[LOGO OF C&F]
C&F Mortgage Corporation C&F Investment Services, Inc. C&F Title Agency, Inc.
C&F Financial Corporation
[PICTURE]
Home Financial Highlights Shareholder Letter Technology and Services Our
Mission and Values
[LOGO OF C&F]
C&F Financial Corporation
2 0 0 0 A N N U A L R E P O R T
[LOGO OF C&F]
Contents
Financial Highlights 1
Letter from the President 2
Technology and Services 6
Our Mission and Values 8
Company Financials 9
Auditor's Report 44
Investor Information 45
Directors and Advisors 46
Officers and Locations 47
[PICTURE]
[LOGO OF C&F]
C&F Mortgage Corporation C&F Investment Services, Inc. C&F Title Agency, Inc..
2000 Financial Highlights
C&F Financial Corporation (the "Corporation") is a one-bank holding company
with administrative offices in West Point, Virginia. Its wholly-owned
subsidiary, Citizens and Farmers Bank, offers quality banking services to
individuals, professionals, and small businesses through ten branch offices
serving the surrounding towns and counties. Citizens and Commerce Bank, which
operates as a division of Citizens and Farmers Bank, offers quality banking
services in the Richmond market. Citizens and Farmers Bank has three wholly-
owned subsidiaries. C&F Mortgage Corporation originates and sells residential
mortgages. These mortgage services are provided through seven offices in
Virginia and four offices in Maryland. Brokerage services are offered through
C&F Investment Services, Inc. C&F Title Agency, Inc., offers title insurance
services. Trust services are provided in association with The Trust Company of
Virginia.
Home Financal Highlights Shareholder Letter Technology and Services Our
Mission and Values
[GRAPHIC]
Return on Average Equity Return on Average Assets
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
12.66% 16.08% 17.81% 19.22% 15.99% 1.65% 1.90% 2.03% 2.19% 1.76%
Net Income Earnings Per Share
dollars in thousands
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000
- ------ ------ ------ ------ ------ ----- ----- ----- ----- -----
$4,061 $4,937 $6,134 $6,756 $5,836 $.92 $1.25 $1.56 $1.81 $1.60
Letter from the President
Dear Fellow Shareholders
Home Financal Highlights Shareholder Letter Technology and Services Our
Mission and Values
[PHOTO]
Larry G. Dillon
Chairman, President, and
Chief Executive Officer
The year 2000 was one of new opportunities and challenges for C&F Financial
Corporation and Citizens and Farmers Bank. It was a year in which rising
interest rates greatly reduced production and hence profits at our mortgage
company. It was a year in which prior investments began to impact performance,
and finally, it was a year in which decisions were made to make major
investments in the future. In short, it was an extremely challenging and
exciting year for your Corporation.
Net income for the year was $5.8 million vs. $6.8 million in 1999. This
resulted in a return on average assets of 1.76% and a return on average equity
of 15.99%. This compares with 2.07% and 18.17%, respectively, in 1999. While
down, these results compare favorably with those of our peers, who as of
September 30, 2000 showed annualized returns on average assets of 1.11% and
average equity of 12.72%. Total assets increased just over $18 million, going
from $329 million to over $347 million while total deposits increased $30
million, ending the year at $291 million.
Earnings for the Corporation were down for 2000 primarily because of the
effect the rising interest rates had on the results of our mortgage company, and
due to the fact that 1999 results included a one-time event, which added
$370,000 to our bottom line in that year. The economic impact of rising interest
rates caused our mortgage loan production to drop from $457 million in 1999 to
$294 million in 2000, and earnings decline from over $1.5 million in 1999 to $.7
million in 2000. The reduced loan production had a negative impact on the
results for our title insurance business, as well. Despite this decline, we were
very pleased with the results because while they were reduced, they greatly
exceeded those of mortgage companies associated with our peer banks. In fact,
many other bank-owned mortgage companies throughout the state and the country
experienced significant losses, with some even being shut down.
2 C&F Financial Corporation
Citizens and Farmers Bank, excluding the one-time event which added
$370,000 to the bottom line in 1999, experienced a slight increase in earnings
despite having the drain on earnings of opening our Jamestown Road office in
Williamsburg and the startup costs of our Citizens & Commerce Bank division in
Richmond. It is pleasing to note that Citizens & Commerce Bank experienced much
success in 2000, both in growth as well as earnings. In fact, they became
profitable on a monthly basis in June, months ahead of schedule.
In 2000, your Boards of Directors made many decisions, which will impact
the long-term future of the Corporation. The decision was made to build a new
25,000 square foot facility in the Midlothian section of southern Richmond at
the intersection of Alverser and Huguenot Roads. This facility, which will be
located in a new shopping and small office complex, will be named "C&F Center".
It will house the headquarters and branches of C&F Mortgage Corporation, C&F
Title Agency, Inc. and Citizens & Commerce Bank. In addition, it will include an
office of C&F Investment Services, Inc. We anticipate opening this facility in
the 3rd quarter of 2001.
The decision was also made to open the 11th office of Citizens and Farmers
Bank in Sandston, near the Richmond airport. This full service facility will
complete our market between our Quinton and Varina offices and is also expected
to open in the 3rd quarter of 2001.
[PHOTO]
Citizens and Farmers Bank Board
(left to right)-- Bryan E.
McKernon, Paul C. Robinson, P. L.
Harrell, James H. Hudson III,
Reginald H. Nelson IV, Larry G.
Dillon, Joshua H. Lawson,
J. P. Causey Jr., William E.
O'Connell Jr., Thomas B.
Whitmore Jr., Barry R. Chernack
2000 Annual Report 3
Home Financal Highlights Shareholder Letter Technology and Services Our
Mission and Values
[PHOTO]
Another decision made in 2000 was to invest heavily in technology to both
keep up with and leapfrog our competition in the services we are able to
provide. New equipment and software was put into place in our branch network in
the 4th quarter of 2000, which will enhance our ability to provide faster
service for our customers. Our new imaging technology, which was recently
installed, will allow us to stream-line our operations as well as to provide our
customers with faster and more feature-rich services both in our branch network
as well as in their own homes. In fact, with our new internet banking services,
which can be found at www.cffc.com, our customers will be able to view all of
their account balances, see their account transaction history, transfer funds,
pay bills, open new accounts, and see or print copies of their cleared checks.
Our commercial customers will be able to utilize the same services, and, within
a short time will also be able to perform even more money-management types of
functions, which will allow them to operate their businesses more efficiently.
We believe these services will keep us at the forefront of customer service and
hence customer attraction and retention.
We were also pleased to announce a partnership with AOL, the #1 Internet
service provider, in the last part of 2000. Through this arrangement every user
of AOL in the central Virginia region who either uses AOL's e-mail function or
visits their "Digital City" Richmond site will see a "C&F" pop-up box. If this
box is selected, AOL will direct the customer to our internet web site where it
will explain who we are, describe our services, and hopefully entice them to do
business with us. We are optimistic this will be a successful marketing tool for
our site as well as the many products and services we are able to provide.
We were saddened by the loss of two of our past directors in the year 2000,
D. Nelson Sutton, Jr. and T. Carey Lawson. Between the two of them, they gave 40
years of service to this organization and we will always be thankful for their
many contributions. We were also saddened by the retirement of our Board member
Sture G. Olsson. Sture, the President and Chairman of Chesapeake Corporation for
many years,
4 C&F Financial Corporation
was a leader of not only our Bank but also the entire local community. His
leadership and guidance will be greatly missed.
We are pleased to have been able to appoint Paul C. Robinson and Joshua H.
Lawson to the Corporation's Board in September 2000. Both Paul and Josh have
served on Citizens and Farmers Bank's Board since 1994 and 1993, respectively,
and have proven themselves to be very knowledgeable and dedicated directors.
Also, we were very pleased to be able to appoint Barry R. Chernack, a former
partner with PriceWaterhouseCoopers LLP, to the Board of Citizens and Farmers
Bank. His business and accounting knowledge will be invaluable to the Board.
We are excited about the future. We think community banking is here to stay
and will continue to thrive. While our recent investments made in 2000 and those
coming in 2001 will cause a short-term strain on earnings, they were made with
the long-term in mind and we believe they will be very beneficial to our future
returns. We think our future looks bright.
We are indebted to our directors, officers and staff for their dedication
and hard work and are most appreciative of your support and confidence as both
shareholders and customers. We ask for your continued patronage and your
referrals of prospective customers as we strive to enhance your investment in
our Corporation.
/s/ Larry G. Dillon
Larry G. Dillon
Chairman, President, and Chief
Executive Officer
[PHOTO]
Citizens and Commerce Bank
Board (left to right)--William
E. O'Connell Jr., Scott E.
Strickler, Katherine K. Wagner,
Jeffery W. Jones, Frank Bell
III, Meade A. Spotts, S. Craig
Lane
5 2000 Annual Report
Home Financal Highlights Shareholder Letter Technology and Services Our
Mission and Values
[PHOTO]
Lori Nein uses the
latest technology to
process branch data.
Technology and Services
Technology: The Cutting Edge for Tomorrow's Growth
At C&F Financial Corporation, we believe that technology creates value for
customers and shareholders alike. During the year, management began to focus on
ways to leverage our personal services via our branch network and to connect to
a growing digital marketplace. The demand for instant access to real-time
information has never been greater and we believe we have built an
infrastructure that will enable us to compete successfully in the digital
marketplace.
First, we made a major decision in 2000 to redesign our item processing
environment and offer document imaging. Imaging is a technology that captures a
digital reproduction of an original document and stores the image for retrieval
at a later date. By implementing an image environment, we are able to realize
operational efficiencies and provide our customers with better-organized
statements, access to online images and enhanced research capabilities.
Although this was a major financial investment, we feel that it is an
improvement in customer service and will prepare us for future delivery
enhancements.
Second, after much demand from our customers, we have invested countless
hours to selecting an Internet Banking solution. With rollout scheduled for
first quarter 2001, our solution will provide secure access to features such as
balance information, transfers between accounts, ability to pay bills on-line
and view images of cleared checks. This product will enable you to securely
manage your personal or business accounts anytime or anyplace via the Internet
eliminating "Banker's hours" and allowing you to decide when it is convenient to
visit the Bank.
We feel that these commitments provide a solid basis for future growth and
enhance our competitive position.
[PHOTO]
Georgette Perry, Carol Davis, Jody Collier,
and Lacy Haynes work together to update
daily information.
6 C&F Financial Corporation
[PHOTO]
Banking Services
Citizens and Farmers Bank, and its division Citizens and Commerce Bank,
offer a wide array of general banking services to individuals and small
businesses through 11 branch offices. These services include a variety of
deposit and loan accounts. Our goal is to help our customers live better for
less by offering deposit accounts with competitive rates of interest and smart
borrowing solutions that meet their needs.
For the convenience of our customers, the Bank offers extended drive-
through hours, ATMs at most locations, credit card services, trust services,
traveler's checks, money orders, safe deposit rentals, collections, notary
public, and wire services. In addition, the Bank's 24-hour telephone banking
service provides assistance to our customers around the clock. We look forward
to introducing our web site and online banking early in 2001.
[PHOTO]
Mortgage and Title Services
C&F Mortgage Corporation originates single-family residential loans from
11 locations in Virginia and Maryland. C&F Mortgage offers programs designed for
home purchases, the first-time buyer, and home mortgage refinancing. By
originating and selling residential mortgages, C&F Mortgage Corporation is able
to offer competitive fixed- and adjustable-rate mortgages.
One of the distinctive features of C&F Mortgage Corporation is our
commitment to work closely with our customers and to provide the best possible
information so that they can choose the mortgage that is right for them. A
mortgage loan officer is dedicated to each account, minimizing paperwork,
reducing response time, and accelerating approvals. As a convenience to our
mortgage customers, we provide title searches and title insurance through C&F
Title Agency, Inc.
[PHOTO]
Investment Company
C&F Investment Services, Inc. provides a full range of brokerage services,
giving our customers a broad spectrum of financial tools to address their needs
and realize their aspirations. Personal financial planners help our customers
pinpoint their goals and craft a long-term plan for achieving them. They then
help customers choose investment vehicles, whether they be stocks, bonds, or
mutual funds, to create a portfolio that matches their objectives and tolerance
for risk. Our personal financial planners follow up with customers to ensure
that their portfolio allocation remains appropriate for their investment
profile. On-site investment planning is available at all Citizens & Farmers Bank
and Citizens & Commerce Bank branch offices.
2000 Annual Report 7
Home Financal Highlights Shareholder Letter Technology and Services Our
Mission and Values
Our Mission
It is the mission of the directors, officers, and staff to maximize the
long-term wealth of the shareholders of C&F Financial Corporation through
Citizens and Farmers Bank and its other subsidiaries.
We believe we provide a superior value when we balance long-term and short-
term objectives to achieve both a competitive return on investment and a
consistent increase in the market value of the Corporation's stock.
This must be achieved while maintaining adequate liquidity and safety
standards for the protection of all of the Corporation's interested parties,
especially its depositors and shareholders.
This mission will be accomplished by providing our customers with
distinctive service and quality financial products which are responsive to their
needs, fairly priced, and delivered promptly and efficiently with the highest
degree of accuracy and professionalism.
Our Values
We believe that excellence is the standard for all we do, achieved by
encouraging and nourishing: respect for others; honest, open communication;
individual development and satisfaction; a sense of ownership and responsibility
for the Corporation's success; participation, cooperation, and teamwork;
creativity, innovation, and initiative; prudent risk-taking; and recognition and
rewards for achievement.
We believe that we must conduct ourselves morally and ethically at all
times and in all relationships.
We believe that we have an obligation to the well-being of all the
communities we serve.
We believe that our officers and staff are our most important assets,
making the critical difference in how the Corporation performs and, through
their work and effort, separate us from all competitors.
8 C&F Financial Corporation
C O M P A N Y F I N A N C I A L S
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I
O N S
[LOGO OF C AND F]
The following discussion
provides information about the
major components of the results
of operations, financial
condition, liquidity, and
capital resources of C&F
Financial Corporation and
subsidiary (the "Corporation").
This discussion and analysis
should be read in conjunction
with the Consolidated Financial
Statements and Notes to the
Consolidated Financial
Statements.
2000 Annual Report
9
FIVE YEAR FINANCIAL SUMMARY
- -------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------
Selected Year-End
Balances:
Total assets $347,471,672 $329,241,321 $320,863,629 $278,105,969 $256,671,312
Total capital 38,780,450 35,129,710 36,647,493 31,800,533 32,214,509
Total loans (net) 229,943,715 206,115,896 169,918,428 154,744,620 136,732,017
Total deposits 290,688,036 260,853,635 251,673,159 231,513,152 216,422,556
- ---------------------------------------------------------------------------------------------
Summary of Operations:
Interest income 26,421,479 23,643,557 22,617,509 19,763,048 18,332,998
Interest expense 11,309,399 9,067,867 9,558,059 8,002,301 7,667,619
- ---------------------------------------------------------------------------------------------
Net interest income 15,112,080 14,575,690 13,059,450 11,760,747 10,665,379
Provision for loan
losses 400,000 600,000 600,000 330,000 30,000
- ---------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 14,712,080 13,975,690 12,459,450 11,430,747 10,635,379
Other operating income 8,945,062 11,004,456 10,835,243 6,657,608 4,678,915
Other operating expenses 15,998,380 15,829,550 14,807,306 11,537,565 10,294,220
- ---------------------------------------------------------------------------------------------
Income before taxes 7,658,762 9,150,596 8,487,387 6,550,790 5,020,074
Income tax expense 1,822,731 2,394,366 2,353,351 1,613,963 958,900
- ---------------------------------------------------------------------------------------------
Net income $ 5,836,031 $ 6,756,230 $ 6,134,036 $ 4,936,827 $ 4,061,174
- ---------------------------------------------------------------------------------------------
Per share/1/
Earnings per common
share--assuming
dilution $1.60 $1.81 $1.56 $1.25 $.92
Dividends .53 .49 .44 .35 .31
- ---------------------------------------------------------------------------------------------
Weighted average number
of shares--assuming
dilution 3,640,314 3,738,234 3,919,775 3,952,756 4,426,000
- ---------------------------------------------------------------------------------------------
/1/Per share data has been restated to reflect the two-for-one stock split in
July 1998.
Significant Ratios 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Return on average assets 1.76% 2.19% 2.03%
Return on average equity 15.99 19.22 17.81
Dividend payout ratio 32.74 26.60 27.70
Average equity to average assets 10.99 11.38 11.42
- ---------------------------------------------------------------------------------------------
OVERVIEW
Net income totaled $5.8 million in 2000, a decrease of 13.6% compared to 1999.
Included in earnings for 1999 was $370,000 in interest income (after taxes)
which resulted from the payoff of a non-accrual loan. Excluding this, net
income decreased 8.6% compared to 1999. In 1999, net income totaled $6.7
million, a 10.1% increase compared to 1998. Diluted earnings per share were
$1.60, $1.81, and $1.56, in 2000, 1999, and 1998, respectively. Excluding the
interest income collected on the non-accrual loan, diluted earnings per share
was $1.71 in 1999. The decrease in earnings per share for 2000 was a result of
lower net income offset by the repurchase of 85,000 shares of the
Corporation's common stock. The increase in earnings per share for 1999 was a
result of increased income and the effect on earnings per share of the
repurchase of 247,500 shares of the Corporation's common stock.
Profitability as measured by the Corporation's return on average equity (ROE),
was 15.99% in 2000, down from 18.17% in 1999, excluding the interest income
collected on the non-accrual loan, and 17.81% in 1998. Another key indicator
of performance, the return on average assets (ROA) for 2000, was 1.76%,
compared to 2.07% in 1999, excluding the interest income collected on the non-
accrual loan, and 2.03% for 1998.
C&F Financial Corporation
10
- -------------------------------------------------------------------------------
TABLE 1: Average Balances, Income and Expense, Yields and Rates
The following table shows the average balance sheets for each of the years
ended December 31, 2000, 1999, and 1998. In addition, the amounts of interest
earned on earning assets, with related yields and interest on interest-bearing
liabilities, together with the rates, are shown. Loans include loans held for
sale. Loans placed on a non-accrual status are included in the balances and
were included in the computation of yields, upon which they had an immaterial
effect. Interest on tax-exempt securities is on a taxable-equivalent basis,
which was computed using the federal corporate income tax rate of 34% for all
three years.
2000 1999 1998
------------------------ ------------------------ ------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------------------------------------------------
Assets
Securities:
Taxable $ 16,089 $ 1,157 7.19% $ 15,293 $ 1,097 7.17% $ 33,607 $ 2,359 7.02%
Tax-exempt 52,068 4,196 8.06 49,049 4,013 8.18 42,606 3,590 8.43
- ---------------------------------------------------------------------------------------------------
Total securities 68,157 5,353 7.85 64,342 5,110 7.94 76,213 5,949 7.81
Loans, net 241,291 22,245 9.22 216,295 18,850 8.71 206,353 17,790 8.62
Interest-bearing
deposits
in other banks and fed
funds 3,482 215 6.17 9,621 458 4.76 1,088 69 6.34
- ---------------------------------------------------------------------------------------------------
Total earning assets 312,930 $27,813 8.89% 290,258 $24,418 8.41% 283,654 $23,808 8.39%
Reserve for loan losses (3,451) (3,003) (2,451)
Total non-earning
assets 22,723 21,710 20,484
- ---------------------------------------------------------------------------------------------------
Total assets $332,202 $308,965 $301,687
- ---------------------------------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Time and savings
deposits:
Interest-bearing
deposits $ 50,977 $ 1,236 2.42% $ 45,627 $ 1,084 2.38% $ 37,178 $ 901 2.42%
Money market deposit
accounts 25,938 877 3.38 25,207 807 3.20 21,984 718 3.27
Savings accounts 38,640 1,150 2.98 39,131 1,164 2.97 35,094 1,135 3.23
Certificates of
deposit,
$100M or more 22,955 1,266 5.52 17,977 857 4.77 16,670 819 4.91
Other certificates of
deposit 96,004 5,203 5.42 89,467 4,416 4.94 87,938 4,616 5.25
- ---------------------------------------------------------------------------------------------------
Total time and savings
deposits 234,514 9,732 4.15 217,409 8,328 3.83 198,864 8,189 4.12
- ---------------------------------------------------------------------------------------------------
Borrowings 25,774 1,577 6.12 15,002 740 4.93 25,169 1,369 5.44
- ---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 260,288 11,309 4.34% 232,411 9,068 3.90% 224,033 9,558 4.27%
- ---------------------------------------------------------------------------------------------------
Demand deposits 31,511 35,697 35,987
Other liabilities 3,895 5,701 7,221
- ---------------------------------------------------------------------------------------------------
Total liabilities 295,694 273,809 267,241
Shareholders' equity 36,508 35,156 34,446
- ---------------------------------------------------------------------------------------------------
Total liabilities and
Shareholders' equity $332,202 $308,965 $301,687
- ---------------------------------------------------------------------------------------------------
Net interest income $16,504 $15,350 $14,250
- ---------------------------------------------------------------------------------------------------
Interest rate spread 4.55 4.51 4.12
- ---------------------------------------------------------------------------------------------------
Interest expense to
average earning assets 3.61 3.12 3.37
- ---------------------------------------------------------------------------------------------------
Net interest margin 5.27% 5.29% 5.02%
- ---------------------------------------------------------------------------------------------------
2000 Annual Report
11
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
NET INTEREST INCOME
During 2000, net interest income, on a taxable equivalent basis, increased
7.5% to $16.5 million from $15.4 million, excluding the one-time interest
collected on a non-accrual loan in 1999. This was a result of a 7.8% increase
in the average balance of interest earning assets offset by a slight decrease
in the net interest margin to 5.27% in 2000 from 5.29% in 1999. The increase
in average earning assets was the result of an increase in the average balance
of the loan portfolio and securities portfolio at Citizens and Farmers Bank
(the "Bank") offset by a decrease in the average balance of loans held for
sale by C&F Mortgage Corporation (the "Mortgage Corporation"), and a decrease
in the average balance in interest earning deposits in other banks and fed
funds sold. The increase in loans at the Bank was a result of overall higher
loan demand. The increase in the average balance of securities was a result of
the purchase of securities during the last six months of 1999. A large number
of securities were called in the first half of 1999 and were replaced in the
second half of 1999. The current year reflects the effect of a full year of
these purchases. The decrease in loans held for sale at the Mortgage
Corporation was a result of a decrease in loan closings to $294 million in
2000 from $457 million in 1999 and a decrease in loan fundings (sales) to $301
million in 2000 from $499 million in 1999. The decrease in the average balance
in interest earning deposits in other banks and fed funds sold was a result of
excess liquidity being invested in higher yielding loans and securities. The
decrease in the net interest margin was a result of an increase in the cost of
funds from 3.90% in 1999 to 4.34% in 2000 offset by an increase in the yield
on average earning assets from 8.41% in 1999 to 8.89% in 2000. The increase in
the cost of funds was a result of the overall higher interest rate environment
during 2000 and an increase in the average balance of higher cost borrowings
from the Federal Home Loan Bank ("FHLB"). From August 1999 to March 2000, the
interest rates on Fed Funds increased 150 basis points. This increase is
clearly reflected in the average cost of certificates of deposit paid by the
Corporation. The increase in the average balance of borrowings from the FHLB
was a result of loan growth outpacing deposit growth during most of 2000. In
addition to providing funding for loans originated and subsequently sold by
the Mortgage Corporation, borrowings from the FHLB are occasionally used for
funding of the Bank's loan portfolio. The increase in the average yield on
interest earning assets was mainly a result of the higher interest rate
environment and the decrease in the average balance of lower yielding loans
held for sale at the Mortgage Corporation.
During 1999, net interest income, on a tax-equivalent basis, excluding the
one-time interest collected on a non-accrual loan, increased 7.7% to $15.4
million from $14.3 million in 1998. This was a result of a 2.3% increase in
the average balance of interest earning assets and an increase in the net
interest margin to 5.29% for 1999 from 5.02% for 1998. The increase in the
average balance of interest earning assets was a result of an increase in the
average balance of loans at the Bank and an increase in the average balance of
interest-bearing deposits in other banks and fed funds offset by a decrease in
the average balance of securities and loans held for sale at the Mortgage
Corporation. The increase in loans at the Bank was a result of overall higher
loan demand and the increase in interest bearing deposits in other banks and
fed funds was a result of excess liquidity resulting from the decrease in
securities. The decline in the average balance of securities was a result of a
large number of securities being called in the first half of 1999. The
decrease in loans held for sale at the Mortgage Corporation was a result of a
decrease in loan closings to $457 million in 1999 from $524 million in 1998
and an increase in loan fundings (sales) to $499 million in 1999 from $481
million in 1998. The increase in the net interest margin was mainly a result
of a decrease in cost of funds to 3.90% for 1999 from 4.27% for 1998. The
decrease in cost of funds was a result of the decrease in cost of deposits and
borrowings and an overall decrease in the average balance of higher cost
borrowings. The decrease in the cost of deposits and borrowings was a result
of the overall lower interest rate for the first half of 1999. The decrease in
the average balance of borrowings was a result of the decrease in loans held
for sale at the Mortgage Corporation.
C&F Financial Corporation
12
- -------------------------------------------------------------------------------
TABLE 2: Rate-Volume Recap
Interest income and expense are affected by fluctuations in interest rates, by
changes in the volume of earning assets and interest-bearing liabilities, and
by the interaction of rate and volume factors. The following analysis shows
the direct causes of the year-to-year changes in the components of net
interest earnings on a taxable-equivalent basis. The rate and volume variances
are calculated by a formula prescribed by the Securities and Exchange
Commission. Rate/volume variances, the third element in the calculation, are
not shown separately, but are allocated to the rate and volume variances in
proportion to the relationship of the absolute dollar amounts of the change in
each. Loans include both non-accrual loans and loans held for sale.
2000 from 1999 1999 from 1998
---------------------------------- ----------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
(Dollars in thousands) Rate Volume (Decrease) Rate Volume (Decrease)
- ---------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ 1,133 $ 2,262 $3,395 $ 195 $ 865 $ 1,060
Securities:
Taxable 3 57 60 51 (1,313) (1,262)
Tax-exempt (61) 244 183 (107) 530 423
- ---------------------------------------------------------------------------------------------------------------
Total securities (58) 301 243 (56) (783) (839)
- ---------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other
banks and fed funds 43 (286) (243) 24 365 389
- ---------------------------------------------------------------------------------------------------------------
Total interest income 1,118 2,277 3,395 163 447 610
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Time and savings deposits:
Interest-bearing deposits 23 129 152 (18) 201 183
Money market deposit accounts 46 24 70 (14) 103 89
Savings accounts 1 (15) (14) (95) 124 29
Certificates of deposit, $100M or more 148 261 409 (25) 63 38
Other certificates of deposit 451 336 787 (279) 79 (200)
- ---------------------------------------------------------------------------------------------------------------
Total time and savings deposits 669 735 1,404 (431) 570 139
Other borrowings 210 627 837 (118) (511) (629)
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 879 1,362 2,241 (549) 59 (490)
- ---------------------------------------------------------------------------------------------------------------
Change in net interest income $ 239 $ 915 $1,154 $ 712 $ 388 $ 1,100
- ---------------------------------------------------------------------------------------------------------------
2000 Annual Report
13
- -------------------------------------------------------------------------------
MARKET RISK MANAGEMENT
As the holding company for a commercial bank, the Corporation's primary
component of market risk is interest rate volatility. Fluctuation in interest
rates will ultimately impact the level of both income and expense recorded on
a large portion of the Bank's assets and liabilities, and the market value of
all interest-earning assets and interest-bearing liabilities, other than those
which possess a short term to maturity. Since the majority of the
Corporation's interest-earning assets and all of the Corporation's interest-
bearing liabilities are held by the Bank, virtually all of the Corporation's
interest rate risk exposure lies at the Bank level. Therefore, all significant
interest rate risk management procedures are performed by management of the
Bank. Based on the nature of the Bank's operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The Bank's loan portfolio
is concentrated primarily in the Virginia counties of King William, King and
Queen, Hanover, Henrico, Essex, Middlesex, New Kent, Charles City, York, and
James City, and is, therefore, subject to risks associated with the local
economy. As of December 31, 2000, the Corporation does not own any trading
assets nor does it have any hedging transactions in place such as interest
rate swaps and caps.
The Bank's interest rate management strategy is designed to stabilize net
interest income and preserve capital. The Bank manages interest rate risk
through the use of a simulation model which measures the sensitivity of future
net interest income and the net portfolio value to changes in interest rates.
In addition, the Bank monitors interest rate sensitivity through analysis,
measuring the terms to maturity or next repricing date of interest-earning
assets and interest-bearing liabilities. The matching of the maturities of
assets and liabilities may be analyzed by examining the extent to which assets
and liabilities are "interest rate sensitive" and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said
to be "interest rate sensitive" within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity "gap"
is defined as the difference between the amount of interest-earning assets
anticipated, based on certain assumptions, to mature or reprice within a
specific time period and the amount of interest-bearing liabilities
anticipated, based on certain assumptions, to mature or reprice within that
time period. A gap is considered negative when the amount of interest-rate-
sensitive liabilities maturing or repricing within a specific time period
exceeds the amount of interest-rate-sensitive assets maturing or repricing
within that same time period. During a period of rising interest rates, a
negative gap would tend to result in a decrease in net interest income while a
positive gap would tend to result in an increase in net interest income. In a
declining interest rate environment, an institution with a negative gap would
generally be expected, absent the effect of other factors, to experience a
greater decrease in the cost of its liabilities relative to the yield of its
assets and thus an increase in the institution's net interest income, whereas
an institution with a positive gap would be expected to experience the
opposite result.
Certain shortcomings are inherent in any method of rate analysis used to
estimate a financial institution's interest rate sensitivity gap. The analysis
is based at a given point in time and does not take into consideration that
changes in interest rates do not affect all assets and liabilities equally.
For example, although certain assets and liabilities may have similar
maturities or repricing, they may react differently to changes in market
interest rates. The interest rates on certain types of assets and liabilities
also may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates. The
interest rates on loans with call features may or may not change depending on
their interest rates relative to market interest rates.
The Corporation is also subject to prepayment risk, particularly in falling
interest rate environments or in environments where the slope of the yield
curve is relatively flat or negative. Such changes in the interest rate
environment can cause substantial changes in the level of prepayments of
loans, which may also affect the Corporation's interest rate sensitivity gap
position.
As part of its borrowings, the Corporation may utilize, from time to time,
daily, convertible and adjustable rate advances from the FHLB-Atlanta.
Convertible advances generally provide for a fixed rate of interest for a
portion of the term of the advance, an ability for the FHLB-Atlanta to convert
the advance from a fixed rate to an adjustable rate at some predetermined time
during the remaining term of the advance (the "conversion" feature), and a
concurrent opportunity for the Corporation to prepay the advance with no
prepayment penalty in the event the FHLB-Atlanta elects to exercise the
conversion feature. At December 31, 2000, the Bank did not hold convertible
advances from the FHLB-Atlanta.
Also, the methodology used estimates various rates of withdrawal for money
market deposits, savings, and checking accounts, which may vary significantly
from actual experience.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2000, that are
subject to repricing or that mature in each of the time periods shown.
Additionally, loans and securities with call provisions are included in the
period in which they may first be called. Except as stated above, the amount
of assets and liabilities shown that reprice or mature during a particular
period were determined in accordance with the contractual terms of the asset
or liability.
C&F Financial Corporation
14
- -------------------------------------------------------------------------------
TABLE 3: Interest Sensitivity Analysis
Interest-Sensitive Periods
---------------------------------------------------
Within 91-365 1-5 Over
(Dollars in thousands) 90 Days Days Years 5 Years Total
- -------------------------------------------------------------------------------
December 31, 2000
Earning assets:
Loans, net of unearned
income $ 98,865 $ 15,431 $ 72,237 $ 64,620 $251,153
Securities -- 1,385 4,440 61,958 67,783
Federal funds sold and
other short-term
investments 5,915 -- -- -- 5,915
- -------------------------------------------------------------------------------
Total earning assets 104,780 16,816 76,677 126,578 324,851
- -------------------------------------------------------------------------------
Interest-bearing
liabilities:
Interest-bearing
transaction accounts 8,409 25,227 22,423 -- 56,059
Savings accounts 5,651 16,954 15,070 -- 37,675
Money market deposit
accounts 3,575 10,725 9,533 -- 23,833
Certificates of deposit,
$100M or more 5,637 18,913 2,280 188 27,018
Other certificates of
deposit 20,553 72,448 16,910 457 110,368
Borrowings 13,969 -- -- -- 13,969
- -------------------------------------------------------------------------------
Total interest-bearing
liabilities 57,794 144,267 66,216 645 $268,922
- -------------------------------------------------------------------------------
Period gap 46,986 (127,451) 10,461 125,933
Cumulative gap $ 46,986 $ (80,465) $(70,004) $ 55,929
Ratio of cumulative gap to
total earning assets 14.46% (24.77)% (21.15)% 17.22%
- -------------------------------------------------------------------------------
The following tables provide information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
2000 and 1999, based on the information and assumptions set forth in the
notes. The Corporation believes that the assumptions utilized are reasonable.
The expected maturity date values for loans were calculated by adjusting the
instruments' contractual maturity date for expectations of prepayments, as set
forth in the notes. Similarly, expected maturity date values for interest-
bearing core deposits were calculated based on estimates of the period over
which the deposits would be outstanding, as set forth in the notes. From a
risk-management perspective, however, the Corporation utilizes both maturity
and repricing dates, as opposed to solely using expected maturity dates.
As shown in the table, there have been no significant changes in the
maturities of interest-earning assets or interest-bearing liabilities. The
decrease in loans held for sale maturing within one year is a result of
decreased production at the Mortgage Corporation. All loans originated at the
Mortgage Corporation are usually sold within one month. The decrease in
borrowings is also a result of the decrease in loans held for sale and the
overall increase in deposits. The increase in the yield on interest earning
assets and amount paid on interest-bearing liabilities is a result of the
increase in interest rates throughout 2000.
2000 Annual Report
15
- --------------------------------------------------------------------------------
TABLE 4: Maturity of Interest-Bearing Assets/Liabilities
Principal Amount Maturing in:
-----------------------------------------------------------------------
Dollars in thousands 1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total Fair Value
- -------------------------------------------------------------------------------------------------
Interest-Earning Assets:
Fixed rate loans/1/, /2/
December 31, 2000 $ 23,371 $11,329 $ 9,830 $ 8,457 $ 6,740 $44,280 $104,007 $104,356
December 31, 1999 23,772 11,390 9,664 7,762 6,221 28,460 87,269 85,193
Average interest rate
December 31, 2000 9.43% 8.89% 8.71% 8.53% 8.38% 8.43% 8.74%
December 31, 1999 8.79% 8.56% 8.32% 8.16% 8.07% 7.98% 8.34%
Variable rate loans/1/,
/2/
December 31, 2000 $ 46,426 $10,372 $ 5,489 $ 5,039 $ 4,516 $58,690 $130,532 $130,574
December 31, 1999 41,271 12,601 8,136 6,407 7,155 47,590 123,160 122,633
Average interest rate
December 31, 2000 10.43% 9.44% 8.90% 8.88% 8.79% 8.34% 9.23%
December 31, 1999 8.88% 8.67% 8.47% 8.30% 8.48% 8.24% 8.53%
Loans held for sale
December 31, 2000 $ 17,600 $ -- $ -- $ -- $ -- $ -- $ 17,600 $ 17,984
December 31, 1999 24,887 -- -- -- -- -- 24,887 25,319
Average interest rate
December 31, 2000 9.26% -- -- -- -- -- 9.26%
December 31, 1999 8.15% -- -- -- -- -- 8.15%
Securities/3/, /4/
December 31, 2000 $ 1,385 $ 1,148 $ 1,504 $ 806 $ 1,084 $61,856 $ 67,783 $ 68,484
December 31, 1999 155 1,385 1,146 1,853 806 63,143 68,488 66,769
Average interest rate
December 31, 2000 5.43% 4.67% 4.73% 4.72% 4.39% 5.39% 5.34%
December 31, 1999 6.65% 7.68% 5.86% 5.96% 6.21% 5.76% 5.81%
Interest-Bearing
Liabilities:
Money market, savings,
and interest-
bearing transaction
accounts/5/
December 31, 2000 $ 70,540 $11,757 $11,757 $11,757 $11,756 $ -- $117,567 $118,590
December 31, 1999 72,985 12,165 12,165 12,165 12,165 -- 121,645 121,514
Average interest rate
December 31, 2000 2.72% 2.72% 2.72% 2.72% 2.72% -- 2.72%
December 31, 1999 2.77% 2.77% 2.77% 2.77% 2.77% -- 2.77%
Certificates of deposit
December 31, 2000 $117,552 $12,186 $ 4,232 $ 1,385 $ 1,387 $ 645 $137,387 $137,505
December 31, 1999 78,772 16,466 4,112 3,048 1,514 469 104,381 104,344
Average interest rate
December 31, 2000 6.07% 5.86% 5.83% 5.21% 6.23% 4.36% 6.03%
December 31, 1999 4.77% 4.91% 5.20% 5.69% 5.15% 3.73% 4.83%
Borrowings
December 31, 2000 $ 13,969 $ -- $ -- $ -- $ -- $ -- $ 13,969 $ 13,969
December 31, 1999 30,035 -- -- -- -- -- 30,035 30,035
Average interest rate
December 31, 2000 5.66% -- -- -- -- -- 5.66%
December 31, 1999 5.40% -- -- -- -- -- 5.40%
- -------------------------------------------------------------------------------------------------
/1/ Net of undisbursed loan proceeds and do not include net deferred loan fees
or the allowance for loan losses.
/2/ For single-family residential loans, assumes annual prepayment rate of 12%.
No prepayment assumptions were used for all other loans.
/3/ Includes the Corporation's investment in Federal Home Loan Bank stock.
/4/ Average interest rates are the average of stated coupon rates and have not
been adjusted for taxes.
/5/ Assumes an annual decay rate of 60% for year 1 and 10% for each of the
years 2 through 5.
C&F Financial Corporation
16
- -------------------------------------------------------------------------------
NON-INTEREST INCOME
TABLE 5: Non-Interest Income
Year Ended December
31,
----------------------
Dollars in thousands 2000 1999 1998
- ---------------------------------------------------------------------
Gain on sale of loans $5,009 $ 6,692 $ 7,129
Service charges on deposit accounts 1,336 1,154 1,033
Other service charges and fees 1,675 1,950 1,692
Gain on sale of available for sale securities 100 139 --
Other income 825 1,069 981
- ---------------------------------------------------------------------
$8,945 $11,004 $10,835
- ---------------------------------------------------------------------
2000 VS. 1999
Non-interest income decreased by $2.1 million, or 18.7%, in 2000. The decrease
was mainly a result of a $1.7 million decrease in the gain on sale of loans at
the Mortgage Corporation. This decrease was a result of the overall decrease
in production at the Mortgage Corporation which is a result of the higher
interest rate environment in 2000 compared to 1999. In addition, other service
charges and fees at the Mortgage Corporation declined $309,000 and other
income at C&F Title Company, (the "Title Company"), declined $132,000. These
decreases were partially offset by an increase in service charges on deposit
accounts at the Bank of $181,000 which was due to the overall growth of the
Bank during 2000.
1999 VS. 1998
Non-interest income increased by $169,000, or 1.6%, in 1999. The increase was
a result of increased fees at C&F Investment Services, Inc. (the "Investment
Company") and the Bank and a $139,000 gain on securities which were called
during the year. The increase in fees at the Investment Company and the Bank
was due to overall growth. These increases were offset by a $437,000 decrease
in the gain on sale of loans at the Mortgage Corporation. This decrease was a
result of the overall decrease in production in the Mortgage Corporation which
was a result of the higher interest rate environment in the second half of
1999 as compared to 1998.
NON-INTEREST EXPENSE
TABLE 6: Non-Interest Expense
Year Ended December 31,
-----------------------
Dollars in thousands 2000 1999 1998
- -------------------------------------------------------
Salaries and employee benefits $ 9,603 $ 9,366 $ 8,286
Occupancy expense 2,378 2,044 2,010
Goodwill amortization 275 275 275
Other expenses 3,742 4,144 4,236
- -------------------------------------------------------
$15,998 $15,829 $14,807
- -------------------------------------------------------
2000 VS. 1999
Non-interest expense increased $168,000, or 1.1%, over 1999. This increase was
a result of increased salaries and benefits at the Bank offset by decreased
salaries and variable compensation at the Mortgage Corporation due to a
decrease in production. The increase in salaries and benefits at the Bank was
due to overall growth including the formation of Citizens & Commerce Bank
(CCB), which operates as a division of the Bank, and the opening of a branch
of the Bank in Williamsburg, Virginia during the second quarter of 2000. CCB
was formed in the second half of 1999, and has an area President and a
regional Board of Directors. CCB was formed to serve the greater Richmond
market. Currently, CCB has one branch open. The growth of the Bank also
resulted in an increase in occupancy expense. Other expenses declined mainly
as a result of decreased production at the Mortgage Corporation.
1999 VS. 1998
Non-interest expense increased $1.0 million, or 6.9%, over 1998. The majority
of this increase is a result of increased salaries and benefits at the Bank,
the Mortgage Corporation, and the Investment Company. The increase in salaries
and benefits at the Bank is due to overall growth including the formation of
CCB. The increase in salaries and benefits at the Mortgage Corporation was a
result of increased non-commission positions due to the low interest rate
environment in the second half of 1998 and the first half of 1999. The
increase in salaries at the Investment Company is a result of overall growth.
2000 Annual Report
17
- -------------------------------------------------------------------------------
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 com-
puter 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 have failed or created erroneous results. All computer programs and sys-
tems at the Corporation operated without problems when the date changed from
December 31, 1999 to January 1, 2000. While the Corporation will continue to
monitor computer programs and systems, no problems are expected.
INCOME TAXES
Applicable income taxes on 2000 earnings amounted to $1,823,000, resulting in
an effective tax rate of 23.8% compared to $2,394,000, or 26.1% in 1999, and
$2,353,000, or 27.7% in 1998. The decrease in the effective tax rate for 2000
as compared to 1999 and for 1999 compared to 1998 was a result of the increase
in earnings from tax exempt assets, such as loans to municipalities or invest-
ment obligations of state and political subdivisions, as a percentage of total
income.
TABLE 7: Allowance for Loan Losses
Year Ended December 31,
--------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------
Reserve, beginning of period $3,302 $2,760 $2,234 $1,927 $1,914
Provision for loan losses 400 600 600 330 30
Loans charged off:
Real estate--mortgage -- 10 33 12 --
Commercial, financial, and
agricultural 31 -- -- 3 4
Consumer 71 76 66 12 25
- -------------------------------------------------------------------------------
Total loans charged off 102 86 99 27 29
Recoveries of loans previously charged
off:
Real estate--mortgage -- -- 25 -- 1
Commercial, financial, and
agricultural -- 13 -- -- 11
Consumer 9 15 -- 4 --
- -------------------------------------------------------------------------------
Total recoveries 9 28 25 4 12
Net loans charged off 93 58 74 23 17
- -------------------------------------------------------------------------------
Balance, end of period $3,609 $3,302 $2,760 $2,234 $1,927
- -------------------------------------------------------------------------------
Ratio of net charge-offs to average
total loans outstanding during period .04% .03% .04% .01% .01%
- -------------------------------------------------------------------------------
C&F Financial Corporation
18
- -------------------------------------------------------------------------------
TABLE 8: Allocation of Allowance for Possible Loan Losses
The allowance for loan losses is a general allowance applicable to all loan
categories; however, management has allocated the allowance to provide an
indication of the relative risk characteristics of the loan portfolio. The
allocation is an estimate and should not be interpreted as an indication that
charge-offs in 2001 will occur in these amounts, or that the allocation
indicates future trends. The allocation of the allowance at December 31 for
the years indicated and the ratio of related outstanding loan balances to
total loans are as follows:
(Dollars in thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------
Allocation of allowance for possible
loan losses, end of year:
Real estate--mortgage $ 743 $ 753 $ 667 $ 692 $ 873
Real estate--construction 251 160 108 89 69
Commercial, financial, and
agricultural 2,005 1,686 1,211 926 733
Equity lines 116 103 86 71 62
Consumer 267 380 251 167 160
Unallocated 227 220 437 289 30
- -----------------------------------------------------------------------------
Balance, December 31 $3,609 $3,302 $2,760 $2,234 $1,927
- -----------------------------------------------------------------------------
Ratio of loans to total year-end
loans:
Real estate--mortgage 37% 43% 50% 57% 62%
Real estate--construction 4 4 3 3 2
Commercial, financial, and
agricultural 49 42 36 31 26
Equity lines 5 5 5 4 5
Consumer 5 6 6 5 5
- -----------------------------------------------------------------------------
100% 100% 100% 100% 100%
- -----------------------------------------------------------------------------
ASSET QUALITY-ALLOWANCE AND
PROVISION FOR LOAN LOSSES
The allowance for loan losses is to provide for potential losses in the loan
portfolio. Among other factors, management considers the Corporation's
historical loss experience, the size and composition of the loan portfolio,
the value and adequacy of collateral and guarantors, non-performing credits,
and current economic conditions. There are additional risks of future loan
losses which cannot be precisely quantified or attributed to particular loans
or classes of loans. Since those risks include general economic trends as well
as conditions affecting individual borrowers, the allowance for loan losses is
an estimate. The allowance is also subject to regulatory examinations and
determination as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance and the size of the allowance in
comparison to peer banks identified by regulatory agencies.
In 2000, the Corporation had $400,000 in provision for loan losses compared to
$600,000 in 1999 and $600,000 in 1998. Over the past several years, the Corpo-
ration has substantially increased its portfolio of commercial, financial, and
agricultural loans. The risks associated with increasing the volume of commer-
cial and commercial real estate loans resulted in an increase in the provision
for loan losses for 1999 and 1998 when compared to years prior to 1998. While
the Corporation continues to increase its commercial loan portfolio, the port-
folio also continues to become "more seasoned" allowing management to better
assess the risk associated with the portfolio. Accordingly, management was
able to reduce the provision for loan losses in 2000 to $400,000 from $600,000
in 1999 and 1998.
Loans charged off during 2000 amounted to $102,000 compared to $86,000 in 1999
and $99,000 in 1998. Recoveries amounted to $9,000, $28,000, and $25,000 in
2000, 1999, and 1998, respectively. The ratio of net charge-offs to average
outstanding loans was .04% in 2000, .03% in 1999, and .04% in 1998. Management
believes that the reserve is adequate to absorb any losses on existing loans
that may become uncollectible. Table 7 presents the Corporation's loan loss
and recovery experience for the past five years.
NON-PERFORMING ASSETS
Total non-performing assets, which consist of the Corporation's non-accrual
loans and real estate owned, were $520,000 at December 31, 2000, an increase
of $471,000 from December 31, 1999. The increase in non-performing assets was
a result of a lending relationship with a builder being put on non-accrual
status. The Corporation is closely monitoring this relationship and does not
anticipate a significant loss.
Loans are generally placed on non-accrual status when the collection of prin-
cipal or interest is ninety days or more past due, or earlier, if collection
is uncertain based on an evaluation of the net realizable value of the collat-
eral and the financial strength of the borrower. Loans greater than ninety
days past due may remain on accrual status if management determines it has ad-
equate collateral to cover the principal and interest. For those loans which
are carried on non-accrual status, interest is recognized on the cash basis.
For 2000, $37,000 in gross interest income would have been recorded if non-ac-
crual loans had been current throughout the period outstanding. For the period
ended December 31, 2000, interest income received on non-accrual loans was
$2,000.
2000 Annual Report
19
- -------------------------------------------------------------------------------
Table 9 summarizes non-performing
assets for the past five years.
TABLE 9: Non-Performing Asset Activity
(Dollars in thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
Non-accrual loans $ 473 $ 49 $ 463 $ 497 $ 525
Real estate owned 47 -- -- 444 --
- ------------------------------------------------------------------------------
Total non-performing assets 520 49 463 941 525
- ------------------------------------------------------------------------------
Principal and/or interest past
due for 90 days or more $ 1,586 $ 786 $ 958 $ 768 $ 260
- ------------------------------------------------------------------------------
Non-performing loans to total
loans .20% .02% .27% .31% .38%
Allowance for loan losses to
total loans 1.55 1.58 1.60 1.42 1.39
Allowance for loan losses to
non-performing loans 763.00 6,738.78 596.11 449.30 367.05
Non-performing assets to total
assets .15% .01% .14% .34% .20%
- ------------------------------------------------------------------------------
FINANCIAL CONDITION
SUMMARY
A financial institution's primary sources of revenue are generated by its
earning assets, while its major expenses are produced by the funding of those
assets with interest-bearing liabilities. Effective management of these sources
and uses of funds is essential in attaining a financial institution's maximum
profitability while maintaining a minimum level of risk.
At the end of 2000, the Corporation had total assets of $347 million, up 5.5%
over the previous year-end. In 1999, there was an increase of 2.5% in total
assets over year-end 1998. Asset growth in 2000 is attributable to an increase
in loans at the Bank offset by a decrease in loans held for sale at the Mortgage
Corporation.
TABLE 10: Summary of Total Loans
Year Ended December 31,
------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
Real estate--mortgage $ 86,453 $ 89,952 $ 86,311 $ 88,973 $ 86,324
Real estate--construction 9,099 7,968 5,359 4,454 3,415
Commercial, financial, and
agricultural/1/ 113,570 89,135 62,885 48,737 36,385
Equity lines 11,616 10,272 8,580 7,131 6,180
Consumer 12,815 12,091 9,543 7,684 6,355
- ------------------------------------------------------------------------------
Total loans 233,553 209,418 172,678 156,979 138,659
Less allowance for possible
loan losses (3,609) (3,302) (2,760) (2,234) (1,927)
- ------------------------------------------------------------------------------
Total loans, net $229,944 $206,116 $169,918 $154,745 $136,732
- ------------------------------------------------------------------------------
/1/ Includes loans secured by real estate
TABLE 11: Maturity/Repricing Schedule of Loans
December 31, 2000
-----------------------------------
(Dollars in Commercial, financial, Real estate
thousands) and agricultural construction
- ---------------------------------------------------
Variable Rate:
Within 1 year $43,412 $ --
1 to 5 years 15,578 --
After 5 years 15,514 --
Fixed Rate:
Within 1 year 3,955 9,099
1 to 5 years 12,082 --
After 5 years 23,029 --
- ---------------------------------------------------
C&F Financial Corporation
20
- -------------------------------------------------------------------------------
LOAN PORTFOLIO
At December 31, 2000, loans, net of unearned income and reserve for loan losses,
totaled $229.9 million, an increase of 11.6% over the 1999 total of $206.1
million. Net loans increased 21.3% and 9.8% in 1999 and 1998, respectively.
The Corporation's lending activities are its principal source of income. All
loans are attributable to domestic operations. Residential real estate loans,
both construction and permanent, and commercial, including commercial real
estate, represent the major portion of the Corporation's loan portfolio. Tables
10 and 11 present information pertaining to the composition of loans and the
maturity/repricing of loans.
TABLE 12: Maturity of Securities
Year Ended December 31,
----------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
(Dollars in thousands) Cost Yield Cost Yield Cost Yield
- ------------------------------------------------------------------------------------------------------------
U.S. government agencies and corporations:
Maturing within 1 year $ -- --% $ -- --% $ 999 8.46%
Maturing after 1 year, but within 5 years -- -- -- -- 500 6.21
Maturing after 5 years, but within 10 years 4,500 7.03 4,500 7.03 3,500 6.76
Maturing after 10 years 9,000 7.08 9,000 7.08 8,498 6.96
- ------------------------------------------------------------------------------------------------------------
Total U.S. government agencies and corporations 13,500 7.07 13,500 7.07 13,497 6.99
- ------------------------------------------------------------------------------------------------------------
U.S. Treasuries:
Maturing within 1 year 1,000 8.01 -- -- 1,999 5.94
Maturing after 1 year, but within 5 years -- -- 1,000 8.01 1,000 8.02
- ------------------------------------------------------------------------------------------------------------
Total U.S. Treasuries 1,000 8.01 1,000 8.01 2,999 6.63
- ------------------------------------------------------------------------------------------------------------
States and municipals:/1/
Maturing within 1 year 2,028 10.43 155 9.77 971 10.18
Maturing after 1 year, but within 5 years 4,378 8.42 4,190 8.87 4,770 9.46
Maturing after 5 years, but within 10 years 15,871 7.61 14,352 7.97 13,163 8.42
Maturing after 10 years 23,907 7.29 28,496 7.52 20,121 7.90
- ------------------------------------------------------------------------------------------------------------
Total states and municipals 46,184 7.64 47,193 7.66 39,025 8.33
- ------------------------------------------------------------------------------------------------------------
Total securities:/2/
Maturing within 1 year 3,028 9.63 155 9.77 3,969 7.76
Maturing after 1 year, but within 5 years 4,378 8.42 5,190 8.71 6,270 8.95
Maturing after 5 years, but within 10 years 20,371 7.48 18,852 7.95 16,663 8.06
Maturing after 10 years 32,907 7.24 37,496 1.36 28,619 7.62
- ------------------------------------------------------------------------------------------------------------
Total securities $60,684 7.52% $61,693 7.54% $55,521 7.91%
- ------------------------------------------------------------------------------------------------------------
/1/Yields on tax-exempt securities have been computed on a tax-equivalent
basis.
/2/Total securities excludes preferred stock at amortized cost of $5,504,870,
$5,209,736, and $4,770,000 at December 31, 2000, 1999, and 1998, respectively
($5,054,587, $4,738,879, and $5,104,000 estimated fair value at December 31,
2000, 1999, and 1998, respectively).
SECURITIES
The investment portfolio plays a primary role in the management of interest
rate sensitivity of the Corporation and generates substantial interest income.
In addition, the portfolio serves as a source of liquidity and is used as
needed to meet collateral requirements.
The investment portfolio consists of two components, securities held to maturity
and securities available for sale. Securities are classified as held to maturity
based on management's intent and the Corporation's ability, at the time of
purchase, to hold such securities to maturity. These securities are carried at
amortized cost. Securities which may be sold in response to
2000 Annual Report
21
- --------------------------------------------------------------------------------
changes in market interest rates, changes in the securities' prepayment risk,
increases in loan demand, general liquidity needs, and other similar factors
are classified as available for sale and are carried at estimated fair value.
At year-end 2000, total securities were $65.7 million, up 1.0% from $65.0
million at year-end 1999. Securities of U.S. government agencies and
corporations represented 20.4% of the total securities portfolio, obligations of
states and political subdivisions were 69.8%, U.S. Treasury securities were
1.5%, and preferred stocks were 8.3% at December 31, 2000.
Table 12 presents information pertaining to the composition of the securities
portfolio.
TABLE 13: Average Deposits and Rates Paid
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Non-interest-bearing
demand deposits $ 31,511 $ 35,697 $ 35,987
- -------------------------------------------------------------------------------
Interest-bearing
transaction accounts 50,977 2.42% 45,627 2.38% 37,178 2.42%
Money market deposit
accounts 25,938 3.38 25,207 3.20 21,984 3.27
Savings accounts 38,640 2.98 39,131 2.97 35,094 3.23
Certificates of deposit,
$100M or more 22,955 5.52 17,977 4.77 16,670 4.91
Other certificates of
deposit 96,004 5.42 89,467 4.94 87,938 5.25
- -------------------------------------------------------------------------------
Total interest-bearing
deposits 234,514 4.15% 217,409 3.83% 198,864 4.12%
- -------------------------------------------------------------------------------
Total deposits $266,025 $253,106 $234,851
- -------------------------------------------------------------------------------
TABLE 14: Maturities of Certificates of Deposit with Balances of $100,000 or
More
(Dollars in
thousands) December 31, 2000
- -----------------------------------
3 months or less $ 5,637
3-6 months 6,158
6-12 months 12,755
Over 12 months 2,469
- -----------------------------------
Total $27,019
- -----------------------------------
DEPOSITS
The Corporation's predominant source of funds is depository accounts. The
Corporation's deposit base is comprised of demand deposits, savings and money
market accounts, and time deposits. The Corporation's deposits are provided by
individuals and businesses located within the communities served.
Total deposits increased $29.8 million, or 11.4%, in 2000 over 1999. In 2000,
the growth by deposit category was a 2.6% increase in non-interest-bearing
deposits, a 3.4% decrease in savings and interest-bearing demand deposits, and a
31.6% increase in time deposits. In 1999, total deposits increased $9.2 million,
or 3.6%, over 1998. Deposit growth in 2000 and 1999 was attributed to growth at
existing branch locations including CCB's one branch, and to the opening of a
new branch of the Bank in Williamsburg. Table 13 presents the average deposit
balances and average rates paid for the years 2000, 1999, and 1998. Table 14
details maturities of certificates of deposit with balances of $100,000 and over
at December 31, 2000.
LIQUIDITY
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash and due from banks, interest-bearing deposits with banks, Federal
Funds sold, securities available for sale, and investments and loans maturing
within one year. As a result of the Corporation's management of liquid assets
and the ability to generate liquidity through liability funding, management
believes that the Corporation maintains overall liquidity sufficient to satisfy
its depositors' requirements and to meet customers' credit needs.
At December 31, 2000, cash, securities classified as available for sale, and
Federal Funds sold were 14.6% of total earning assets, compared to 15.2% at
December 31, 1999.
Additional sources of liquidity available to the Corporation include the Bank's
capacity to borrow funds through an established line of credit with a regional
correspondent bank and the Federal Home Loan Bank.
C&F Financial Corporation
22
- -------------------------------------------------------------------------------
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, and changing competitive
conditions and economic forces. The adequacy of the Corporation's capital is
reviewed by management on an ongoing basis. Management seeks to maintain a
structure that will assure an adequate level of capital to support anticipated
asset growth and to absorb potential losses.
During 2000, the Corporation repurchased 85,000 shares of its common stock, in
the open market at prices between $13.69 and $17.00 per share. During March of
1999, the Corporation repurchased 235,000 shares of its common stock in
privately negotiated transactions and during the second half of 1999, the
Corporation repurchased an additional 12,500 shares of its common stock in the
open market. These repurchases were made to reduce capital since it was high
relative to the Corporation's asset size.
The Corporation's capital position continues to exceed regulatory
requirements. The primary indicators relied on by bank regulators in measuring
the capital position are the Tier I capital, total risk-based capital, and
leverage ratios. Tier I capital consists of common and qualifying preferred
shareholders' equity less goodwill. Total capital consists of Tier I capital,
qualifying subordinated debt, and a portion of the allowance for loan losses.
Risk-based capital ratios are calculated with reference to risk-weighted
assets. The Corporation's Tier I capital ratio was 14.4% at December 31, 2000,
compared to 14.0% at December 31, 1999. The total capital ratio was 15.6% at
December 31, 2000 compared to 15.2% at December 31, 1999. These ratios are in
excess of the mandated minimum requirements of 4.0% and 8.0%, respectively.
Shareholders' equity was $38.8 million at year-end 2000 compared to $35.1
million at year-end 1999. The leverage ratio consists of Tier I capital
divided by average assets. At December 31, 2000, the Corporation's leverage
ratio was 10.9%, compared to 11.3% at December 31, 1999. Each of these exceeds
the required minimum leverage ratio of 4.0%. The dividend payout ratio was
32.7%, 26.6%, and 27.7%, in 2000, 1999, and 1998, respectively. During 2000,
the Corporation paid dividends of $0.53 per share, up 8.2% from $0.49 per
share paid in 1999.
The Corporation is not aware of any current recommendations by any regulatory
authorities which, if they were implemented, would have a material effect on
the Corporation's liquidity, capital resources, or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure them at fair value. The
Corporation adopted this Statement effective January 1, 2001. Since the
Corporation does not use derivative instruments and strategies, the adoption
of the Statement did not have any effect on earnings or financial position.
As allowed by FASB Statement 133, the Corporation transferred securities with
a book value of $33,769,925 and a market value of $34,835,759 to the available
for sale category.
EFFECTS OF INFLATION
The effect of changing prices on financial institutions is typically different
from other industries as the Corporation'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. The consolidated financial statements reflect the impacts of
inflation on interest rates, loan demands, and deposits.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements contained in this annual 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.
2000 Annual Report
23
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
--------------------------
2000 1999
- ------------------------------------------------------------------------------
Assets
Cash and due from banks $ 8,922,524 $ 13,423,967
Interest-bearing deposits in other banks 5,915,378 2,062,397
- ------------------------------------------------------------------------------
Total cash and cash equivalents 14,837,902 15,486,364
Securities--available for sale at fair value,
amortized cost of $32,418,548 and $32,112,083,
respectively 31,913,344 30,208,134
Securities--held to maturity at amortized cost,
fair value of $34,835,759 and $34,976,323,
respectively 33,769,925 34,790,682
Loans held for sale, net 17,600,164 24,886,514
Loans, net of reserve for loan losses of
$3,608,966 and $3,301,778, respectively 229,943,715 206,115,896
Federal Home Loan Bank stock 1,595,000 1,585,000
Corporate premises and equipment, net 9,889,649 8,404,090
Accrued interest receivable 2,403,921 2,136,093
Other assets 5,518,052 5,628,548
- ------------------------------------------------------------------------------
Total assets $347,471,672 $329,241,321
- ------------------------------------------------------------------------------
Liabilities
Deposits
Non-interest-bearing demand deposits $ 35,734,625 $ 34,827,212
Savings and interest-bearing demand deposits 117,566,594 121,645,420
Time deposits 137,386,817 104,381,003
- ------------------------------------------------------------------------------
Total deposits 290,688,036 260,853,635
Borrowings 13,969,173 30,035,293
Accrued interest payable 992,852 566,466
Other liabilities 3,041,161 2,656,217
- ------------------------------------------------------------------------------
Total liabilities 308,691,222 294,111,611
- ------------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock ($1.00 par value, 3,000,000 shares
authorized) -- --
Common stock ($1.00 par value, 8,000,000 shares
authorized, 3,571,039 and 3,644,456 shares issued
and outstanding at December 31, 2000 and 1999,
respectively) 3,571,039 3,644,456
Additional paid-in capital 20,133 14,396
Retained earnings 35,522,711 32,727,448
Accumulated other comprehensive loss, net of tax
of $171,771 and $647,334, respectively (333,433) (1,256,590)
- ------------------------------------------------------------------------------
Total shareholders' equity 38,780,450 35,129,710
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $347,471,672 $329,241,321
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
C&F Financial Corporation
24
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $22,244,860 $19,405,445 $17,789,920
Interest on money market investments
Federal funds sold -- 90,964 --
Other money market investments 563,687 366,971 68,584
Interest on securities
U.S. Treasury securities 80,193 109,112 198,883
U.S. government agencies and corporations 953,900 864,461 2,035,832
Tax-exempt obligations of states and political
subdivisions 2,455,762 2,347,868 2,097,657
Corporate bonds and other 123,077 458,736 426,633
- ------------------------------------------------------------------------------------------
Total interest income 26,421,479 23,643,557 22,617,509
- ------------------------------------------------------------------------------------------
Interest expense
Savings and interest-bearing deposits 3,263,427 3,055,792 2,754,417
Certificates of deposit, $100M or more 1,266,707 856,670 818,548
Other time deposits 5,202,728 4,415,594 4,616,052
Short-term borrowings and other 1,576,537 739,811 1,369,042
- ------------------------------------------------------------------------------------------
Total interest expense 11,309,399 9,067,867 9,558,059
- ------------------------------------------------------------------------------------------
Net interest income 15,112,080 14,575,690 13,059,450
Provision for loan losses 400,000 600,000 600,000
- ------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,712,080 13,975,690 12,459,450
- ------------------------------------------------------------------------------------------
Other operating income
Gain on sale of loans 5,008,850 6,691,998 7,128,998
Service charges on deposit accounts 1,335,679 1,154,373 1,032,918
Other service charges and fees 1,674,937 1,949,714 1,692,384
Gain on sale of available for sale securities 100,157 138,830 --
Other income 825,439 1,069,541 980,943
- ------------------------------------------------------------------------------------------
Total other operating income 8,945,062 11,004,456 10,835,243
- ------------------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 9,603,442 9,365,548 8,286,380
Occupancy expenses 2,377,608 2,044,013 2,009,917
Goodwill amortization 275,160 275,160 275,160
Other expenses 3,742,170 4,144,829 4,235,849
- ------------------------------------------------------------------------------------------
Total other operating expenses 15,998,380 15,829,550 14,807,306
- ------------------------------------------------------------------------------------------
Income before income taxes 7,658,762 9,150,596 8,487,387
Income tax expense 1,822,731 2,394,366 2,353,351
- ------------------------------------------------------------------------------------------
Net Income $ 5,836,031 $ 6,756,230 $ 6,134,036
- ------------------------------------------------------------------------------------------
Earnings per common share--basic $ 1.62 $ 1.83 $ 1.59
- ------------------------------------------------------------------------------------------
Earnings per common share--assuming dilution $ 1.60 $ 1.81 $ 1.56
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
2000 Annual Report
25
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income (Loss) Total
- ------------------------------------------------------------------------------------------------------
Balance December 31,
1997 $1,916,190 $117,692 $29,236,260 $ 530,391 $31,800,533
Stock options exercised 19,004 358,236 -- -- 377,240
Comprehensive income
Net income $6,134,036 6,134,036 6,134,036
Other comprehensive
income, net of tax
Unrealized holding
gains arising during
the period net of tax
of $17,929/1/ 34,803 34,803 34,803
----------
Comprehensive income $6,168,839
----------
Stock dividends 1,931,694 -- (1,931,694) -- --
Cash dividends ($.44 per
share) -- -- (1,699,119) -- (1,699,119)
- ------------------------------------------------------------------------------------------------------
Balance December 31,
1998 3,866,888 475,928 31,739,483 565,194 36,647,493
Repurchase of common
stock (247,500) (690,351) (3,971,173) -- (4,909,024)
Stock options exercised 25,068 228,819 -- -- 253,887
Comprehensive income
Net income $6,756,230 6,756,230 6,756,230
Other comprehensive
income, net of tax
Unrealized holding
losses arising during
the period net of tax
of $938,495 (1,821,784) (1,821,784) (1,821,784)
----------
Comprehensive income $4,934,446
----------
Cash dividends ($.49 per
share) -- -- (1,797,092) -- (1,797,092)
- ------------------------------------------------------------------------------------------------------
Balance December 31,
1999 3,644,456 14,396 32,727,448 (1,256,590) 35,129,710
Repurchase of common
stock (85,000) (114,272) (1,130,139) -- (1,329,411)
Stock options exercised 11,583 120,009 -- -- 131,592
Comprehensive income
Net income $5,836,031 5,836,031 5,836,031
Other comprehensive
income, net of tax
Unrealized holding
gains arising during
the period net of tax
of $475,566 923,157 923,157 923,157
----------
Comprehensive income $6,759,188
----------
Cash dividends ($.53 per
share) -- -- (1,910,629) -- (1,910,629)
- ------------------------------------------------------------------------------------------------------
Balance December 31,
2000 $3,571,039 $ 20,133 $35,522,711 $ (333,433) $38,780,450
- --------------------------------------------------------------------------------
Disclosure of reclassification amount for the year ended December 31:
2000 1999
- ---------------------------------------------------------------------------
Unrealized net holding gains (losses) arising during
period $989,272 $(1,730,156)
Less: reclassification adjustment for gains
included in net income 66,115 91,628
-------- -----------
Net unrealized gains (losses) on securities $923,157 $(1,821,784)
-------- -----------
/1/There were no reclassification adjustments for the twelve months ended
December 31, 1998.
See notes to consolidated financial statements.
C&F Financial Corporation
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
Operating Activities:
Net income $ 5,836,031 $ 6,756,230 $ 6,134,036
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 1,018,342 928,314 949,451
Amortization of goodwill 275,160 275,160 275,160
Deferred income taxes (154,178) (123,139) (332,645)
Provision for loan losses 400,000 600,000 600,000
Accretion of discounts and
amortization of premiums on
securities, net (45,047) (69,467) (51,444)
Net realized gain on securities (100,157) (138,830) --
Origination of loans held for
sale (294,483,773) (456,926,073) (524,395,568)
Sale of loans 301,770,123 499,032,881 481,881,349
Change in other assets and
liabilities:
Accrued interest receivable (267,828) 237,690 (177,824)
Other assets (485,864) (881,041) 271,213
Accrued interest payable 426,386 (31,680) 5,846
Other liabilities 384,756 (4,353,878) 2,405,165
- -----------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 14,573,951 45,306,167 (32,435,261)
- -----------------------------------------------------------------------------
Investing Activities:
Proceeds from maturities of
securities held to maturity 1,060,000 3,628,850 9,674,100
Proceeds from maturities and
calls of securities available
for sale 906,576 10,806,084 22,449,745
Purchase of securities held to
maturity -- -- (2,572,800)
Purchase of securities available
for sale (1,107,101) (21,287,142) (14,425,408)
Redemption (purchase) of FHLB
stock (10,000) 121,200 (644,400)
Net increase in customer loans (24,227,819) (36,797,468) (15,773,808)
Purchase of corporate premises
and equipment (2,505,937) (2,867,029) (879,180)
Proceeds from the sale of
corporate premises and equipment 2,035 -- 45,922
- -----------------------------------------------------------------------------
Net cash used in investing
activities (25,882,246) (46,395,505) (2,125,829)
- -----------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in
demand, interest-bearing demand
and savings deposits (3,171,413) 13,933,670 12,138,327
Net increase (decrease) in time
deposits 33,005,814 (4,753,194) 8,021,680
Net increase (decrease) in other
borrowings (16,066,120) 5,374,215 15,325,391
Repurchase of common stock (1,329,411) (4,909,024) --
Proceeds from exercise of stock
options 131,592 253,887 377,240
Cash dividends (1,910,629) (1,797,092) (1,699,119)
- -----------------------------------------------------------------------------
Net cash provided by financing
activities 10,659,833 8,102,462 34,163,519
- -----------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (648,462) 7,013,124 (397,571)
Cash and cash equivalents at
beginning of year 15,486,364 8,473,240 8,870,811
- -----------------------------------------------------------------------------
Cash and cash equivalents at end
of year $ 14,837,902 $ 15,486,364 $ 8,473,240
- -----------------------------------------------------------------------------
Supplemental disclosure
Interest paid $ 10,883,013 $ 9,099,547 $ 9,552,213
Income taxes paid $ 1,735,591 $ 2,743,114 $ 2,674,475
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
2000 Annual Report
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1: Summary of Significant Accounting Policies
The accounting and reporting policies of C&F Financial Corporation and
subsidiary (the "Corporation") conform to generally accepted accounting
principles and to predominant practices within the banking industry.
Nature of Operations: C&F Financial Corporation is a bank holding company
incorporated under the laws of the Commonwealth of Virginia. The Corporation
owns all of the stock of its sole subsidiary, Citizens and Farmers Bank (the
"Bank"), which is an independent commercial bank chartered under the laws of
the Commonwealth of Virginia. The Bank offers a wide range of banking services
available to both individuals and businesses.
The Bank has four wholly owned subsidiaries, C&F Title Agency, Inc., C&F
Investment Services, Inc., C&F Mortgage Corporation, and C&F Insurance
Services, Inc., all incorporated under the laws of the Commonwealth of
Virginia. C&F Title Agency, Inc., organized in October 1992, sells title
insurance to the mortgage loan customers of the Bank and C&F Mortgage
Corporation. C&F Investment Services, Inc., organized in April 1995, is a
full-service brokerage firm offering a comprehensive range of investment
services. C&F Mortgage Corporation, organized in September 1995, was formed to
originate and sell residential mortgages. C&F Insurance Services, organized in
July 1999, owns an equity interest in an insurance agency which will
eventually sell insurance products to customers of the bank, C&F Mortgage
Corporation and other financial institutions which have an equity interest in
the agency.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of C&F Financial Corporation and its wholly
owned subsidiary, Citizens and Farmers Bank. All material intercompany
accounts and transactions have been eliminated in consolidation.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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 differ from those estimates.
Securities: Investments in debt and equity securities with readily
determinable fair values are classified as either held to maturity, available
for sale, or trading, based on management's intent. Available for sale
securities are carried at estimated fair value with the corresponding
unrealized gains and losses included in shareholders' equity on an after-tax
basis. Securities classified as held to maturity are carried at amortized
cost. The Corporation does not have any securities classified as trading
securities. Gains or losses are recognized only on realization at the time of
sale using the amortized cost of the specific security sold.
Federal Home Loan Bank Stock: Federal Home Loan Bank stock is stated at cost.
No ready market exists for this stock, and it has no quoted market value. For
presentation purposes, such stock is assumed to have market value which is
equal to cost. In addition, such stock is not considered a debt or equity
security in accordance with Statement of Financial Accounting Standards 115.
Loans: Loans are stated at face value, net of unearned discount and the
allowance for loan losses. Unearned discount on certain installment loans is
recognized as income over the terms of the loans by a method which
approximates the effective interest method. Interest on other loans is
credited to operations based on the principal amount outstanding. Loans are
generally placed on non-accrual status when the collection of principal or
interest is ninety days or more past due, or earlier, if collection is
uncertain based on an evaluation of the net realizable value of the collateral
and the financial strength of the borrower. Loans greater than ninety days
past due may remain on accrual status if management determines it has adequate
collateral to cover the principal and interest. For those loans which are
carried on non-accrual status, interest is recognized on the cash basis. Loan
fees and origination costs are deferred and the net amount is amortized as an
adjustment of the related loan's yield using the level-yield method. The
Corporation is amortizing these amounts over the contractual life of the
related loans.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the effective interest rate of the loan (or, as a
practical expedient, at the loan's observable market price) or the fair value
of the collateral if the loan is collateral dependent. The Corporation
considers a loan impaired when it is probable that the Corporation will be
unable to collect all interest and principal payments as scheduled in the loan
agreement. A loan is not considered impaired during a period of delay in
payment if the ultimate collectibility of all amounts due is expected. A
valuation allowance is maintained to the extent that the measure of the
impaired loan is less than the recorded investment.
Consistent with the Corporation's method for non-accrual loans, interest
receipts for impaired loans are recognized on the cash basis.
Loans Held for Sale: Loans held for sale are carried at the lower of cost or
market, determined in the aggregate. Market value considers commitment
agreements with investors and prevailing market prices. Substantially all
loans originated by the mortgage banking operations are held for sale to
outside investors.
Other Real Estate Owned: Foreclosed assets held for sale are carried at the
lower of (a) fair value minus estimated costs to sell or (b) cost at the time
of foreclosure. Such determination is made on an individual asset basis. If
the fair value of the asset minus the estimated costs to sell the asset is
less than the cost of the asset, the deficiency is recognized as a valuation
allowance. If the fair value of the asset minus the estimated costs to sell
the asset subsequently increases and the fair value of the asset minus the
estimated costs to sell the asset is more than its carrying amount, the
valuation allowance is reduced, but not below zero. Increases or decreases in
the valuation allowance are charged or credited to income.
Corporate Premises and Equipment: Corporate premises and equipment are stated
at cost less accumulated depreciation computed using straight-line and
accelerated methods over the estimated useful lives of the assets. Estimated
useful lives range from ten to forty years for buildings and from three to ten
years for equipment, furniture, and fixtures. Maintenance and repairs are
charged to expense as incurred and major improvements are
C&F Financial Corporation
28
- -------------------------------------------------------------------------------
capitalized. Upon sale or retirement of depreciable properties, the cost and
related accumulated depreciation are netted against proceeds and any resulting
gain or loss is reflected in income.
Income Taxes: The Corporation uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax assets
and liabilities.
Reserve for Loan Losses: The reserve for loan losses is established through a
provision for loan losses charged to expense. The reserve represents an amount
which, in management's judgment, will be adequate to absorb any losses on
existing loans which may become uncollectible. Management's judgment in
determining the adequacy of the reserve is based on evaluations of the
collectibility of loans while taking into consideration such factors as
changes in the nature and volume of the loan portfolio, current economic
conditions which may affect a borrower's ability to repay, overall portfolio
quality, and review of specific potential losses. Loans are charged against
the reserve for loan losses when management believes that the collectibility
of the principal is unlikely. Actual future losses may differ from estimates
as a result of unforeseen events.
Comprehensive Income: Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and losses
on available for sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.
Earnings Per Common Share: Basic earnings per share represents income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income
that would result from the assumed issuance. Potential common shares that may
be issued by the Corporation relate solely to outstanding stock options, and
are determined using the treasury stock method.
Shareholders' Equity: During 2000, the Corporation repurchased 85,000 shares
of its common stock in the open market at prices between $13.69 and $17.00 per
share. During March 1999, the Corporation 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. During the second half of 1999,
the Corporation repurchased an additional 12,500 shares of its common stock in
the open market at prices between $17.00 and $18.00 per share.
On June 16, 1998, the Corporation declared a 100% stock dividend in the form
of a two-for-one stock split. All the financial data included in this Annual
Report has been retroactively restated to reflect the effect of the stock
split.
Statement of Cash Flows: For the purpose of the statement of cash flows, the
Corporation considers cash equivalents to include amounts due from banks,
Federal Funds sold, and money market investments purchased with a maturity of
three months or less. Generally, Federal Funds are purchased and sold for one-
day periods.
Reclassifications: Certain reclassifications have been made to prior period
amounts to conform to the current year presentation.
2000 Annual Report
29
- --------------------------------------------------------------------------------
NOTE 2: Securities
Debt and equity securities are summarized as follows:
December 31, 2000
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Available for Sale Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------
U.S. government agencies and
corporations $13,500,000 $ -- $ (201,649) $13,298,351
Obligations of states and
political subdivisions 13,413,678 219,405 (52,677) 13,580,406
Preferred stock 5,504,870 7,313 (477,596) 5,034,587
- -----------------------------------------------------------------------------
$32,418,548 $ 226,718 $ (731,922) $31,913,344
- -----------------------------------------------------------------------------
Held to Maturity
- -----------------------------------------------------------------------------
U.S. Treasury securities $ 999,950 $ 8,179 $ -- $ 1,008,129
Obligations of states and
political subdivisions 32,769,975 1,059,569 (1,914) 33,827,630
- -----------------------------------------------------------------------------
$33,769,925 $1,067,748 $ (1,914) $34,835,759
- -----------------------------------------------------------------------------
December 31, 1999
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Available for Sale Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------
U.S. government agencies and
corporations $13,500,000 $ -- $ (862,314) $12,637,686
Obligations of states and
political subdivisions 13,402,347 20,925 (591,703) 12,831,569
Preferred stock 5,209,736 7,313 (478,170) 4,738,879
- -----------------------------------------------------------------------------
$32,112,083 $ 28,238 $(1,932,187) $30,208,134
- -----------------------------------------------------------------------------
Held to Maturity
- -----------------------------------------------------------------------------
U.S. Treasury securities $ 999,814 $ 24,246 $ -- $ 1,024,060
Obligations of states and
political subdivisions 33,790,868 505,563 (344,168) 33,952,263
- -----------------------------------------------------------------------------
$34,790,682 $ 529,809 $ (344,168) $34,976,323
- -----------------------------------------------------------------------------
C&F Financial Corporation
30
- -------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without call or prepayment penalties.
December 31, 2000
-----------------------
Amortized Estimated
Available for Sale Cost Fair Value
- ---------------------------------------------------------------
Due after five years through ten years $ 5,001,855 $ 4,977,188
Due after ten years 21,911,823 21,901,569
- ---------------------------------------------------------------
Preferred Stock 5,504,870 5,034,587
- ---------------------------------------------------------------
$32,418,548 $31,913,344
- ---------------------------------------------------------------
Held to Maturity
- ---------------------------------------------------------------
Due in one year or less $ 3,027,867 $ 3,063,338
Due after one year through five years 4,378,296 4,495,647
Due after five years through ten years 15,368,889 15,903,217
Due after ten years 10,994,873 11,373,557
- ---------------------------------------------------------------
$33,769,925 $34,835,759
- ---------------------------------------------------------------
Proceeds from the maturities and calls of securities held to maturity in 2000
were $1,060,000. There were no realized gains or losses. Proceeds from the
maturities and the calls of securities available for sale were $906,576,
resulting in gross realized gains of $100,157. The amortized cost and
estimated fair value of securities pledged to secure public deposits amounted
to $11,880,000 and $12,196,000, respectively, at December 31, 2000.
Proceeds from maturities and the calls of securities held to maturity in 1999
were $3,628,850. There were no realized gains or losses. Proceeds from
maturities and the calls of securities available for sale were $10,806,084,
resulting in gross realized gains of $138,830.
Proceeds from maturities and the calls of securities held to maturity in 1998
were $9,674,100. There were no realized gains or losses. Proceeds from
maturities and the calls of securities available for sale were $22,449,745.
There were no realized gains or losses.
NOTE 3: Loans
Major classifications of loans are summarized as follows:
December 31,
--------------------------
2000 1999
- --------------------------------------------------------------------
Real estate--mortgage $ 87,428,166 $ 90,947,032
Real estate--construction 9,109,165 7,980,243
Commercial, financial, and agricultural 113,570,467 89,139,244
Equity lines 11,616,307 10,271,970
Consumer 12,815,274 12,090,548
- --------------------------------------------------------------------
234,539,379 210,429,037
Less unearned loan fees (986,698) (1,011,363)
- --------------------------------------------------------------------
233,552,681 209,417,674
Less reserve for loan losses (3,608,966) (3,301,778)
- --------------------------------------------------------------------
$229,943,715 $206,115,896
- --------------------------------------------------------------------
Loans on non-accrual status were $473,000 and $49,000 at December 31, 2000 and
1999, respectively. If interest income had been recognized on non-performing
loans at their stated rates during fiscal years 2000, 1999, and 1998, interest
income would have increased by approximately $37,000, $8,000, and $37,000,
respectively. The balance of impaired loans at December 31, 2000 and 1999, was
$473,000 and $49,000 respectively, with no specific valuation allowance
associated with these loans. The average balance of impaired loans for 2000
and 1999 were $357,000 and $310,000, respectively.
2000 Annual Report
31
- --------------------------------------------------------------------------------
NOTE 4: Reserve for Loan Losses
Changes in the reserve for loan losses were as follows:
Year Ended December 31,
----------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Balance at the beginning of year $3,301,778 $2,760,263 $2,233,359
Provision charged to operations 400,000 600,000 600,000
Loans charged off (101,733) (86,220) (98,699)
Recoveries of loans previously charged off 8,921 27,735 25,603
- -------------------------------------------------------------------------------
Balance at the end of year $3,608,966 $3,301,778 $2,760,263
- -------------------------------------------------------------------------------
NOTE 5: Corporate Premises and Equipment
Major classifications of corporate premises and equipment are summarized as
follows:
December 31,
----------------------
2000 1999
- -----------------------------------------------------------
Land $2,308,838 $1,516,381
Buildings 7,018,997 7,168,528
Equipment, furniture, and fixtures 9,459,348 7,605,931
- -----------------------------------------------------------
18,787,183 16,290,840
Less accumulated depreciation (8,897,534) (7,886,750)
- -----------------------------------------------------------
$9,889,649 $8,404,090
- -----------------------------------------------------------
NOTE 6: Time Deposits
Time deposits are summarized as follows:
December 31,
-------------------------
2000 1999
- -----------------------------------------------------------------
Certificates of deposit, $100M or more $ 27,018,509 $ 17,667,262
Other time deposits 110,368,308 86,713,741
- -----------------------------------------------------------------
$137,386,817 $104,381,003
- -----------------------------------------------------------------
Remaining maturities on time deposits are as follows:
Year ending December 31,
- -------------------------------
2001 $117,551,595
2002 12,186,447
2003 4,232,481
2004 1,384,487
2005 2,031,807
- -------------------------------
$137,386,817
- -------------------------------
C&F Financial Corporation
32
- -------------------------------------------------------------------------------
NOTE 7: Borrowings
Short-term borrowings consist of securities sold under agreements to
repurchase which are secured transactions with customers and generally mature
the day following the date sold. Short-term borrowings also include advances
from the Federal Home Loan Bank (FHLB), which are secured by a blanket
floating lien on all real estate mortgage loans secured by one-to-four family
residential properties.
The table below presents selected information on short-term borrowings:
December 31,
------------------------
2000 1999
- ---------------------------------------------------------------------------
Maximum balance at any month-end during the year $28,103,898 $27,200,000
Average balance for the year $22,676,362 $12,601,055
Weighted average rate for the year 6.12% 4.93%
Weighted average rate on borrowings at year-end 5.45% 4.80%
Estimated fair value $ 8,969,173 $30,035,293
- ---------------------------------------------------------------------------
The Corporation has unused lines of credit for borrowings totaling
approximately $87, 200,000 at December 31, 2000.
Long-term borrowings consist of convertible fixed-rate and adjustable-rate
advances from the FHLB. At December 31, 2000, adjustable-rate advances totaled
$5,000,000 with an interest rate of 6.55% and a maturity date of May 19, 2003.
These advances are also secured by a blanket floating lien on all real estate
mortgage loans secured by one-to-four family residential properties. There
were no long-term borrowings at December 31, 1999.
NOTE 8: Earnings Per Share
The following shows the weighted average number of shares used in computing
earnings per share and the effect on weighted average number of shares of
diluted potential common stock. All shares have been restated to reflect the
effect of a two-for-one stock split in July 1998.
December 31,
-----------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Weighted average number of common shares used in
earnings per common share--basic 3,608,673 3,684,796 3,857,542
Effect of dilutive securities:
Stock options 31,641 53,438 62,233
- -------------------------------------------------------------------------------
Weighted average number of common shares used in
earnings per common share--assuming dilution 3,640,314 3,738,234 3,919,775
- -------------------------------------------------------------------------------
Options on approximately 175,000 and 15,000 shares were not included in
computing earnings per common share--assuming dilution for the years ended
December 31, 2000 and 1999, respectively, because their effects were
antidilutive. All options were included in computing earnings per common
share--assuming dilution for the year ended December 31, 1998.
NOTE 9: Income Taxes
Principal components of income tax expense as reflected in the consolidated
statements of income are as follows:
Year Ended December 31,
----------------------------------
2000 1999 1998
- ---------------------------------------------------
Current taxes $1,976,909 $2,517,505 $2,685,996
Deferred taxes (154,178) (123,139) (332,645)
- ---------------------------------------------------
$1,822,731 $2,394,366 $2,353,351
- ---------------------------------------------------
2000 Annual Report
33
- -------------------------------------------------------------------------------
The income tax provision is less than would be obtained by application of the
statutory federal corporate tax rate to pre-tax accounting income as a result
of the following items:
Year Ended December 31,
--------------------------------------------------------------------
Percent of Percent of Percent of
Pre-tax Pre-tax Pre-tax
2000 Income 1999 Income 1998 Income
- ----------------------------------------------------------------------------------------------
Income tax computed at
federal statutory rates $2,603,979 34.0% $3,111,203 34.0% $2,885,712 34.0%
Tax effect of exclusion
of interest income on
obligations of states
and political
subdivisions (879,995) (11.5) (833,784) (9.1) (713,203) (8.4)
Reduction of interest
expense incurred to
carry tax-exempt assets 116,418 1.5 94,336 1.0 87,710 1.0
State income taxes, net
of federal tax benefit 59,348 .8 128,383 1.4 122,650 1.4
Tax effect of dividends-
received deduction on
preferred stock (83,036) (1.1) (79,695) (.9) (71,957) (.8)
Other 6,017 .1 (26,077) (.3) 42,439 .5
- ----------------------------------------------------------------------------------------------
$1,822,731 23.8% $2,394,366 26.1% $2,353,351 27.7%
- ----------------------------------------------------------------------------------------------
Other assets include deferred income taxes of $1,760,544 and $2,081,929 at
December 31, 2000 and 1999, respectively. The tax effects of each type of
significant item that gave rise to deferred taxes are:
Year Ended December
31,
----------------------
2000 1999
- -----------------------------------------------------------------------------
Deferred tax asset
Allowance for loan losses $1,097,141 $1,006,100
Deferred compensation 244,953 217,169
Net unrealized loss on securities available for sale 171,771 647,334
Interest on non-accrual loans 46,697 54,853
Accrued pension 177,248 141,162
Intangible asset -- 23,726
Other 59,508 69,666
- -----------------------------------------------------------------------------
Deferred tax asset 1,797,318 2,160,010
- -----------------------------------------------------------------------------
Deferred tax liability
Depreciation (36,774) (78,081)
- -----------------------------------------------------------------------------
Deferred tax liability (36,774) (78,081)
- -----------------------------------------------------------------------------
Net deferred tax asset $1,760,544 $2,081,929
- -------------------------------------------------------------------------------
NOTE 10: Employee Benefit Plans
The Bank maintains a Defined Contribution Profit-Sharing Plan (the "Profit-
Sharing Plan") sponsored by the Virginia Bankers Association. The Profit-
Sharing Plan was amended effective January 1, 1997, to include a 401(k)
savings provision which authorizes a maximum voluntary salary deferral of up
to 15% of compensation (with a partial company match), subject to statutory
limitations. The profit-Sharing Plan provides for an annual discretionary
contribution to the account of each eligible employee based in part on the
Bank's profitability for a given year and on each participant's yearly
earnings. All full-time employees who have attained the age of eighteen and
have at least three months of service are eligible to participate.
Contribution and earnings may be invested in various investment vehicles
offered through the Virginia Bankers Association. Contributions and earnings
are tax-deferred. An employee is 20% vested after three years of service, 40%
after four years, 60% after five years, 80% after six years, and fully vested
after seven years. The amounts charged to expense under this plan were
$347,552, $293,584, and $281,230, in 2000, 1999, and 1998, respectively.
The Mortgage Corporation maintains a Defined Contribution 401(k) Savings Plan
which authorizes a maximum voluntary salary deferral of up to 15% of
compensation, subject to statutory limitations. All full-time
C&F Financial Corporation
34
- -------------------------------------------------------------------------------
employees who have attained the age of eighteen are eligible to participate on
the first day of the next month following employment date. The Mortgage
Corporation reserves the right for an annual discretionary contribution to the
account of each eligible employee based in part on the Mortgage Corporation's
profitability for a given year, and on each participant's yearly earnings. An
employee is vested 25% after two years of service, 50% after three years of
service, 75% after four years of service, and fully vested after five years.
The amount charged to expense under the Plan was $53,000, $160,000, and
$185,000 for 2000, 1999, and 1998, respectively.
The Bank adopted a Management Incentive Bonus Plan (the "Bonus Plan")
effective January 1, 1987. The Bonus Plan is offered to selected members of
management. The Bonus Plan is derived from a pool of funds determined by the
Bank's total performance relative to (1) prescribed growth-rates of assets and
deposits, (2) return on average assets, and (3) absolute level of net income.
Attainment, in whole or in part, of these goals dictates the amount set aside
in the pool of funds. Evaluation of attainment and approval of the pool amount
are performed by the Board. Payment of the bonus is based on individual
performance and is paid in cash. Expense is accrued in the fiscal year of the
specified bonus performance. Expenses under this plan were $204,300, $173,200,
and $166,150, in 2000, 1999, and 1998, respectively. Additional bonuses
totaling $31,148 were granted to employees not covered by the Bonus Plan in
1998.
The Bank has a non-qualified defined contribution plan for select executives.
The plan allows for elective salary and bonus deferrals. The plan also allows
for employer contributions to make up for arbitrary limitations on covered
compensation imposed by the Internal Revenue Code with respect to the Bank's
Profit Sharing / 401(k) Plans and to enhance retirement benefits by providing
supplemental contributions from time to time. Expense under this plan was
$25,200 in 2000. There were no expenses under the plan for 1999 and 1998.
The Bank has a non-contributory, defined benefit pension plan for full-time
employees over twenty-one years of age. Benefits are generally based upon
years of service and average compensation for the five highest-paid
consecutive years of service. The Bank funds pension costs in accordance with
the funding provisions of the Employee Retirement Income Security Act.
Information about the plan follows:
Year Ended December
31,
----------------------
2000 1999
- ---------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation, beginning $1,741,750 $1,576,452
Service cost 178,489 161,535
Interest cost 130,501 118,101
Actuarial (gain)/loss 80,457 (37,775)
Benefits paid (113,660) (76,563)
- ---------------------------------------------------------------------------
Benefit obligation, ending $2,017,537 $1,741,750
- ---------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets, beginning $1,862,559 $1,557,120
Actuarial return on plan assets 285,634 177,029
Employer contributions 177,672 204,973
Benefits paid (113,660) (76,563)
- ---------------------------------------------------------------------------
Fair value of plan assets, ending $2,212,205 $1,862,559
- ---------------------------------------------------------------------------
Funded status $ 194,668 $ 120,809
Unrecognized net actual gain (309,717) (257,537)
Unrecognized net obligation at transition (59,547) (64,960)
Unrecognized prior service cost 37,255 40,359
- ---------------------------------------------------------------------------
Accrued benefit cost included in other liabilities $ (137,341) $ (161,329)
- ---------------------------------------------------------------------------
2000 Annual Report
35
- -------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------
2000 1999 1998
- ----------------------------------------------------------
Components of Net
Periodic Benefit Cost
Service cost $ 178,489 $ 161,535 $ 141,160
Interest cost 130,501 118,101 98,446
Expected return on plan
assets (149,027) (115,003) (122,355)
Amortization of prior
service cost 3,104 3,104 3,104
Amortization of net
obligation at
transition (5,413) (5,413) (5,413)
Recognized net actuarial
gain (3,970) (4) (12,406)
- ----------------------------------------------------------
Net periodic benefit
cost $ 153,684 $ 162,320 $ 102,536
- ----------------------------------------------------------
Weighted-Average
Assumptions as of
December 31
Discount rate 7.5% 7.5% 7.5%
Expected return on plan
assets 9.0 9.0 9.0
Rate of compensation
increase 4.0 4.0 4.0
- ----------------------------------------------------------
NOTE 11: Related Party Transactions
Loans to directors and officers totaled $812,000 and $926,000 at December 31,
2000 and 1999, respectively. New advances to directors and officers totaled
$319,000 and repayments totaled $433,000 in the year ended December 31, 2000.
NOTE 12: Stock Options
Under the Incentive Stock Option Plan ("the Plan"), options to purchase common
stock are granted to certain key employees of the Corporation. Options are
issued to employees at a price equal to the fair market value of common stock
at the date granted. Prior to December 21, 1999, one-third of the options
granted are exercisable commencing one year after the grant date with an
additional one-third becoming exercisable after each of the following two
years. Options granted on or after December 21, 1999, become exercisible five
years after the grant date. In 1983, the shareholders authorized 100,000
shares of common stock for issuance under the Plan. An additional 200,000 and
300,000 shares were authorized for the Plan in 1994 and 2000, respectively.
All options expire ten years from the grant date.
In 1998, the Board of Directors authorized 25,000 shares of common stock for
issuance under the Non-Employee Director Stock Option Plan (the "Director
Plan"). In 1999, the Director Plan was amended to authorize a total of 150,000
shares for issuance. Under the Director Plan, options to purchase common stock
may be granted to non-employee directors of the Bank. Options are issued to
non-employee directors at a price equal to the fair market value of common
stock at the date granted. The options granted are exercisable six months
after grant. All options expire ten years from the grant date.
In 1999, the Board of Directors authorized 25,000 shares of common stock for
issuance under the 1999 Regional Director Stock Compensation Plan. Under this
plan, options to purchase common stock are granted to non-employee regional
directors of Citizens & Commerce Bank, a division of the Bank. Options are
issued to non-employee regional directors at a price equal to the fair market
value of common stock at the date granted. One third of the options granted
become exercisable commencing one year after the grant date with an additional
one-third becoming exercisable after each of the following two years. All
options expire ten years from the grant date.
The Corporation applies APB Opinion 25 and related interpretations in
accounting for the stock option plans. Accordingly, no compensation cost has
been recognized for its plans. Had compensation cost for the plans been
determined based on the fair value at the grant dates of options consistent
with FASB Statement 123, the Corporation's net income, earnings per share-
basic and earnings per share-assuming dilution would have been $5,627,587,
$1.56 and $1.55, $6,625,664, $1.80 and $1.77, $6,068,280, $1.57 and $1.55,
respectively for the years ended December 31, 2000, 1999, and 1998,
respectively.
The fair value of each option granted during the years ended December 31,
2000, 1999, and 1998, was estimated on the date of grant using the Black-
Scholes option pricing model with the following assumptions for 2000, 1999,
and 1998, respectively: risk-free rate of 5.2, 6.7, and 4.5% and volatility of
30, 25, and 30%. The dividend yield used in the pricing model was 3.5, 2.8,
and 2.6% for 2000, 1999, and 1998, respectively. The expected lives used was
eight years for 2000, 1999, and 1998.
C&F Financial Corporation
36
- -------------------------------------------------------------------------------
Transactions under the various plans for the periods indicated, restated to
reflect the effect of a two-for-one stock split in July 1998, were as follows:
2000 1999 1998
----------------- ----------------- -----------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
- -------------------------------------------------------------------------------
Outstanding at beginning
of year 208,444 $14.37 169,860 $12.36 164,936 $ 9.94
Granted 69,800 15.80 68,350 17.64 42,900 18.77
Exercised (11,583) 9.62 (25,068) 9.44 (34,508) 9.05
Canceled (4,232) 16.22 (4,698) 15.27 (3,468) 9.69
- -------------------------------------------------------------------------------
Outstanding at end of
year 262,429 $14.93 208,444 $14.37 169,860 $12.36
- -------------------------------------------------------------------------------
*Weighted average
Options exercisable at
year-end 122,730 108,761 97,304
Weighted-average fair
value of options
granted during the year $ 4.57 $ 5.40 $ 5.81
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Number Number
Outstanding Remaining Exercisable at
Range of at December 31, Contractual Exercise December 31, Exercise
Exercise Prices 2000 Life Price* 2000 Price*
- -----------------------------------------------------------------------------
$8.75 to 12.50 87,446 5.11 years $10.46 87,446 $10.45
$15.75 to 20.50 174,983 9.17 years 17.17 35,284 18.92
- -----------------------------------------------------------------------------
$8.75 to 20.50 262,429 7.82 years $14.93 122,730 $12.88
- -----------------------------------------------------------------------------
*Weighted average
NOTE 13: Regulatory Requirements and Restrictions
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of the Corporation's and
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Corporation's and the
Bank's capital amounts and classification are subject to qualitative judgments
by the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined) less goodwill. For both the
Corporation and the Bank, Tier I capital consists of shareholders' equity
excluding any net unrealized gain (loss) on securities available for sale less
goodwill, and total capital consists of Tier I capital and a portion of the
allowance for loan losses. Risk-weighted assets for the Corporation and the
Bank were $264,375,000 and $256,559,000, respectively, at December 31, 2000,
and $251,051,000 and $243,735,000, respectively, at December 31, 1999.
Management believes, as of December 31, 2000, that the Corporation and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2000, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
2000 Annual Report
37
- -------------------------------------------------------------------------------
The Corporation's and the Bank's actual capital amounts and ratios are
presented in the table.
Minimum To Be
Well
Capitalized
Under Prompt
Minimum Corrective
Capital Action
Actual Requirements Provisions
------------- ------------- -------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
As of December 31, 2000:
Total Capital (to Risk-Weighted
Assets)
Corporation $41,331 15.6% $21,174 8.0% N/A N/A
Bank 33,764 13.2 20,554 8.0 $25,693 10.0%
Tier I Capital (to Risk-Weighted
Assets)
Corporation 38,023 14.4 10,587 4.0 N/A N/A
Bank 30,552 11.9 10,227 4.0 15,416 6.0
Tier I Capital (to Average
Assets)
Corporation 38,023 10.9 13,874 4.0 N/A N/A
Bank 30,552 9.0 13,582 4.0 16,978 5.0
As of December 31, 1999:
Total Capital (to Risk-Weighted
Assets)
Corporation $38,158 15.2% $20,084 8.0% N/A N/A
Bank 30,867 12.7 19,499 8.0 $24,373 10.0%
Tier I Capital (to Risk-Weighted
Assets)
Corporation 35,019 14.0 10,042 4.0 N/A N/A
Bank 27,818 11.4 9,749 4.0 14,624 6.0
Tier I Capital (to Average
Assets)
Corporation 35,019 11.3 12,358 4.0 N/A N/A
Bank 27,818 9.2 12,095 4.0 15,118 5.0
- ------------------------------------------------------------------------------
NOTE 14: Commitments and Financial Instruments with Off-Balance-Sheet Risk
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
commitments to sell loans, and standby letters of credit. These instruments
involve elements of credit and interest rate risk in excess of the amount on
the balance sheet. The contract amounts of these instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit written is represented by the contractual amount of these
instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Collateral is
obtained based on management's credit assessment of the customer.
Loan commitments are agreements to extend credit to a customer provided that
there are no violations of the terms of the contract prior to funding.
Commitments have fixed expiration dates or other termination clauses and may
require payment of a fee by the customer. Since many of the commitments may
expire without being completely drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The total amount of loan
commitments was $54,428,000 and $43,210,000 at December 31, 2000 and 1999,
respectively.
Standby letters of credit are written conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The total contract amount of standby
letters of credit, whose contract amounts represent credit risk, was
$5,016,000 and $5,547,000 at December 31, 2000 and 1999, respectively.
Commitments to sell loans are designed to eliminate the Mortgage Corporation's
exposure to fluctuations in interest rates in connection with loans held for
sale. The Mortgage Corporation sells substantially all of the residential
mortgage loans it originates to third-party investors, some of whom require
the repurchase of loans in the event of early default or faulty documentation.
Mortgage loans and their related servicing rights are sold under agreements
that define certain eligibility criteria for the mortgage loan. Recourse
periods vary from ninety days up to one year and conditions for repurchase
vary with the investor. Mortgages subject to recourse are
C&F Financial Corporation
38
- -------------------------------------------------------------------------------
collateralized by single-family residences, have loan-to-value ratios of 80%
or less, or have private mortgage insurance, or are insured or guaranteed by
an agency of the U.S. Government.
At December 31, 2000, the Mortgage Corporation had locked-rate commitments to
originate mortgage loans amounting to approximately $9,864,000. The Mortgage
Corporation has entered into mandatory commitments, on a best-effort basis, to
sell loans of approximately $27,464,000. Risks arise from the possible
inability of counterparties to meet the terms of their contracts. The Mortgage
Corporation does not expect any counterparty to fail to meet its obligations.
The Mortgage Corporation is committed under noncancelable operating leases for
certain office locations. Rent expense associated with these operating leases
was $411,000, $330,000, and $297,000, for the years ended December 31, 2000,
1999, and 1998, respectively.
Future minimum lease payments under these leases are as follows:
Year Ending
December 31,
- -----------------
2001 $379,454
2002 281,959
2003 207,936
2004 20,202
- -----------------
$889,551
- -----------------
As of December 31, 2000, the Corporation had $5,326,000 in deposits in
financial institutions in excess of amounts insured by the FDIC.
NOTE 15: Fair Market Value of Financial Instruments and Interest Rate Risk
The estimated fair value amounts have been determined by the Corporation using
available market information and appropriate valuation methodologies. Loan
commitments are conditional and subject to market pricing and, therefore, do
not reflect a gain or loss of market value. The fair value of standby letters
of credit is based on fees currently charged for similar agreements or on
estimated costs to terminate them or otherwise settle the obligations with the
counterparties at the reporting date. However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Corporation could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and short-term investments. The nature of these instruments and their
relatively short maturities provide for the reporting of fair value equal to
the historical cost.
Investment securities. The fair value of investment securities is based on
quoted market prices.
Loans. The estimate of the fair value of the loan portfolio is estimated based
on present values using applicable spreads to the U.S. treasury yield curve.
Loans held for sale. The fair value of loans held for sale is estimated based
on commitments into which individual loans will be delivered.
Deposits and borrowings. The fair value of all demand deposit accounts is the
amount payable at the report date. For all other deposits and borrowings, the
fair value is determined using the discounted cash flow method. The discount
rate was equal to the rate currently offered on similar products.
Accrued interest. The carrying amount of accrued interest approximates fair
value.
2000 Annual Report
39
- --------------------------------------------------------------------------------
December 31,
---------------------------------------
2000 1999
------------------- -------------------
Carrying Estimated Carrying Estimated
Dollars in thousands Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 14,838 $ 14,838 $ 15,486 $ 15,486
Securities 66,594 67,336 66,584 66,769
Net loans 229,944 230,334 206,116 203,500
Loans held for sale, net 17,600 17,984 24,887 25,319
Accrued interest receivable 2,404 2,404 2,136 2,136
Financial liabilities:
Demand deposits 153,301 154,325 156,473 156,342
Time deposits 137,387 137,505 104,381 104,344
Borrowings 13,969 13,969 30,035 30,035
Accrued interest payable 993 993 566 566
Off-balance-sheet items:
Letters of credit -- 5,016 -- 5,547
Unused portions of lines of credit -- 54,428 -- 43,210
- ---------------------------------------------------------------------------
The Corporation assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the fair
values of the Corporation's financial instruments will change when interest
rate levels change and that change may be either favorable or unfavorable to
the Corporation. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to manage interest rate risk
However, borrowers with fixed rate obligations are less likely to prepay in a
rising rate environment and more likely to prepay in a falling rate
environment. Conversely, depositors who are receiving fixed rates are more
likely to withdraw funds before maturity in a rising rate environment and less
likely to do so in a falling rate environment. Management monitors rates and
maturities of assets and liabilities and attempts to minimize interest rate
risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Corporation's overall interest rate
risk.
NOTE 16: Business Segments
The Corporation 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 Corporation
also has an investment company and a title company subsidiary which derive
revenues from brokerage and title insurance services. The results of these
subsidiaries are not significant to the Corporation as a whole and have been
included in "Other." The following table presents segment information for the
years ended December 31, 2000, 1999, and 1998.
Year Ended December 31, 2000
---------------------------------------------------
Retail Mortgage
Dollars in thousands Banking Banking Other Eliminations Consolidated
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 25,974 $ 1,298 $ -- $(851) $ 26,421
Gain on sale of loans 5,009 -- -- 5,009
Other 2,036 1,183 717 -- 3,936
- -------------------------------------------------------------------------------
Total operating income 28,010 7,490 717 (851) 35,366
- -------------------------------------------------------------------------------
Expenses:
Interest expense 11,309 851 -- (851) 11,309
Salaries and employee
benefits 5,829 3,368 406 -- 9,603
Other 4,387 2,283 125 -- 6,795
- -------------------------------------------------------------------------------
Total operating expenses 21,525 6,502 531 (851) 27,707
- -------------------------------------------------------------------------------
Income before income taxes $ 6,485 $ 988 $186 $ -- $ 7,659
- -------------------------------------------------------------------------------
Total assets $339,877 $23,946 $ 9 $(16,360) $347,472
Capital expenditures $ 2,361 $ 145 $ -- $ -- $ 2,506
- -------------------------------------------------------------------------------
C&F Financial Corporation
40
- -------------------------------------------------------------------------------
Year Ended December 31, 1999
--------------------------------------------------
Retail Mortgage
Dollars in Thousands Banking Banking Other Eliminations Consolidated
- ------------------------------------------------------------------------------
Revenues:
Interest income $ 23,096 $ 1,916 $ -- $ (1,368) $ 23,644
Gain on sale of loans 6,692 6,692
Other 2,134 1,589 860 -- 4,583
- ------------------------------------------------------------------------------
Total operating income 25,230 10,197 860 (1,368) 34,919
- ------------------------------------------------------------------------------
Expenses:
Interest expense 9,068 1,368 -- (1,368) 9,068
Salaries and employee
benefits 5,127 3,889 350 -- 9,366
Other 4,586 2,599 149 -- 7,334
- ------------------------------------------------------------------------------
Total operating expenses 18,781 7,856 499 (1,368) 25,768
- ------------------------------------------------------------------------------
Income before income taxes $ 6,449 $ 2,341 $361 $ -- $ 9,151
- ------------------------------------------------------------------------------
Total assets $327,877 $24,673 $ 36 $(23,345) $329,241
Capital expenditures $ 2,709 $ 158 $ -- $ -- $ 2,867
- ------------------------------------------------------------------------------
Year Ended December 31, 1998
--------------------------------------------------
Retail Mortgage
Dollars in Thousands Banking Banking Other Eliminations Consolidated
- ------------------------------------------------------------------------------
Revenues:
Interest income $ 22,195 $ 2,805 $ -- $ (2,382) $ 22,618
Gain on sale of loans -- 7,129 -- 7,129
Other 1,721 1,458 701 -- 3,880
- ------------------------------------------------------------------------------
Total operating income 23,916 11,392 701 (2,382) 33,627
- ------------------------------------------------------------------------------
Expenses:
Interest expense 9,558 2,382 -- (2,382) 9,558
Salaries and employee
benefits 4,587 3,441 258 -- 8,286
Other 4,395 2,777 124 -- 7,296
- ------------------------------------------------------------------------------
Total operating expenses 18,540 8,600 382 (2,382) 25,140
- ------------------------------------------------------------------------------
Income before income taxes $ 5,376 $ 2,792 $319 $ -- $ 8,487
- ------------------------------------------------------------------------------
Total assets $316,584 $66,366 $ 26 $(62,112) $320,864
Capital expenditures $ 775 $ 104 $ -- $ -- $ 879
- ------------------------------------------------------------------------------
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.
2000 Annual Report
41
- --------------------------------------------------------------------------------
NOTE 17: Parent Company Condensed Financial Information
Financial information for the parent company is as follows:
December 31,
-----------------------
Balance Sheets 2000 1999
- --------------------------------------------------------------------
Assets
Cash $ 62,073 $ 246,108
Investment securities available for sale 5,034,587 4,738,897
Other assets 2,209,188 1,972,004
Investments in subsidiary 31,620,321 28,238,069
- --------------------------------------------------------------------
Total assets $38,926,169 $35,195,060
- --------------------------------------------------------------------
Liabilities and shareholders' equity
Other liabilities $ 145,719 $ 65,350
Shareholders' equity 38,780,450 35,129,710
- --------------------------------------------------------------------
Total liabilities and shareholders' equity $38,926,169 $35,195,060
- --------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
Statements of Income 2000 1999 1998
- ------------------------------------------------------------------------------
Interest income on investment securities $ 354,357 $ 339,886 $ 308,804
Interest income on loans 184,000 102,627 41,910
Dividends received from bank subsidiary 2,940,632 7,859,692 1,839,119
Distributions in excess of equity in net
income of subsidiary -- (1,479,099) --
Equity in undistributed net income of
subsidiary 2,459,459 -- 4,064,679
Other income 94,630 151,153 --
Other expenses (197,047) (218,029) (120,476)
- ------------------------------------------------------------------------------
Net income $5,836,031 $ 6,756,230 $6,134,036
- ------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------
Statements of Cash Flows 2000 1999 1998
- ------------------------------------------------------------------------------
Operating activities:
Net income $ 5,836,031 $ 6,756,230 $ 6,134,036
Adjustments to reconcile net income to
net cash provided by operating
activities:
Distributions in excess of equity in
net income of subsidiary -- 1,479,099 --
Equity in undistributed earnings of
subsidiary (2,459,459) -- (4,064,679)
(Increase) decrease in other assets (237,372) (1,368,443) 10,314
Increase (decrease) in other
liabilities 80,369 219,672 (52,417)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 3,219,569 7,086,558 2,027,254
- ------------------------------------------------------------------------------
Investing activities:
Proceeds from sales and maturities of
securities 811,945 667,249 949,743
Purchase of securities (1,107,101) (1,107,292) (1,715,752)
- ------------------------------------------------------------------------------
Net cash used in investing activities (295,156) (440,043) (766,009)
- ------------------------------------------------------------------------------
Financing activities:
Repurchase of common stock (1,329,411) (4,909,024) --
Dividends paid (1,910,629) (1,797,092) (1,699,119)
Proceeds from the issuance of stock 131,592 253,887 377,240
- ------------------------------------------------------------------------------
Net cash used in financing activities (3,108,448) (6,452,229) (1,321,879)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (184,035) 194,286 (60,634)
Cash at beginning of year 246,108 51,822 112,456
- ------------------------------------------------------------------------------
Cash at end of year $ 62,073 $ 246,108 $ 51,822
- ------------------------------------------------------------------------------
C&F Financial Corporation
42
- --------------------------------------------------------------------------------
NOTE 18: Quarterly Condensed Statements of Income--Unaudited
2000 Quarter Ended
-----------------------------------------
In thousands (except per share) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------
Total interest income $6,147 $6,461 $6,830 $6,983
Net interest income after provision
for loan losses 3,619 3,662 3,754 3,677
Other income 2,068 2,306 2,407 2,164
Other expenses 3,922 4,149 4,014 3,913
Income before income taxes 1,765 1,819 2,147 1,927
Net income 1,369 1,398 1,615 1,454
Earnings per common share--assuming
dilution $ .37 $ .38 $ .45 $ .40
Dividends per common share .13 .13 .13 .14
- ------------------------------------------------------------------------------
1999 Quarter Ended
-----------------------------------------
In thousands (except per share) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------
Total interest income $6,090 $5,592 $5,924 $6,037
Net interest income after provision
for loan losses 3,675 3,310 3,555 3,436
Other income 3,178 2,945 2,902 2,250
Other expenses 3,808 4,092 4,073 4,128
Income before income taxes 3,045 2,163 2,384 1,558
Net income 2,146 1,634 1,765 1,211
Earnings per common share--assuming
dilution $ .56 $ .44 $ .48 $ .33
Dividends per common share .12 .12 .12 .13
- ------------------------------------------------------------------------------
2000 Annual Report
43
INDEPENDENT AUDITOR'S REPORT
- -------------------------------------------------------------------------------
[LOGO OF YHB]
The Board of Directors and Shareholders C&F Financial Corporation
We have audited the accompanying consolidated balance sheets of C&F Financial
Corporation and Subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years ended December 31, 2000, 1999 and 1998. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of C&F
Financial Corporation and Subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years ended December
31, 2000, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ Yount, Hyde & Barbour, P.C.
January 16, 2001
Winchester, Virginia
C&F Financial Corporation
44
INVESTOR INFORMATION
- -------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of C&F Financial Corporation will be held
at 3:30 p.m. on Tuesday, April 17, 2001, at the Father van den Boogaard
Center, 3510 King William Avenue, West Point, Virginia. All shareholders are
cordially invited to attend.
STOCK PRICE INFORMATION
The Corporation's common stock is traded on the over-the-counter market and is
listed on the Nasdaq Stock Market under the symbol "CFFI." As of March 5,
2001, there were approximately 1,100 shareholders of record. Following are the
high and low closing prices in 2000 and 1999. Over-the-counter market
quotations reflect interdealer prices, without retail mark up, mark down, or
commission, and may not necessarily represent actual transactions.
2000 1999
------------- -------------
Quarter High Low High Low
---------------------------------
First $18.00 $11.25 $19.63 $18.25
Second 17.75 11.25 21.00 18.38
Third 17.38 15.00 23.00 17.25
Fourth 16.25 14.50 22.50 16.75
---------------------------------
STOCK TRANSFER AGENT
American Stock Transfer & Trust Company serves as transfer agent for the
Corporation. You may write them at 40 Wall Street, New York, NY 10005, or
telephone them toll-free at 1-800-937-5449.
ANNUAL REPORT ON FORM 10-K AND ADDITIONAL INFORMATION
A copy of Form 10-K as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request. Requests for
this or other financial information about C&F Financial Corporation should be
directed to:
Thomas Cherry
Senior Vice President and Chief Financial Officer
C&F Financial Corporation
P.O. Box 391
West Point, VA 23181
2000 Annual Report
45
DIRECTORS AND ADVISORS
- -------------------------------------------------------------------------------------------------
C&F Financial Corporation / Citizens and Farmers Bank
- -------------------------------------------------------------------------------------------------
J. P. Causey Jr.*+ James H. Hudson III*+ William E. O'Connell Jr.*+
Senior Vice President, Secretary & Attorney-at-Law Chessie Professor of Business
General Counsel Hudson & Bondurant, P.C. The College of William and Mary
Chesapeake Corporation
Joshua H. Lawson*+ Paul C. Robinson*+
Barry R. Chernack+ President Owner & President
Retired Partner Thrift Insurance Corporation Francisco, Robinson & Associates, Realtors
PriceWaterhouseCoopers LLP
Bryan E. McKernon+ Thomas B. Whitmore Jr.+
Larry G. Dillon *+ President & CEO Retired President
Chairman, President & CEO C&F Mortgage Corporation Whitmore Chevrolet, Oldsmobile,
C&F Financial Corporation Pontiac Co., Inc.
Citizens and Farmers Bank Reginald H. Nelson IV+
Retired Partner
P. L. Harrell+ Colonial Acres Farm
President
Old Dominion Grain, Inc.
* C&F Financial Corporation Board Member
+ Citizens and Farmers Bank Board Member
Citizens & Commerce Bank C&F Mortgage Corporation Independent Public Accountants
- ------------------------ ------------------------ ------------------------------
Frank Bell III J. P. Causey Jr. Yount, Hyde & Barbour, P.C.
President Senior Vice President, Secretary & General Counsel Winchester, VA
Citizens & Commerce Bank Chesapeake Corporation
Corporate Counsel
Jeffery W. Jones Larry G. Dillon -----------------
President & Chief Operating Officer Chairman of the Board Hudson & Bondurant, P.C.
WFofR, Incorporated West Point, VA
James H. Hudson III
S. Craig Lane Attorney-at-Law Varina Advisory Board
President Hudson & Bondurant, P.C. ---------------------
Lane & Hamner, P.C. Robert A. Canfield
Bryan E. McKernon Attorney-at-Law
William E. O'Connell Jr. President & CEO Canfield, Moore,
Chairman of the Board C&F Mortgage Corporation Sharpiro, Sease & Baer
Chessie Professor of Business
The College of William and Mary William E. O'Connell Jr. Reginald H. Nelson IV
Chessie Professor of Business Retired Partner
Meade A. Spotts The College of William and Mary Colonial Acres Farm
President
Spotts, Smith, Fain & Buis, P.C. Paul C. Robinson Robert F. Nelson Jr.
Owner & President Professional Engineer
Scott E. Strickler Francisco, Robinson & Associates, Realtors Engineering Design Associates
Treasurer
Robins Insurance Agency, Inc. C&F Investment Services, Inc. Phil T. Rutledge Jr.
----------------------------- Retired Deputy County Manager
Katherine K. Wagner Larry G. Dillon County of Henrico
Senior Vice President President
Commercial Lending Sandra W. Seelmann
Citizens & Commerce Bank Eric F. Nost Real Estate Broker/Owner
Vice President Varina & Seelmann Realty
Thomas F. Cherry
Treasurer
Gari B. Sullivan
Secretary
46 C&F Financial Corporation
OFFICERS AND LOCATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Citizens and Farmers Bank
- ------------------------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE OFFICE WEST POINT -- MAIN OFFICE NORGE VARINA
802 Main Street Thomas W. Stephenson Jr. Laura G. Colvin Tracy E. Pendleton
West Point, Virginia 23181 Branch Manager Branch Manager Vice President &
(804) 843-2360 802 Main Street 7534 Richmond Road Branch Manager
West Point, Virginia 23181 Norge, Virginia 23127 Route 5 at Strath Road
Larry G. Dillon * (804) 843-2360 (757) 564-8114 Richmond, Virginia 23231
Chairman of the Board & (804) 795-7000
Chief Executive Officer JAMESTOWN ROAD PROVIDENCE FORGE
Alec J. Nuttall James D. W. King WEST POINT -- 14TH STREET
Maria E. Campbell Assistant Vice President & Vice President & Karen T. Richardson
Senior Vice President, Retail Branch Manager Branch Manager Assistant Vice President
1167 Jamestown Road 3501 N. Courthouse Road & Branch Manager
Thomas F. Cherry * Williamsburg, Virginia 23185 Providence Forge, Virginia 23140 415 Fourteenth Street
Senior Vice President & (757) 220-3293 (804) 966-2264 West Point, Virginia 23181
Chief Financial Officer (804) 843-2708
LONGHILL ROAD QUINTON
Gari B. Sullivan * Sandra C. St.Clair Mary T. "Joy" Whitley LOAN PRODUCTION OFFICE
Senior Vice President & Assistant Vice President Assistant Vice President Terrence C. Gates
Secretary & Branch Manager & Branch Manager Vice President,
4780 Longhill Road 2580 New Kent Highway Real Estate Construction
Howard P. Wilkinson Jr. Williamsburg, Virginia 23188 Quinton, Virginia 23141 300 Arboretum Place,
Senior Vice President & (757) 565-0593 (804) 932-4383 Suite 245
Chief Lending Officer Richmond, Virginia 23236
MIDDLESEX TAPPAHANNOCK (804) 330-8300
Leslie A. Campbell N. Susan Gordon Douglas M. "Judge" Smith
Vice President, Assistant Vice President Assistant Vice President
Loan Administration & Branch Manager & Branch Manager
Route 33 at Route 641 1649 Tappahannock Boulevard
Sandra S. Fryer Saluda, Virginia 23149 Tappahannock, Virginia 22560
Vice President, Operations (804) 758-3641 (804) 443-2265
William B. Littreal
Vice President,
Information Systems
Deborah R. Nichols
Vice President,
Branch Administration
Laura H. Shreaves
Vice President & Director
of Human Resources
* Officers of C&F Financial Corporation
Citizens & Commerce Bank
- --------------------------------------------------------------------------------
ADMINISTRATIVE OFFICE RICHMOND
Frank Bell III J. Russell Burton Jr.
President Business Development Officer
8001 West Broad Street 8001 West Broad Street
Richmond, Virginia 23294 Richmond, Virginia 23294
(804) 290-0402 (804) 290-0409
Katherine K. Wagner
Senior Vice President,
Commercial Lending
8001 West Broad Street
Richmond, Virginia 23294
(804) 290-0402
2000 Annual Report 47
OFFICERS AND LOCATIONS
- -----------------------------------------------------------------------------------------------------------------------------
C&F Mortgage Corporation
- -----------------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE OFFICE CHARLOTTESVILLE, VIRGINIA APPRAISAL SERVICES
300 Arboretum Place, Suite 245 1420 Greenbrier Place 300 Arboretum Place, Suite 245
Richmond, Virginia 23236 Charlottesville, Virginia 22901 Richmond, Virginia 23236
(804) 330-8300 (804) 974-1450 (804) 327-3839
Bryan E. McKernon William E. Hamrick H. Daniel Salomonsky
President & Chief Executive Officer Vice President & Branch Manager Vice President & Appraisal Manager
Mark A. Fox Philip N. Mahone C&F Title Agency, Inc.
Executive Vice President & Vice President & Branch Manager ----------------------
Chief Financial Officer 300 Arboretum Place, Suite 245
CHESTER, VIRGINIA Richmond, Virginia 23236
Donna G. Jarratt 4517 West Hundred Road (804) 327-3810
Vice President & Project Manager Chester, Virginia 23831
(804) 749-2900 Eileen A. Cherry
Kevin A. McCann Vice President & Title Insurance Underwriter
Vice President & Controller Stephen L. Fuller
Vice President & Branch Manager C&F Investment Services, Inc.
Tracy L. Bishop -----------------------------
Vice President & LYNCHBURG, VIRGINIA Eric F. Nost
Human Resources Manager 17835 Forest Road, Suite B Vice President & Manager
Forest, Virginia 24551 417 Fourteenth Street
M. Kathy Burley (804) 385-0700 West Point, Virginia 23181
Vice President & Closing Manager (804) 843-4584
J. Garnett Atkins (800) 583-3863
ANNAPOLIS, MARYLAND Vice President & Branch Manager
20 Ridgely Avenue, Suite 302 Douglas L. Hartz
Annapolis, Maryland 21401 NEWPORT NEWS, VIRGINIA Assistant Vice President
(410) 263-9229 703 Thimble Shoals Boulevard, Suite C4 2580 New Kent Highway
Newport News, Virginia 23606 Quinton, Virginia 23141
William J. Regan (757) 873-8200 (804) 932-8802
Vice President & Branch Manager
Linda H. Gaskins Douglas L. Cash, Jr.
COLUMBIA, MARYLAND Vice President & Branch Manager Branch Manager
8492 Baltimore National Pike, 1167 Jamestown Rd.
Suite 207 RICHMOND, VIRGINIA Williamsburg, Virginia 23185
Ellicott City, Maryland 21043 300 Arboretum Place, Suite 245 (757) 229-5629
(410) 461-6233 Richmond, Virginia 23236
(804) 330-8300
John E. Morella
Production Manager Donald R. Jordan
Vice President & Branch Manager
CROFTON, MARYLAND
2191 Defense Highway, Suite 200 Daniel J. Murphy
Crofton, Maryland 21114 Vice President & Production Manager
(410) 721-6770
Susan P. Burkett
Michael J. Mazzola Vice President & Operations Manager
Senior Vice President &
Maryland Area Manager RICHMOND, VIRGINIA
7231 Forest Avenue, Suite 202
ELLICOTT CITY, MARYLAND Richmond, Virginia 23226
5044 Dorsey Hall Drive (804) 673-3453
Suite 105
Ellicott City , MD 21042 Page C. Yonce
(410) 964-9223 Vice President & Branch Manager
Scott B. Segrist Constance Bachman-Hamilton
Branch Manager Vice President & Production Manager
Robert G. Menton WILLIAMSBURG, VIRGINIA
Branch Manager 1167-A Jamestown Road
Williamsburg, Virginia 23185
(757) 259-1200
Irving E. "Ed" Jenkins
Vice President & Branch Manager
48 C&F Financial Corporation
[LOGO]
C&F Financial Corporation
802 Main Street . PO Box 391
West Point, Virginia 23181
(804) 843-2360
www.cffc.com