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C&F Financial (CFFI) - 2023 Q3 - Quarterly Report
C&F Financial C&F Financial (US:CFFI)2023-11-06 16:00

PART I - Financial Information Item 1. Financial Statements 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 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 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 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 declared486 - The company declared cash dividends of $0.44 per share in Q3 2023 and $1.32 per share for the first nine months of 202356486 Consolidated Statements of Cash Flows 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 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 losses6465 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, 20234854 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 segment249 - The Corporation repurchased $5.8 million of its common stock in the first nine months of 2023 under its share repurchase program224 Results of Operations 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 months289208 - 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 expense297268 - 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 expenses269300 Asset Quality 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 collateral395 - 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 loans283346 Financial Condition 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 lending372 - 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 million378 - 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, 2023386445 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 deposits432 - 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 risk435 Item 4. Controls and Procedures 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, 2023438 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls474 PART II - Other Information Item 1A. Risk Factors 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 liquidity439467 - 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 specified475 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 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, 2023468193 Item 6. Exhibits 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)470479 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