C&F Financial Corporation — 2023 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2023; comparisons are primarily with 2022. C&F is a Virginia bank holding company operating community banking, mortgage banking and consumer finance businesses. Its consolidated assets were $2.44 billion at year-end.
Financial performance and condition
- Earnings: Net income was $23.7 million, down 19.1% from $29.4 million; diluted EPS was $6.92 versus $8.29. Return on average assets was 0.99% (1.27% in 2022); return on average equity was 11.68% (14.84%).
- Income and margins: Net interest income was $97.7 million, up from $93.5 million; fully taxable-equivalent net interest margin was 4.31%, versus 4.27%. Noninterest income was $29.6 million versus $29.2 million. Combined net interest and noninterest income was $127.3 million, up from $122.7 million.
- Costs and credit: Interest expense rose to $26.4 million from $7.9 million, and noninterest expense increased 8.9% to $89.9 million. Provision for credit losses was $8.3 million versus $3.2 million. Consumer finance net charge-offs increased to 1.99% of average loans from 0.59%.
- Loans and asset quality: Loans held for investment totaled $1.74 billion, up from $1.64 billion; commercial real estate represented 38.4% of loans and consumer finance automobile loans 23.0%. Nonaccrual loans were $1.3 million, or 0.07% of loans. The allowance for credit losses was $39.7 million, 2.28% of loans.
- Liquidity and funding: Deposits were $2.07 billion, up 3.1%; time deposits rose substantially as non-time deposits declined. Borrowings were approximately $109.5 million, including short- and long-term borrowings and trust preferred notes. Liquid assets were $338.8 million; reported available borrowing capacity was $550.1 million. Uninsured deposits were estimated at $584.7 million (28.3% of deposits), or $404.1 million excluding intercompany cash and secured municipal deposits.
- Capital and shareholder returns: Total equity was $217.5 million, up from $196.2 million. The Bank was reported well capitalized; its year-end total risk-based capital ratio was 14.1%. Dividends declared were $1.76 per share, up from $1.64. The company repurchased $7.1 million of shares in 2023 and authorized a new $10 million repurchase program for 2024.
- Cash flow: Operating cash flow was $38.8 million, compared with $90.6 million in 2022; investing activities used $56.3 million and financing activities provided $66.0 million. Year-end cash and cash equivalents were $75.2 million, versus $26.7 million.
Material changes versus 2022
- Community banking loans grew 9.8%, deposits increased 3.1%, and net interest margin rose four basis points. Rising deposit and borrowing costs, however, significantly increased interest expense.
- Mortgage originations fell 28.5% to $498.8 million amid higher mortgage rates and constrained housing supply. Mortgage banking net income declined to $0.5 million from $1.2 million.
- Consumer finance net income fell to $2.9 million from $6.8 million, reflecting higher funding costs and credit-loss provision. Delinquency and charge-off measures increased.
- Consolidated net income fell across all three operating segments. The 2022 comparison included a one-time, after-tax benefit of approximately $2.2 million from a change in accounting policy for certain equity investments.
- Adoption of CECL on January 1, 2023 reduced opening retained earnings by $1.1 million, net of tax.
- Available-for-sale securities had $31.6 million of net unrealized losses at year-end, compared with $44.5 million in 2022. Management attributed the losses primarily to interest rates, reported no securities credit loss, and stated it expected recovery through scheduled principal and interest payments.
Outlook, commentary and risks
Management described its 2024 outlook as cautious and provided no quantified earnings or revenue guidance. It expects deposit funding costs to keep rising, with near-term funding-cost increases exceeding asset-yield increases and pressuring net interest margin. Community banking will prioritize quality loan growth and expense efficiency. Mortgage banking expects continued industry challenges while pursuing loan-officer growth, cost control and additional lender-services clients. Consumer finance expects benefits from servicing and dealer-processing improvements, but warns that used-car values, delinquencies and charge-offs could deteriorate.
Key risks include interest-rate and deposit competition, liquidity conditions, commercial real estate concentration, consumer auto credit losses and collateral values, mortgage origination weakness and loan-sale indemnification obligations, cybersecurity and third-party technology exposure, and evolving regulation. Management reported $550.1 million of available funding capacity at December 31, but $55 million of listed federal-funds and repurchase lines terminated in January 2024; investors should assess liquidity after those terminations. The company reported no material cybersecurity incidents, no unresolved SEC staff comments, and no litigation expected by management to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control; the allowance for collectively evaluated loan losses was identified as a critical audit matter.
Most important facts to verify
- Updated borrowing capacity and liquidity after the January 2024 termination of $55 million in funding lines, including collateral availability and uninsured-deposit trends.
- Quarterly consumer auto delinquencies, repossessions, used-vehicle recovery values, charge-offs and allowance adequacy.
- Commercial real estate exposures by property type, borrower, geography, maturity and occupancy, including any deterioration in criticized or classified loans.
- Deposit pricing and mix, borrowing reliance, and whether funding costs exceed asset-yield increases as management expects.
- Mortgage production, profitability, and adequacy of the $1.8 million year-end indemnification reserve for loans sold.
- Realized losses, if any, on securities and the ongoing effect of unrealized losses on tangible equity and liquidity.