C&F Financial (CFFI) - 2019 Q1 - Quarterly Report

PART I - Financial Information This section presents C&F Financial Corporation's unaudited consolidated financial statements for Q1 2019, including balance sheets, income statements, and cash flows, with total assets reaching $1.55 billion and net income at $3.8 million Financial Statements This section provides the unaudited consolidated financial statements for C&F Financial Corporation, detailing balance sheets, income, comprehensive income, equity, and cash flows for Q1 2019 Consolidated Balance Sheets This section presents the company's financial position, highlighting total assets, liabilities, and equity as of March 31, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $1,549,360 | $1,521,411 | | Loans, net | $1,042,052 | $1,028,097 | | Total cash and cash equivalents | $137,451 | $115,013 | | Total Liabilities | $1,394,460 | $1,369,453 | | Total deposits | $1,202,194 | $1,181,661 | | Total Equity | $154,900 | $151,958 | - Total assets increased by $27.9 million from December 31, 2018 to March 31, 2019, primarily driven by growth in loans and cash equivalents, funded by an increase in deposits[12] Consolidated Statements of Income This section details the company's financial performance, including net interest income, noninterest income, expenses, and net income for the three months ended March 31, 2019 and 2018 Consolidated Income Statement Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $19,647 | $20,168 | | Provision for loan losses | $2,395 | $3,300 | | Noninterest Income | $7,103 | $6,446 | | Noninterest Expenses | $19,677 | $18,539 | | Net Income | $3,771 | $3,892 | | Net income per share - basic and diluted | $1.08 | $1.11 | - Net income decreased by 3.1% year-over-year, primarily due to a slight decline in net interest income and higher noninterest expenses, which was partially offset by a lower provision for loan losses and higher noninterest income[14] Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018 Consolidated Cash Flow Highlights (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,797 | $22,109 | | Net cash used in investing activities | ($9,426) | ($5,970) | | Net cash provided by financing activities | $20,067 | $12,486 | | Net increase in cash and cash equivalents | $22,438 | $28,625 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, including information on subsidiaries, accounting policies, and segment performance - The Corporation operates through its subsidiary, Citizens and Farmers Bank (C&F Bank), which has five main subsidiaries: C&F Mortgage, C&F Finance, C&F Wealth Management, C&F Insurance Services, and CVB Title Services[31] - On January 1, 2019, the Corporation adopted the new lease accounting standard (ASC 842), resulting in the recognition of a lease liability of approximately $3.14 million and a corresponding right-of-use asset[37][40] Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Real estate – residential mortgage | $183,697 | $184,901 | | Commercial, financial and agricultural | $459,820 | $455,935 | | Consumer finance | $299,592 | $296,154 | | Total Loans (Gross) | $1,075,641 | $1,062,120 | Business Segment Net Income (Loss) (in thousands) | Segment | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Retail Banking | $2,290 | $2,312 | | Mortgage Banking | $567 | $435 | | Consumer Finance | $1,285 | $1,498 | | Other | ($371) | ($353) | | Consolidated Net Income | $3,771 | $3,892 | Management's Discussion and Analysis (MD&A) Management analyzes Q1 2019 financial condition and results, highlighting a slight net income decrease to $3.8 million due to net interest margin compression, partially offset by lower loan loss provisions Overview This section provides a high-level summary of the company's financial performance and key segment contributions for the first quarter of 2019 Key Financial Performance Measures | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $3.8 million | $3.9 million | | Diluted EPS | $1.08 | $1.11 | | Annualized ROE | 9.96% | 11.05% | | Annualized ROA | 1.00% | 1.04% | - Retail Banking net income was flat at $2.3 million, as higher loan income was offset by increased deposit costs and operating expenses[172][173] - Mortgage Banking net income increased to $567,000 from $435,000, driven by operational efficiencies despite lower loan production[177][178] - Consumer Finance net income decreased to $1.3 million from $1.5 million, as lower loan yields and higher borrowing costs were partially offset by a $905,000 decline in the provision for loan losses[179][180] Results of Operations This section details the drivers of net interest income, noninterest income, and noninterest expenses, explaining changes in profitability for the quarter - Net interest income (taxable-equivalent) decreased to $19.8 million in Q1 2019 from $20.4 million in Q1 2018, with the annualized net interest margin compressing by 19 basis points to 5.66% due to a 29 basis point increase in the cost of interest-bearing liabilities[194] - The overall yield on average loans decreased by 25 basis points to 7.72%, influenced by a shift in loan portfolio composition, competition in the consumer finance segment, and lower accretion from PCI loans[196] - Total noninterest income increased by 10.2% to $7.1 million, mainly due to $1.0 million in unrealized gains related to the non-qualified deferred compensation plan, which offset lower gains on loan sales[206] - Total noninterest expenses rose 6.1% to $19.7 million, driven by higher compensation expense tied to the deferred compensation plan and increased operating costs in the retail banking segment for technology and personnel[207] Asset Quality This section assesses the quality of the loan portfolio, focusing on the provision for loan losses, net charge-off ratios, and nonperforming assets - The provision for loan losses was $2.4 million for Q1 2019, down from $3.3 million in Q1 2018, entirely attributed to the Consumer Finance segment[213] - The Consumer Finance segment's annualized net charge-off ratio improved significantly, decreasing to 3.79% in Q1 2019 from 4.69% in Q1 2018, reflecting better credit quality in the auto loan portfolio[181][213] - Total nonperforming assets in the Retail Banking segment remained low at $1.8 million (0.24% of total loans and OREO) as of March 31, 2019[231][234] - The allowance for loan losses in the Consumer Finance segment as a percentage of its total loans decreased to 7.54% at March 31, 2019, from 7.77% at year-end 2018, due to lower charge-offs and a portfolio shift towards higher-quality marine and RV loans[237] Financial Condition, Liquidity and Capital Resources This section reviews the company's balance sheet growth, liquidity position, and regulatory capital ratios, confirming its well-capitalized status - Total assets grew by $27.9 million during the quarter to $1.5 billion, driven by loan growth funded by a $20.5 million increase in deposits[246][257] - Liquid assets (cash, interest-bearing deposits, and non-pledged securities) totaled $243.1 million at March 31, 2019, up from $220.1 million at year-end 2018[269] C&F Bank Regulatory Capital Ratios (March 31, 2019) | Ratio | Actual | Minimum Requirement | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 14.7% | 8.0% | 10.0% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.4% | 6.0% | 8.0% | | Common Equity Tier 1 Capital | 13.4% | 4.5% | 6.5% | | Tier 1 Capital (to Average Assets) | 11.0% | 4.0% | 5.0% | - As of March 31, 2019, C&F Bank exceeded all regulatory capital requirements to be considered well-capitalized, including the fully phased-in capital conservation buffer of 2.5%[277][280] Quantitative and Qualitative Disclosures About Market Risk This section confirms no significant changes in quantitative and qualitative disclosures regarding market risk compared to the prior annual report - No significant changes in market risk disclosures were reported for the quarter[283] Controls and Procedures Management, including the CEO and CFO, affirmed the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of the end of the reporting period[284] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal controls[287] PART II - Other Information This section provides additional information including risk factors, equity security sales, and a list of exhibits filed with the report Risk Factors This section confirms no material changes to the company's risk factors since the previous annual report on Form 10-K - No material changes to the risk factors disclosed in the 2018 Form 10-K were reported[289] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, including the number of shares bought back and the remaining authorization for Q1 2019 Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Jan 2019 | 17,829 | $51.78 | 13,850 | $3.17M | | Feb 2019 | 10,400 | $50.22 | 10,400 | $2.65M | | Mar 2019 | 8,819 | $52.01 | 8,157 | $2.23M | | Total | 37,048 | $51.40 | 32,407 | $2.23M | - The share repurchase program was reauthorized in April 2018 for up to $5.0 million and is effective through May 31, 2019 As of March 31, 2019, $2.2 million remained available for repurchase[290] Exhibits This section lists all exhibits accompanying the Form 10-Q, including loan agreement amendments and required CEO/CFO certifications - The exhibits filed with this report include an amendment to a loan and security agreement with C&F Finance Company, CEO/CFO certifications pursuant to Rule 13a-14(a) and Section 1350, and XBRL data files[293]