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, 2002 -------------------------------------------------- [_] 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: 3,533,093 as of May 9, 2002. ----------------------------
TABLE OF CONTENTS <TABLE> <CAPTION> Part I - Financial Information Page - ------------------------------ ---- <S> <C> Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2002 and December 31, 2001 ............................ 1 Consolidated Statements of Income - Three months ended March 31, 2002 and 2001 ...................... 2 Consolidated Statements of Shareholders' Equity Three months ended March 31, 2002 and 2001 ...................... 3 Consolidated Statements of Cash Flows - Three months ended March 31, 2002 and 2001 ...................... 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 .................................................. 13 Item 2. Changes in Securities .............................................. 13 Item 3. Defaults Upon Senior Securities .................................... 13 Item 4. Submission of Matters to a Vote of Security Holders ................ 13 Item 5. Other Information .................................................. 13 Item 6. Exhibits and Reports on Form 8-K ................................... 13 Signatures .................................................................... 14 </TABLE>
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> ASSETS March 31, 2002 December 31, 2001 - ------ -------------- ----------------- (Unaudited) <S> <C> <C> Cash and due from banks $ 10,651 $ 10,127 Interest-bearing deposits in other banks 35,109 930 ----------- ----------- Total cash and cash equivalents 45,760 11,057 Securities-available for sale at fair value, amortized cost of $57,659 and $53,123, respectively 58,576 53,953 Loans held for sale, net 50,937 69,263 Loans, net 240,826 246,112 Federal Home Loan Bank stock 1,690 1,595 Corporate premises and equipment, net of accumulated depreciation 14,635 14,639 Accrued interest receivable 1,952 2,134 Other assets 5,262 5,323 ----------- ----------- Total assets $ 419,638 $ 404,076 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Deposits Non-interest-bearing demand deposits $ 50,193 $ 38,489 Savings and interest-bearing demand deposits 144,271 131,509 Time deposits 159,127 153,914 ----------- ----------- Total deposits 353,591 323,912 Borrowings 10,330 27,204 Accrued interest payable 828 811 Other liabilities 8,734 7,406 ----------- ----------- Total liabilities 373,483 359,333 ----------- ----------- 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, 3,531,493 and 3,526,126 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively) 3,531 3,526 Additional paid-in capital 116 47 Retained earnings 41,902 40,622 Accumulated other comprehensive income net of tax of $312 and $282, respectively 606 548 ----------- ----------- Total shareholders' equity 46,155 44,743 ----------- ----------- Total liabilities and shareholders' equity $ 419,638 $ 404,076 =========== =========== </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except for share and per share amounts) <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- Interest income 2002 2001 ---- ---- <S> <C> <C> Interest and fees on loans $ 5,770 $ 5,929 Interest on other market investments 68 18 Interest on securities U.S. treasury securities -- 20 U.S. government agencies and corporations -- 216 Tax-exempt obligations of states and political subdivisions 578 618 Corporate bonds and other 136 114 ------------- ------------- Total interest income 6,552 6,915 ------------- ------------- Interest expense Savings and interest-bearing deposits 610 801 Certificates of deposit, $100,000 or more 362 448 Other time deposits 1,251 1,689 Short-term borrowings and other 105 210 ------------- -------------- Total interest expense 2,328 3,148 ------------- ------------- Net interest income 4,224 3,767 Provision for loan losses 75 100 ------------- ------------- Net interest income after provision for loan losses 4,149 3,667 ------------- ------------- Other operating income Gain on sale of loans 2,594 1,696 Service charges on deposit accounts 413 378 Other service charges and fees 731 611 Gain on maturities and calls of available for sale securities 15 -- Other income 328 273 ------------- ------------- Total other operating income 4,081 2,958 ------------- ------------- Other operating expenses Salaries and employee benefits 3,735 2,944 Occupancy expenses 775 601 Goodwill amortization 47 69 Other expenses 1,163 1,012 ------------- ------------- Total other operating expenses 5,720 4,626 ------------- ------------- Income before income taxes 2,510 1,999 Income tax expense 700 502 ------------- ------------- Net income $ 1,810 $ 1,497 ============= ============= Per share data Net income - basic $ .51 $ 42 Net income - assuming dilution $ .50 $ 42 Cash dividends paid and declared $ .15 $ 14 Weighted average number of shares - basic 3,529,267 3,569,121 Weighted average number of shares - assuming dilution 3,595,822 3,595,882 </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In thousands) <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. 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) (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, 2002 $ 3,526 $ 47 $ 40,622 $548 $ 44,743 Comprehensive income Net income $ 1,810 1,810 1,810 Other comprehensive income, net of tax Unrealized gain on securities, net of reclassification adjustment (See disclosure below) 58 58 58 --------- Comprehensive income $ 1,868 ========= Stock options exercised 5 69 -- -- 74 Cash dividends -- -- (530) -- (530) -------- ------- --------- -------- --------- Balance March 31, 2002 $ 3,531 $ 116 $ 41,902 $ 606 $ 46,155 ======== ======= ========= ======== ========= ____________________________ Disclosure of Reclassification Amount: Unrealized net holding gains arising during period $ 68 Less: reclassification adjustment for gains included in net income (10) ----- Net unrealized gains on securities $ 58 ===== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2002 2001 ---- ---- <S> <C> <C> Cash flows from operating activities: Net income $ 1,810 $ 1,497 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 412 307 Amortization of goodwill 47 69 Provision for loan losses 75 100 Accretion of discounts and amortization of premiums on investment securities, net (3) (23) Net realized gain on securities (15) -- Proceeds from sale of loans 156,961 84,506 Origination of loans held for sale (138,635) (107,095) Change in other assets and liabilities: Accrued interest receivable 182 (2) Other assets (14) 3 Accrued interest payable 17 118 Other liabilities 1,328 3,738 ---------- ---------- Net cash provided by (used in) operating activities 22,165 (16,782) ---------- ---------- Cash flows from investing activities: Proceeds from maturities and calls of securities available for sale 1,715 3,955 Purchase of securities available for sale (6,232) (87) Net (increase) decrease in customer loans 5,211 (13,196) Purchase of corporate premises and equipment (426) (1,999) Sale of corporate premises and equipment 16 -- Purchase of Federal Home Loan Bank Stock (95) -- ---------- ---------- Net cash provided by (used in) investing activities 189 (11,327) ---------- ---------- Cash flows from financing activities: Net increase in demand, interest bearing interest-bearing demand and savings deposits 24,466 9,886 Net increase in time deposits 5,213 10,474 Net increase (decrease) in other borrowings (16,874) 3,386 Repurchase of common stock -- (337) Proceeds from exercise of stock options 74 74 Cash dividends (530) (499) ---------- ---------- Net cash provided by financing activities 12,349 22,984 ---------- ---------- Net increase (decrease) in cash and cash equivalents 34,703 (5,125) Cash and cash equivalents at beginning of period 11,057 14,838 ---------- ---------- Cash and cash equivalents at end of period $ 45,760 $ 9,713 ========== ========== Supplemental disclosure Interest paid $ 2,311 $ 3,030 Income taxes paid $ -- $ -- </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 United States of America. 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, 2002, the results of operations for the three months ended March 31, 2002 and 2001, and cash flows for the three months ended March 31, 2002 and 2001 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, 2001. 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 3,595,822 and 3,595,882 for the three months ended March 31, 2002 and 2001, respectively. Note 3 During the first quarter 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 quarter of 2002, the Company did not repurchase any shares of its common stock. Note 4 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, an insurance company and a title company subsidiary which derive revenues from brokerage, insurance and title insurance services. 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, 2002 and 2001. 6
<TABLE> <CAPTION> ================================================================================================================== Period Ended March 31, 2002 Retail Mortgage Banking Banking Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Revenues: Interest income $ 6,035 $ 758 $ -- $ (241) $ 6,552 Gain on sale of loans -- 2,594 -- -- 2,594 Other 588 653 246 -- 1,487 - ------------------------------------------------------------------------------------------------------------------ Total operating income 6,623 4,005 246 (241) 10,633 - ------------------------------------------------------------------------------------------------------------------ Expenses: Interest expense 2,328 241 -- (241) 2,328 Salaries and employee benefits 1,724 1,909 102 -- 3,735 Other 1,308 708 44 -- 2,060 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 5,360 2,858 146 (241) 8,123 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 1,263 1,147 100 -- 2,510 - ------------------------------------------------------------------------------------------------------------------ Total assets 403,667 55,594 32 (39,655) 419,638 Capital expenditures $ 296 $ 130 $ -- $ -- $ 426 - ------------------------------------------------------------------------------------------------------------------ <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 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ </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 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. 7
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. Critical Accounting Policies Reserve for Loan Losses: The reserve for loan losses is established through a provision for loan losses charged to expense. The reserve represents an amount which, in management's judgment, will be adequate to absorb any losses on existing loans which may become uncollectible. Management's judgment in determining the adequacy of the reserve is based on evaluations of the collectibility of loans while taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower's ability to repay, overall portfolio quality, and review of specific potential losses. Loans are charged against the reserve for loan losses when management believes that the collectibility of the principal is unlikely. Actual future losses may differ from estimates as a result of unforeseen events. Impaired Loans: Impaired loans are measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan (or, as a practical expedient, at the loan's observable market price) or the fair value of the collateral if the loan is collateral dependent. The Company considers a loan impaired when it is probable that the Company will be unable to collect all interest and principal payments as scheduled in the loan agreement. A loan is not considered impaired during a period of delay in payment if the ultimate collectibility of all amounts due is expected. A valuation allowance is maintained to the extent that the measure of the impaired loan is less than the recorded investment. Valuation of Derivatives: The Company does not hold any derivative instruments in its securities portfolio. Overview Net income for the three months ended March 31, 2002 was $1,810,000 compared to $1,497,000 for the same period of 2001. Earnings per diluted share were $.50 for the three months ended March 31, 2002 compared to $.42 per diluted share for the same period of 2001. Profitability, as measured by the Company's annualized return on average assets (ROA), increased to 1.81% for the three months ended March 31, 2002, up from 1.68% for the same period of 2001. Another key indicator of performance, the annualized return on average equity (ROE) for the three months ended March 31, 2002 was 15.77%, compared to 15.02% for the three months ended March 31, 2001. For the year ended December 31, 2001, the Company's peer group, as reported by the Federal Reserve, had an average ROE and ROA of 11.11% and 1.03%, respectively. 8
RESULTS OF OPERATIONS Net Interest Income Net interest income for the three months ended March 31, 2002 was $4.2 million, an increase of $457,000, or 12.2%, from $3.8 million for the three months ended March 31, 2001. The increase in net interest income is a result of an increase in the average balance of interest earning assets to $371.3 million for the three months ended March 31, 2002 compared to $333.2 million for the same period in 2001 and an increase in the net interest margin on a taxable equivalent basis to 4.96% for the three months ended March 31, 2002 from 4.88% for the same period in 2001. 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 the lower interest rate environment during the first quarter of 2002 as compared to the first quarter of 2001. Loans closed at C&F Mortgage Corporation for the three months ended March 31, 2002 were $138,635,000 compared to $107,095,000 for the comparable period in 2001. Loans sold during the first quarter of 2002 were $156,961,000 compared to $84,506,000 for the first quarter of 2001. The increase in the Company's net interest margin on a taxable equivalent basis to 4.96% for the first three months of 2002 from 4.88% for the same period in 2001 was a result of a decrease in the cost of funds for the first quarter of 2002 to 3.10% from 4.57% the first quarter of 2001 offset by a decrease in the yield on interest earning assets to 7.50% for the first quarter of 2002 from 8.68% for the same period in 2001. The decrease in the yield on interest earning assets was a result of a decrease in the yield on loans held by the Bank resulting from the lower interest rate environment, an increase in the average balance of lower yielding loans held for sale at C&F Mortgage Corporation and an increase in the average balance of lower yielding interest bearing deposits at other banks. Also, the yield on the Company's securities portfolio declined to 7.61% for the first quarter of 2002 compared to 7.72% for the same period in 2001 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 decrease in the cost of funds for the Company was a result of the falling interest rate environment and the repricing of maturing certificates of deposit at lower rates. The increase in the average balance of interest bearing deposits at other banks was a result of an increase in liquidity caused by an increase in deposits that was greater than the increase in the loan and investment portfolios. Non-Interest Income Non-interest income increased $1,123,000, or 38%, to $4,081,000 for the three months ended March 31, 2002 from $2,958,000 for the same period in 2001. The majority of this increase was a result of an $897,000 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 $1,094,000, or 24%, to $5,720,000 for the three month period ended March 31, 2002 from $4,626,000 for the same period in 2001. This increase is mainly attributable to two additional branch offices 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. 9
Income Taxes Applicable income taxes on earnings for the first three months of 2002 amounted to $700,000 resulting in an effective tax rate of 27.9% compared to $502,000, or 25.1%, for the same period in 2001. The increase in the effective tax rate for the quarter is a result of the decrease in non-taxable earnings, such as certain loans to municipalities or investment obligations of state and political subdivisions, as a percentage of total income. This decrease in non-taxable earnings 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 $75,000 in provision expense for the first three months of 2002 compared to $100,000 for the same period in 2001. Loans charged off amounted to $9,000 for the three months ended March 31, 2002 and $23,000 for the same period of 2001. Recoveries amounted to $8,000 and $2,000 for the three months ended March 31, 2002 and 2001, respectively. The allowance for loan losses was $3.8 million and $3.7 million at March 31, 2002 and December 31, 2001, respectively. The allowance approximates 1.54% and 1.47% of total loans outstanding at March 31, 2002 and December 31, 2001, respectively. Management feels 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 $796,000 at March 31, 2002 compared to $1,026,000 at December 31, 2001. FINANCIAL CONDITION Summary At March 31, 2002, the Company had total assets of $419.6 million compared to $404.1 million at December 31, 2001. Loan Portfolio At March 31, 2002 loans held for sale amounted to $50.9 million compared to $69.3 million at December 31, 2001. The decrease is a result of decreased originations at C&F Mortgage Corporation resulting from decreased originations in the first quarter of 2002 compared to the fourth quarter of 2001. 10
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, 2002 December 31, 2001 (Dollars in Thousands) Amount Percent Amount Percent ------ ------- ------ ------- <S> <C> <C> <C> <C> Real estate - mortgage $ 76,480 31% $ 81,924 33% Real estate - construction 8,346 3 8,830 4 Commercial, financial and agricultural 138,405 56 137,374 55 Equity lines 11,422 5 11,284 4 Consumer 10,832 5 11,342 4 ------------- ---- ----------- ---- Total loans 245,485 100% 250,754 100% ==== ==== Less unearned loan fees (901) (958) Less allowance for possible loan losses (3,758) (3,684) ------------- ----------- Total loans, net $ 240,826 $ 246,112 ============= =========== </TABLE> Investment Securities At March 31, 2002, total investment securities were $58,575,000 compared to $53,953,000 at December 31, 2001. Mortgage backed securities represent 12% of the total securities portfolio, obligations of state and political subdivisions were 79%, and preferred stocks were 9% at March 31, 2002. Mortgage backed securities represented 3.6% of the total securities portfolio, obligations of states and political subdivisions were 86.3%, and preferred stocks were 10.1% at December 31, 2001. Deposits Deposits totaled $353.6 million at March 31, 2002 compared to $323.9 million at December 31, 2001. Non-interest bearing deposits totaled $50.2 million at March 31, 2002 compared to $38.5 million at December 31, 2001. Liquidity At March 31, 2002, cash, securities classified as available for sale and interest-bearing deposits were 27.39% 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 13.6% at March 31, 2002 compared to 13.3% at December 31, 2001. The total risk-based capital ratio was 14.7% at March 31, 2002 compared to 14.4% at December 31, 2001. These ratios are in excess of the mandated minimum requirements. The increase in the Tier I capital ratio and the total risked based capital ratio was a result of earnings for the first 11
quarter of 2002 and a decrease in the Company's loan portfolio and in loans held for sale by C&F Mortgage Corporation. Shareholders' equity was $46.2 million at the end of the first quarter of 2002 compared to $44.7 million at December 31, 2001. The leverage ratio consists of Tier I capital divided by quarterly average assets. At March 31, 2002 the Company's leverage ratio was 11.1% compared to 10.8% at December 31, 2001. 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 constitute "forward-looking statements" as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the company include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Corporation's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements, and readers are cautioned not to place undue reliance on such statements, which speak only as of their dates. 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, 2001 Form 10 K. 12
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 16, 2002. (a) J. P. Causey Jr., Barry R. Chernack and William E. O'Connell Jr. were elected as Class III Directors to the Board of Directors until the 2005 Annual Meeting of Shareholders. (b) Yount, Hyde & Barbour, P.C. was appointed as independent auditors of the Company for 2002 ITEM 5. OTHER INFORMATION On April 16, 2002 Thomas F. Cherry was appointed Secretary of the Company by the Board of Directors. ITEM 6. REPORTS ON FORM 8-K (a) Reports on Form 8-K On January 31, 2002 a report on Form 8-K was filed to announce the appointment of Barry R. Chernack to the Board of Directors. 13
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 9, 2002 /s/ Larry G. Dillon ----------- --------------------------------------------- Larry G. Dillon, Chairman and President Date May 9, 2002 /s/ Thomas F. Cherry ----------- --------------------------------------------- Thomas F. Cherry, Chief Financial Officer