UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2001 -------------------------------------------- [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to ------------------- ---------------------- Commission file number 000-23423 ---------------------------------------------------- C&F Financial Corporation -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Virginia 54-1680165 - --------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) Eighth and Main Streets West Point VA 23181 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Issuer's telephone number) (804) 843-2360 ------------------------------------------------ ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.[x] Yes [_] No APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 3,556,639 as of May 3, 2001. ------------------------------
TABLE OF CONTENTS <TABLE> <CAPTION> Part I - Financial Information Page - ------------------------------ ---- <S> <C> Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2001 and December 31, 2000........................ 1 Consolidated Statements of Income - Three months ended March 31, 2001 and 2000.................. 2 Consolidated Statements of Shareholders' Equity Three months ended March 31, 2001 and 2000 ................. 3 Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2000.................. 5 Notes to Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis ........................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 12 Part II - Other Information - --------------------------- Item 1. Legal Proceedings .............................................. 12 Item 2. Changes in Securities .......................................... 12 Item 3. Defaults Upon Senior Securities................................. 12 Item 4. Submission of Matters to a Vote of Security Holders ............ 12 Item 5. Other Information .............................................. 12 Item 6. Exhibits and Reports on Form 8-K................................ 12 Signatures............................................................... 13 </TABLE>
CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> ASSETS March 31, 2001 December 31, 2000 - ------ -------------- ----------------- (Unaudited) <S> <C> <C> Cash and due from banks $ 8,540 $ 8,923 Interest -bearing deposits in other banks 1,173 5,915 ----------- ----------- Total cash and cash equivalents 9,713 14,838 Securities -available for sale at fair value, amortized cost of $62,341 and $32,419, respectively 63,928 31,913 Securities-held to maturity at amortized cost, fair value of $0 and $34,836, respectively -- 33,770 Loans held for sale, net 40,190 17,600 Loans, net 243,040 229,944 Federal Home Loan Bank stock 1,595 1,595 Corporate premises and equipment, net of accumulated depreciation 11,581 9,890 Accrued interest receivable 2,406 2,404 Other assets 4,735 5,518 ----------- ----------- Total assets $ 377,188 $ 347,472 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Deposits Non-interest-bearing demand deposits $ 43,620 $ 35,735 Savings and interest-bearing demand deposits 119,630 117,566 Time deposits 147,861 137,387 ----------- ----------- Total deposits 311,111 290,688 Borrowings 17,355 13,969 Accrued interest payable 1,111 993 Other liabilities 6,716 3,041 ----------- ----------- Total liabilities 336,293 308,691 ----------- ----------- Commitments and contingent liabilities Shareholders' Equity Preferred stock ($1.00 par value, 3,000,000 shares authorized) -- -- Common stock ($1.00 par value, 8,000,000 shares authorized, 3,556,639 and 3,571,039 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively) 3,557 3,571 Additional paid-in capital -- 20 Retained earnings 36,292 35,523 Accumulated other comprehensive income (loss) net of tax of $540 and $172, respectively 1,046 (333) ----------- ------------ Total shareholders' equity 40,895 38,781 ----------- ----------- Total liabilities and shareholders' equity $ 377,188 $ 347,472 =========== =========== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 1
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands of dollars, except for per share amounts) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------------------ Interest Income 2001 2000 ---- ---- <S> <C> <C> Interest and fees on loans $ 5,929 $ 5,101 Interest on other market investments 18 44 Interest on securities U.S. treasury securities 20 20 U.S. government agencies and corporations 216 238 Tax-exempt obligations of states and political subdivisions 618 622 Corporate bonds and other 114 122 ------------- ------------ Total interest income 6,915 6,147 ------------- ------------ Interest Expense Savings and interest-bearing deposits 801 815 Certificates of deposit, $100,000 or more 448 228 Other time deposits 1,689 1,078 Short-term borrowings and other 210 332 ------------- ------------ Total interest expense 3,148 2,453 ------------- ------------ Net interest income 3,767 3,694 Provision for loan losses 100 75 ------------- ------------ Net interest income after provision for loan losses 3,667 3,619 ------------- ------------ Other Operating Income Gain on sale of loans 1,696 1,073 Service charges on deposit accounts 378 306 Other service charges and fees 611 394 Gain on sale of available for sale securities -- 105 Other income 273 190 ------------- ------------- Total other operating income 2,958 2,068 ------------- ------------- Other Operating Expenses Salaries and employee benefits 2,944 2,331 Occupancy expenses 601 585 Goodwill amortization 69 69 Other expenses 1,012 937 ------------- ------------- Total other operating expenses 4,626 3,922 ------------- ------------- Income before income taxes 1,999 1,765 Income tax expense 502 396 ------------- ------------- Net income $ 1,497 $ 1,369 ============= ============= Per Share Data Net income - basic $ .42 $ .38 Net income - assuming dilution $ .42 $ .37 Cash dividends paid and declared $ .14 $ .13 Weighted average number of shares and common stock equivalents outstanding 3,595,882 3,678,010 </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands of dollars) (Unaudited) <TABLE> <CAPTION> Accumulated Additional Other Common Paid-In Comprehensive Retained Comprehensive Stock Capital Income Earnings Income Total ----- ------- ------ -------- ------ ----- <S> <C> <C> <C> <C> <C> <C> Balance January 1, 2000 $ 3,645 $ 14 $ 32,728 $ (1,257) $ 35,130 Comprehensive Income Net income $ 1,369 1,369 1,369 Other comprehensive income, net of tax Unrealized gain on securities, net of reclassification adjustment (See disclosure below) 95 95 95 --------- Comprehensive income $ 1,464 ========= Stock options exercised 1 17 -- -- 18 Repurchase of common stock (3) (31) (14) -- (48) Cash dividends -- -- (474) -- (474) -------- ------- ---------- --------- --------- Balance March 31, 2000 $ 3,643 $ -- $ 33,609 $ (1,162) $ 36,090 ======== ======= ========== ========= ========= </TABLE> - ---------------------------- Disclosure of Reclassification Amount: Unrealized net holding gains arising during period $ 164 Less: reclassification adjustment for gains included in net income (69) ------- Net unrealized gains on securities $ 95 ======= The accompanying notes are an integral part of the consolidated financial statements. 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Amounts in thousands of dollars) <TABLE> <CAPTION> Accumulated Additional Other Common Paid-In Comprehensive Retained Comprehensive Stock Capital Income Earnings Income Total ----- ------- ------ -------- ------ ----- <S> <C> <C> <C> <C> <C> <C> Balance January 1, 2001 $ 3,571 $ 20 $ 35,523 $ (333) $ 38,781 Comprehensive Income Net income $ 1,497 1,497 1,497 Other comprehensive income, net of tax Unrealized gain on securities, net of reclassification adjustment/1/ 1,379 1,379 1,379 --------- Comprehensive income $ 2,876 ========= Stock options exercised 8 66 -- -- 74 Repurchase of common stock (22) (86) (229) -- (337) Cash dividends -- -- (499) -- (499) -------- --------- --------- -------- --------- Balance March 31, 2001 $ 3,557 $ -- $ 36,292 $ 1,046 $ 40,895 ======== ========= ========= ======== ========= </TABLE> - ---------------------------- /1/ There were no reclassification adjustments for the three months ended March 31, 2001. The accompanying notes are an integral part of the consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands of dollars) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income $ 1,497 $ 1,369 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 307 240 Amortization of goodwill 69 69 Provision for loan losses 100 75 Accretion of discounts and amortization of premiums on investment securities, net (23) (11) Proceeds from sale of loans 84,506 70,319 Origination of loans held for sale (107,095) (58,420) Change in other assets and liabilities: Accrued interest receivable (2) 67 Other assets 3 (641) Accrued interest payable 118 163 Other liabilities 3,738 (72) --------- --------- Net cash provided by (used in) operating activities (16,782) 13,158 --------- --------- Cash flows from investing activities: Proceeds from maturities of investments held to maturity -- 100 Proceeds from sales and maturities of investments available for sale 3,955 372 Purchase of investments available for sale (87) (351) Net increase in customer loans (13,196) (8,775) Purchase of corporate premises and equipment (1,999) (710) --------- --------- Net cash used in investing activities (11,327) (9,364) --------- --------- Cash flows from financing activities: Net increase (decrease) in demand, interest bearing interest-bearing demand and savings deposits 9,886 (2,443) Net increase (decrease) in time deposits 10,474 6,087 Net increase (decrease) in other borrowings 3,386 (11,805) Repurchase of common stock (337) (48) Proceeds from exercise of stock options 74 18 Cash dividends (499) (474) --------- --------- Net cash provided by (used in) financing activities 22,984 (8,665) --------- --------- Net increase (decrease) in cash and cash equivalents (5,125) (4,871) Cash and cash equivalents at beginning of period 14,838 15,486 --------- --------- Cash and cash equivalents at end of period $ 9,713 $ 10,615 ========= ========= Supplemental disclosure Interest paid $ 3,030 $ 2,290 Income taxes paid $ -- $ 52 </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the disclosures and notes required by generally accepted accounting principles. In the opinion of C&F Financial Corporation's management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of March 31, 2001, the results of operations for the three months ended March 31, 2001 and 2000, and cash flows for the three months ended March 31, 2001 and 2000 have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in C&F Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. The consolidated financial statements include the accounts of C&F Financial Corporation ("the Company") and its subsidiary, Citizens and Farmers Bank ("the Bank"), with all significant intercompany transactions and accounts being eliminated in consolidation. Note 2 Net income per share assuming dilution has been calculated on the basis of the weighted average number of shares of common stock and common stock equivalents outstanding for the applicable periods. Weighted average number of shares of common stock and common stock equivalents was 3,595,882 and 3,678,010 for the three months ended March 31, 2001 and 2000, respectively. Note 3 During the first quarter of 2000 the board of directors of C&F Financial Corporation authorized management to buy up to 10% of the Company's outstanding common stock in the open market at prices that management and the board of directors determine are prudent. The Company will consider current market conditions and the Company's current capital level, in addition to other factors, when deciding whether to repurchase stock. During the first three months of 2001 the Company repurchased 22,000 shares of its common stock in the open market at prices between $14.88 and $15.50 per share. During the first three months of 2000 the Company repurchased 3,000 shares of its common stock in the open market at prices between $14.625 and $16.50 per share. Note 4 In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. The Company adopted this Statement effective January 1, 2001 and, as permitted by the Statement, transferred securities with a book value of $33,770,000 and a market value of $34,836,000 to the available-for-sale category. Since the Company does not use derivative instruments and strategies, the adoption of the Statement did not have any effect on earnings or financial position. 6
Note 5 The Company operates in a decentralized fashion in two principal business activities, retail banking and mortgage banking. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities. Mortgage banking operating revenues consist mainly of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market, and loan origination fee income. The Company also has an investment company and a title company subsidiary which derive revenues from brokerage and title insurance services, respectively. The results of these subsidiaries are not significant to the Company as a whole and have been included in "Other." The following table presents segment information for the periods ended March 31, 2001 and 2000. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------- Period Ended March 31, 2001 Retail Mortgage Banking Banking Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Interest income $ 6,809 $ 407 $ -- $ (301) $ 6,915 Gain on sale of loans -- 1,696 -- -- 1,696 Other 530 515 217 -- 1,262 - ------------------------------------------------------------------------------------------------------------------ Total operating income 7,339 2,618 217 (301) 9,873 - ------------------------------------------------------------------------------------------------------------------ Expenses: Interest expense 3,148 301 -- (301) 3,148 Salaries and employee benefits 1,593 1,251 100 -- 2,944 Other 1,117 632 33 -- 1,782 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 5,858 2,184 133 (301) 7,874 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 1,481 434 84 -- 1,999 - ------------------------------------------------------------------------------------------------------------------ Total assets 365,947 43,499 21 (32,279) 377,188 Capital expenditures $ 1,928 $ 71 $ -- $ -- $ 1,999 - ------------------------------------------------------------------------------------------------------------------ <CAPTION> Period Ended March 31, 2000 Retail Mortgage Banking Banking Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Interest income $ 6,039 $ 265 $ -- $ (157) $ 6,147 Gain on sale of loans -- 1,073 -- -- 1,073 Other 585 258 152 -- 995 - ------------------------------------------------------------------------------------------------------------------ Total operating income 6,624 1,596 152 (157) 8,215 - ------------------------------------------------------------------------------------------------------------------ Expenses: Interest expense 2,453 157 -- (157) 2,453 Salaries and employee benefits 1,467 780 84 -- 2,331 Other 1,082 554 30 -- 1,666 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 5,002 1,491 114 (157) 6,450 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 1,622 105 38 -- 1,765 - ------------------------------------------------------------------------------------------------------------------ Total assets 317,441 14,219 23 (9,567) 322,116 Capital expenditures $ 681 $ 29 $ -- $ -- $ 710 - ------------------------------------------------------------------------------------------------------------------ </TABLE> The retail banking segment provides the mortgage banking segment with the funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking 7
segment interest at the daily FHLB advance rate plus 50 basis points. These transactions are eliminated to reach consolidated totals. Certain corporate overhead costs incurred by the retail banking segment are not allocated to the mortgage banking and other segments. ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion supplements and provides information about the major components of the results of operations and financial condition, liquidity and capital resources of the Company. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and supplemental financial data. Overview Net income for the three months ended March 31, 2001 was $1,497,000 compared to $1,369,000 for the same period of 2000. Earnings per diluted share were $.42 for the three months ended March 31, 2001 compared to $.37 per diluted share for the same period of 2000. Profitability, as measured by the Company's annualized return on average assets (ROA), decreased to 1.68% for the three months ended March 31, 2001, down from 1.73% for the same period of 2000. Another key indicator of performance, the annualized return on average equity (ROE) for the three months ended March 31, 2001 was 15.02%, compared to 15.45% for the three months ended March 31, 2000. For the year ended December 31, 2000, the Company's peer group, as reported by the Federal Reserve, had an average ROE and ROA of 12.06% and 1.05%, respectively. RESULTS OF OPERATIONS Net Interest Income Net interest income for the three months ended March 31, 2001 was $3.8 million, an increase of $73,000, or 1.9%, from $3.7 million for the three months ended March 31, 2000. The increase in net interest income is a result of an increase in the average balance of interest earning assets to $333.2 million for the three months ended March 31, 2001 compared to $297.9 million for the same period in 2000 offset by a decrease in the net interest margin on a taxable equivalent basis to 4.88% for the three months ended March 31, 2001 from 5.43% for the same period in 2000. The increase in average earning assets is a result of the increase in the average balance of loans held in the Bank's portfolio and an increase in the average balance of loans held for sale by C&F Mortgage Corporation. The increase in the Bank's loan portfolio is a result of increased loan demand resulting from a continuing emphasis on commercial and consumer lending. The increase in loans held for sale is a result of increased production at C&F Mortgage Corporation due to decreasing interest rates during the first quarter of 2001. Loans closed at C&F Mortgage Corporation for the three months ended March 31, 2001 were $107,455,000 compared to $58,420,000 for the comparable period in 2000. Loans sold during the first quarter of 2001 were $84,506,000 compared to $70,322,000 for the first quarter of 2000. The decrease in the Company's net interest margin on a taxable equivalent basis to 4.88% for the first three months of 2001 from 5.43% for the same period in 2000 was a result of a decrease in the yield on interest earning assets to 8.68% for the first quarter of 2001 from 8.73% for the same period in 2000 and an increase in the cost of funds for the first quarter of 2001 to 8
4.57% from 3.95% the first quarter of 2000. The decrease in the yield on interest earning assets was a result of a decrease in the yield on loans held by the Bank and an increase in the average balance of lower yielding loans held for sale at C&F Mortgage Corporation. Also, the yield on the Company's securities portfolio declined to 7.72% for the first quarter of 2001 compared to 7.91% for the same period in 2000 as a result of the maturities and calls of higher yielding securities. The decrease in the yield on loans held by the Bank is a result of the falling interest rate environment. The increase in the cost of funds for the Company was a result of the increase in the average balance of higher cost certificates of deposit as a percentage of total average interest bearing deposits. The increase in the average balance of certificates of deposit was a result of the increase in rates paid during 2000. The Federal Reserve increased interest rates 100 basis points during the first half of 2000. As a result rates paid on certificates of deposit rose accordingly. As interest rates have begun to decline during the first quarter of this year, the majority of these certificates of deposit should reprice throughout the current year thus reducing the company's cost of funds. Non-Interest Income Non-interest income increased $890,000, or 43%, to $2,958,000 for the three months ended March 31, 2001 from $2,068,000 for the same period in 2000. The majority of this increase was a result of a $623,000 increase in the gain on sale of loans and other fees due to the increase in volume of loans originated and sold by C&F Mortgage Corporation. Non-Interest Expense Non-interest expense increased $704,000, or 18%, to $4,626,000 for the three month period ended March 31, 2001 from $3,922,000 for the same period in 2000. This increase is mainly attributable to an additional branch office at the Bank, the overall growth in the Company and an increase in salaries expense and other operating expenses at C&F Mortgage Corporation resulting from the increase in origination of loans due to the lower interest rate environment. Income Taxes Applicable income taxes on earnings for the first three months of 2001 amounted to $502,000 resulting in an effective tax rate of 25.1% compared to $396,000, or 22.4%, for the same period in 2000. The increase in the effective tax rate for the quarter is a result of the decrease in earnings subject to no taxes, such as certain loans to municipalities or investment obligations of state and political subdivisions, as a percentage of total income. This decrease in earnings subject to no taxes as a percentage of total income is primarily a result of the increase in income at C&F Mortgage Corporation. Asset Quality-Allowance /Provision For Loan Losses The Company had $100,000 in provision expense for the first three months of 2001 compared to $75,000 for the same period in 2000. Loans charged off amounted to $23,000 for the three months ended March 31, 2001 and $12,000 for the same period of 2000. Recoveries amounted to $2,000 and $700 for the three months ended March 31, 2001 and 2000, respectively. The allowance for loan losses was $3.7 million and $3.6 million at March 31, 2001 and December 31, 2000, respectively. The allowance approximates 1.50% and 1.55% of total loans outstanding at March 31, 2001 and December 31, 2000, respectively. Management feels 9
that the reserve is adequate to absorb any losses on existing loans, which may become uncollectible. Nonperforming Assets Total non-performing assets, which consist of the Company's non-accrual loans and other real estate owned were $291,000 at March 31, 2001 compared to $473,000 at December 31, 2000. FINANCIAL CONDITION Summary At March 31, 2001, the Company had total assets of $377.2 million compared to $347.5 million at December 31, 2000. Loan Portfolio At March 31, 2001 loans held for sale amounted to $40.2 million compared to $17.6 million at December 31, 2000. The increase is a result of increased originations at C&F Mortgage Corporation resulting from the decrease in interest rates during the first quarter of this year. The following table sets forth the composition of the Company's loans in dollar amounts and as a percentage of the Company's total gross loans held for investment at the dates indicated: <TABLE> <CAPTION> March 31, 2001 December 31, 2000 (Dollars in Thousands) Amount Percent Amount Percent -------- --------- -------- ---------- <S> <C> <C> <C> <C> Real estate - mortgage $ 87,924 35% $ 87,428 37% Real estate - construction 9,100 4 9,109 4 Commercial, financial and agricultural 126,750 51 113,571 48 Equity lines 11,304 5 11,616 5 Consumer 12,642 5 12,815 6 ------------- --- ----------- --- Total loans 247,720 100% 234,539 100% === === Less unearned loan fees (992) (986) Less allowance for possible loan losses (3,688) (3,609) ------------- ----------- Total loans, net $ 243,040 $ 229,944 ============= =========== </TABLE> Investment Securities At March 31, 2001, total investment securities were $65,523,000 compared to $67,278,000 at December 31, 2000. Securities of U.S. Government agencies and corporations represent 18% of the total securities portfolio, obligations of state and political subdivisions were 72%, U.S. Treasury securities were 2%, and preferred stocks were 8% at March 31, 2001. 10
Deposits Deposits totaled $311.1 million at March 31, 2001 compared to $290.7 million at December 31, 2000. Non-interest bearing deposits totaled $43.6 million at March 31, 2001 compared to $35.7 million at December 31, 2000. Liquidity At March 31, 2001, cash, securities classified as available for sale and interest-bearing deposits were 21.09% of total earning assets. Asset liquidity is also provided by managing the investment maturities. Additional sources of liquidity available to the Company include its subsidiary bank's capacity to borrow additional funds through an established federal funds line with a regional correspondent bank and through an established line with the Federal Home Loan Bank. Capital Resources The Company's Tier I capital ratio was 13.5% at March 31, 2001 compared to 14.4% at December 31, 2000. The total risk-based capital ratio was 14.7% at March 31, 2001 compared to 15.6% at December 31, 2000. These ratios are in excess of the mandated minimum requirements. The decrease in the Tier I capital ratio and the total risked based capital ratio was a result of an increase in the Company's loan portfolio and in loans held for sale by C&F Mortgage Corporation. Shareholders' equity was $40.9 million at the end of the first quarter of 2001 compared to $38.8 million at December 31, 2000. The leverage ratio consists of Tier I capital divided by quarterly average assets. At March 31, 2001 and December 31, 2000, the Company's leverage ratio was 10.9%. This exceeds the required minimum leverage ratio of 4%. Effects of Inflation The effect of changing prices in financial institutions is typically different from other industries because the Company's assets and liabilities are monetary in nature. Interest rates are significantly impacted by inflation, but neither the timing nor the magnitude of the changes are directly related to price level indices. Impacts of inflation on interest rates, loan demands, and deposits are reflected in the consolidated financial statements. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 The statements contained in this report that are not historical facts may be forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which may be estimates or speak only as of the dates the statements were made. 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes from the quantitative and qualitative disclosures made in the December 31, 2000 Form 10 K. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which property of the Company is subject. ITEM 2. CHANGES IN SECURITIES - Inapplicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Inapplicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS C&F Financial Corporation's Annual Shareholders Meeting was held on April 17, 2001. (a) Joshua H. Lawson and Paul C. Robinson were elected as Class II Directors to the Board of Directors until the 2004 Annual Meeting of Shareholders. (b) Yount, Hyde & Barbour, P.C. was appointed as independent auditors of the Company for 2001. ITEM 5. OTHER INFORMATION - Inapplicable ITEM 6. REPORTS ON FORM 8-K (a) Reports on Form 8-K On March 27, 2001 a report on Form 8-K was filed to announce the continuation of the Company's Stock Repurchase Plan. 12
SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C&F FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Registrant) Date May 3, 2001 /s/ Larry G. Dillon ----------- --------------------------------------- Larry G. Dillon, Chairman and President Date May 3, 2001 /s/ Thomas F. Cherry ----------- --------------------------------------- Thomas F. Cherry, Chief Financial Officer