C&F Financial (CFFI) - 2025 Q2 - Quarterly Report

PART I - Financial Information Financial Statements This section presents the unaudited consolidated financial statements for C&F Financial Corporation as of June 30, 2025, and for the three and six-month periods then ended, including balance sheets, statements of income, comprehensive income, equity, and cash flows, along with detailed notes Consolidated Balance Sheets As of June 30, 2025, total assets increased to $2.69 billion from $2.56 billion at year-end 2024, driven by growth in loans and securities, while total liabilities rose to $2.45 billion, primarily due to an increase in deposits and borrowings, and total equity grew to $240.9 million from $227.0 million Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,686,392 | $2,563,374 | | Loans, net | $1,952,087 | $1,880,311 | | Securities—available for sale | $434,506 | $418,625 | | Total cash and cash equivalents | $80,195 | $65,586 | | Total Liabilities | $2,445,476 | $2,336,404 | | Total deposits | $2,256,314 | $2,170,860 | | Total borrowings (Short & Long-term) | $120,660 | $97,152 | | Total Equity | $240,916 | $226,970 | Consolidated Statements of Income For the second quarter of 2025, net income attributable to the Corporation was $7.7 million, or $2.37 per diluted share, a significant increase from $5.0 million, or $1.50 per diluted share, in Q2 2024, with six-month net income reaching $13.1 million, up from $8.4 million in the prior year period, driven by higher net interest income and noninterest income Financial Performance (Unaudited) | (In thousands, except per share) | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $26,508 | $23,828 | $51,518 | $46,986 | | Provision for Credit Losses | $2,100 | $2,550 | $5,100 | $6,050 | | Noninterest Income | $9,848 | $7,324 | $17,421 | $14,816 | | Noninterest Expenses | $24,630 | $22,373 | $47,689 | $45,523 | | Net Income Attributable to C&F | $7,691 | $5,007 | $13,059 | $8,408 | | Net Income Per Share (diluted) | $2.37 | $1.50 | $4.03 | $2.50 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities was $1.2 million, a shift from $2.6 million provided in the same period of 2024, with net cash used in investing activities increasing to $89.6 million, and net cash provided by financing activities reaching $105.4 million, resulting in a net increase in cash and cash equivalents of $14.6 million Six Months Ended June 30, (In thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,177) | $2,590 | | Net cash used in investing activities | $(89,612) | $(72,222) | | Net cash provided by financing activities | $105,398 | $39,139 | | Net increase (decrease) in cash | $14,609 | $(30,493) | Notes to Consolidated Interim Financial Statements The notes provide detailed information on the Corporation's accounting policies and business operations, including the composition of its securities and loan portfolios, activity in the allowance for credit losses, goodwill stability, segment performance, and derivative instrument usage, notably the issuance of $40.0 million in new subordinated notes and repurchase of $20.0 million of existing notes on June 6, 2025 - The Corporation operates through three main segments: C&F Bank (commercial banking), C&F Mortgage (mortgage banking), and C&F Finance (consumer finance for automobile, marine, and RV loans)[25][26] - On June 6, 2025, the Corporation issued $40.0 million of 7.50% subordinated notes due 2035 and concurrently repurchased its $20.0 million of 4.875% subordinated notes due 2030[29] Loan Portfolio Composition (in thousands) | Loan Class | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Commercial real estate | $763,624 | $734,182 | | Commercial business | $110,932 | $104,947 | | Construction - commercial real estate | $141,314 | $132,717 | | Residential mortgage | $313,273 | $308,809 | | Consumer finance - automobiles | $397,365 | $398,651 | | Total Loans (Gross) | $1,991,665 | $1,920,398 | Allowance for Credit Losses Activity - Six Months Ended June 30, 2025 (in thousands) | Category | Commercial | Consumer | Consumer Finance | Total | | :--- | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2024 | $13,347 | $4,032 | $22,708 | $40,087 | | Provision | $(324) | $174 | $5,300 | $5,150 | | Net Charge-offs | $3 | $(39) | $(5,623) | $(5,659) | | Balance at June 30, 2025 | $13,026 | $4,167 | $22,385 | $39,578 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant increase in consolidated net income for Q2 and H1 2025, driven by strong performance in the community and mortgage banking segments, with key factors including loan growth, increased mortgage origination volume, and a higher net interest margin, covering detailed segment performance, asset quality trends, liquidity management, and capital resources, including a new subordinated debt issuance and an ongoing share repurchase program Financial Performance Highlights | (In thousands, except per share) | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Consolidated net income | $7,767 | $5,034 | $13,162 | $8,469 | | Earnings per share - diluted | $2.37 | $1.50 | $4.03 | $2.50 | | Annualized return on average assets | 1.18% | 0.82% | 1.01% | 0.69% | | Annualized return on average equity | 13.06% | 9.31% | 11.23% | 7.82% | - Key operational highlights for H1 2025 include 10.6% annualized loan growth in the community banking segment, a $85.5 million increase in deposits, and a rise in the consolidated annualized net interest margin to 4.27% for Q2 2025[163] Results of Operations Net interest income (tax-equivalent) increased to $26.8 million in Q2 2025 from $24.1 million in Q2 2024, with the net interest margin expanding to 4.27%, driven by higher earning asset yields and balances, while noninterest income grew 34.5% led by mortgage banking gains, and noninterest expense rose 10.1%, mainly from deferred compensation liabilities and marketing initiatives Change in Net Interest Income (Tax-Equivalent) - Q2 2025 vs Q2 2024 | (In thousands) | Increase (Decrease) Due to Rate | Increase (Decrease) Due to Volume | Total Increase (Decrease) | | :--- | :--- | :--- | :--- | | Total interest income | $1,056 | $2,055 | $3,111 | | Total interest expense | $(441) | $856 | $415 | | Change in net interest income | $1,497 | $1,199 | $2,696 | - Total noninterest income increased by $2.5 million (34.5%) in Q2 2025 compared to Q2 2024, primarily due to higher mortgage loan production volume, which led to increased gains on sales of loans and mortgage banking fee income[190] - Total noninterest expenses rose by $2.3 million (10.1%) in Q2 2025, mainly due to fluctuations in deferred compensation liabilities (offset in noninterest income) and higher marketing expenses from a strategic initiative started in late 2024[193] Business Segments In Q2 2025, the Community Banking segment's net income rose to $7.1 million from $4.6 million year-over-year, driven by higher net interest income and lower credit provisions, while the Mortgage Banking segment's net income increased to $985,000 from $376,000, fueled by a 46.2% rise in loan originations, and the Consumer Finance segment's net income fell to $539,000 from $894,000, impacted by higher credit provisions and lower interest income Net Income by Segment - Q2 2025 vs Q2 2024 (in thousands) | Segment | Q2 2025 Net Income | Q2 2024 Net Income | | :--- | :--- | :--- | | Community Banking | $7,116 | $4,571 | | Mortgage Banking | $985 | $376 | | Consumer Finance | $539 | $894 | - Mortgage loan originations increased 46.2% to $213.5 million in Q2 2025 from $146.0 million in Q2 2024, despite elevated mortgage interest rates[209][212] - The Consumer Finance segment's net charge-offs increased, leading to a higher provision for credit losses of $2.4 million in Q2 2025 compared to $2.1 million in Q2 2024[219] Asset Quality Overall asset quality remains sound, with the consolidated allowance for credit losses (ACL) to total loans at 1.99% at June 30, 2025, down from 2.09% at year-end 2024, while nonaccrual loans increased to $1.8 million (0.09% of total loans) from $0.9 million (0.05%), and the Community Banking segment saw a net reversal of credit provisions, while the Consumer Finance segment's provision increased due to higher net charge-offs (2.42% annualized for H1 2025) Consolidated Credit Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Nonaccrual loans to total loans | 0.09% | 0.05% | | ACL to total loans | 1.99% | 2.09% | | ACL to nonaccrual loans | 2,233.52% | 4,233.05% | - The Community Banking segment's nonaccrual loans increased to $1.1 million from $333,000 at year-end 2024, mainly due to the downgrade of one residential mortgage relationship[252] - The Consumer Finance segment's annualized net charge-off rate was 2.42% for the first six months of 2025, up from 2.21% for the same period in 2024, due to an increase in delinquent loans and repossessions[254] Financial Condition Total assets grew by $123.0 million to $2.7 billion in the first half of 2025, funded by an $85.5 million increase in deposits and a $23.5 million increase in borrowings, with loans held for investment increasing by $71.8 million, and the Corporation enhancing its capital structure by issuing $40.0 million in new subordinated debt and repurchasing $20.0 million of older notes, maintaining strong liquidity with $950.1 million in liquid assets and available funding significantly exceeding uninsured deposits - Total assets increased by $123.0 million since December 31, 2024, reaching $2.7 billion, primarily due to loan and deposit growth[259] - Deposits increased by $85.5 million in the first six months of 2025, with growth across noninterest-bearing demand, savings, and time deposit categories[279] - On June 6, 2025, the Corporation issued $40.0 million in new 7.50% fixed-to-floating rate subordinated notes and repurchased $20.0 million of existing 4.875% notes, strengthening its Tier 2 capital[283] - As of June 30, 2025, uninsured deposits were approximately $677.7 million (30.0% of total deposits). Excluding secured municipal and intercompany deposits, the uninsured amount was $536.1 million, which was covered 1.77 times by available liquidity of $950.1 million[289] Quantitative and Qualitative Disclosures About Market Risk The Corporation's primary market risk is interest rate volatility, monitored through simulation analysis and Economic Value of Equity (EVE) analysis, with a hypothetical 100 basis point rise in rates projected to increase net interest income by 2.05% over 12 months, while a 100 basis point drop would decrease it by 3.63%, and EVE analysis showing sensitivity to both rising and falling rates, with a greater negative impact from falling rates compared to the prior year-end One-Year Net Interest Income Simulation as of June 30, 2025 | Assumed Market Interest Rate Shift | Percentage Change | | :--- | :--- | | -300 BP shock | (11.94)% | | -200 BP shock | (7.90)% | | -100 BP shock | (3.63)% | | +100 BP shock | 2.05% | | +200 BP shock | 4.10% | | +300 BP shock | 6.14% | Static EVE Change as of June 30, 2025 | Assumed Market Interest Rate Shift | Percentage Change | | :--- | :--- | | -300 BP shock | (10.92)% | | -200 BP shock | (5.24)% | | -100 BP shock | (1.45)% | | +100 BP shock | (0.08)% | | +200 BP shock | (0.50)% | | +300 BP shock | (1.17)% | - The Corporation uses interest rate swaps to manage interest rate risk, including cash flow hedges to convert variable-rate trust preferred notes to fixed rates, and back-to-back swaps with commercial loan customers[325] Controls and Procedures Management, including the CEO and CFO, evaluated the Corporation's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes in the Corporation's internal control over financial reporting during the second quarter of 2025 - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2025[328] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[329] PART II - Other Information Legal Proceedings As of June 30, 2025, the Corporation is not involved in any material pending or threatened legal proceedings outside of those occurring in the ordinary course of business - The Corporation is not involved in any material pending or threatened legal proceedings other than those in the ordinary course of business[331] Risk Factors There have been no material changes to the risk factors disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in risk factors have occurred since the 2024 Annual Report on Form 10-K[332] Unregistered Sales of Equity Securities and Use of Proceeds The Corporation has a share repurchase program authorizing up to $5.0 million in repurchases for 2025, with no shares repurchased under this program during the second quarter of 2025, and a total of 145 shares withheld to satisfy employee tax obligations upon vesting of restricted stock - The Board authorized a $5.0 million share repurchase program for 2025. No shares were repurchased under this program in Q2 2025[333] - During Q2 2025, 145 shares were withheld from employees to satisfy tax withholding obligations related to vested restricted shares[335] Other Information During the second quarter of 2025, no directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q2 2025[336] Exhibits This section lists the exhibits filed with the report, including the form of the new Subordinated Note, CEO/CFO certifications, and financial statements formatted in Inline XBRL - Key exhibits include the Form of Subordinated Note (4.1), CEO/CFO certifications (31.1, 31.2, 32), and Inline XBRL financial data (101)[338]