C&F Financial (US:CFFI)2023-08-07 16:00Interest 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].