C&F Financial Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. C&F is a Virginia bank holding company with community banking, mortgage banking, and consumer finance segments.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets at year-end | $2.265 billion | $2.086 billion |
| Net income | $29.1 million | $22.4 million |
| Net income attributable to C&F | $28.7 million | $22.1 million |
| Diluted earnings per share | $7.95 | $6.06 |
| Return on average assets | 1.34% | 1.14% |
| Return on average equity | 14.77% | 12.54% |
| Net interest income | $85.4 million | $83.5 million |
| Net interest margin | 4.26% | 4.65% |
| Noninterest income | $49.2 million | $54.6 million |
| Noninterest expense | $95.9 million | $97.8 million |
| Provision for loan losses | $0.6 million | $11.1 million |
| Cash provided by operating activities | $157.4 million | Cash used: $80.4 million |
Net income rose 29.9%. Segment net income was $14.1 million in community banking, $7.7 million in mortgage banking, and $10.0 million in consumer finance. Management’s adjusted net income, a non-GAAP measure, was $30.0 million, versus $22.4 million; adjusted EPS was $8.20 versus $6.06.
Loans held for investment were $1.410 billion, with a $40.2 million allowance; net loans were $1.370 billion. Deposits totaled $1.915 billion, up $162.4 million. Year-end equity was $211.0 million. Total borrowings, including trust preferred notes, were approximately $90.5 million. Liquid assets were $454.6 million, and available borrowing capacity was $457.9 million.
Material changes and notable items
- Net interest margin contracted 39 basis points, despite net interest income increasing, as lower asset yields and growth in lower-yielding securities and cash outpaced loan growth. Lower deposit costs and PPP fee recognition partly offset the pressure.
- Provision for loan losses fell by $10.5 million year over year, reflecting reserve releases and improved observed credit performance; 2021 included a modest $0.6 million provision.
- Mortgage banking net income declined 28% to $7.7 million. Originations fell 17.7% to $1.459 billion from the prior year’s record level; loan-sale gains and mortgage fees decreased.
- Consumer finance net income increased to $10.0 million, supported by lower credit provision and net recoveries of 0.14% of average loans, compared with net charge-offs of 1.54% in 2020. Average consumer finance loans grew 8.6%.
- Community banking benefited from lower funding costs, higher loan balances and $4.1 million of PPP origination fees recognized in 2021. Outstanding PPP principal declined to $18.4 million from $78.7 million.
- Unusual items included a $1.3 million noncash pension settlement charge in 2021. The 2020 comparison included a $3.5 million gain on sale of purchased credit-impaired loans, $2.2 million of early debt-repayment charges, and $1.4 million of merger expenses. C&F completed its Peoples Bankshares acquisition in January 2020.
Outlook, risks, and contingencies
Management described its 2022 outlook as positive but provided no quantitative earnings or revenue guidance. Priorities include community-bank loan and deposit growth, digital services and efficiency; mortgage technology, lender services and recruiting; and growth in higher-quality auto, marine and RV lending.
Management cautioned that inflation, economic uncertainty, the pandemic’s lingering effects, competition and cybersecurity could weigh on results. It expects continued net interest margin pressure, although meaningful rate increases could benefit asset yields. It warned that fading stimulus support and potentially lower used-car values could worsen consumer credit performance. The allowance estimate is judgmental; management’s alternative assumptions produced a range of $36–$41 million against the recorded $40.2 million. Adoption of expected-credit-loss standard ASC 326 is scheduled for January 1, 2023; the financial and capital impact had not been determined.
Other exposures include commercial lending concentration (50.9% of the loan portfolio), non-prime auto lending, mortgage loan repurchase and indemnification obligations, and $305.4 million of unused loan commitments plus $15.1 million of standby letters of credit. The filing reports $7.2 million of COVID-related modified loans whose modification periods had not ended. The company reported no material ordinary-course litigation expected based on current knowledge. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
At December 31, 2021, the Bank was well capitalized; its total risk-based capital ratio was 14.5%. The Corporation declared $1.58 per share in dividends during 2021 and had $9.9 million remaining under a $10 million share-repurchase authorization expiring November 30, 2022. A 200-basis-point rate increase was modeled to raise one-year net interest income 7.50%, while a 200-basis-point decrease was modeled to reduce it 5.79%; these are scenario estimates, not forecasts.
Important facts for investors to verify
- Whether reduced credit provisions and unusually strong auto recoveries persist as stimulus effects fade and used-car prices change.
- Whether loan growth, deposit pricing and asset yields can stabilize net interest margin after its 39-basis-point decline.
- Mortgage production, margins and costs following the 2020 record origination year and 2021 volume decline.
- The adequacy of the $40.2 million loan-loss allowance and the eventual effect of ASC 326 on reserves, equity and regulatory capital.
- Uninsured deposits, funding capacity, mortgage indemnification exposure and execution of the repurchase program; confirm current figures in subsequent filings.