UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ________________
Commission file number 000-23423
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C&F Financial Corporation
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(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
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (804) 843-2360
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(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:
3,578,939 as of November 8, 2000.
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TABLE OF CONTENTS
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999...................... 1
Consolidated Statements of Income -
Three months and nine months ended September 30, 2000 and 1999 2
Consolidated Statements of Shareholders' Equity
Nine months ended September 30, 2000 and 1999................. 3
Consolidated Statements of Cash Flows -
Nine months ended September 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
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS September 30, 2000 December 31, 1999
- --------------------------------------------------------- ------------------- ------------------
(Unaudited)
Cash and due from banks $ 7,877 $ 13,424
Interest -bearing deposits in other banks 9,929 2,062
-------- --------
Total cash and cash equivalents 17,806 15,486
Securities -available for sale at fair value, amortized
cost of $32,336 and $32,112, respectively 30,956 30,208
Securities-held to maturity at amortized cost,
fair value of $34,432 and $34,976,
respectively 33,812 34,791
Loans held for sale, net 21,098 24,886
Loans, net 231,393 206,116
Federal Home Loan Bank stock 1,595 1,585
Corporate premises and equipment,
net of accumulated depreciation 9,292 8,404
Accrued interest receivable 2,197 2,136
Other assets 5,384 5,629
-------- --------
Total assets $353,533 $329,241
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------
Deposits
Non-interest-bearing demand deposits $ 42,311 $ 34,827
Savings and interest-bearing demand deposits 114,701 121,646
Time deposits 125,131 104,381
-------- --------
Total deposits 282,143 260,854
Borrowings 29,821 30,035
Accrued interest payable 926 566
Other liabilities 3,137 2,656
-------- --------
Total liabilities 316,027 294,111
-------- --------
Shareholders' Equity
Preferred stock ($1.00 par value,
3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000
shares authorized, 3,587,184 and 3,644,456
shares issued and outstanding at September 30,
2000 and December 31, 1999, respectively) 3,587 3,645
Additional paid-in capital 3 14
Retained earnings 34,827 32,728
Accumulated other comprehensive loss
net of tax of $640 and $647, respectively (911) (1,257)
-------- --------
Total shareholders' equity 37,506 35,130
-------- --------
Total liabilities and
shareholders' equity $353,533 $329,241
======== ========
The Company's notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except for per share amounts)
Three Months Ended Nine Months Ended
---------------------- -------------------------
September 30, September 30,
---------------------- -------------------------
Interest Income 2000 1999 2000 1999
---------- ---------- ---------- ----------
Interest and fees on loans $ 5,792 $ 4,886 $ 16,331 $ 14,394
Interest on other market investments
and fed funds 53 42 133 446
Interest on investment securities
U.S. Treasury Securities 20 20 60 89
U.S. Government agencies and corporations 239 253 715 617
Tax-exempt obligations of states and political
subdivisions 609 612 1,848 1,728
Corporate bonds and other 117 111 352 333
---------- ---------- ---------- ----------
Total interest income 6,830 5,924 19,439 17,607
Interest Expense
Savings and interest-bearing deposits 812 786 2,425 2,229
Certificates of deposit, $100,000 or more 349 213 880 651
Other time deposits 1,358 1,099 3,630 3,352
Short-term borrowings and other 482 166 1,218 480
---------- ---------- ---------- ----------
Total interest expense 3,001 2,264 8,153 6,712
Net interest income 3,829 3,660 11,286 10,895
Provision for loan losses 75 105 250 355
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 3,754 3,555 11,036 10,540
Other Operating Income
Gain on sale of loans 1,374 1,629 3,661 5,513
Service charges on deposit accounts 347 310 977 851
Other service charges and fees 469 495 1,272 1,498
Other income 217 384 746 972
---------- ---------- ---------- ----------
Total other operating income 2,407 2,818 6,656 8,834
Other Operating Expenses
Salaries and employee benefits 2,507 2,440 7,255 7,104
Occupancy expenses 552 499 1,761 1,496
Goodwill amortization 69 69 206 206
Other expenses 886 981 2,739 2,975
---------- ---------- ---------- ----------
Total other operating expenses 4,014 3,989 11,961 11,781
Income before income taxes 2,147 2,384 5,731 7,593
Income tax expense 532 619 1,349 2,048
---------- ---------- ---------- ----------
Net Income $ 1,615 $ 1,765 $ 4,382 $ 5,545
========== ========== ========== ==========
Per Share Data
Net Income - Basic $ .45 $ .48 $ 1.21 $ 1.50
Net Income - Assuming Dilution .45 $ .48 1.20 $ 1.48
Cash Dividends Paid and Declared .13 $ .12 .39 $ .36
Weighted average number of shares and
common stock equivalents outstanding 3,621,786 3,694,020 3,650,749 3,751,449
The Company's notes are an integral part of the consolidated financial
statements.
2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands of dollars)
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
----- ------- ------------ -------- ------------- -----
Balance January 1, 1999 $ 3,867 $ 476 $31,739 $ 565 $36,647
Comprehensive Income
Net income $ 5,545 5,545 5,545
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment/1/ (1,079) (1,079) (1,079)
-------
Comprehensive income $ 4,466
=======
Stock options exercised 20 167 187
Repurchase of
Common Stock (243) (610) (3,971) (4,824)
Cash dividends (1,323) (1,323)
------- ----- ------- -------- -------
Balance September 30, 1999 $ 3,644 $ 33 $31,990 $ (514) $35,153
======= ===== ======= ======= ========
___________________________
Disclosure of Reclassification Amount:
Unrealized net holding losses arising during period $ (999)
Less: reclassification adjustment for gains
Included in net income (80)
---------
Net unrealized losses on securities $(1,079)
=========
The Company's notes are an integral part of the
consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands of dollars)
(Unaudited)
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income Total
----- ------- ------------ -------- ------------- -----
Balance January 1, 2000 $3,645 $ 14 $32,728 $(1,257) $35,130
Comprehensive Income
Net income $4,382 4,382 4,382
Other comprehensive
income, net of tax
Unrealized gain on
securities, net of
reclassification
adjustment
(See disclosure below) 346 346 346
------
Comprehensive income $4,728
======
Stock options exercised 7 68 75
Repurchase of
common stock (65) (79) (873) (1,017)
Cash dividends (1,410) (1,410)
------- ------ ------- ------- ------
Balance September 30, 2000 $3,587 $ 3 $34,827 $ (911) $37,506
====== ======= ======= ======= ========
- ----------------------------
Disclosure of Reclassification Amount:
Unrealized net holding gains arising during period $ 412
Less: reclassification adjustment for gains
Included in net income (66)
------
Net unrealized gains on securities $ 346
======
The Company's notes are an integral part of the consolidated financial
statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
Nine Months Ended September 30,
-------------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 4,382 $ 5,545
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 741 669
Amortization of goodwill 206 206
Provision for loan losses 250 355
Accretion of discounts and amortization of
premiums on investment securities, net (34) (57)
Net realized gain on securities (100) (115)
Proceeds from sale of loans 226,443 415,393
Origination of loans held for sale (222,654) (371,742)
Change in other assets and liabilities:
Accrued interest receivable (61) 277
Other assets (158) (604)
Accrued interest payable 360 95
Other liabilities 395 (4,152)
--------- ---------
Net cash provided by operating activities 9,770 45,870
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and calls of investments
held to maturity 906 10,545
Proceeds from sales, maturities, and calls of
investments available for sale 1,010 1,893
Purchase of investments available for sale (1,028) (19,856)
Net increase in customer loans (25,527) (27,163)
Purchase of corporate premises and equipment (1,628) (2,266)
Purchase of Federal Home Loan Bank stock (10) --
Sale of Federal Home Loan Bank stock -- 121
--------- ---------
Net cash used in investing activities (26,277) (36,726)
--------- ---------
Cash flows from financing activities:
Net increase in demand, interest bearing demand
and savings deposits 643 13,058
Net (decrease) increase in time deposits 20,750 (3,273)
Net decrease in other borrowings (214) (11,556)
Proceeds from exercise of stock options 75 187
Repurchase of common stock (1,017) (4,824)
Cash dividends (1,410) (1,323)
--------- ---------
Net cash provided by (used in) financing activities 18,827 (7,731)
--------- ---------
Net increase in cash and cash equivalents 2,320 1,413
Cash and cash equivalents at beginning of period 15,486 8,473
--------- ---------
Cash and cash equivalents at end of period $ 17,806 $ 9,886
========= =========
Supplemental disclosure
Interest paid $ 7,793 $ 6,617
Income taxes paid $ 1,084 $ 2,098
The Company's notes are an integral part of the consolidated financial
statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of C&F Financial Corporation's
management, all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position as of September 30, 2000, the
results of operations for the three and nine months ended September 30, 2000 and
1999, and cash flows for the nine months ended September 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.
Certain reclassifications have been made to prior period balances to conform
to the current year presentation.
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 3,621,786 and 3,694,020
for the three months ended September 30, 2000 and 1999, respectively, and
3,650,749 and 3,751,449 for the nine months ended September 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. The Company repurchased 4,000 shares of its common stock in the open
market during the third quarter at prices between $15.75 and $15.875 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
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 September 30, 2000 and 1999.
Three Months Ended September 30, 2000
Retail Mortgage
Banking Banking Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
Revenues:
Interest income $ 6,708 $ 370 $ -- $ (248) $ 6,830
Gain on sale of loans -- 1,374 -- -- 1,374
Other 505 341 188 -- 1,034
- ------------------------------------------------------------------------------------------------
Total operating income 7,213 2,085 188 (248) 9,238
- ------------------------------------------------------------------------------------------------
Expenses:
Interest expense 3,001 248 -- (248) 3,001
Salaries and employee benefits 1,499 905 103 -- 2,507
Other 981 573 29 -- 1,583
- ------------------------------------------------------------------------------------------------
Total operating expenses 5,481 1,726 132 (248) 7,091
- ------------------------------------------------------------------------------------------------
Income before income taxes 1,732 359 56 -- 2,147
- ------------------------------------------------------------------------------------------------
Total assets 346,063 23,838 11 (16,379) 353,533
Capital expenditures $ 533 $ 5 $ -- $ -- $ 538
================================================================================================
Three Months Ended September 30, 1999
Retail Mortgage
Banking Banking Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
Revenues:
Interest income $ 5,765 $ 517 $ -- $ (358) $ 5,924
Gain on sale of loans -- 1,629 -- -- 1,629
Other 565 367 257 -- 1,189
- ------------------------------------------------------------------------------------------------
Total operating income 6,330 2,513 257 (358) 8,742
- ------------------------------------------------------------------------------------------------
Expenses:
Interest expense 2,264 358 -- (358) 2,264
Salaries and employee benefits 1,368 970 102 -- 2,440
Other 958 663 33 -- 1,654
- ------------------------------------------------------------------------------------------------
Total operating expenses 4,590 1,991 135 (358) 6,358
- ------------------------------------------------------------------------------------------------
Income before income taxes 1,740 522 122 -- 2,384
- ------------------------------------------------------------------------------------------------
Total assets 309,460 23,141 50 (19,289) 313,362
Capital expenditures $ 963 $ 21 $ -- $ -- $ 984
================================================================================================
7
Nine Months Ended September 30, 2000
Retail Mortgage
Banking Banking Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------
Revenues:
Interest income $ 19,095 $ 949 $ -- $ (605) $ 19,439
Gain on sale of loans -- 3,661 -- -- 3,661
Other 1,531 914 550 -- 2,995
- -----------------------------------------------------------------------------------------------
Total operating income 20,626 5,524 550 (605) 26,095
- -----------------------------------------------------------------------------------------------
Expenses:
Interest expense 8,153 605 -- (605) 8,153
Salaries and employee benefits 4,427 2,528 300 -- 7,255
Other 3,154 1,706 96 -- 4,956
- -----------------------------------------------------------------------------------------------
Total operating expenses 15,734 4,839 396 (605) 20,364
- -----------------------------------------------------------------------------------------------
Income before income taxes 4,892 685 154 -- 5,731
- -----------------------------------------------------------------------------------------------
Total assets 346,063 23,838 11 (16,379) 353,533
Capital expenditures $ 1,553 $ 77 $ -- $ -- $ 1,630
===============================================================================================
Nine Months Ended September 30, 1999
Retail Mortgage
Banking Banking Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------
Revenues:
Interest income $ 17,191 $ 1,530 $ -- $ (1,114) $ 17,607
Gain on sale of loans -- 5,513 -- -- 5,513
Other 1,367 1,291 663 -- 3,321
- -----------------------------------------------------------------------------------------------
Total operating income 18,558 8,334 663 (1,114) 26,441
- -----------------------------------------------------------------------------------------------
Expenses:
Interest expense 6,712 1,114 -- (1,114) 6,712
Salaries and employee benefits 3,812 3,042 250 -- 7,104
Other 2,928 1,991 113 -- 5,032
- -----------------------------------------------------------------------------------------------
Total operating expenses 13,452 6,147 363 (1,114) 18,848
- -----------------------------------------------------------------------------------------------
Income before income taxes 5,106 2,187 300 -- 7,593
- -----------------------------------------------------------------------------------------------
Total assets 309,460 23,141 50 (19,289) 313,362
Capital expenditures $ 2,110 $ 156 $ -- $ -- $ 2,266
===============================================================================================
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
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 8.5% to $1,615,000 for the three months ended
September 30, 2000 compared to $1,765,000 for the same period of 1999. Earnings
per share were $.45 for the three month period, down 6.3% from $.48 per share
for the three months ended September 30, 1999. Net income for the nine months
ended September 30, 2000 was $4,382,000 compared to $5,545,000 for the same
period of 1999. Included in earnings for the first nine months of 1999 was
$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 15.3% and earnings per share decreased 13.0% over the nine months
ended September 30, 1999.
Profitability as measured by the Company's annualized return on average
assets (ROA) was 1.91% for the three months ended September 30, 2000 compared to
2.29% for the same period of 1999. For the first nine months of 2000 ROA was
1.78% compared to 2.25%, excluding the one-time interest income, for the first
nine months of 1999. Another key indicator of performance, the annualized
return on average equity (ROE) for the three months ended September 30, 2000 was
17.45% compared to 20.22% for the three months ended September 30, 1999. For
the first nine months of 2000 ROE was 16.16% compared to 19.66%, excluding the
one-time interest income, for the first nine months of 1999.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended September 30, 2000 was $3.8
million, an increase of $170,000, or 5%, from $3.7 million for the three months
ended September 30, 1999. The increase in net interest income is a result of an
increase in the average balance of interest earning assets to $319.4 million for
the three months ended September 30, 2000 compared to $291.0 million for the
same period in 1999 offset by a decrease in the net interest margin on a taxable
equivalent basis to 5.23% for the quarter ended September 30, 2000 from 5.50%
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 offset by a decrease in
the average balance of loans held for sale by C&F Mortgage Corporation. 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
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
September 30, 2000 were $80,474,000 compared to $114,472,000 for the comparable
period in 1999. Loans sold during the third quarter of 2000 were $80,420,000
compared to $129,770,000 for the third quarter of 1999.
9
The decrease in the company's net interest margin on a taxable equivalent
basis for the three months ended September 2000 compared to the same period in
1999 was a result of an increase in the yield on interest earning assets to
8.99% for the third quarter of 2000 from 8.61% for the same period in 1999
offset by an increase in the cost of funds to 4.52% for the third 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 and a decrease in the average balance of lower yielding loans held
for sale at C&F Mortgage Corporation. The increase in the yield on loans held
by the Bank is a result of the rising interest rate environment. 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. The increase in the average balance of borrowings
from the FHLB is a result of loan growth outpacing deposit growth.
Net interest income for the nine months ended September 30, 2000 was $11.3
million, an increase of $951,000, or 9.2%, from $10.3 million, excluding the
one-time interest income of approximately $560,000 before taxes, for the nine
months ended September 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 5.31% for
the nine months ended September 30, 2000 from 5.21% for the first nine months of
1999.
The average balance of interest earning assets increased $19.7 million to
$308.6 million for the first nine months of 2000 from $288.9 million for the
first nine 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 nine months ended
September 30, 2000 were $222,654,000 compared to $371,742,000 for the comparable
period in 1999. Loans sold during the nine months ended September 30 of 2000
were $226,443,000 compared to $415,393,000 for the nine months ended September
30 1999. The decrease in the average balance in interest earning deposits in
other banks and fed funds sold is the result of those funds being invested in
higher yielding loans.
The increase in the company's net interest margin on a taxable equivalent
basis for the nine months ended September 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 nine months ended September 30, 2000 from 8.30% for the same
period in 1999 offset by an increase in the cost of funds to 4.22% for the nine
months ended September 30, 2000 compared to 3.90% 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 offset by a decrease in the average
balance of lower yielding loans held for sale at C&F Mortgage Corporation, a
decrease in the significantly lower yielding deposits at the Federal Home Loan
Bank (FHLB) and 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. The increase in the average balance of
borrowings from the FHLB is a result of loan growth outpacing deposit growth.
10
Non-Interest Income
Other operating income decreased $411,000, or 14.6%, to $2,407,000 for the
third quarter of 2000 from $2,818,000 for the third quarter of 1999. Other
operating income decreased $2,178,000, or 24.6%, to $6,656,000 for the first
nine months of 2000 from $8,834,000 for the first nine months of 1999. The
decrease in other income is mainly attributed to a decrease in gain on sale of
loans and other fees resulting from decrease in volume of loans originated and
sold by C&F Mortgage Corporation.
Non-Interest Expense
Other operating expenses increased $25,000, or 0.6%, to $4,014,000 for the
third quarter of 2000 from $3,989,000 for the third quarter of 1999. Other
operating expenses increased $180,000, or 1.5%, to $11,961,000 for the first
nine months of 2000 from $11,781,000 for the first nine months of 1999. This
increase is mainly attributable to a increase in occupancy and other expenses
relating 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 and other operating expenses at C&F Mortgage Corporation
resulting from the decrease in origination of loans due to the higher interest
rate environment.
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 September 30, 2000 amounted
to $532,000, resulting in an effective tax rate of 24.8% compared to $619,000,
or 25.9%, for the three months ended September 30, 1999. Income tax expense for
the nine months ended September 30, 2000 amounted to $1,349,000, resulting in an
effective tax rate of 23.5% compared to $2,048,000, or 26.9%, for the nine
months ended September 30, 1999. The decrease in the effective tax rate for the
quarter and for the nine 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 subject to no taxes as a percentage of total income is primarily a
result of the decrease in income at C&F Mortgage Corporation.
11
Asset Quality-Allowance /Provision For Loan Losses
The Company had $250,000 in provision expense for the first nine months of
2000 and $355,000 for the first nine months of 1999. Loans charged off amounted
to $56,000 for the nine months ended September 30, 2000 and $26,000 for the same
period in 1999. Recoveries amounted to $6,000 and $18,000 for the nine months
ended September 30, 2000 and 1999, respectively. The allowance for loan losses
was $3.5 million at September 30, 2000 and $3.3 million at December 31, 1999.
The allowance approximates 1.48% and 1.57% of total loans outstanding at
September 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 $593,000 at September 30, 2000 compared to
$49,000 at December 31, 1999. The increase in non-performing assets was mainly
a result of a lending relationship with a builder being put on nonaccrual
status. The Company is closely monitoring this relationship and does not
anticipate a significant loss.
FINANCIAL CONDITION
Summary
At September 30, 2000, the Company had total assets of $353.5 million
compared to $329.2 million at December 31, 1999.
Interest-Bearing Deposits in Other Banks and Fed Funds
At September 30, 2000, interest-bearing deposits in other banks and fed
funds amounted to $9,929,000 compared to $2,062,000 at December 31, 1999. This
increase is a result of balances on deposit with the FHLB being unusually high
at the end of September.
Loan Portfolio
At September 30, 2000, loans held for sale amounted to $21.1 million
compared to $24.9 million held at December 31, 1999.
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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:
September 30, 2000 December 31, 1999
(Dollars in Thousands)
Amount Percent Amount Percent
---------- -------- ---------- --------
Real estate - mortgage $ 88,630 38% $ 90,947 43%
Real estate - construction 8,941 4 7,980 4
Commercial, financial and
agricultural 113,939 48 89,139 42
Equity lines 11,344 5 10,272 5
Consumer 13,066 5 12,091 6
-------- --- -------- ---
Total loans 235,920 100% 210,429 100%
=== ===
Less unearned loan fees (1,024) (1,011)
Less allowance for possible
loan losses (3,503) (3,302)
-------- --------
Total loans, net $231,393 $206,116
======== ========
Investment Securities
At September 30, 2000, total investment securities were $64,768,000
compared to $64.999,000 for December 31, 1999. Securities of U.S. Government
agencies and corporations represent 19.8% of the total securities portfolio,
obligations of state and political subdivisions were 71.1%, U.S. Treasury
securities were 1.5%, and preferred stocks were 7.6% at September 30, 2000.
Deposits
Deposits totaled $282.1 million at September 30, 2000 compared to $260.9 at
December 31, 1999. Non-interest bearing deposits totaled $42.3 million at
September 30, 2000 compared to $34.8 million at December 31, 1999. The increase
in deposits is a result of the addition the new Williamsburg branch in April of
2000 and the addition of the Broad Street branch of Citizens and Commerce Bank
in November of 1999 as well as the overall growth of the existing branches.
Liquidity
At September 30, 2000, cash, securities classified as available for sale
and interest-bearing deposits were 13.3% 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.
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Capital Resources
The Company's Tier I capital ratio was 13.9% at September 30, 2000 compared
to 14.0% at December 31, 1999. The total risk-based capital ratio was 15.1% at
September 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
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 $37.5 million at the end of the third 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 September
30, 2000, the Company's leverage ratio was 11.0% 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 November 8, 2000 /s/ Larry G. Dillon
----------------- -----------------------------------
Larry G. Dillon, President and
Chief Executive Officer
Date November 8, 2000 /s/ Thomas F. Cherry
---------------- -----------------------------------
Thomas F. Cherry,
Chief Financial Officer
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