2001 combine the results of operations of the Company and Moore Loans for the respective periods and assumes the acquisition was completed at the beginning of the respective periods. The pro forma statement of condition and statement of income for the six months ended June 30, 2002 are based on unaudited financial statements and the pro forma statement of income for the year ended December 31, 2001 is based on audited financial statements.
The pro forma financial statements should be read in conjunction with the historical financial statements and the related notes of the Company, which have been filed with the Commission, and of Moore Loans, which are included in Item 7(a) above. There are no adjustments necessary to the historical results of operations as a result of these transactions. The pro forma combined financial position and results of operations are not necessarily indicative of the results that would actually have been attained if the acquisition had occurred in the past or that may be attained in the future. Also, nonrecurring merger expenses and estimated cost savings expected after the close of the acquisition have not been included in the pro forma financial statements.
22
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Dollars in thousands, except for per share amounts)
June 30, 2002
C&F Financial Corporation | Moore Loans, Inc. | Pro Forma Adjustments | Pro Forma Combined C&F Financial | ||||||||||||||
Debit | Credit | ||||||||||||||||
ASSETS | |||||||||||||||||
| Cash and due from banks | $ | 9,859 | $ | 2 | $ | — | $ | — | $ | 9,861 | |||||||
| Interest-bearing deposits in other banks | 22,006 | — | 5,000 | (D) | 17,200 | (A)(B)(E) | 9,806 | ||||||||||
| Total cash and cash equivalents | 31,865 | 2 | 5,000 | 17,200 | 19,667 | ||||||||||||
| Securities available for sale | 62,865 | — | — | — | 62,865 | ||||||||||||
| Loans held for sale, net | 47,657 | — | — | — | 47,657 | ||||||||||||
| Loans, net | 247,611 | 64,753 | — | — | 312,364 | ||||||||||||
| Federal Home Loan Bank stock | 1,690 | — | — | — | 1,690 | ||||||||||||
| Corporate premises and equipment, net of accumulated depreciation | 14,382 | 66 | — | — | 14,448 | ||||||||||||
| Accrued interest receivable | 2,023 | — | — | — | 2,023 | ||||||||||||
| Other assets | 5,255 | 3,452 | 7,723 | (B)(C) | — | 16,430 | |||||||||||
| Total assets | $ | 413,348 | $ | 68,273 | $ | 12,723 | $ | 17,200 | $ | 477,144 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||
| Deposits | |||||||||||||||||
| Non-interest-bearing demand deposits | $ | 47,578 | $ | — | $ | — | $ | — | $ | 47,578 | |||||||
| Savings and interest-bearing demand deposits | 143,593 | — | — | — | 143,593 | ||||||||||||
| Time deposits | 155,183 | — | — | — | 155,183 | ||||||||||||
| Total deposits | 346,354 | — | — | — | 346,354 | ||||||||||||
| Borrowings | 11,927 | 56,636 | 6,000 | (E) | 8,000 | (B)(D) | 70,563 | ||||||||||
| Accrued interest payable | 673 | 14 | — | — | 687 | ||||||||||||
| Other liabilities | 5,585 | 2,946 | — | — | 8,531 | ||||||||||||
| Total liabilities | 364,539 | 59,596 | 6,000 | 8,000 | 426,135 | ||||||||||||
| Commitments and contingent liabilities | |||||||||||||||||
| Shareholders’ equity | |||||||||||||||||
| Preferred stock | — | — | — | — | — | ||||||||||||
| Common stock | 3,540 | 29 | 29 | (F) | 100 | (B) | 3,640 | ||||||||||
| Additional paid-in capital | 213 | 178 | 178 | (F) | 2,100 | (B) | 2,313 | ||||||||||
| Retained earnings | 43,679 | 8,470 | 8,919 | (C)(F) | 449 | (C) | 43,679 | ||||||||||
| Accumulated other comprehensive income net of tax of $709 | 1,377 | — | — | — | 1,377 | ||||||||||||
| Total shareholders’ equity | 48,809 | 8,677 | 9,126 | 2,649 | 51,009 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 413,348 | $ | 68,273 | $ | 15,126 | $ | 10,649 | $ | 477,144 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
23
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except for per share amounts)
For the Six Months Ended June 30, 2002
C&F Financial Corporation | Moore Loans, Inc. | Pro Forma Adjustments | Pro Forma Combined C&F Financial | |||||||||||||||
Debit | Credit | |||||||||||||||||
| Interest income | ||||||||||||||||||
| Interest and fees on loans | $ | 11,220 | $ | 5,544 | $ | — | $ | — | $ | 16,764 | ||||||||
| Interest on other investments and fed funds | 217 | — | 100 | (G) | — | 117 | ||||||||||||
| Interest on investment securities | ||||||||||||||||||
| Tax-exempt obligations of states and political subdivisions | 1,185 | — | — | — | 1,185 | |||||||||||||
| Corporate bonds and other | 335 | — | — | — | 335 | |||||||||||||
| Total interest income | 12,957 | 5,544 | 100 | — | 18,401 | |||||||||||||
| Interest expense | ||||||||||||||||||
| Savings and interest-bearing deposits | 1,126 | — | — | — | 1,126 | |||||||||||||
| Certificates of deposit, $100 or more | 667 | — | — | — | 667 | |||||||||||||
| Other time deposits | 2,405 | — | — | — | 2,405 | |||||||||||||
| Short-term borrowings and other | 189 | 1,317 | 15 | (G) | — | 1,521 | ||||||||||||
| Total interest expense | 4,387 | 1,317 | 15 | — | 5,719 | |||||||||||||
| Net interest income | 8,570 | 4,227 | 115 | — | 12,682 | |||||||||||||
| Provision for loan losses | 200 | 567 | — | — | 767 | |||||||||||||
| Net interest income after provision for loan losses | 8,370 | 3,660 | 115 | — | 11,915 | |||||||||||||
| Other operating income | ||||||||||||||||||
| Gain on sale of loans | 5,639 | — | — | — | 5,639 | |||||||||||||
| Service charges on deposit accounts | 884 | — | — | — | 884 | |||||||||||||
| Other service charges and fees | 1,551 | — | — | — | 1,551 | |||||||||||||
| Gain on maturities and calls of available for sale securities | 35 | — | — | — | 35 | |||||||||||||
| Other income | 953 | 45 | — | — | 998 | |||||||||||||
| Total other operating income | 9,062 | 45 | — | — | 9,107 | |||||||||||||
| Other operating expenses | ||||||||||||||||||
| Salaries and employee benefits | 7,656 | 802 | — | — | 8,458 | |||||||||||||
| Occupancy expenses | 1,571 | 73 | — | — | 1,644 | |||||||||||||
| Goodwill amortization | 94 | — | — | — | 94 | |||||||||||||
| Other expenses | 2,468 | 670 | — | — | 3,138 | |||||||||||||
| Total other operating expenses | 11,789 | 1,545 | — | — | 13,334 | |||||||||||||
| Income before income taxes | 5,643 | 2,160 | 115 | — | 7,688 | |||||||||||||
| Income tax expense | 1,526 | — | 777 | (G) | — | 2,303 | ||||||||||||
| Net income | $ | 4,117 | $ | 2,160 | $ | 892 | $ | — | $ | 5,385 | ||||||||
| Per share data | ||||||||||||||||||
| Net income—assuming dilution | $ | 1.14 | $ | 367.67 | — | — | $ | 1.45 | (H) | |||||||||
| Weighted average number of shares—assuming dilution | 3,626,289 | 5,842 | 5,842 | (F) | 100,000 | (B) | 3,726,289 | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
24
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except for per share amounts)
For the Year Ended December 31, 2001
C&F Financial Corporation | Moore Loans, Inc. | Pro Forma Adjustments | Pro Forma Combined C&F Financial | |||||||||||||||
Debit | Credit | |||||||||||||||||
| Interest income | ||||||||||||||||||
| Interest and fees on loans | $ | 24,810 | $ | 10,597 | $ | — | $ | — | $ | 35,407 | ||||||||
| Interest on other investments and fed funds | 100 | — | 100 | (G) | — | 0 | ||||||||||||
| Interest on investment securities | ||||||||||||||||||
| U.S. treasury securities | 30 | — | — | — | 30 | |||||||||||||
| U.S. government agencies and corporations | 439 | — | — | — | 439 | |||||||||||||
| Tax-exempt obligations of states and political subdivisions | 2,386 | — | — | — | 2,386 | |||||||||||||
| Corporate bonds and other | 469 | — | — | — | 469 | |||||||||||||
| Total interest income | 28,234 | 10,597 | 100 | — | 38,731 | |||||||||||||
| Interest expense | ||||||||||||||||||
| Savings and interest-bearing deposits | 2,800 | — | — | — | 2,800 | |||||||||||||
| Certificates of deposit, $100 or more | 1,769 | — | — | — | 1,769 | |||||||||||||
| Other time deposits | 6,639 | — | — | — | 6,639 | |||||||||||||
| Short-term borrowings and other | 776 | 3,597 | 395 | (G) | — | 4,768 | ||||||||||||
| Total interest expense | 11,984 | 3,597 | 395 | — | 15,976 | |||||||||||||
| Net interest income | 16,250 | 7,000 | 495 | — | 22,755 | |||||||||||||
| Provision for loan losses | 400 | 1,387 | — | — | 1,787 | |||||||||||||
| Net interest income after provision for loan losses | 15,850 | 5,613 | 495 | — | 20,968 | |||||||||||||
| Other operating income | ||||||||||||||||||
| Gain on sale of loans | 10,390 | — | — | — | 10,390 | |||||||||||||
| Service charges on deposit accounts | 1,442 | — | — | — | 1,442 | |||||||||||||
| Other service charges and fees | 3,211 | — | — | — | 3,211 | |||||||||||||
| Gain on maturities and calls of available for sale securities | 6 | — | — | — | 6 | |||||||||||||
| Gain on sale of branch | 1,176 | — | — | — | 1,176 | |||||||||||||
| Other income | 1,196 | 100 | — | — | 1,296 | |||||||||||||
| Total other operating income | 17,421 | 100 | — | — | 17,521 | |||||||||||||
| Other operating expenses | ||||||||||||||||||
| Salaries and employee benefits | 13,443 | 1,552 | — | — | 14,995 | |||||||||||||
| Occupancy expenses | 2,886 | 130 | — | — | 3,016 | |||||||||||||
| Goodwill amortization | 268 | — | — | — | 268 | |||||||||||||
| Other expenses | 5,367 | 1,252 | — | — | 6,619 | |||||||||||||
| Total other operating expenses | 21,964 | 2,934 | — | — | 24,898 | |||||||||||||
| Income before income taxes | 11,307 | 2,779 | 495 | — | 13,591 | |||||||||||||
| Income tax expense | 3,318 | — | 868 | (G) | — | 4,186 | ||||||||||||
| Net income | $ | 7,989 | $ | 2,779 | $ | 1,363 | $ | — | $ | 9,405 | ||||||||
| Per share data | ||||||||||||||||||
| Net income—assuming dilution | $ | 2.23 | $ | 475.66 | — | — | $ | 2.55 | (H) | |||||||||
| Weighted average number of shares—assuming dilution | 3,587,307 | 5,842 | 5,842 | (F) | 100,000 | (B) | 3,687,307 | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
25
Notes to the Unaudited Pro Forma Combined Financial Information
The transaction will be accounted for by C&F Financial Corporation (the “Company”) using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141. Under this method, the aggregate cost of the merger will be allocated to assets acquired and liabilities assumed based on their estimated fair values as of the closing date. For purposes of pro forma presentation, estimates of the fair values of Moore Loans’ assets and liabilities as of June 30, 2002 have been combined with the book values of the Company’s assets and liabilities as of June 30, 2002. Due to the nature of Moore Loans business, there were no significant differences between the book value and fair value of its assets and liabilities.
| (A) | As part of the transaction, the Company expects to incur, on a pre-tax basis, approximately $200,000 in transactional costs, primarily for professional expenses, including financial advisory, legal and accounting fees. Under purchase accounting, these fees will be considered part of the purchase price and considered when calculating goodwill. Professional expenses incurred by Moore Loans are the responsibility of the selling shareholders and therefore are not reflected in the combined statements. |
| (B) | The purchase price is allocated to identifiable tangible and intangible assets at their fair values. Any portion of the purchase price that cannot be assigned to specifically identifiable tangible and intangible assets acquired less liabilities assumed is considered goodwill. |
The following table provides a reconciliation of the purchase price paid over the fair value of net assets acquired from Moore Loans (in thousands):
| Cash paid to owners of Moore Loans | $ | 11,000 | ||
| Subordinated debt issued to owners of Moore Loans | 3,000 | |||
| Value of common stock issued by the Company (100,000 shares) | 2,200 | |||
| Transactional costs | 200 | (A) | ||
| 16,400 | ||||
| Less: | ||||
| Estimated fair value of net assets received | 9,126 | |||
| Costs in excess of fair value of net assets acquired | $ | 7,274 | ||
As part of the purchase agreement, another $3,000,000 is payable to the selling shareholders of Moore Loans subject to the company meeting certain financial goals over the next three years. The first payment under this contingent payment is not due until 90 days after December 31, 2002. Accordingly, the contingent payment has not been reflected in the calculation
26
of goodwill or any other pro forma adjustments. Also as part of the agreement, the Company guarantees a certain price of the stock issued in conjunction with the transaction. This contingent payment is not reflected in the calculation of goodwill or any other pro forma adjustments.
| (C) | As part of the agreement, Moore Loans guarantees a stockholders’ equity balance of $9,126,000 as of the closing date. At June 30, 2002, its stockholders’ equity was $8,677,000, accordingly, a pro forma adjust to adjust equity and record a corresponding receivable has been made. |
| (D) | In conjunction with the transaction, the Company will obtain a loan from an unrelated third party bank in the amount of $5,000,000. This loan will be used to infuse capital to Citizens and Farmers Bank for regulatory capital purposes. |
| (E) | As part of the transaction, the Company will pay off $6,000,000 of existing debt of Moore Loans using funds on deposit with the Federal Reserve Bank. |
| (F) | Elimination of Moore Loans Equity. |
| (G) | The purchase accounting adjustments have the following impact on the unaudited pro forma combined statements of income: |
For the period ended June 30, 2002
Interest on fed funds has been reduced to reflect the reduction resulting from the cash used in the transaction offset by the cash provided by the loan from the unrelated third party bank. The net amount is calculated as follows:
| Cash used to pay owners | $ | 11,000,000 | ||
| Cash to pay off existing debt at Moore Loans | 6,000,000 | |||
| Transactional costs | 200,000 | |||
| Loan proceeds | (5,000,000 | ) | ||
| Reduction in fed funds | $ | 12,200,000 | ||
| Average rate earned on fed funds during 2002 | 1.64 | % | ||
| Lost interest for six months (50% of adjustment) | $ | 100,040 | ||
27
Interest on borrowings will be impacted by the debt issued to the selling shareholders of Moore Loans and the debt on the loan from the unrelated third party bank offset by the reduction in debt at Moore Loans that will be paid off as part of the transaction. Also, as part of the agreement, the rate on the subordinated debt to the selling shareholders of Moore Loans will be reduced from 12% to 8%. This will result in the following pro forma adjustment to interest expense:
| Interest on debt issued to selling shareholders ($3,000,000 @ 8%) | $ | 240,000 | ||
| Interest on loan from bank ($5,000,000 @ 6%) | 300,000 | |||
| Subordinated debt at Moore Loans paid off ($6,000,000 @ 8%) | (480,000 | ) | ||
| Reduction in interest rate on remaining subordinated debt ($750,000 * 4%) | (30,000 | ) | ||
| Interest expense adjustment | $ | 30,000 | ||
| Six months (50% of adjustment) | $ | 15,000 | ||
Income tax expense in the unaudited pro forma combined statements of income for the six months ended June 30, 2002 has been increased by $777,000 to reflect the taxes on Moore Loans (previously an S Corporation) and the pro forma adjustments using a 38% tax rate.
For the period ended December 31, 2001
Interest on fed funds has been reduced and borrowings from the FHLB increased to reflect the reduction/increase resulting from the cash used in the transaction offset by the cash provided by the loan provided by the unrelated third party bank. The net amount is calculated as follows:
| Cash used to pay owners | $ | 11,000,000 | ||
| Cash to pay off existing debt at Moore Loans | 6,000,000 | |||
| Transactional costs | 200,000 | |||
| Loan proceeds | (5,000,000 | ) | ||
| Reduction in fed funds/ borrowings needed | $ | 12,200,000 | ||
| Average fed funds outstanding for 2001 | $ | 3,200,000 | ||
| Average rate earned on fed funds during 2001 | 3.11 | % | ||
| Lost interest on fed funds | $ | 100,000 | ||
| Borrowings in excess of fed funds available | $ | 9,000,000 | ||
| Average rate paid for 2001 | 4.06 | % | ||
| Expense on borrowings | $ | 365,400 | ||
28
Interest on borrowings will be impacted by the debt issued to the selling shareholders of Moore Loans and the debt on the loan from the unrelated third party bank offset by the reduction in debt at Moore Loans that will be paid off as part of the transaction. Also, as part of the agreement, the rate on the subordinated debt to the selling shareholders of Moore Loans will be reduced from 12% to 8%. This will result in the following pro forma adjustment to interest expense:
| Interest on debt issued to selling shareholders ($3,000,000 @ 8%) | $ | 240,000 | ||
| Interest on loan from bank ($5,000,000 @ 6%) | 300,000 | |||
| Subordinated debt at Moore Loans paid off ($6,000,000 @ 8%) | (480,000 | ) | ||
| Reduction in interest rate on remaining subordinated debt ($750,000 @ 4%) | (30,000 | ) | ||
| Interest expense adjustment | $ | 30,000 | ||
Income tax expense in the unaudited pro forma combined statements of income for the year ended December 31, 2001 has been increased by $868,000 to reflect the taxes on Moore Loans (previously an S Corporation) and the pro forma adjustments using a 38% tax rate.
| (H) | Basic and diluted earnings per share in the pro forma combined statements of income were computed by dividing pro forma net income by the pro forma basic and diluted average shares outstanding of C&F Financial’s common stock for the periods. |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
C&F FINANCIAL CORPORATION REGISTRANT | ||||||||
| Date: September 30, 2002 | By: | /s/ THOMAS F. CHERRY | ||||||
Thomas F. Cherry Senior Vice President & Chief Financial Officer | ||||||||
30