C&F Financial (CFFI) - 2024 Q1 - Quarterly Results

First Quarter 2024 Highlights Consolidated net income significantly decreased in Q1 2024 due to higher deposit costs and interest rates, despite good loan and deposit growth, while segment performance was mixed Consolidated Financial Performance Consolidated net income significantly decreased in Q1 2024 due to higher deposit costs and interest rates, despite good loan and deposit growth Consolidated Financial Highlights (unaudited) | Consolidated Financial Highlights (unaudited) | For The Quarter Ended 3/31/2024 | For The Quarter Ended 3/31/2023 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | | Consolidated net income (000's) | $3,435 | $6,497 | | Earnings per share - basic and diluted | $1.01 | $1.86 | | Annualized return on average equity | 6.33 % | 12.87 % | | Annualized return on average tangible common equity | 7.30 % | 14.93 % | | Annualized return on average assets | 0.57 % | 1.10 % | - CEO Tom Cherry noted that net income continues to be affected by increases in deposit costs due to a change in deposit mix and the overall higher interest rate environment, though there are signs deposit costs are peaking[27] - Consolidated annualized net interest margin was 4.09% for Q1 2024, down from 4.52% in Q1 2023 and 4.17% in Q4 2023[27] Segment Performance Overview Community Banking experienced growth but lower net income, Mortgage Banking improved despite lower originations, and Consumer Finance reported a net loss - Community banking segment loans grew $67.7 million (21.3% annualized) compared to December 31, 2023[27] - Consumer finance segment loans grew $7.6 million (6.5% annualized) compared to December 31, 2023[27] - Deposits increased $21.8 million (4.2% annualized) compared to December 31, 2023[27] - Mortgage banking segment loan originations were $94.3 million for Q1 2024, an 18.5% decrease from Q1 2023[28] Consolidated Financial Performance Consolidated net income and net interest income decreased in Q1 2024, primarily driven by higher interest expenses on deposits, despite some asset yield and loan growth Net Income and Earnings Per Share Consolidated net income and basic/diluted EPS significantly decreased in Q1 2024 compared to Q1 2023 Other Performance Data (in thousands) | Other Performance Data (in thousands) | Quarter Ended 3/31/2024 | Quarter Ended 3/31/2023 | | :------------------------------------ | :---------------------- | :---------------------- | | Net Income (Loss): | | | | Community Banking | $4,012 | $6,418 | | Mortgage Banking | $294 | $227 | | Consumer Finance | $(63) | $509 | | Other | $(808) | $(657) | | Total | $3,435 | $6,497 | | Earnings per share - basic and diluted | $1.01 | $1.86 | | Weighted average shares outstanding - basic and diluted | 3,370,934 | 3,464,895 | Net Interest Income and Margin Net interest income decreased due to higher deposit costs, despite asset yield and loan growth, leading to a lower net interest margin - Higher interest expense was due primarily to higher rates on deposits and higher balances of interest-bearing deposits[2] - Higher interest income resulted from the effects of rising interest rates on asset yields and higher average balances of loans, partially offset by lower average balances of securities[2] Results of Operations (in thousands) | Results of Operations (in thousands) | Quarter Ended 3/31/2024 | Quarter Ended 3/31/2023 | | :----------------------------------- | :---------------------- | :---------------------- | | Interest income | $32,708 | $29,305 | | Interest expense | $9,550 | $4,347 | | Net income | $3,435 | $6,497 | | Fully-taxable equivalent (FTE) amounts: | | | | Total interest income-FTE | $32,993 | $29,515 | | Net interest income-FTE | $23,443 | $25,168 | Interest Rate Metrics | | 3/31/2024 | 3/31/2023 | | :----------------------------------- | :-------- | :-------- | | Interest rate spread | 3.40 % | 4.16 % | | Interest expense to average earning assets | 1.66 % | 0.78 % | | Net interest margin | 4.09 % | 4.52 % | Segment Performance The Community Banking segment saw growth but lower net income, Mortgage Banking improved despite declining originations, and Consumer Finance reported a net loss due to increased credit losses Community Banking Segment Community Banking net income decreased due to higher interest expense, despite significant loan and deposit growth, with increased nonaccrual loans - Net income for the community banking segment was $4.0 million for Q1 2024, down from $6.4 million for Q1 2023[37] - Average loans increased $130.1 million (11.1%) for Q1 2024 compared to Q1 2023, driven by commercial real estate, construction, and residential mortgage segments[37] - Average deposits increased $72.3 million (3.6%) for Q1 2024 compared to Q1 2023[37] Asset Quality - Community Banking (in thousands) | Asset Quality - Community Banking (in thousands) | 3/31/2024 | 12/31/2023 | | :----------------------------------------------- | :-------- | :--------- | | Total loans | $1,341,324| $1,273,629 | | Nonaccrual loans | $550 | $406 | | Allowance for credit losses (ACL) | $16,634 | $16,072 | | Nonaccrual loans to total loans | 0.04 % | 0.03 % | | ACL to total loans | 1.24 % | 1.26 % | Mortgage Banking Segment Mortgage Banking net income increased due to a reversal of indemnification losses and reduced expenses, despite a significant decline in loan originations - Net income for the mortgage banking segment was $294,000 for Q1 2024, up from $227,000 for Q1 2023[23] - The segment recorded a reversal of provision for indemnification losses of $140,000 in Q1 2024, compared to no provision in Q1 2023, due to improved borrower payment performance[4] - Mortgage loan originations were $94.3 million for Q1 2024, a decrease of $21.5 million (18.5%) compared to Q1 2023, attributed to elevated interest rates, higher home prices, and low inventory[20][28] Consumer Finance Segment Consumer Finance reported a net loss due to higher provision for credit losses and increased net charge-offs, reaching 2.54% of average total loans - The consumer finance segment reported a net loss of $63,000 for Q1 2024, compared to net income of $509,000 for Q1 2023[29] - Net charge-offs were at an annualized rate of 2.54% of average total loans for Q1 2024, up from 1.77% for Q1 2023, due to increased delinquent loans, repossessions, and declining wholesale values of used automobiles[5][28] - Provision for credit losses was $3.0 million for Q1 2024, compared to $1.6 million for Q1 2023[27] Asset Quality - Consumer Finance (in thousands) | Asset Quality - Consumer Finance (in thousands) | 3/31/2024 | 12/31/2023 | | :---------------------------------------------- | :-------- | :--------- | | Total loans | $476,103 | $468,510 | | Nonaccrual loans | $741 | $892 | | Repossessed assets | $544 | $646 | | ACL | $23,566 | $23,579 | | Nonaccrual loans to total loans | 0.16 % | 0.19 % | | ACL to total loans | 4.95 % | 5.03 % | | Annualized year-to-date net charge-offs to average loans | 2.54 % | 1.99 % | Financial Condition and Liquidity Total assets and deposits increased slightly, while total equity decreased, with the Corporation maintaining robust liquidity and overall strong asset quality despite some segment-specific challenges Balance Sheet Overview Total assets and deposits increased slightly, while total equity experienced a minor decrease at March 31, 2024 Financial Condition (in thousands) | Financial Condition (in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--------------------------------- | :---------- | :---------- | :---------- | | Total assets | $2,469,751 | $2,438,498 | $2,440,333 | | Deposits | $2,087,932 | $2,066,130 | $1,995,798 | | Other borrowings | $93,772 | $78,834 | $165,444 | | Total equity | $216,949 | $217,516 | $203,184 | Liquidity Management The Corporation maintains robust liquidity, with $872.3 million in liquid assets and borrowing availability, significantly exceeding uninsured deposits - Uninsured deposits were approximately $560.3 million (26.8% of total deposits) at March 31, 2024[6] - Excluding intercompany cash holdings and secured municipal deposits, uninsured amounts were approximately $408.3 million (19.6% of total deposits)[6] - Liquid assets (cash, interest-bearing deposits, nonpledged securities available for sale) were $298.5 million, and borrowing availability was $573.8 million at March 31, 2024[6] - Total liquid assets and borrowing availability exceeded uninsured deposits (excluding intercompany and secured municipal deposits) by $464.0 million[6] Borrowings Total borrowings increased to $121.6 million due to higher FHLB borrowings, with significant available borrowing capacity - Total borrowings increased to $121.6 million at March 31, 2024, from $109.5 million at December 31, 2023, mainly due to higher FHLB borrowings[31] Funding Sources (in thousands) | Funding Sources (in thousands) | Capacity | Outstanding | Available | | :----------------------------------- | :---------- | :---------- | :---------- | | Unsecured federal funds agreements | $75,000 | $2 | $74,998 | | Borrowings from FHLB | $222,876 | $40,000 | $182,876 | | Borrowings from Federal Reserve Bank | $315,947 | — | $315,947 | | Total | $613,823 | $40,002 | $573,821 | Asset Quality Overall asset quality remains strong, but the consumer finance segment saw increased net charge-offs and delinquencies, while community banking nonaccrual loans slightly rose - The allowance for credit losses for the consumer finance segment was $23.6 million at March 31, 2024, consistent with December 31, 2023[5] - Total delinquent loans as a percentage of total loans in the consumer finance segment was 2.78% at March 31, 2024, down from 4.09% at December 31, 2023, but up from 2.33% at March 31, 2023[5] - The allowance for credit losses for the community banking segment increased to $16.6 million at March 31, 2024, from $16.1 million at December 31, 2023, primarily due to loan portfolio growth[38] Capital Management and Shareholder Returns Total consolidated equity slightly decreased, but C&F Bank remains well-capitalized, while the Corporation declared a quarterly dividend and continued its share repurchase program Equity and Capital Ratios Total consolidated equity slightly decreased due to unrealized losses and shareholder distributions, but C&F Bank remains well-capitalized - Total consolidated equity decreased $567,000 at March 31, 2024, compared to December 31, 2023, primarily due to higher unrealized losses in available-for-sale securities, share repurchases, and dividends, mostly offset by net income[8] - The accumulated other comprehensive loss related to securities available for sale increased to $27.1 million at March 31, 2024, from $25.0 million at December 31, 2023, due to rising debt security market interest rates[8] - C&F Bank was categorized as well capitalized by the FDIC at March 31, 2024, exceeding all minimum regulatory capital requirements[32] Capital Ratios | Capital Ratios (C&F Financial Corporation) | 3/31/2024 | 12/31/2023 | Minimum Capital Requirements | | :----------------------------------------- | :-------- | :--------- | :--------------------------- | | Total risk-based capital ratio | 14.5 % | 14.8 % | 8.0 % | | Tier 1 risk-based capital ratio | 12.2 % | 12.6 % | 6.0 % | | Common equity tier 1 capital ratio | 11.0 % | 11.3 % | 4.5 % | | Tier 1 leverage ratio | 10.1 % | 10.1 % | 4.0 % | | Capital Ratios (C&F Bank) | | | | | Total risk-based capital ratio | 13.8 % | 14.1 % | 8.0 % | | Tier 1 risk-based capital ratio | 12.6 % | 12.9 % | 6.0 % | | Common equity tier 1 capital ratio | 12.6 % | 12.9 % | 4.5 % | | Tier 1 leverage ratio | 10.3 % | 10.3 % | 4.0 % | Dividends The Corporation declared a $0.44 per share quarterly cash dividend for Q1 2024, representing a 43.6% payout ratio - A quarterly cash dividend of $0.44 per share was declared for Q1 2024, paid on April 1, 2024[7] - This dividend represents a payout ratio of 43.6% of earnings per share for Q1 2024[7] Share Repurchase Program A share repurchase program for up to $10.0 million was authorized, with 9,654 shares ($516,000) repurchased in Q1 2024 - A share repurchase program was authorized in December 2023, effective January 1, 2024, for up to $10.0 million of common stock through December 31, 2024[9] - During Q1 2024, 9,654 shares ($516,000) of common stock were repurchased under this program[9] Company Information C&F Financial Corporation is the holding company for C&F Bank and its subsidiaries, offering diverse financial services across multiple states Overview of Operations C&F Financial Corporation is the holding company for C&F Bank and its subsidiaries, offering banking, mortgage, and consumer finance services across multiple states - C&F Bank operates 31 banking offices and four commercial loan offices throughout eastern and central Virginia, offering full wealth management services through C&F Wealth Management, Inc[33] - C&F Mortgage Corporation provides mortgage loan origination services in Virginia, Maryland, North Carolina, and West Virginia[33] - C&F Finance Company offers automobile, marine, and recreational vehicle loans through indirect lending programs in 17 states[33] - The Corporation's common stock is listed on The Nasdaq Stock Market under the symbol CFFI[10] Non-GAAP Financial Measures Management uses non-GAAP measures to enhance comparability and provide a clearer view of operating performance, with detailed reconciliations provided for key metrics Use of Non-GAAP Financial Measures Management uses non-GAAP measures like ROTCE and tangible book value per share to enhance comparability and provide a clearer view of operating performance - Management uses non-GAAP measures like adjusted net income, adjusted earnings per share, ROTCE, and tangible book value per share to evaluate performance[41] - These non-GAAP measures enhance comparability by excluding the effects of intangible assets (including goodwill) and tax benefits that vary between institutions and investment opportunities[42] Reconciliation of Non-GAAP Financial Measures Detailed reconciliations are provided for key non-GAAP metrics, including ROTCE, FTE Net Interest Income, and Tangible Book Value Per Share Return on Average Tangible Common Equity (in thousands) | Return on Average Tangible Common Equity (in thousands) | For The Quarter Ended 3/31/2024 | For The Quarter Ended 3/31/2023 | | :------------------------------------------------------ | :------------------------------ | :------------------------------ | | Average total equity, as reported | $217,063 | $201,856 | | Average tangible common equity | $189,857 | $174,371 | | Net income | $3,435 | $6,497 | | Net tangible income attributable to C&F Financial Corporation | $3,466 | $6,509 | | Annualized return on average equity, as reported | 6.33 % | 12.87 % | | Annualized return on average tangible common equity | 7.30 % | 14.93 % | Tangible Book Value Per Share (in thousands) | Tangible Book Value Per Share (in thousands) | 3/31/2024 | 12/31/2023 | | :------------------------------------------- | :-------- | :--------- | | Equity attributable to C&F Financial Corporation | $216,340 | $216,878 | | Tangible equity attributable to C&F Financial Corporation | $189,807 | $190,280 | | Shares outstanding | 3,367,619 | 3,374,098 | | Book value per share | $64.24 | $64.28 | | Tangible book value per share | $56.36 | $56.40 | Fully Taxable Equivalent Net Interest Income (in thousands) | Fully Taxable Equivalent Net Interest Income (in thousands) | For The Quarter Ended 3/31/2024 | For The Quarter Ended 3/31/2023 | | :---------------------------------------------------------- | :------------------------------ | :------------------------------ | | Interest income on loans | $29,586 | $26,060 | | FTE interest income on loans | $29,636 | $26,107 | | Interest income on securities | $2,863 | $3,069 | | FTE interest income on securities | $3,098 | $3,232 | | Total interest income | $32,708 | $29,305 | | FTE interest income | $32,993 | $29,515 | | Net interest income | $23,158 | $24,958 | | FTE net interest income | $23,443 | $25,168 | Forward-Looking Statements and Risk Factors This section outlines forward-looking statements based on management's beliefs and identifies key risk factors that could materially affect future results Forward-Looking Statements This section contains forward-looking statements based on management's beliefs, but actual results may differ materially due to inherent uncertainties and risk factors - The press release contains forward-looking statements based on management's beliefs and assumptions, reflecting current views on events that could impact future financial performance[43] - Statements relate to expectations concerning matters not historical fact, using expressions like 'believe,' 'expect,' 'anticipate,' 'estimate,' and 'plan'[43] - Actual results could differ materially from anticipated or implied statements due to inherent uncertainties[43] Risk Factors Key risk factors include changes in interest rates, economic conditions, financial services industry conditions, labor markets, and legislative/regulatory climate - Factors that could have a material adverse effect include changes in interest rates (e.g., volatility in short-term rates, Federal Reserve actions, mortgage interest rates)[43] - General business and economic conditions, including unemployment, inflation, supply chain disruptions, and slowdowns in economic growth, pose risks[43] - Financial services industry conditions, such as bank failures or liquidity concerns, and labor market conditions, including attracting and retaining qualified employees, are also significant risks[43] - Other risks include legislative/regulatory changes, demand for financial services, value of securities, loan portfolio quality, used automobile market fluctuations, and cybersecurity threats[43][48]