PART I [Business Overview](index=5&type=section&id=ITEM%201.%20BUSINESS) C&F Financial Corporation operates three segments: Community Banking, Mortgage Banking, and Consumer Finance, providing diverse financial services - The Corporation operates through three principal business segments: community banking, mortgage banking, and consumer finance[46](index=46&type=chunk) Segment Financial Highlights (Year Ended Dec 31, 2023) | Segment | Total Assets | Net Income | | :--- | :--- | :--- | | Community Banking | $2.3 billion | $22.9 million | | Mortgage Banking | $22.2 million | $465,000 | | Consumer Finance | $476.7 million | $2.9 million | [Business Segments](index=7&type=section&id=Business%20Segments) Community Banking offers full services in Virginia; Mortgage Banking originates diverse residential loans; Consumer Finance provides auto, marine, RV financing - The Community Banking segment offers a wide range of services including checking/savings accounts, various loans, and wealth management, primarily serving eastern and central Virginia[23](index=23&type=chunk)[544](index=544&type=chunk) - The Mortgage Banking segment originates a variety of residential mortgage loans (Conventional, FHA, USDA, VA) through **14** locations across Virginia, Maryland, North Carolina, and West Virginia, which are then sold into the secondary market[48](index=48&type=chunk) - The Consumer Finance segment is an indirect lender providing financing for automobiles, marine, and RVs across **21** states, serving both prime and non-prime borrowers[569](index=569&type=chunk)[570](index=570&type=chunk) [Human Capital Resources](index=11&type=section&id=Human%20Capital%20Resources) The Corporation employed 594 people as of December 31, 2023, focusing on talent acquisition, retention, and a diverse workforce - The company's strategic priorities include acquiring and retaining strong talent through competitive compensation, comprehensive wellness programs, and internal career development paths[50](index=50&type=chunk) - As of December 31, **2023**, the company had **594** employees, with **69%** being women and **20%** being racial and ethnic minorities[571](index=571&type=chunk) [Competition](index=11&type=section&id=Competition) The Corporation faces intense competition across all segments, competing with diverse financial institutions by leveraging customer service, talent, and technology - The Community Banking segment competes against large national and regional banks, as well as non-bank entities, by focusing on customer service, long-term relationships, and tailored products[27](index=27&type=chunk)[548](index=548&type=chunk)[549](index=549&type=chunk) - The Mortgage Banking segment operates in a highly competitive and regulated environment, competing by attracting top talent, expanding into strategic markets, and using technology to improve efficiency[28](index=28&type=chunk)[53](index=53&type=chunk)[550](index=550&type=chunk) - The Consumer Finance segment competes with captive finance affiliates of major auto manufacturers and other financial institutions by focusing on strong dealer service, flexible terms, and quick funding[55](index=55&type=chunk)[74](index=74&type=chunk)[551](index=551&type=chunk) [Regulation and Supervision](index=15&type=section&id=Regulation%20and%20Supervision) The Corporation and its subsidiaries are extensively regulated by federal and state authorities, adhering to capital adequacy and consumer protection laws, with the Bank rated 'well capitalized' - The Corporation is subject to extensive regulation from federal and state agencies, including the Federal Reserve Board and the FDIC, which impacts operations, capital, and dividends[32](index=32&type=chunk)[553](index=553&type=chunk) - As a bank holding company with under **$3** billion in assets, the Corporation is treated as a small bank holding company and is exempt from minimum consolidated regulatory capital ratios, though C&F Bank remains subject to these requirements[63](index=63&type=chunk) - C&F Bank met all capital adequacy requirements under Basel III rules, including the capital conservation buffer, and was considered "**well capitalized**" as of December 31, **2023**[60](index=60&type=chunk)[72](index=72&type=chunk) - The Consumer Financial Protection Bureau (CFPB) has significant rulemaking authority over consumer financial laws, which indirectly and directly affects the Corporation's products and services, particularly regarding overdraft products and mortgage lending rules[68](index=68&type=chunk)[116](index=116&type=chunk) [Risk Factors](index=36&type=page&id=ITEM%201A.%20RISK%20FACTORS) The Corporation faces significant risks from economic conditions, interest rate fluctuations, intense competition, cybersecurity threats, and evolving regulatory landscapes impacting operations - The business is highly sensitive to general economic conditions, Federal Reserve monetary policies, and local market health, which can impact loan demand, credit quality, and profitability[98](index=98&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - A significant portion of the loan portfolio is concentrated in commercial real estate (**38.4%**) and consumer finance automobile loans (**23.0%**), which carry higher credit risk, especially during economic downturns[103](index=103&type=chunk)[134](index=134&type=chunk)[620](index=620&type=chunk) - The Corporation is subject to cybersecurity risks, including data breaches and system failures, and relies heavily on third-party vendors for key infrastructure like data processing, creating operational vulnerabilities[627](index=627&type=chunk)[630](index=630&type=chunk) - Changes in laws and regulations, particularly from the CFPB, can significantly affect business operations, increase compliance costs, and limit revenue from certain consumer financial products[144](index=144&type=chunk)[145](index=145&type=chunk) [Unresolved Staff Comments](index=55&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The Corporation has no unresolved comments from the SEC staff - The Corporation has no unresolved comments from the SEC staff[159](index=159&type=chunk) [Cybersecurity](index=55&type=section&id=ITEM%201C.%20CYBERSECURITY) Cybersecurity risk is managed through a comprehensive Information Security Program, overseen by the Board, with no material adverse incidents reported to date - Cybersecurity is managed through a comprehensive Information Security Program (ISP) based on FFIEC guidelines, with oversight from the Board of Directors and Audit Committee[160](index=160&type=chunk)[217](index=217&type=chunk) - The Corporation uses third-party tools for penetration testing and vulnerability scanning to measure information security risks and evaluate its overall cybersecurity preparedness[187](index=187&type=chunk) - To date, the Corporation has not experienced any cybersecurity incidents that have materially and adversely affected its business, financial condition, or results of operations[162](index=162&type=chunk) [Properties](index=57&type=section&id=ITEM%202.%20PROPERTIES) The Corporation and its subsidiaries own and lease various properties for operations, including 26 owned community banking branches and an owned consumer finance headquarters - The community banking segment operates from **32** locations, **26** of which are owned and **6** are leased[219](index=219&type=chunk) - The mortgage banking segment has **16** loan production offices, with **12** being leased from nonaffiliates[189](index=189&type=chunk) - The consumer finance segment's headquarters and administrative offices are located in a property owned by C&F Finance[165](index=165&type=chunk) [Legal Proceedings](index=59&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The Corporation is involved in ordinary course litigation, but management anticipates no material adverse effect on its financial condition - The Corporation is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition[166](index=166&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Corporation - Not applicable[192](index=192&type=chunk) PART II [Market for Common Equity and Related Matters](index=61&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The Corporation's common stock trades on NASDAQ (CFFI), with an active $10.0 million share repurchase program for 2024, and its shareholder return has outperformed peers - The Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "**CFFI**"[195](index=195&type=chunk) - A new share repurchase program was authorized for **2024**, allowing for the buyback of up to **$10.0** million of common stock through December 31, **2024**[223](index=223&type=chunk) Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 10,500 | $55.19 | | Nov 2023 | 9,000 | $56.24 | | Dec 2023 | 5,274 | $58.78 | | **Total** | **24,774** | **$56.34** | Cumulative Total Shareholder Return (Base $100 at 12/31/2018) | Index | 12/31/2022 | 12/31/2023 | | :--- | :--- | :--- | | C&F Financial Corporation | 125.40 | 151.34 | | NASDAQ Composite Index | 163.28 | 236.17 | | 2023 Peer Group | 123.28 | 122.19 | | 2022 Peer Group | 124.01 | 124.34 | [Management's Discussion and Analysis (MD&A)](index=65&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2023, net income declined to $23.7 million due to lower segment earnings, despite net interest income growth and strong capital ratios, with assets reaching $2.44 billion [Overview](index=65&type=section&id=OVERVIEW) Consolidated net income for 2023 decreased to $23.7 million, primarily due to lower segment earnings, while total equity increased to $217.5 million Financial Performance Highlights | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Consolidated Net Income** | $23,746 | $29,369 | $29,123 | | **EPS (basic and diluted)** | $6.92 | $8.29 | $7.95 | | **Return on Average Equity** | 11.68% | 14.84% | 14.77% | | **Return on Average Assets** | 0.99% | 1.27% | 1.34% | - The decrease in **2023** net income was primarily due to lower earnings at all three business segments: Community Banking, Mortgage Banking, and Consumer Finance[209](index=209&type=chunk) - Key factors affecting **2023** results included **9.8%** growth in community banking loans, a **28.5%** decrease in mortgage banking originations, and the adoption of the CECL methodology for credit losses[264](index=264&type=chunk) [Results of Operations](index=73&type=section&id=RESULTS%20OF%20OPERATIONS) Net interest income increased to $98.7 million in 2023, driven by higher earning assets and margin, while noninterest expense rose due to compensation and FDIC costs - Taxable-equivalent net interest income increased to **$98.7** million in **2023**, up from **$94.0** million in **2022**, due to growth in average earning assets and a slight increase in net interest margin to **4.31%**[249](index=249&type=chunk) - Noninterest income increased slightly by **1.4%** to **$29.6** million in **2023**, driven by higher mortgage lender services income and debit card interchange income, partially offset by lower gains on sales of loans[257](index=257&type=chunk) - Noninterest expense increased by **8.9%** to **$89.9** million in **2023**, primarily due to higher compensation at the community banking segment and increased FDIC insurance expenses[288](index=288&type=chunk) [Financial Condition](index=103&type=section&id=FINANCIAL%20CONDITION) Total assets grew to $2.44 billion in 2023, driven by loan growth and funded by increased deposits, with a shift towards higher-yielding time deposits - Total assets increased to **$2.44** billion at December 31, **2023**, from **$2.33** billion at the end of **2022**[395](index=395&type=chunk) Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Loans, net | $1,702,488 | $1,595,200 | | Securities Available for Sale | $462,444 | $512,591 | | Total Deposits | $2,066,130 | $2,003,860 | | Total Borrowings | $109,539 | $92,084 | | Total Equity | $217,516 | $196,233 | - Total deposits grew by **$62.3** million, with a significant shift from non-time deposits to time deposits as customers sought higher yields[479](index=479&type=chunk) - Time deposits increased by **$291.9** million, while noninterest-bearing demand deposits decreased by **$55.8** million[453](index=453&type=chunk) [Liquidity and Capital Resources](index=122&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The Corporation maintains strong liquidity with $833.9 million in liquid assets, and both the Corporation and Bank exceed 'well capitalized' regulatory requirements - The Corporation's liquid assets and borrowing availability totaled **$833.9** million at year-end **2023**, which exceeded uninsured deposits (excluding secured municipal and intercompany deposits) by **$429.8** million[493](index=493&type=chunk)[512](index=512&type=chunk) - Total equity increased by **$21.3** million to **$217.5** million at December 31, **2023**, driven by net income and a decrease in unrealized losses on securities[235](index=235&type=chunk)[495](index=495&type=chunk) Consolidated Capital Ratios | Ratio | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | CET1 to Risk-Weighted Assets | 11.3% | 11.4% | | Tier 1 to Risk-Weighted Assets | 12.6% | 12.8% | | Total Capital to Risk-Weighted Assets | 14.8% | 15.4% | | Tier 1 Leverage Ratio | 10.1% | 9.9% | [Quantitative and Qualitative Disclosures About Market Risk](index=130&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Corporation's primary market risk is interest rate volatility, monitored via NII simulation and EVE analysis, with interest rate swaps used for risk management - The Corporation's primary market risk is interest rate volatility, which affects net interest income and the market value of its financial instruments[40](index=40&type=chunk) One-Year Net Interest Income Simulation (as of Dec 31, 2023) | Rate Shift | Change in NII ($ thousands) | Change in NII (%) | | :--- | :--- | :--- | | +300 BP | $3,013 | 2.96% | | +200 BP | $2,094 | 2.06% | | +100 BP | $1,081 | 1.06% | | -100 BP | $(2,352) | (2.31)% | | -200 BP | $(5,137) | (5.04)% | | -300 BP | $(8,372) | (8.22)% | Static Economic Value of Equity (EVE) Change (as of Dec 31, 2023) | Rate Shift | Change in EVE ($ thousands) | Change in EVE (%) | | :--- | :--- | :--- | | +300 BP | $(11,062) | (2.89)% | | +200 BP | $(5,012) | (1.31)% | | +100 BP | $(1,945) | (0.51)% | | -100 BP | $(1,397) | (0.37)% | | -200 BP | $(10,881) | (2.85)% | | -300 BP | $(28,719) | (7.51)% | - The Corporation uses interest rate swaps to manage interest rate risk, including converting variable-rate trust preferred capital notes to fixed rates and offering fixed-rate options to commercial borrowers while retaining variable-rate exposure[149](index=149&type=chunk) [Financial Statements and Supplementary Data](index=135&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the audited consolidated financial statements for C&F Financial Corporation and its subsidiaries for 2021-2023, including balance sheets, income statements, and cash flows Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $2,438,498 | $2,332,317 | | Loans, net | $1,702,488 | $1,595,200 | | Total Deposits | $2,066,130 | $2,003,860 | | Total Liabilities | $2,220,982 | $2,136,084 | | Total Equity | $217,516 | $196,233 | Consolidated Income Statement Highlights (in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Interest Income | $97,707 | $93,464 | $85,369 | | Provision for Credit Losses | $8,275 | $3,172 | $575 | | Noninterest Income | $29,615 | $29,212 | $49,831 | | Noninterest Expenses | $89,883 | $82,540 | $96,543 | | Net Income | $23,746 | $29,369 | $29,123 | | EPS (basic & diluted) | $6.92 | $8.29 | $7.95 | [Controls and Procedures](index=214&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, **2023**[798](index=798&type=chunk) - Based on the COSO framework, management assessed the Corporation's internal control over financial reporting as effective as of December 31, **2023**[800](index=800&type=chunk) - The independent auditor, Yount, Hyde & Barbour, P.C., provided an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting as of December 31, **2023**[801](index=801&type=chunk)[804](index=804&type=chunk) PART III [Directors, Executive Compensation, and Corporate Governance](index=217&type=section&id=ITEM%2010%2C%2011%2C%2012%2C%2013%2C%2014) This section incorporates by reference information from the 2024 Proxy Statement, covering directors, executive compensation, security ownership, and corporate governance - Information regarding directors, executive compensation, security ownership, and corporate governance is incorporated by reference from the company's **2024** Proxy Statement[815](index=815&type=chunk)[820](index=820&type=chunk)[824](index=824&type=chunk) - The Corporation has adopted a Code of Business Conduct and Ethics applicable to all directors, executives, and employees, which is available on its website[816](index=816&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=220&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications - Lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications[830](index=830&type=chunk)[831](index=831&type=chunk)[833](index=833&type=chunk) - Includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act rules (Rule **13a-14(a)** and **18** U.S.C. Section **1350**)[835](index=835&type=chunk)

TOANO, Va., Jan. 24, 2024 (GLOBE NEWSWIRE) -- C&F Financial Corporation (the Corporation) (NASDAQ:CFFI), the holding company for C&F Bank, today reported consolidated net income of $23.7 million for the year ended December 31, 2023, compared to $29.4 million for the year ended December 31, 2022. Included in net income for the year ended December 31, 2022 were the effects of real estate disposal activity related to branch consolidation and a change in accounting policy election related to the fair value of c ...

[PART I - Financial Information](index=3&type=section&id=PART%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents C&F Financial Corporation's unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, along with notes detailing the adoption of ASC 326 (CECL) [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased to $2.42 billion from $2.33 billion at year-end 2022, driven by loan growth, with liabilities also growing to $2.22 billion primarily due to increased deposits and short-term borrowings Consolidated Balance Sheet Highlights (in thousands of dollars) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$2,421,705** | **$2,332,317** | | Loans, net | $1,677,481 | $1,595,200 | | Securities—available for sale | $460,653 | $512,591 | | **Total Liabilities** | **$2,221,325** | **$2,136,084** | | Total deposits | $2,028,429 | $2,003,860 | | Short-term borrowings | $95,660 | $36,592 | | **Total Equity** | **$200,380** | **$196,233** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) For the nine months ended September 30, 2023, net income attributable to the Corporation was $18.5 million, a slight decrease from the prior-year period, driven by increased interest expense outpacing income growth and a higher provision for credit losses Income Statement Highlights (in thousands of dollars, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Interest Income | $73,765 | $67,487 | | Provision for credit losses | $5,800 | $1,402 | | Noninterest Income | $21,226 | $18,521 | | Noninterest Expenses | $66,224 | $60,399 | | **Net Income Attributable to C&F** | **$18,536** | **$18,851** | | **Net income per share - diluted** | **$5.41** | **$5.34** | [Consolidated Statements of Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity increased from $196.2 million at year-end 2022 to $200.4 million at September 30, 2023, primarily due to net income, partially offset by ASC 326 adoption, dividends, stock repurchases, and other comprehensive loss - Key changes in equity for the nine months ended Sep 30, 2023 include a **$1.1 million** reduction from adopting the new ASC 326 accounting standard, **$18.7 million** in net income, **$6.4 million** in common stock repurchases, and **$4.5 million** in cash dividends declared[486](index=486&type=chunk) - The company declared cash dividends of **$0.44 per share** in Q3 2023 and **$1.32 per share** for the first nine months of 2023[56](index=56&type=chunk)[486](index=486&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash provided by operating activities was $21.8 million, while investing activities used $46.7 million, and financing activities provided $68.7 million, resulting in a net increase in cash and cash equivalents of $43.9 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands of dollars) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,837 | $69,025 | | Net cash used in investing activities | ($46,658) | ($337,205) | | Net cash provided by financing activities | $68,672 | $99,883 | | **Net increase (decrease) in cash** | **$43,851** | **($168,297)** | [Notes to Consolidated Interim Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Interim%20Financial%20Statements) The notes detail accounting policies and financial data, including the adoption of ASC 326 (CECL) which decreased opening retained earnings by $1.1 million, and provide insights into securities, loan portfolios, credit loss methodology, segment performance, fair value, and derivatives - The Corporation adopted ASC 326 (CECL) on January 1, 2023, on a modified retrospective basis, resulting in a decrease to opening retained earnings of **$1.1 million** and an increase in the allowance for credit losses[64](index=64&type=chunk)[65](index=65&type=chunk) Impact of ASC 326 Adoption (in thousands of dollars) | Account | Impact of ASC 326 | As Reported Jan 1, 2023 | | :--- | :--- | :--- | | Allowance for credit losses | $491 | $41,009 | | Reserve for credit losses on unfunded commitments | $1,501 | $1,501 | | Net deferred tax asset | $316 | $22,330 | | Total equity | ($1,072) | $195,161 | - The Corporation operates in three business segments: community banking, mortgage banking, and consumer finance, with Community Banking being the largest contributor to net income (**$17.7 million**) for the nine months ended Sep 30, 2023[48](index=48&type=chunk)[54](index=54&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Corporation's financial performance and condition, highlighting a slight net income decrease driven by consumer finance and mortgage banking segments, offset by community banking growth, while maintaining strong capital [Overview](index=53&type=section&id=Overview) Consolidated net income for the first nine months of 2023 was $18.7 million, down from $19.1 million in the prior-year period, primarily due to lower earnings from consumer finance and mortgage banking segments, despite loan growth in community banking and stable net interest margin in Q3 2023 Financial Performance Highlights (in thousands of dollars, except percentages and per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Income | $18,658 | $19,063 | | Earnings per share | $5.41 | $5.34 | | Annualized ROA | 1.04% | 1.10% | | Annualized ROE | 12.22% | 12.63% | - The decrease in net income was primarily due to lower earnings from the consumer finance and mortgage banking segments, partially offset by higher net income from the community banking segment[249](index=249&type=chunk) - The Corporation repurchased **$5.8 million** of its common stock in the first nine months of 2023 under its share repurchase program[224](index=224&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) Net interest income for the first nine months of 2023 increased to $74.5 million (tax-equivalent), driven by higher earning asset balances and a 22 basis point increase in net interest margin to 4.37%, while noninterest income rose to $21.2 million and noninterest expense increased to $66.2 million - Net interest margin (NIM) on a tax-equivalent basis was **4.29%** for Q3 2023, down from **4.37%** in Q3 2022, but stable with Q2 2023, and increased to **4.37%** from **4.15%** year-over-year for the first nine months[289](index=289&type=chunk)[208](index=208&type=chunk) - Noninterest income increased by **$2.7 million** for the first nine months of 2023 compared to 2022, primarily due to fluctuations in unrealized gains/losses on the rabbi trust, which are offset by changes in deferred compensation liabilities within noninterest expense[297](index=297&type=chunk)[268](index=268&type=chunk) - Noninterest expense increased by **$5.8 million (9.6%)** for the first nine months of 2023, driven by higher compensation, benefits, and increased FDIC assessment expenses[269](index=269&type=chunk)[300](index=300&type=chunk) [Asset Quality](index=72&type=section&id=Asset%20Quality) The Allowance for Credit Losses (ACL) was $40.2 million, or 2.34% of total loans, at September 30, 2023, with nonaccrual loans remaining low, though the consumer finance segment saw an increase in net charge-offs to an annualized 1.75% Credit Quality Ratios | Ratio | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | ACL to total loans | 2.34% | 2.48% | | Nonaccrual loans to total loans | 0.08% | 0.07% | | ACL to nonaccrual loans | 2,925.00% | 3,407.74% | - The consumer finance segment's annualized net charge-off ratio increased to **1.75%** for the first nine months of 2023, compared to **0.19%** for the same period in 2022, due to higher delinquencies and challenges in repossessing collateral[395](index=395&type=chunk) - The allowance for credit losses methodology is based on CECL (ASC 326) as of 2023, utilizing forecasts of the national unemployment rate for commercial and consumer loans, and historical loss experience for consumer finance loans[283](index=283&type=chunk)[346](index=346&type=chunk) [Financial Condition](index=84&type=section&id=Financial%20Condition) Total assets grew to $2.4 billion, driven by an $82.5 million increase in net loans, while the securities portfolio decreased, and deposits grew by $24.6 million with a shift towards higher-cost time deposits, all while maintaining strong liquidity and capital ratios - Total loans increased to **$1.72 billion** at Sep 30, 2023, from **$1.64 billion** at Dec 31, 2022, primarily from growth in commercial real estate and residential mortgage lending[372](index=372&type=chunk) - Deposits increased by **$24.6 million**, with a notable shift as noninterest-bearing and savings deposits decreased by a combined **$191.4 million**, while time deposits increased by **$216.0 million**[378](index=378&type=chunk) - The Corporation and the Bank exceeded all regulatory capital requirements to be considered well-capitalized, with the Corporation's Tier 1 risk-based capital ratio at **12.5%** and the Bank's at **12.7%** as of September 30, 2023[386](index=386&type=chunk)[445](index=445&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=97&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Corporation's primary market risk is interest rate volatility, managed through simulation and EVE analysis, indicating asset sensitivity where net interest income is expected to increase in a rising rate environment and decrease in a falling rate environment, with interest rate swaps used to manage certain exposures One-Year Net Interest Income Simulation (as of Sep 30, 2023, in thousands of dollars) | Rate Shock | Change in NII (thousands of dollars) | Change in NII (%) | | :--- | :--- | :--- | | +300 BP | $2,384 | 2.26% | | +200 BP | $1,636 | 1.55% | | +100 BP | $809 | 0.77% | | -100 BP | ($1,940) | (1.84)% | | -200 BP | ($4,267) | (4.04)% | | -300 BP | ($6,948) | (6.58)% | - The simulation analysis indicates the Corporation is less asset sensitive as of September 30, 2023, compared to December 31, 2022, due to shifts in the mix of earning assets and deposits[432](index=432&type=chunk) - The Corporation uses interest rate swaps as cash flow hedges to convert variable-rate interest on trust preferred capital notes to fixed rates, mitigating interest rate risk[435](index=435&type=chunk) [Item 4. Controls and Procedures](index=102&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of September 30, 2023[438](index=438&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[474](index=474&type=chunk) [PART II - Other Information](index=102&type=section&id=PART%20II%20-%20Other%20Information) [Item 1A. Risk Factors](index=102&type=section&id=Item%201A.%20Risk%20Factors) The report highlights a key risk factor concerning developments in the financial services industry, such as bank failures and liquidity concerns, which could adversely impact the Corporation's financial condition and performance - A key risk is the potential adverse impact from developments in the financial services industry, including bank failures, which could lead to deposit outflows, higher funding costs, and increased competition for liquidity[439](index=439&type=chunk)[467](index=467&type=chunk) - There have been no other material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, other than the one specified[475](index=475&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=104&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Corporation has a share repurchase program authorized to buy back up to $10.0 million of its common stock through December 31, 2023, having repurchased 23,856 shares for approximately $1.3 million during Q3 2023 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jul 2023 | 10,036 | $54.58 | 10,000 | | Aug 2023 | 7,711 | $55.53 | 6,334 | | Sep 2023 | 7,522 | $54.33 | 7,522 | | **Total Q3** | **25,269** | **$54.80** | **23,856** | - The Board authorized a **$10.0 million** share repurchase program effective December 1, 2022, through December 31, 2023, with approximately **$3.7 million** remaining available for repurchases as of September 30, 2023[468](index=468&type=chunk)[193](index=193&type=chunk) [Item 6. Exhibits](index=105&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Articles of Incorporation, Bylaws, CEO/CFO certifications, and the financial statements formatted in Inline XBRL - Key exhibits filed include CEO and CFO certifications (**31.1, 31.2, 32**) and the financial statements in Inline XBRL format (**101, 104**)[470](index=470&type=chunk)[479](index=479&type=chunk) [Signatures](index=106&type=section&id=Signatures) The report is duly signed and authorized by Thomas F Cherry, President and Chief Executive Officer, and Jason E Long, Executive Vice President and Chief Financial Officer, on November 7, 2023 - The Form 10-Q was signed on November 7, 2023, by the company's Principal Executive Officer (Thomas F Cherry) and Principal Financial and Accounting Officer (Jason E Long)[482](index=482&type=chunk)

Interest Income and Loans - Net interest income for the community banking segment increased by $2.9 million to $18.5 million for Q2 2023 and increased by $8.4 million to $37.9 million for the first six months of 2023 compared to the same periods in 2022[309]. - Average loans outstanding in the consumer finance segment increased by $58.7 million, or 14.1%, for Q2 2023 and increased by $76.3 million, or 19.1%, for the first six months of 2023 compared to the same periods in 2022[316]. - Average loan yields were higher for Q2 2023 compared to Q2 2022, primarily due to rising interest rates, while average costs of interest-bearing liabilities also increased[309]. - The community banking segment expects loan yields to continue to rise, but the impact on net interest margin is expected to be outpaced by rising deposit costs for the remainder of 2023[309]. - Total loans grew from $1,160,454,000 on December 31, 2022, to $1,211,962,000 on June 30, 2023, reflecting a significant increase in commercial real estate and residential mortgage lending[370][379]. - Total loans increased to $1,686,990,000 as of June 30, 2023, compared to $1,635,718,000 at December 31, 2022, reflecting growth in the loan portfolio[397]. Mortgage Banking Performance - Total mortgage loan originations for Q2 2023 were $155.1 million, down from $211.1 million in Q2 2022, and for the first six months of 2023 were $270.9 million, down from $401.0 million in the same period in 2022[313]. - Mortgage loan originations decreased by 26.5% in Q2 2023 compared to Q2 2022, and by 32.4% for the first six months of 2023 compared to the same period in 2022[344]. - Mortgage banking segment reported net income of $346,000 for Q2 2023, down from $782,000 in Q2 2022, primarily due to lower mortgage loan originations[341]. - Total noninterest income for the mortgage banking segment was $3,196,000 for Q2 2023, down from $4,039,000 in Q2 2022[341]. - The provision for credit losses in the mortgage banking segment was $0 for Q2 2023, compared to $10,000 in Q2 2022[341]. Credit Losses and Provisions - The community banking segment recorded a provision for credit losses of $600,000 for Q2 2023 and $1.1 million for the first six months of 2023, compared to no provision for Q2 2022 and a net reversal of $700,000 for the first six months of 2022[310]. - The allowance for credit losses on loans is based on evaluations of historical loan losses, current conditions, and reasonable forecasts relevant to collectability[319]. - As of June 30, 2023, the allowance for credit losses was $40,528 million, with a provision charged to operations of $1,401 million for the quarter[330]. - The provision for credit losses increased to $1,100,000 for the three months ended June 30, 2023, compared to $520,000 for the same period in 2022, reflecting increased net charge-offs due to rising delinquent loans[348]. - The total amount of nonaccrual loans in the community banking segment rose to $520,000 at June 30, 2023, from $115,000 at December 31, 2022, indicating increased credit challenges[402]. Financial Ratios and Capital - The total risk-based capital ratio was 14.9% as of June 30, 2023, exceeding the minimum requirement of 8.0%[419]. - The Tier 1 leverage ratio was 9.9% as of June 30, 2023, above the regulatory minimum of 4.0%[419]. - The Common Equity Tier 1 capital ratio was 12.8% as of June 30, 2023, surpassing the minimum requirement of 4.5%[419]. - The allowance for credit losses (ACL) totaled $40,528,000 as of June 30, 2023, with the consumer finance segment accounting for $25,187,000 of this total[391]. - The ACL to total loans ratio was 5.30% as of June 30, 2023, slightly down from 5.47% at the end of 2022[372]. Income and Expenses - Net income for the three months ended June 30, 2023, was $1,070,000, down 51.2% from $2,195,000 in the same period last year[347]. - Noninterest income was $5,000 for the three months ended June 30, 2023, a significant decrease from $49,000 in the same period last year[347]. - Total noninterest expenses were $3,514,000 for the three months ended June 30, 2023, a slight decrease of 3.6% from $3,645,000 in the same period in 2022[347]. - Net income for the three months ended June 30, 2023, was $6,384,000, compared to $6,783,000 for the same period in 2022, representing a decrease of approximately 5.9%[426]. Liquidity and Deposits - Liquidity, including liquid assets, totaled $349.4 million at June 30, 2023, an increase from $325.7 million at December 31, 2022[415]. - The Corporation's uninsured deposits were approximately $565.9 million, representing 28.3% of total deposits as of June 30, 2023[416]. - Deposits decreased by $6.4 million to $2.00 billion at June 30, 2023, with noninterest-bearing demand deposits decreasing by $18.7 million[441]. - The Corporation's capacity and amount available for funding increased by $190.6 million and $98.3 million, respectively, from December 31, 2022[415]. Interest Rate Risk Management - The Corporation's interest rate swaps are used to manage exposure to interest rate risk, converting variable rates to fixed rates for periods ending between June 2024 and June 2029[469]. - The methodology for interest rate risk analysis has inherent shortcomings, as it relies on assumptions that may not accurately reflect actual market responses[491]. - The company mitigates interest rate risk by entering into forward sales contracts with investors at the time interest rates are locked for loans[492]. - The mortgage banking segment utilizes Interest Rate Lock Commitments (IRLCs) to manage interest rate risk associated with loans prior to funding[492]. Economic Conditions and Projections - The Corporation expects net interest income to decrease by 4.56% over the next twelve months if market interest rates shift downward by 200 basis points[433]. - A 200 basis point downward shift in market interest rates would decrease the net interest income by $5.08 million (4.56%) as of June 30, 2023[467]. - The EVE analysis indicates a 7.29% decrease in economic value of equity with a 200 basis point downward shift in interest rates[488].

FORM 10-Q or C&F FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) N/A (Former name, former address and former fiscal year, if changed since last report) Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pur ...

108 Earnings Per Share (EPS) | --- | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------|-------|-------------|-------|-----------------|-------|------------| | (Dollars in thousands) | | Year \n2022 | Ended | December \n2021 | | 31, \n2020 | | Net income attributable to C&F Financial Corporation | $ | 29,159 | $ | 28,667 | $ | 22,117 | | Weighted average shares outstanding — basic and diluted | | 3,517,114 | | 3,604,119 | | 3,648,696 | NOTE 13: Income Taxes | --- ...

Financial Performance - Consolidated net income for 2022 was $19.063 million, a decrease of 17.5% compared to $23.082 million in 2021[153]. - Community banking segment net income increased to $13.754 million in 2022, up 26.5% from $10.884 million in 2021[153]. - Net income for the three months ended September 30, 2022, was $6,545,000, a decrease of 16.4% compared to $7,827,000 for the same period in 2021[322]. - The company reported a net income attributable to C&F Financial Corporation of $6,555,000 for the three months ended September 30, 2022, compared to $7,753,000 for the same period in 2021, reflecting a decrease of 15.5%[322]. Loan and Deposit Growth - Consumer finance segment loans grew by $28.6 million or 26.2% annualized in Q3 2022 compared to Q2 2022[159]. - Average loans increased by $94.6 million to $1.58 billion for Q3 2022, and by $18.8 million to $1.53 billion for the first nine months of 2022 compared to the same periods in 2021[194]. - Total loans reached $1,526,238 thousand, with a net interest income of $67,890 thousand for the period[187]. - Total loans increased to $1,567,202,000 as of September 30, 2022, from $1,410,060,000 as of December 31, 2021, representing a growth of 11.1%[254]. - Total loans in the Community Banking Segment reached $1,095,367,000 as of September 30, 2022, compared to $1,032,477,000 as of December 31, 2021, marking an increase of 6.1%[257]. - Total loans in the consumer finance segment was $465,713,000 as of September 30, 2022, showing a stable performance in the segment[250]. Interest Income and Margin - Consolidated annualized net interest margin was 4.37% in Q3 2022, up from 4.25% in Q3 2021[159]. - Net interest income for the third quarter of 2022 was $24,531 thousand, up from $21,749 thousand in the same period of 2021, indicating an increase of about 12.93%[184]. - The yield on total loans for the third quarter of 2022 was 5.82%, compared to 5.91% in the third quarter of 2021, showing a slight decrease of 0.09 percentage points[184]. - The interest rate spread for the third quarter of 2022 was 4.19%, an increase from 4.06% in the same quarter of the previous year[184]. - The average yield on community banking segment loans was 4.20% for the third quarter of 2022, down from 4.57% in the same quarter of 2021[181]. - The Corporation expects net interest margin to continue to expand despite rising deposit costs due to higher average yields on earning assets[202]. Noninterest Income and Expenses - Total noninterest income decreased by $5.6 million, or 47.9%, for Q3 2022, and by $20.2 million, or 52.1%, for the first nine months of 2022 compared to the same periods in 2021[204]. - Total noninterest expenses decreased by $1.8 million, or 7.9%, in Q3 2022, and by $12.2 million, or 16.8%, in the first nine months of 2022 compared to the same periods in 2021[208]. - Noninterest income for the community banking segment increased due to higher service charges on deposit accounts and debit card interchange income[219]. Capital and Equity - Total equity decreased to $185.4 million at September 30, 2022, down from $211.0 million at December 31, 2021[160]. - The Corporation's tier 1 capital ratio was 12.8% at September 30, 2022, compared to 13.0% at December 31, 2021[160]. - The Corporation's total risk-based capital ratio is 15.4% as of September 30, 2022, exceeding the minimum requirement of 8.0%[312]. - The Tier 1 risk-based capital ratio stands at 12.8%, well above the minimum requirement of 6.0%[312]. - Common Equity Tier 1 capital ratio is reported at 11.4%, surpassing the minimum requirement of 4.5%[312]. Asset and Liability Management - The Corporation's total assets increased to $2,336,456 thousand as of September 30, 2022, compared to $2,178,742 thousand in the previous year, reflecting a growth of approximately 7.25%[184]. - Total interest-bearing deposits amounted to $1,376,407 thousand in the third quarter of 2022, compared to $1,274,640 thousand in the same quarter of 2021, representing an increase of approximately 8.00%[184]. - The Corporation maintains overall liquidity sufficient to satisfy its operational requirements and contractual obligations[307]. Loan Losses and Charge-offs - The Corporation's allowance for loan losses was $40,976 thousand as of September 30, 2022, compared to $39,215 thousand in the previous year, indicating a slight increase in reserves[184]. - The provision for loan losses in the consumer finance segment increased to $1,200 for Q3 2022 from $400 in Q3 2021, reflecting significant loan growth[235]. - The ratio of annualized net charge-offs to average loans for the consumer finance segment was 0.22% for the first nine months of 2022[241]. - Nonaccrual loans decreased to $2,304,000 as of September 30, 2022, compared to $2,924,000 as of December 31, 2021, indicating a reduction of 21.2%[254]. Market and Economic Conditions - The company expects future operations to be influenced by interest rate fluctuations and general economic conditions, including inflation and unemployment levels[326]. - Recent increases in interest rates have affected the Corporation's sensitivity to interest rate risk[330].

Report Information [Filing Details](index=1&type=section&id=Filing%20Details) This report is C&F FINANCIAL CORPORATION's (CFFI) Form 10-Q for the quarter ended June 30, 2022, with 3,519,786 common shares outstanding as of July 28, 2022 - Filing type: Quarterly Report (Form 10-Q) for the period ended June 30, 2022[3](index=3&type=chunk) - Registrant: **C&F FINANCIAL CORPORATION (CFFI)**[3](index=3&type=chunk)[4](index=4&type=chunk) - Filing status: Accelerated filer, smaller reporting company[5](index=5&type=chunk) - Shares outstanding: **3,519,786 common shares** as of July 28, 2022[5](index=5&type=chunk) PART I - Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of C&F Financial Corporation and its subsidiaries, including balance sheets, income statements, comprehensive income (loss) statements, equity statements, cash flow statements, and related notes [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets increased to **$2.334 billion** as of June 30, 2022, from **$2.265 billion** at December 31, 2021, driven by increases in available-for-sale securities and net loans, while total equity decreased due to accumulated other comprehensive loss Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2022 (thousands of dollars) | December 31, 2021 (thousands of dollars) | | :--- | :-------------------- | :-------------------- | | Total Assets | $2,334,340 | $2,264,521 | | Total Liabilities | $2,138,057 | $2,053,497 | | Total Equity | $196,283 | $211,024 | - Key asset changes (June 30, 2022 vs. December 31, 2021): Available-for-sale securities increased from **$373,073 thousand** to **$501,984 thousand**; net loans increased from **$1,369,903 thousand** to **$1,479,832 thousand**; total cash and cash equivalents decreased from **$267,745 thousand** to **$138,902 thousand**[9](index=9&type=chunk) - Key liability change (June 30, 2022 vs. December 31, 2021): Total deposits increased from **$1,914,614 thousand** to **$2,006,017 thousand**[9](index=9&type=chunk) - Net accumulated other comprehensive loss: Significantly increased from **$(2,087) thousand** to **$(25,525) thousand**[9](index=9&type=chunk) [Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) Net income attributable to C&F Financial Corporation decreased for both the three and six months ended June 30, 2022, primarily due to reduced noninterest income, especially from loan sales, despite an increase in net interest income for the six-month period Net Income Attributable to C&F Financial Corporation | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :------------------------------------ | :------------------ | :------------------ | :------------- | :------------- | | Net income attributable to C&F Financial Corporation (three months) | $6,742 | $8,008 | $(1,266) | -15.8% | | Net income attributable to C&F Financial Corporation (six months) | $12,371 | $15,069 | $(2,698) | -17.9% | | Net earnings per share - Basic and Diluted (three months) | $1.91 | $2.19 | $(0.28) | -12.8% | | Net earnings per share - Basic and Diluted (six months) | $3.49 | $4.11 | $(0.62) | -15.1% | Key Income Statement Metrics | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :------------------------------------ | :------------------ | :------------------ | :------------- | :------------- | | Total interest income (three months) | $24,392 | $23,866 | $526 | 2.2% | | Total interest income (six months) | $46,623 | $46,942 | $(319) | -0.7% | | Total noninterest income (three months) | $5,663 | $12,831 | $(7,168) | -55.9% | | Total noninterest income (six months) | $12,392 | $26,906 | $(14,514) | -53.9% | | Total noninterest expense (three months) | $19,099 | $24,633 | $(5,534) | -22.5% | | Total noninterest expense (six months) | $39,310 | $49,652 | $(10,342) | -20.8% | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) The company reported significant comprehensive losses for the three and six months ended June 30, 2022, primarily due to other comprehensive losses (net of tax) related to available-for-sale securities, contrasting with comprehensive income in the prior year Comprehensive Income (Loss) Attributable to C&F Financial Corporation | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Year-over-year change (thousands of dollars) | | :------------------------------------ | :------------------ | :------------------ | :------------- | | Comprehensive (loss) income attributable to C&F Financial Corporation (three months) | $(2,919) | $8,644 | $(11,563) | | Comprehensive (loss) income attributable to C&F Financial Corporation (six months) | $(11,067) | $14,100 | $(25,167) | Other Comprehensive (Loss) Income, Net of Tax (Available-for-Sale Securities) | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :------------------------------------ | :------------------ | :------------------ | | Other comprehensive (loss) income, net of tax (available-for-sale securities) (three months) | $(10,080) | $777 | | Other comprehensive (loss) income, net of tax (available-for-sale securities) (six months) | $(24,770) | $(1,596) | [Consolidated Statements of Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Equity%20(Unaudited)) Total equity decreased to **$196.3 million** as of June 30, 2022, from **$211 million** at December 31, 2021, primarily due to net accumulated other comprehensive loss related to available-for-sale securities, partially offset by net income and reduced by share repurchases Total Equity | Metric | June 30, 2022 (thousands of dollars) | December 31, 2021 (thousands of dollars) | | :--- | :-------------------- | :-------------------- | | Total Equity | $196,283 | $211,024 | - Net accumulated other comprehensive loss: Increased from **$(2,087) thousand** at December 31, 2021, to **$(25,525) thousand** at June 30, 2022[19](index=19&type=chunk) Common Stock Repurchases and Cash Dividends Declared | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :--- | :------------------ | :------------------ | | Common stock repurchases (for the six months ended June 30) | $(1,843) | $(4,765) | | Cash dividends declared (for the six months ended June 30) | $(2,831) | $(2,845) | [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash provided by operating activities significantly decreased for the six months ended June 30, 2022, compared to the prior year, with a substantial increase in cash used in investing activities and an increase in cash provided by financing activities, resulting in a net decrease in cash and cash equivalents Consolidated Statements of Cash Flows (Unaudited) | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :------------------------------------ | :------------------ | :------------------ | | Net cash provided by operating activities (for the six months ended June 30) | $49,396 | $105,661 | | Net cash used in investing activities (for the six months ended June 30) | $(266,913) | $(97,489) | | Net cash provided by financing activities (for the six months ended June 30) | $88,674 | $74,624 | | Net (decrease) increase in cash and cash equivalents (for the six months ended June 30) | $(128,843) | $82,796 | Cash and Cash Equivalents at Period End | Metric | June 30, 2022 (thousands of dollars) | June 30, 2021 (thousands of dollars) | | :--- | :-------------------- | :-------------------- | | Cash and cash equivalents at end of period | $138,902 | $169,465 | [Notes to Consolidated Interim Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Interim%20Financial%20Statements%20(Unaudited)) These notes detail significant accounting policies, financial instruments, loan portfolios, goodwill, intangible assets, equity, comprehensive income, earnings per share, employee benefit plans, fair value measurements, business segments, commitments, contingent liabilities, and derivative financial instruments, providing critical context and disaggregated data for the financial statements [NOTE 1: Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%201%3A%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines consolidation principles, nature of operations, basis of presentation, and reclassifications, detailing the company's structure, including its wholly-owned subsidiaries like C&F Bank, C&F Mortgage, C&F Finance, and C&F Wealth Management, and their respective business activities, also discussing recent significant accounting pronouncements, including ASC 326 (CECL) effective January 1, 2023, and its potential impact - Consolidation scope: Includes C&F Financial Corporation, Citizens and Farmers Bank, and their wholly-owned or controlled subsidiaries[26](index=26&type=chunk) - Nature of operations: Bank holding company with primary subsidiary C&F Bank, which has subsidiaries including C&F Mortgage, C&F Finance, and C&F Wealth Management[27](index=27&type=chunk)[28](index=28&type=chunk) - ASC 326 (CECL) adoption: Expected to be effective January 1, 2023, using the modified retrospective approach, anticipated to result in significant changes to financial statements, including reduced allowance for loan losses, total equity, and regulatory capital, and expanded disclosures[37](index=37&type=chunk)[38](index=38&type=chunk) Stock-Based Compensation Expense (for the six months ended June 30) | Year | Amount (thousands of dollars) | Net of Tax (thousands of dollars) | | :--- | :------------------ | :------------------ | | 2022 | $1,010 | $719 | | 2021 | $820 | $592 | [NOTE 2: Securities](index=14&type=section&id=NOTE%202%3A%20Securities) All debt securities are classified as available-for-sale, increasing to **$502 million** as of June 30, 2022, from **$373.1 million** at December 31, 2021, with this growth accompanied by a significant increase in total unrealized losses primarily due to rising market interest rates, and no other-than-temporary impairment was identified Total Available-for-Sale Securities (Fair Value) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $501,984 | | December 31, 2021 | $373,073 | Total Unrealized Gains/Losses on Securities | Date | Total Unrealized Gains (thousands of dollars) | Total Unrealized Losses (thousands of dollars) | | :--------------- | :-------------------- | :-------------------- | | June 30, 2022 | $202 | $(31,004) | | December 31, 2021 | $3,494 | $(2,941) | - Temporarily impaired securities (June 30, 2022): **495 debt securities** with a total fair value of **$450.02 million**, primarily due to rising market interest rates, with no other-than-temporary impairment recognized[49](index=49&type=chunk) - Pledged securities (June 30, 2022): Amortized cost of **$229.2 million** and fair value of **$212.85 million**[47](index=47&type=chunk) [NOTE 3: Loans](index=17&type=section&id=NOTE%203%3A%20Loans) Total loans, net of allowance for loan losses, increased to **$1.48 billion** as of June 30, 2022, from **$1.37 billion** at December 31, 2021, primarily in commercial, financial, and agricultural loans and consumer finance loans, with a significant improvement in nonperforming loan status Total Loans, Net | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $1,479,832 | | December 31, 2021 | $1,369,903 | - Key loan categories (June 30, 2022 vs. December 31, 2021): Commercial, financial, and agricultural loans increased from **$717,730 thousand** to **$737,940 thousand**; consumer finance loans increased from **$368,194 thousand** to **$437,065 thousand**[53](index=53&type=chunk) Nonperforming Loan Balances | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $909 | | December 31, 2021 | $2,924 | - Troubled Debt Restructurings (TDRs) (June 30, 2022): **$2.12 million**[63](index=63&type=chunk) - Impaired loans (June 30, 2022): **$2.62 million** in outstanding principal with related allowance of **$138 thousand**[63](index=63&type=chunk) [NOTE 4: Allowance for Loan Losses](index=20&type=section&id=NOTE%204%3A%20Allowance%20for%20Loan%20Losses) The Allowance for Loan Losses (ALL) slightly increased from **$40.2 million** at December 31, 2021, to **$40.5 million** at June 30, 2022, primarily due to a **$202 thousand** provision for loan losses and **$160 thousand** in net recoveries for the six months ended June 30, 2022, with ALL predominantly allocated to consumer finance and commercial, financial, and agricultural loans Allowance for Loan Losses (ALL) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $40,519 | | December 31, 2021 | $40,157 | Provision for Loan Losses (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $202 | | 2021 | $(320) | - Net recoveries (for the six months ended June 30, 2022): **$160 thousand** (recoveries of **$2,609 thousand**, charge-offs of **$(2,449) thousand**)[66](index=66&type=chunk) - ALL allocation (June 30, 2022): Consumer finance **$25,868 thousand** (**63.8%**); commercial, financial, and agricultural **$10,422 thousand** (**25.7%**)[68](index=68&type=chunk) - Loan credit quality (June 30, 2022): Pass **$1,073,893 thousand**; special mention **$2,233 thousand**; substandard **$6,715 thousand**; substandard nonaccrual **$445 thousand**[70](index=70&type=chunk) [NOTE 5: Goodwill and Other Intangible Assets](index=23&type=section&id=NOTE%205%3A%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill remained unchanged at **$25.19 million** as of June 30, 2022, while other intangible assets, primarily core deposit intangibles and customer relationships, slightly decreased due to amortization, with amortization expense totaling **$149 thousand** for the six months ended June 30, 2022 - Goodwill: **$25,191 thousand** at both June 30, 2022, and December 31, 2021, with no change[74](index=74&type=chunk) Other Intangible Assets (Net) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $1,828 | | December 31, 2021 | $1,977 | Amortization Expense (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $149 | | 2021 | $157 | [NOTE 6: Equity, Other Comprehensive Income (Loss) and Earnings Per Share](index=25&type=section&id=NOTE%206%3A%20Equity%2C%20Other%20Comprehensive%20Income%20(Loss)%20and%20Earnings%20Per%20Share) This note details changes in equity, including the share repurchase program and accumulated other comprehensive loss, with total equity decreasing due to significant unrealized losses on available-for-sale securities, and earnings per share calculations also showing a decline for both the three and six months ended June 30, 2022 - Share repurchase program (2021): Authorized to repurchase up to **$10 million** of common stock by November 30, 2022; **22,164 shares** repurchased for **$1.12 million** in Q2 2022, and **31,881 shares** for **$1.61 million** in H1 2022[77](index=77&type=chunk) - Net accumulated other comprehensive loss (June 30, 2022): **$(25,525) thousand**, a significant increase from **$(2,087) thousand** at December 31, 2021, primarily due to unrealized losses on available-for-sale securities[80](index=80&type=chunk)[82](index=82&type=chunk) Net Income Attributable to C&F Financial Corporation (for EPS Calculation) | Period | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :------------------------------------ | :------------------ | :------------------ | | For the three months ended June 30 | $6,742 | $8,008 | | For the six months ended June 30 | $12,371 | $15,069 | Weighted Average Common Shares Outstanding (Basic and Diluted) (for the six months ended June 30) | Year | Number of Shares | | :--- | :----- | | 2022 | 3,541,098 | | 2021 | 3,664,752 | [NOTE 7: Employee Benefit Plans](index=29&type=section&id=NOTE%207%3A%20Employee%20Benefit%20Plans) This note summarizes the components of net periodic benefit cost for the bank's noncontributory cash balance pension plan, showing a decrease in net periodic benefit cost for both the three and six months ended June 30, 2022, compared to the prior year Net Periodic Benefit Cost (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $320 | | 2021 | $434 | [NOTE 8: Fair Value of Assets and Liabilities](index=29&type=section&id=NOTE%208%3A%20Fair%20Value%20of%20Assets%20and%20Liabilities) This note defines fair value and outlines the fair value hierarchy (Level 1, 2, 3), detailing valuation techniques for assets and liabilities measured at fair value on a recurring basis, such as available-for-sale securities (primarily Level 2), loans held for sale (Level 2), and derivatives (Level 2), also discussing nonrecurring fair value measurements for impaired loans and other real estate owned (OREO), noting no impaired loans or OREO were measured at fair value as of June 30, 2022 - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (quoted prices for similar instruments or observable inputs), Level 3 (unobservable assumptions)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - Assets measured at fair value on a recurring basis (June 30, 2022): Available-for-sale securities **$501,984 thousand** (all Level 2); loans held for sale **$43,362 thousand** (all Level 2); derivatives (IRLCs, interest rate swaps, cash flow hedges) **$5,565 thousand** (all Level 2)[111](index=111&type=chunk) - No impaired loans or OREO were measured at fair value on a nonrecurring basis as of June 30, 2022[119](index=119&type=chunk) [NOTE 9: Business Segments](index=37&type=section&id=NOTE%209%3A%20Business%20Segments) The company operates through three decentralized business segments: Community Banking, Mortgage Banking, and Consumer Finance, with this note providing a breakdown of revenue, expenses, and net income for each segment, as well as intersegment transactions - Business segments: Community Banking, Mortgage Banking, Consumer Finance[126](index=126&type=chunk) Net Income by Segment (for the six months ended June 30) | Segment | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :----------------- | :------------------ | :------------------ | :------------- | :------------- | | Community Banking | $8,333 | $6,718 | $1,615 | 24.0% | | Mortgage Banking | $1,648 | $4,513 | $(2,865) | -63.5% | | Consumer Finance | $4,257 | $5,402 | $(1,145) | -21.2% | | Other | $(1,370) | $(1,309) | $(61) | 4.7% | | Consolidated Total | $12,518 | $15,255 | $(2,737) | -17.9% | Total Assets by Segment (June 30, 2022 vs. December 31, 2021) | Segment | June 30, 2022 (thousands of dollars) | December 31, 2021 (thousands of dollars) | Change (thousands of dollars) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Community Banking | $2,201,240 | $2,131,391 | $69,849 | 3.3% | | Mortgage Banking | $67,894 | $105,547 | $(37,653) | -35.7% | | Consumer Finance | $440,297 | $372,292 | $68,005 | 18.3% | [NOTE 10: Commitments and Contingent Liabilities](index=41&type=section&id=NOTE%2010%3A%20Commitments%20and%20Contingent%20Liabilities) The company has commitments to extend credit of **$314.69 million** and standby letters of credit of **$14.53 million** as of June 30, 2022, with the mortgage banking segment also having contingent liabilities related to representations and warranties on residential mortgage loans sold, for which an indemnification reserve of **$2.38 million** was held as of June 30, 2022, with a partial reversal in the first half of 2022 due to improved loan performance - Loan commitments: **$314.69 million** as of June 30, 2022 (vs. **$305.37 million** at December 31, 2021)[138](index=138&type=chunk) - Standby letters of credit: **$14.53 million** as of June 30, 2022 (vs. **$15.11 million** at December 31, 2021)[139](index=139&type=chunk) - Indemnification reserve: **$2.38 million** as of June 30, 2022 (vs. **$3.25 million** at December 31, 2021)[140](index=140&type=chunk) - Indemnification reserve reversal (for the six months ended June 30, 2022): **$869 thousand**[140](index=140&type=chunk) [NOTE 11: Derivative Financial Instruments](index=41&type=section&id=NOTE%2011%3A%20Derivative%20Financial%20Instruments) The company uses derivatives to manage interest rate risk, including cash flow hedges for floating-rate borrowings and interest rate swaps for commercial loan customers, with mortgage banking operations also involving derivatives like interest rate lock commitments (IRLCs) and forward sales contracts to mitigate interest rate risk, and all derivatives are reported at fair value, with cash flow hedges impacting other comprehensive income and other derivatives affecting noninterest income or gain on loan sales - Derivative uses: Managing interest rate risk (cash flow hedges, loan swaps) and mitigating interest rate risk in mortgage banking (IRLCs, forward sales)[141](index=141&type=chunk)[143](index=143&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - Cash flow hedges: Interest rate swaps designated to manage floating-rate borrowings, with fair value changes reported in other comprehensive income[143](index=143&type=chunk) - Loan swaps: Back-to-back interest rate swaps with customers and counterparties, with fair value changes recorded in other noninterest income, resulting in a net zero impact[146](index=146&type=chunk) - Mortgage banking derivatives: IRLCs and forward sales contracts reported at fair value, with changes recorded as gain on loan sales[147](index=147&type=chunk) - IRLCs (June 30, 2022): **$108.69 million**[148](index=148&type=chunk) - Cash collateral maintained with counterparties (December 31, 2021): **$3.88 million**[151](index=151&type=chunk) [NOTE 12: Other Noninterest Expenses](index=45&type=section&id=NOTE%2012%3A%20Other%20Noninterest%20Expenses) This note provides a breakdown of significant components within "Other Noninterest Expenses," showing a decrease in data processing fees and mortgage banking loan processing expenses for the six months ended June 30, 2022, compared to the prior year, while professional fees remained stable Total Other Noninterest Expenses (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $12,487 | | 2021 | $13,775 | - Key expense changes (for the six months ended June 30, 2022 vs. 2021): Data processing fees decreased from **$5,728 thousand** to **$5,246 thousand**; mortgage banking loan processing expenses decreased from **$1,761 thousand** to **$1,001 thousand**; indemnification reserve had a reversal of **$(869) thousand** in 2022 compared to **$32 thousand** in 2021[152](index=152&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, liquidity, and capital resources, offering a detailed analysis of key financial metrics and segment performance [OVERVIEW](index=46&type=section&id=OVERVIEW) The company aims to maximize earnings and shareholder value by tracking return on average assets (ROA), return on average equity (ROE), and earnings growth across its three business segments, with consolidated net income decreasing in Q2 and H1 2022 due to underperformance in mortgage banking and consumer finance, partially offset by growth in community banking Consolidated Net Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $12,518 | | 2021 | $15,255 | Annualized Return on Average Equity (ROE) (for the six months ended June 30) | Year | Ratio | | :--- | :------ | | 2022 | 12.36 % | | 2021 | 15.83 % | Annualized Return on Average Assets (ROA) (for the six months ended June 30) | Year | Ratio | | :--- | :------ | | 2022 | 1.09 % | | 2021 | 1.43 % | - Community Banking segment loans (June 30, 2022): Increased by **$43.5 million** (annualized **16.9%**) from March 31, 2022, excluding PPP loans[164](index=164&type=chunk) - Consumer Finance segment loans (June 30, 2022): Increased by **$40.3 million** (annualized **40.7%**) from March 31, 2022[164](index=164&type=chunk) - Mortgage Banking segment loan originations (for the six months ended June 30, 2022): Decreased by **50.1%** compared to 2021[164](index=164&type=chunk) [Capital Management and Dividends](index=49&type=section&id=Capital%20Management%20and%20Dividends) Total equity decreased to **$196.3 million** as of June 30, 2022, from **$211 million** at December 31, 2021, primarily due to unrealized losses on available-for-sale securities, while regulatory capital ratios remained strong, and the company continued its share repurchase program and paid a **$0.40 per share** cash dividend Total Equity | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $196,300 | | December 31, 2021 | $211,000 | - Book value per share (June 30, 2022): **$55.52**[166](index=166&type=chunk) - Tangible book value per share (June 30, 2022): **$47.85**[166](index=166&type=chunk) - Unrealized losses on available-for-sale securities (H1 2022): **$24.8 million** (net of tax)[167](index=167&type=chunk) - Cash dividend (Q2 2022): **$0.40 per share**, with a payout ratio of **20.9%**[168](index=168&type=chunk) - Share repurchase program (2021): **22,164 shares** repurchased for **$1.1 million** in Q2 2022[169](index=169&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=49&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section highlights critical accounting estimates requiring significant management judgment, including the allowance for loan losses (ALL), loan impairment, accounting for acquired loans in business combinations (PCI and purchased performing loans), goodwill, and income taxes, all of which are susceptible to material changes based on different assumptions or conditions - Allowance for Loan Losses (ALL): Subjective estimate based on collectibility, delinquency and charge-off trends, changes in loan portfolio nature and volume, current economic conditions, and collateral values; estimated range between **$37 million** and **$42 million** as of June 30, 2022[171](index=171&type=chunk) - Loan impairment: Loans are considered impaired when it is probable that all interest and principal payments will not be collected according to the loan agreement; impairment is measured based on the present value of expected future cash flows, the loan's observable market price, or the fair value of collateral[172](index=172&type=chunk)[174](index=174&type=chunk) - Acquired loans in business combinations: Classified as purchased credit impaired (PCI) loans and purchased performing loans, recorded at fair value on the acquisition date; PCI loans involve complex cash flow estimations[175](index=175&type=chunk)[176](index=176&type=chunk)[179](index=179&type=chunk) - Goodwill: Reviewed for impairment at least annually; no impairment identified in the Q4 2021 assessment[180](index=180&type=chunk) - Income taxes: Determination of effective tax rate involves judgment regarding temporary differences and uncertain tax positions[181](index=181&type=chunk)[182](index=182&type=chunk) [RESULTS OF OPERATIONS](index=53&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's operating results, encompassing net interest income, noninterest income, noninterest expense, income taxes, and the performance of each business segment [NET INTEREST INCOME](index=53&type=section&id=NET%20INTEREST%20INCOME) Net interest income (on a fully tax-equivalent basis) increased for both the second quarter and six months ended June 30, 2022, compared to 2021, primarily due to an increase in the average balance of interest-earning assets, despite a decrease in net interest margin, with asset growth mainly from securities and consumer finance loans, and reduced PPP loan fee recognition Net Interest Income (Fully Tax-Equivalent, for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $43,359 | | 2021 | $42,689 | Annualized Net Interest Margin (for the six months ended June 30) | Year | Ratio | | :--- | :------ | | 2022 | 4.02 % | | 2021 | 4.35 % | - Average interest-earning assets (for the six months ended June 30): Increased by **$210.1 million** in 2022 compared to 2021[194](index=194&type=chunk) - Average loans (for the six months ended June 30): Decreased by **$19.7 million** to **$1.5 billion** in 2022 compared to 2021, with Community Banking loans (excluding PPP) increasing by **$76 million** (**7.9%**), Consumer Finance loans increasing by **$79.7 million** (**24.9%**), and Mortgage Banking loans decreasing by **$97.6 million** (**62.5%**)[197](index=197&type=chunk) PPP Loan Net Origination Fees Recognized (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $679 | | 2021 | $2,100 | PCI Loan Interest Income Recognized (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $1,000 | | 2021 | $1,500 | - Average available-for-sale securities (for the six months ended June 30): Increased by **$124.1 million** in 2022 compared to 2021[199](index=199&type=chunk) - Average cost of interest-bearing deposits (for the six months ended June 30): Decreased by **16 basis points** in 2022 compared to 2021[203](index=203&type=chunk) [Noninterest Income](index=60&type=section&id=Noninterest%20Income) Total noninterest income significantly decreased for both the second quarter and six months ended June 30, 2022, compared to 2021, primarily attributed to reduced mortgage loan originations, lower loan sale margins, and unrealized losses on non-qualified deferred compensation plans, partially offset by increased service charges and bank card interchange income Total Noninterest Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $12,392 | $(14,514) | -53.9% | | 2021 | $26,906 | | | Gain on Loan Sales (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $4,893 | $(8,112) | -62.4% | | 2021 | $13,005 | | | Other (Loss) Income, Net (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | | :--- | :------------------ | :------------- | | 2022 | $(2,294) | $(4,635) | | 2021 | $2,341 | | - Unrealized losses on non-qualified deferred compensation plans (for the six months ended June 30, 2022): **$3.4 million**[208](index=208&type=chunk) [Noninterest Expense](index=60&type=section&id=Noninterest%20Expense) Total noninterest expense significantly decreased for both the second quarter and six months ended June 30, 2022, compared to 2021, primarily benefiting from reduced salaries and employee benefits (due to deferred compensation changes and lower mortgage originations), decreased mortgage banking loan processing expenses, and a reversal of indemnification reserves Total Noninterest Expense (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $39,310 | $(10,342) | -20.8% | | 2021 | $49,652 | | | Salaries and Employee Benefits (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $22,498 | $(8,829) | -28.2% | | 2021 | $31,327 | | | - Deferred compensation liability change (for the six months ended June 30): Salaries and employee benefits decreased by **$3.4 million** in 2022 (compared to an increase of **$1.5 million** in 2021)[212](index=212&type=chunk) - Indemnification reserve (for the six months ended June 30): Reversal of **$(869) thousand** in 2022 (compared to **$32 thousand** in 2021)[209](index=209&type=chunk) [Income Taxes](index=62&type=section&id=Income%20Taxes) The company's consolidated effective income tax rate decreased to **21.7%** for the six months ended June 30, 2022, from **23.6%** in the prior year, primarily due to a reduced share of income from the mortgage banking segment, which is subject to state income taxes Consolidated Effective Income Tax Rate (for the six months ended June 30) | Year | Ratio | | :--- | :------ | | 2022 | 21.7 % | | 2021 | 23.6 % | [Business Segments](index=62&type=section&id=Business%20Segments) This section details the operating performance of the company's three business segments: Community Banking, Mortgage Banking, and Consumer Finance [Community Banking](index=62&type=section&id=Community%20Banking) The Community Banking segment achieved net income growth in both the second quarter and first half of 2022, driven by increased net interest income from growth in interest-earning assets (excluding PPP loans) and a reduction in the provision for loan losses, with noninterest income also rising due to increased service charges and bank card interchange income Net Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $8,333 | $1,615 | 24.0% | | 2021 | $6,718 | | | Net Interest Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $29,499 | $1,568 | 5.6% | | 2021 | $27,931 | | | - Provision for loan losses (for the six months ended June 30): Net reversal of **$(700) thousand** in 2022 (compared to **$(200) thousand** in 2021)[217](index=217&type=chunk) PPP Loan Net Origination Fees Recognized (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $679 | | 2021 | $2,100 | PCI Loan Interest Income Recognized (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $1,000 | | 2021 | $1,500 | [Mortgage Banking](index=65&type=section&id=Mortgage%20Banking) The Mortgage Banking segment experienced a significant decline in net income for both the second quarter and first half of 2022, primarily due to reduced mortgage loan originations, lower loan sale margins, and decreased net interest income from a smaller balance of loans held for sale, partially offset by a reversal of indemnification reserves Net Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $1,648 | $(2,865) | -63.5% | | 2021 | $4,513 | | | Mortgage Loan Originations (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $400,976 | $(402,835) | -50.1% | | 2021 | $803,811 | | | Gain on Loan Sales (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $5,347 | $(7,715) | -59.0% | | 2021 | $13,062 | | | - Indemnification reserve reversal (for the six months ended June 30, 2022): **$869 thousand** (compared to **$32 thousand** in 2021)[232](index=232&type=chunk) [Consumer Finance](index=67&type=section&id=Consumer%20Finance) The Consumer Finance segment experienced a decrease in net income for both the second quarter and first half of 2022, primarily due to lower average yields on auto loans and an increased provision for loan losses, despite significant loan growth, as the segment continues to pursue higher quality, lower yielding loans Net Income (for the six months ended June 30) | Year | Amount (thousands of dollars) | Year-over-year change (thousands of dollars) | Year-over-year change (%) | | :--- | :------------------ | :------------- | :------------- | | 2022 | $4,257 | $(1,145) | -21.2% | | 2021 | $5,402 | | | - Average outstanding loans (for the six months ended June 30): Increased by **$79.7 million** (**24.9%**) in 2022 compared to 2021[237](index=237&type=chunk) Provision for Loan Losses (for the six months ended June 30) | Year | Amount (thousands of dollars) | | :--- | :------------------ | | 2022 | $870 | | 2021 | $(180) | - Annualized net recovery rate as a percentage of average total loans (for the six months ended June 30): **0.10%** in 2022 (compared to **0.07%** in 2021)[238](index=238&type=chunk) [ASSET QUALITY](index=67&type=section&id=ASSET%20QUALITY) This section details the company's asset quality, focusing on the allowance for loan losses (ALL), loan loss experience, credit quality indicators, nonperforming assets, and impaired loans, showing overall improved asset quality with reduced nonperforming loans and strong ALL coverage Allowance for Loan Losses (ALL) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $40,519 | | December 31, 2021 | $40,157 | Credit Ratios | Metric | June 30, 2022 | December 31, 2021 | | :--- | :------------ | :------------- | | ALL as a percentage of total loans | 2.67 % | 2.85 % | | Nonperforming loans as a percentage of total loans | 0.06 % | 0.21 % | | ALL as a percentage of nonperforming loans | 4,457.54 % | 1,373.36 % | - Community Banking segment nonperforming assets: Decreased to **$548 thousand** as of June 30, 2022 (vs. **$3.2 million** at December 31, 2021), primarily due to the resolution of impaired loans[266](index=266&type=chunk) - Consumer Finance segment nonperforming loans: **$464 thousand** as of June 30, 2022 (vs. **$380 thousand** at December 31, 2021)[268](index=268&type=chunk) Troubled Debt Restructurings (TDRs) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $2,118 | | December 31, 2021 | $2,690 | [FINANCIAL CONDITION](index=80&type=section&id=FINANCIAL%20CONDITION) Total assets increased to **$2.3 billion** as of June 30, 2022, driven by growth in available-for-sale securities and loans held for investment, funded by deposit growth, with this section detailing the composition and changes in the loan portfolio, securities, deposits, borrowings, and liquidity position [Loan Portfolio](index=80&type=section&id=Loan%20Portfolio) Total loans held for investment increased to **$1.52 billion** as of June 30, 2022, from **$1.41 billion** at December 31, 2021, with this growth primarily from consumer finance (auto loans) and community banking (commercial real estate and construction loans), partially offset by PPP loan repayments Total Loans Held for Investment (Net) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $1,479,832 | | December 31, 2021 | $1,369,903 | - Loan composition (June 30, 2022 vs. December 31, 2021): Consumer finance increased from **$368,194 thousand** to **$437,065 thousand**; commercial, financial, and agricultural increased from **$717,730 thousand** to **$737,940 thousand**[285](index=285&type=chunk) PPP Loans Outstanding Principal | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $1,187 | | December 31, 2021 | $18,441 | [Securities](index=83&type=section&id=Securities) Available-for-sale securities increased by **$128.9 million** to **$502 million** as of June 30, 2022, primarily due to purchases of U.S. Treasury, government agency, and mortgage-backed securities to deploy excess liquidity; however, net unrealized losses significantly increased due to rising market interest rates Total Available-for-Sale Securities (Fair Value) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $501,984 | | December 31, 2021 | $373,073 | - Net unrealized losses (June 30, 2022): **$30.8 million** (compared to net unrealized gains of **$553 thousand** at December 31, 2021)[298](index=298&type=chunk) - Composition (June 30, 2022): Mortgage-backed securities (**39%**), U.S. government agencies and corporations (**25%**), state and local government bonds (**20%**), U.S. Treasury securities (**11%**)[296](index=296&type=chunk) [Deposits](index=85&type=section&id=Deposits) Total deposits increased by **$91.4 million** to **$2.01 billion** as of June 30, 2022, driven by growth in demand and savings deposits, while time deposits decreased, and the company utilized brokered deposits for liquidity diversification Total Deposits | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $2,006,017 | | December 31, 2021 | $1,914,614 | - Demand and savings deposits: Increased by **$136.7 million** in H1 2022[305](index=305&type=chunk) - Time deposits: Decreased by **$45.3 million** in H1 2022[305](index=305&type=chunk) - Brokered deposits: **$5 thousand** outstanding as of June 30, 2022[306](index=306&type=chunk) [Borrowings](index=87&type=section&id=Borrowings) Total borrowings slightly increased to **$92.5 million** as of June 30, 2022, from **$90.5 million** at December 31, 2021, primarily due to fluctuations in repurchase agreement balances with commercial deposit customers Total Borrowings | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $92,500 | | December 31, 2021 | $90,500 | [Liquidity](index=87&type=section&id=Liquidity) The company maintains ample liquidity through stable core deposits, strong capital, and diverse funding sources, with total liquid assets of **$428 million** as of June 30, 2022, and substantial borrowing capacity from federal funds lines, repurchase lines of credit, FHLB, and the Federal Reserve Bank Liquid Assets (Cash, Interest-Bearing Deposits, Unpledged AFS Securities) | Date | Amount (thousands of dollars) | | :--------------- | :------------------ | | June 30, 2022 | $428,000 | | December 31, 2021 | $454,600 | - Total available funding capacity (June 30, 2022): **$455.449 million**[313](index=313&type=chunk) [Capital Resources](index=88&type=section&id=Capital%20Resources) The company and its bank maintain capital ratios well above regulatory minimums, including capital buffers, with the company's total risk-weighted capital ratio at **15.5%** as of June 30, 2022, and has elected to exclude AOCI from regulatory capital calculations, mitigating volatility from unrealized securities losses, while the share repurchase program remains ongoing with **$8.3 million** available for repurchase Company Regulatory Capital Ratios (June 30, 2022) | Ratio | Actual Ratio | Minimum Required Ratio | | :----------------------------- | :----------- | :----------- | | Total Risk-Weighted Capital Ratio | 15.5 % | 8.0 % | | Tier 1 Risk-Weighted Capital Ratio | 12.8 % | 6.0 % | | Common Equity Tier 1 Capital Ratio | 11.4 % | 4.5 % | | Tier 1 Leverage Ratio | 9.5 % | 4.0 % | Bank Regulatory Capital Ratios (June 30, 2022) | Ratio | Actual Ratio | Minimum Required Ratio | Capital Adequacy Ratio | | :----------------------------- | :----------- | :----------- | :----------- | | Total Risk-Weighted Capital Ratio | 14.2 % | 8.0 % | 10.0 % | | Tier 1 Risk-Weighted Capital Ratio | 12.9 % | 6.0 % | 8.0 % | | Common Equity Tier 1 Capital Ratio | 12.9 % | 4.5 % | 6.5 % | | Tier 1 Leverage Ratio | 9.5 % | 4.0 % | 5.0 % | - Capital buffer: Both the company and the bank exceed minimum requirements, including the **2.5%** capital buffer[325](index=325&type=chunk) - AOCI election: Irrevocably elected to exclude AOCI from regulatory capital to prevent volatility from unrealized securities losses[324](index=324&type=chunk) - 2021 Repurchase Program: **$8.3 million** remained available for repurchase as of June 30, 2022[326](index=326&type=chunk) [USE OF CERTAIN NON-GAAP FINANCIAL MEASURES](index=90&type=section&id=USE%20OF%20CERTAIN%20NON-GAAP%20FINANCIAL%20MEASURES) This section explains the use of non-GAAP financial measures, such as return on tangible common equity (ROTCE) and tangible book value per share, and fully tax-equivalent (FTE) metrics, which management uses to enhance comparability and provide meaningful insights into operating performance, while acknowledging they are not GAAP substitutes - Non-GAAP metrics used: Return on tangible common equity (ROTCE), tangible book value per share, and fully tax-equivalent (FTE) metrics for interest income and net interest income[327](index=327&type=chunk) - Purpose: To provide meaningful information about operating performance, enhance comparability with peers and other institutions, and exclude the impact of intangible assets and tax benefits[328](index=328&type=chunk) Annualized Return on Average Tangible Common Equity (for the six months ended June 30) | Year | Ratio | | :--- | :------ | | 2022 | 14.33 % | | 2021 | 18.50 % | Tangible Book Value Per Share | Date | Amount | | :--------------- | :------ | | June 30, 2022 | $47.85 | | December 31, 2021 | $51.66 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=95&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, with its asset/liability management process for monitoring and managing this risk consistent with prior disclosures, and no material changes to the risk profile since December 31, 2021 - Primary market risk: Interest rate volatility[337](index=337&type=chunk) - Risk management: Asset/liability management process for monitoring and managing interest rate risk remains consistent[337](index=337&type=chunk) - Risk profile: No material changes to the interest rate risk profile as of June 30, 2022, compared to December 31, 2021[337](index=337&type=chunk) [Item 4. Controls and Procedures](index=95&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures: Effective as of June 30, 2022[338](index=338&type=chunk) - Internal control over financial reporting: No material changes during the three months ended June 30, 2022[339](index=339&type=chunk) PART II - Other Information [Item 1A. Risk Factors](index=95&type=section&id=Item%201A.%20Risk%20Factors) The company's risk factors have not materially changed from those disclosed in the Form 10-K annual report for the fiscal year ended December 31, 2021 - No material changes: Risk factors are consistent with the Form 10-K annual report for fiscal year 2021[341](index=341&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=96&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its 2021 share repurchase program, repurchasing **22,164 shares** for a total cost of **$1.1 million** during the second quarter of 2022, with a total of **32,987 shares** repurchased under the program for **$1.7 million** as of June 30, 2022 - 2021 Repurchase Program: Authorized to repurchase up to **$10 million** of common stock by November 30, 2022[343](index=343&type=chunk) - Shares repurchased (Q2 2022): **22,164 shares** valued at **$1.1 million**[343](index=343&type=chunk)[344](index=344&type=chunk) - Total shares repurchased (as of June 30, 2022, under 2021 program): **32,987 shares** valued at **$1.7 million**[343](index=343&type=chunk) - Remaining authorization: Approximately **$8,333,202** as of June 30, 2022[344](index=344&type=chunk) [Item 6. Exhibits](index=97&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, stock and incentive plans, CEO and CFO certifications, and financial statements in Inline XBRL format - Exhibits include: Amended and Restated Articles of Incorporation and Bylaws, 2022 Stock and Incentive Plan, Restricted Stock Agreement, CEO/CFO Certifications (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Financial Statements in Inline XBRL format[346](index=346&type=chunk) [Signatures](index=98&type=section&id=Signatures) This report was formally signed on August 1, 2022, by Thomas F. Cherry, President and Chief Executive Officer, and Jason E. Long, Executive Vice President, Chief Financial Officer, and Secretary - Signatories: **Thomas F. Cherry** (President and Chief Executive Officer) and **Jason E. Long** (Executive Vice President, Chief Financial Officer, and Secretary)[350](index=350&type=chunk) - Date: August 1, 2022[350](index=350&type=chunk)

Table of Contents c UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number 000-23423 C&F FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) V ...

Financial Performance - Consolidated net income for 2021 was $29.1 million, a 29.9% increase from $22.4 million in 2020, with earnings per share rising to $7.95 from $6.06[206] - Adjusted net income for 2021 was $30.0 million, up 33.8% from $22.4 million in 2020, with adjusted earnings per share increasing to $8.20 from $6.06[211] - Return on average equity (ROE) for 2021 was 14.77%, compared to 12.54% in 2020, while return on average assets (ROA) improved to 1.34% from 1.14%[206] - Dividends declared for 2021 were $1.58 per share, a 3.9% increase from $1.52 per share in 2020[218] - Total equity at December 31, 2021, was $211.0 million, up from $194.5 million at the end of 2020, with tier I capital ratio at 13.0%[217] Loan Performance - Average loans outstanding in the community banking segment increased by 4.4%, and in the consumer finance segment, it rose by 8.6%[213] - Total loans amounted to $1,505,303 thousand in 2021, with a net interest margin of 5.86%, down from 6.18% in 2020[244] - Average loans increased by $30.6 million to $1.51 billion for the year ended December 31, 2021, compared to 2020[251] - Total loans increased to $1,410,060 thousand in 2021 from $1,352,406 thousand in 2020, representing a growth of approximately 4.3%[361] - Total loans in the Consumer Finance Segment increased to $368,194,000 in 2021 from $312,252,000 in 2020, an increase of 17.95%[370] Noninterest Income and Expenses - Total noninterest income decreased by $5.4 million, or 10.0 percent, for the year ended December 31, 2021, compared to 2020[263] - Total noninterest expense decreased by $2.0 million, or 2.0 percent, for the year ended December 31, 2021, compared to 2020[268] - Total noninterest income for the community banking segment was $15.2 million in 2021, compared to $16.4 million in 2020, a decline of 7.2%[279] - The mortgage banking segment's total noninterest income was $31.6 million in 2021, down from $35.8 million in 2020, a decrease of 11.8%[295] Asset Quality and Allowance for Loan Losses - The estimated allowance for loan losses varied between $36 million and $41 million as of December 31, 2021, reflecting management's judgment on probable losses in the loan portfolio[230] - The allowance for loan losses was $94,270 thousand, reflecting a slight increase from $97,602 thousand in 2020[244] - The allowance for loan losses (ALL) increased to $40,157 thousand in 2021 from $39,156 thousand in 2020, reflecting a slight increase of 2.6%[361] - The ratio of nonaccrual loans to total loans improved to 0.21% in 2021 from 0.25% in 2020[361] - The consumer finance segment's allowance for loan losses increased by $1.3 million to $24.8 million at December 31, 2021, from $23.5 million at December 31, 2020[350] Segment Performance - The community banking segment generated $46,567 thousand in income, while the consumer finance segment contributed $37,803 thousand in income for 2021[244] - The community banking segment reported net income of $14.1 million for the year ended December 31, 2021, compared to $6.1 million in 2020, representing a 131.1% increase[277] - The mortgage banking segment reported net income of $7.7 million for 2021, down from $10.7 million in 2020, a decrease of 28.0%[294] - Net income for the consumer finance segment rose to $10.0 million in 2021, compared to $7.6 million in 2020, marking a 31.6% increase[310] Management Outlook and Strategy - Management's outlook for 2022 is positive, focusing on growing the loan portfolio and expanding digital services despite ongoing challenges[225] - C&F Mortgage anticipates continued investment in technology to enhance the digital application process and plans to grow its Lender Solutions division in 2022[226] - C&F Finance plans to diversify its business by generating higher quality automobile loan contracts and expanding its marine and RV lending business in 2022[227] COVID-19 Impact - The Corporation granted loan modifications related to COVID-19 on aggregate balances of $103.6 million since the pandemic began, with $7.2 million in loans still under modification as of December 31, 2021[386] - Management continues to monitor credit risk related to COVID-19 loan modifications, but cannot predict future borrower needs for further modifications[386]