C & F FINANCIAL CORP quarterly report, Q1 FY2024

C&F Financial Corporation — Q1 2024 Form 10-Q

Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2024. C&F is a Virginia bank holding company operating through community banking, mortgage banking, and consumer finance. Dollar amounts below are in millions unless noted.

Financial performance and position

MetricQ1 2024Comparable / reference
Net interest income$23.2$25.0 in Q1 2023
Net interest margin4.09%4.52% in Q1 2023; 4.17% in Q4 2023
Noninterest income / expense$7.5 / $23.2$7.6 / $22.6 in Q1 2023
Provision for credit losses$3.5$2.1 in Q1 2023
Net income attributable to C&F$3.4; $1.01 per diluted share$6.4; $1.86 per share in Q1 2023
Annualized ROA / ROE0.57% / 6.33%1.10% / 12.87% in Q1 2023
  • Balance sheet at March 31: assets were $2,469.8, up $31.3 from year-end; gross loans were $1,817.4, up $75.3; deposits were $2,087.9, up $21.8. The allowance for credit losses was $40.2, or 2.21% of loans, versus $39.7, or 2.28%, at December 31.
  • Cash flow: operating activities provided $0.9; investing activities used $49.6; financing activities provided $28.8. Cash and cash equivalents declined $20.0 to $55.2. These are quarterly cash-flow figures, not a measure of free cash flow.
  • Funding and liquidity: short-term borrowings were $27.8, long-term borrowings $68.3, and trust preferred capital notes $25.4. Liquid assets were $298.5, and reported liquidity plus borrowing availability totaled $872.3. Estimated uninsured deposits were $560.3; excluding intercompany cash and secured municipal deposits, uninsured deposits were $408.3.
  • Capital and shareholder returns: total equity was $216.9. The Corporation’s tier 1 and total risk-based capital ratios were 12.2% and 14.5%; the Bank’s were 12.6% and 13.8%. The quarterly dividend was $0.44 per share. C&F repurchased $0.516 of shares under its $10.0 repurchase authorization.

Material changes versus Q1 2023

  • Net income attributable to C&F fell about 47%, and diluted EPS declined from $1.86 to $1.01. Net interest income fell about 7%, principally as funding costs rose faster than asset yields; the cost of interest-bearing liabilities increased 121 basis points while earning-asset yield increased 45 basis points.
  • Interest expense rose to $9.6 from $4.3, including substantially higher time-deposit expense. Loan growth and higher loan yields lifted interest income, but did not offset higher funding costs.
  • Credit-loss provision increased to $3.5 from $2.1. Consumer finance recorded a $3.0 provision and a $0.063 net loss, compared with $1.6 provision and $0.509 net income in Q1 2023.
  • Mortgage originations declined 18.5% to $94.3. Mortgage banking nevertheless reported net income of $0.294, up from $0.227, helped by lower costs and a $0.140 reversal of mortgage indemnification provision.
  • Loans and deposits increased from December 31, 2023, while available-for-sale securities declined $32.0 to $430.4. The quarter’s net cash decrease contrasted with a $57.6 increase in Q1 2023.

Outlook, commentary, and risks

  • The filing provides no specific earnings or full-year numerical guidance. Management expects deposit costs to continue rising, though potentially at a slower rate, and says near-term borrowing may remain part of funding. The effect on margin depends on loan growth, deposit competition, borrowing needs, and market rates.
  • Management says higher rates could support asset yields, but a decline in rates could pressure margin because assets may reprice downward faster than deposits and borrowings. Its twelve-month simulation estimates net interest income would fall 1.91% under a 100-basis-point rate decrease and rise 0.46% under a 100-basis-point increase, based on stated modeling assumptions.
  • Consumer auto credit is a key watch item: auto delinquencies and repossessions and lower used-vehicle wholesale values contributed to higher charge-offs. Consumer finance net charge-offs were 2.54% annualized, versus 1.77% in Q1 2023; management warns further deterioration or lower vehicle values could require additional provision.
  • Available-for-sale securities had $35.955 of gross unrealized losses at quarter-end, largely attributed to interest rates. Management reported no credit impairment and expects to recover the investments through principal and interest payments; accumulated other comprehensive loss on securities was $27.1.
  • Other risks include deposit competition and funding concentration, commercial real estate and other credit exposure, mortgage market weakness, interest-rate sensitivity, and contingent mortgage representations-and-warranties obligations. Loan commitments were $400.6 and standby letters of credit were $9.0. Management stated disclosure controls were effective and reported no material change in risk factors from the 2023 Form 10-K.

Important facts for investors to verify

  • Whether deposit pricing and time-deposit renewal costs continue to compress net interest margin, and how reliance on borrowings evolves.
  • Consumer auto delinquency, repossession, charge-off, and used-vehicle recovery trends, alongside the adequacy of the $40.2 allowance.
  • Commercial real estate and construction loan growth, risk ratings, and any change in criticized or nonaccrual balances.
  • Liquidity composition and uninsured-deposit trends, including the availability and terms of borrowing facilities and brokered deposits.
  • Mortgage origination volumes and whether the indemnification reserve remains adequate as loans sold season and borrower performance changes.
  • The duration and potential capital or earnings implications of securities unrealized losses if liquidity needs or market rates change.