WEST POINT, Va., Jan. 27, 2021 (GLOBE NEWSWIRE) -- C&F Financial Corporation (NASDAQ:CFFI), the one-bank holding company for C&F Bank, today reported record quarterly consolidated net income of $8.1 million for the fourth quarter of 2020, or $2.19 per share, compared with $4.4 million, or $1.27 per share, for the fourth quarter of 2019. The Corporation uses adjusted net income, which is a non-GAAP measure of financial performance, to provide meaningful information about operating performance by excluding the effects of certain items that management does not expect to have an ongoing impact on consolidated net income. Adjusted net income for the fourth quarter of 2020 was $7.1 million, or $1.91 per share, compared to $4.6 million, or $1.35 per share, for the fourth quarter of 2019. For the fourth quarter of 2020, on an annualized basis, the Corporation’s returns on average equity (ROE) and on average assets (ROA) were 17.80 percent and 1.57 percent, respectively, compared to 10.78 percent and 1.06 percent for the fourth quarter of 2019, on an annualized basis. Adjusted ROE and adjusted ROA, on an annualized basis, were 15.54 percent and 1.37 percent, respectively, for the fourth quarter of 2020, compared to 11.44 percent and 1.13 percent, respectively, for the fourth quarter of 2019.

For the year ended December 31, 2020, the Corporation reported record consolidated net income of $22.4 million, or $6.06 per share, compared to $18.9 million, or $5.47 per share, for the year ended December 31, 2019. Adjusted net income for the year ended December 31, 2020 was $22.4 million, or $6.06 per share, compared to $19.5 million, or $5.66 per share, for the year ended December 31, 2019. For the year ended December 31, 2020, the Corporation’s ROE and ROA were 12.54 percent and 1.14 percent, respectively, compared to 12.02 percent and 1.20 percent for the year ended December 31, 2019. Adjusted ROE and adjusted ROA were 12.54 percent and 1.14 percent, respectively, for the year ended December 31, 2020, compared to 12.44 percent and 1.25 percent, respectively, for the year ended December 31, 2019.

Adjusted net income for the fourth quarter of 2020 and year ended December 31, 2020 and the same periods in 2019 excludes the effects of a gain upon sale of a pool of purchased credit impaired (PCI) loans in the fourth quarter of 2020, charges related to early repayment of borrowings in the fourth quarter of 2020, merger related expenses recorded in 2020 and 2019, impairment charges related to a branch consolidation in 2020, and provisions of the CARES Act, enacted in 2020, which provided income tax benefits related to prior tax years. For more information about these financial measures, which are not calculated in accordance with generally accepted accounting principles (GAAP), please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures,” below.

Key highlights for the fourth quarter of 2020 and the year ended December 31, 2020 are as follows. Comparisons are to the corresponding periods in the prior year unless otherwise stated.

• The community banking segment sold a pool of PCI loans in the fourth quarter of 2020, recognizing a gain of $3.5 million;
• The community banking segment repaid borrowings in the fourth quarter of $37.0 million, which will result in savings of $783,000 in interest expense on an annualized basis, and incurred early repayment charges of $2.2 million. Repayments at the community banking segment and consumer finance segment have resulted in a net decrease of long-term borrowings of $89.1 million during the year ended December 31, 2020;
• Consolidated annualized net interest margin for the fourth quarter of 2020 was 4.57 percent, compared to 4.54 percent for the third quarter of 2020 and 5.20 percent for the fourth quarter of 2019. The increase compared to the third quarter of 2020 was due primarily to lower average costs of deposits;
• Average loans outstanding at the community banking segment increased 9.9 percent for the fourth quarter of 2020 and increased 7.4 percent for the year ended December 31, 2020, excluding the effects of acquired loans and loans originated under the Paycheck Protection Program;
• Consolidated provisions for loan losses included reserves based on qualitative adjustments related to the COVID-19 pandemic and resulting economic disruption. These reserves totaled approximately $8.0 million at December 31, 2020;
• Mortgage banking segment net income increased 198 percent for the fourth quarter of 2020 and 185 percent for the year ended December 31, 2020 as a result of higher margins on sales of loans and record volume of mortgage loan originations;
• The consumer finance segment’s net charge-off ratio fell to 1.54 percent for the year ended 2020 from 3.05 percent;
• The consumer finance segment’s average loan yield declined due to growth in higher quality, lower-yielding loans, including marine and recreational vehicle loans;
• In the second quarter of 2020, the community banking segment completed the integration of the systems and processes of Peoples Community Bank;
• In the third quarter of 2020, the community banking segment opened new financial centers in Charlottesville and Downtown Richmond; and
• Also in the third quarter of 2020, the Corporation issued new subordinated notes with aggregate principal of $20.0 million.

Tom Cherry, President and Chief Executive Officer of C&F Financial Corporation, commented, “Even in the unprecedented times we are experiencing, we delivered record earnings for the fourth quarter and for the year. We also accomplished many of our planned strategic goals for the year, including the purchase and successful integration of Peoples Community Bank into C&F Bank, strong loan growth, restructuring of our balance sheet by repaying certain long-term borrowings, opening two new financial centers and breaking ground on a new corporate headquarters for C&F Finance Company. Despite current headwinds, which include the ongoing pandemic, vaccine distribution challenges, a low interest rate environment and a changing political landscape, and their potential impacts on the economy, we are optimistic as we enter 2021, because of the investments we have made over the last several years and because of the customers, employees and communities which we believe make C&F a strong, stable, strategic and growing financial institution.”

Community Banking Segment. C&F Bank, which comprises the community banking segment, reported net income of $3.6 million for the fourth quarter of 2020, compared to $2.2 million for the fourth quarter of 2019. For the year ended December 31, 2020, C&F Bank reported net income of $5.4 million, compared to net income of $9.9 million for the year ended December 31, 2019. Quarterly net income increased $1.5 million and $2.5 million for the fourth quarter of 2020 compared to the fourth quarter of 2019 and the third quarter of 2020, respectively, of which $1.1 million and $1.0 million, respectively, were related to the net effects of a gain on the sale of a pool of PCI loans, early repayment of borrowings, and merger related expenses.

The increase in community banking segment net income for the fourth quarter of 2020 compared to the fourth quarter of 2019 was due primarily to (1) a gain of $3.5 million on the sale of a pool of PCI loans in the fourth quarter of 2020, (2) higher average loans outstanding, which contributed to higher interest income on loans, and (3) lower interest expense on deposits due to lower average rates, partially offset by (1) early repayment charges of $2.2 million incurred in connection with the payoff of $37.0 million of convertible FHLB advances in December 2020, (2) lower average yields on loans, (3) lower interest income on excess cash reserves, (4) higher provision for loan losses resulting from the COVID-19 pandemic and related economic disruption, (5) a decrease in income from bank-owned life insurance due to proceeds received on one policy in 2019 and (6) higher occupancy expense, primarily related to the opening of two financial centers in the third quarter of 2020.

The decrease in community banking segment net income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was due primarily to (1) lower average yields on loans; (2) higher provision for loan losses resulting from the COVID-19 pandemic and related economic disruption; (3) higher operating expenses, including the effects of (a) assuming certain operating costs of Peoples Bankshares, Incorporated (Peoples), which was acquired by the Corporation on January 1, 2020, including costs that have been eliminated following the integration of its operations into the Bank’s, (b) opening two new financial centers in the third quarter of 2020 and (c) investing in technology infrastructure to support continued growth; (4) early repayment charges of $2.2 million incurred in connection with the payoff of borrowings of $44.5 million; (5) lower interest income on excess cash reserves; (6) higher merger related expenses in connection with the acquisition of Peoples; (7) higher interest expense on deposits as a result of higher average deposit balances; and (8) a $281,000 write-down of assets in connection with the consolidation of the Bank’s former main office in West Point, VA into a nearby branch office and the donation of the building to the Town of West Point, which was completed in the fourth quarter of 2020; partially offset by (1) a gain of $3.5 million on the sale of a pool of PCI loans in the fourth quarter of 2020; (2) higher average loans outstanding, which contributed to higher interest income on loans; (3) higher interchange income; and (4) income tax benefits of $326,000 related to prior tax years of Peoples as a result of the CARES Act. As of December 31, 2020, the community banking segment has realized substantially all of the cost savings associated with the integration of Peoples. Additionally, C&F Bank expects to realize annualized cost savings of approximately $220,000 in connection with the consolidation of its main office in West Point, VA, and expects to realize annualized interest expense savings of $783,000 in connection with its early repayment of convertible FHLB advances in December 2020.

Average loans increased $246.5 million, or 31.1 percent, for the fourth quarter of 2020, and $216.5 million, or 27.8 percent, for the year ended December 31, 2020, compared to the same periods in 2019. These increases included $81.1 million and $99.1 million for the fourth quarter of 2020 and the year ended December 31, 2020, respectively, of average balances of loans acquired in the acquisition of Peoples, and $87.2 million and $59.7 million, respectively, of average balances of loans originated under the Paycheck Protection Program of the Small Business Administration (PPP). In addition to increases resulting from the acquisition of Peoples and the PPP, the increase in average loans outstanding for the fourth quarter of 2020 and the year ended December 31, 2020 compared to the same periods in 2019 resulted from growth in the commercial real estate and commercial business lending segments of the loan portfolio. Average loan yields were lower for the fourth quarter and full year of 2020 compared to the same periods in 2019 due to repricing of variable rate loans and lower average yields on new lending, including PPP loans. The recognition of interest income on PCI loans is based on management’s expectation of future payments of principal and interest, which is inherently uncertain. Earlier than expected repayments of certain PCI loans resulted in the recognition of additional interest income during 2020 and 2019. Interest income recognized on PCI loans was $860,000 and $615,000 for the fourth quarters of 2020 and 2019, respectively, and was $3.0 million and $3.4 million for the years ended December 31, 2020 and 2019, respectively.

C&F Bank’s total nonperforming assets were $3.9 million at December 31, 2020, compared to $2.6 million at December 31, 2019. Nonperforming assets at December 31, 2020 included $3.0 million in nonaccrual loans, compared to $1.5 million at December 31, 2019 and included $907,000 in other real estate owned, compared to $1.1 million at December 31, 2019. The increase in nonaccrual loans compared to December 31, 2019 is due primarily to the downgrading of one commercial relationship in the fourth quarter of 2020, partially offset by payoffs. Nonaccrual loans were comprised primarily of one commercial relationship at December 31, 2020 and were comprised primarily of residential mortgages and equity lines at December 31, 2019. The community banking segment recorded provision for loan losses of $700,000 and $4.6 million for the fourth quarter of 2020 and the year ended December 31, 2020, respectively, compared to $250,000 and $360,000, respectively, for the same periods in 2019. During the year ended December 31, 2020, the allowance for loan losses increased primarily as a result of reserves based on qualitative adjustments related to the COVID-19 pandemic and due to loan growth. As of December 31, 2020, compared to December 31, 2019, there have not been significant changes in the overall credit quality of the loan portfolio, although management believes the effects of PPP loans, payment deferrals and government stimulus may be delaying signs of credit deterioration. Management believes that the level of the allowance for loan losses is sufficient to absorb losses inherent in the portfolio. However, if there is further deterioration in economic conditions, additional provision may be required in future periods. In evaluating the allowance for loan losses, the community banking segment considered its exposure to segments of the economy that we believe have been most sensitive to the impacts of the COVID-19 pandemic.

Loan modifications offered to assist customers during the pandemic were offered on loans with aggregate balances of $104.7 million during the year ended December 31, 2020. These modifications included periods of interest-only payments and periods of complete payment deferral. As of December 31, 2020, loans whose modification periods had not ended or had been extended had aggregate balances of $30.7 million. These loans included $16.2 million of loans classified as special mention and $10.0 million of loans classified as substandard, all of which were loans to borrowers in the COVID-sensitive industries above.

Mortgage Banking Segment. C&F Mortgage Corporation, which comprises the mortgage banking segment, reported net income of $2.4 million for the fourth quarter of 2020, compared to net income of $814,000 for the fourth quarter of 2019. For the year ended December 31, 2020, C&F Mortgage Corporation reported record net income of $10.7 million, compared to net income of $3.8 million for the year ended December 31, 2019.

The increase in net income of the mortgage banking segment for both the fourth quarter of 2020 and the year ended December 31, 2020 compared to the same periods in 2019 was due primarily to higher gains on sales of loans and mortgage banking fee income, resulting from higher margins and record loan production, higher mortgage lender services income for providing mortgage origination functions to third parties, and higher net interest income due to higher balances of loans held for sale. Partially offsetting these factors were higher expenses tied to loan production, including compensation expense, loan processing expense and data processing expense. Mortgage loan originations for the mortgage banking segment were $528.7 million and $271.7 million for the fourth quarters of 2020 and 2019, respectively, and were $1.8 billion and $944.1 million for the years ended December 31, 2020 and 2019, respectively. Loan production for the year ended December 31, 2020 was the highest reported by the mortgage banking segment for any calendar year in the Corporation’s history. Lower interest rates on mortgage loans have contributed to an increase in volume in the broader mortgage industry in the year ended December 31, 2020 compared to the same period in the prior year. Mortgage loan originations for the mortgage banking segment during the fourth quarter of 2020 for refinancings and home purchases were $293.7 million and $235.0 million, respectively, compared to $77.7 million and $194.0 million, respectively, during the fourth quarter of 2019. Mortgage loan originations for the mortgage banking segment during the year ended December 31, 2020 for refinancings and home purchases were $917.5 million and $854.5 million, respectively, compared to $224.9 million and $719.2 million, respectively, during the year ended December 31, 2019.

Consumer Finance Segment. C&F Finance Company, which comprises the consumer finance segment, reported net income of $2.4 million for the fourth quarter of 2020, compared to net income of $1.7 million for the fourth quarter of 2019. For the year ended December 31, 2020, C&F Finance Company reported net income of $7.6 million, compared to net income of $6.9 million for the year ended December 31, 2019.

The increase in net income of the consumer finance segment for both the fourth quarter of 2020 and the year ended December 31, 2020 compared to the same periods in 2019 was due primarily to lower provision for loan losses as a result of lower net charge-offs and a decrease in interest expense due to lower average cost of borrowings, partially offset by lower interest income due to lower average yields on loans. The average yield on loans for the fourth quarter of 2020 and the year ended December 31, 2020 was lower compared to the same periods of 2019 due to continued competition in the non-prime automobile loan business, including the effect of a lower interest rate environment, and the consumer finance segment’s pursuing growth in higher quality, lower yielding loans, which include prime marine and recreational vehicle (RV) loans.

The net charge-off ratio for 2020 decreased to 1.54 percent from 3.05 percent for 2019. The decline reflects a lower number of charge-offs during 2020, due to improvement in loan performance, and lower losses per loan charged off as a result of a strong used car market. Improvement in loan performance has resulted from C&F Finance Company continuing to purchase higher quality loans as well as borrowers benefitting from the government’s stimulus measures in response to the pandemic during 2020. C&F Finance Company offers payment deferrals at times to non-prime automobile borrowers as a management technique to achieve higher ultimate cash collections. C&F Finance Company offered a higher number of payment deferrals during the first and second quarters of 2020 to borrowers impacted by the pandemic, and as of December 31, 2020, most borrowers who received a deferral had resumed making payments and were current. The average amount deferred on a monthly basis during the fourth quarter of 2020 and the year ended December 31, 2020 was 1.56 percent and 2.93 percent of non-prime automobile loans outstanding, compared to 1.87 percent and 1.90 percent during the same periods in 2019. At December 31, 2020, total delinquent loans, which does not include loans that have been granted a payment deferral, as a percentage of total loans was 3.08 percent, compared to 2.48 percent at September 30, 2020 and 4.17 percent at December 31, 2019. The allowance for loan losses was $23.5 million, or 7.53 percent of total loans at December 31, 2020, compared to $21.8 million, or 6.96 percent of total loans at December 31, 2019. The increase in the level of the allowance for loan losses as a percentage of total loans is a result of reserves based on qualitative adjustments to reflect losses that management believes are probable as a result of the economic impacts of the COVID-19 pandemic. Management believes that the level of the allowance for loan losses is sufficient to absorb losses inherent in the portfolio. However, if there is further deterioration in economic conditions, additional provision may be required in future periods.

Merger Related Expenses. In the fourth quarter of 2019, the Corporation recorded merger related expenses of $300,000 ($264,000 after income taxes) in connection with the acquisition of Peoples, of which $132,000 ($107,000 after income taxes) was allocated to the community banking segment and the remainder was recorded as a holding company expense. For the years ended December 31, 2020 and 2019, the Corporation recorded merger related expenses of $1.4 million and $709,000, respectively, or $1.1 million and $653,000, respectively, after income taxes. Of these merger related expenses, $1.3 million ($1.0 million after income taxes) was allocated to the community banking segment for the year ended December 31, 2020, compared to $236,000 ($196,000 after income taxes) for the year ended December 31, 2019, and the remainder in each year was recorded as a holding company expense. In the aggregate, in connection with the acquisition of Peoples, the Corporation recorded merger related expenses of $2.1 million ($1.8 million after income taxes).

Issuance of Subordinated Notes. In the third quarter of 2020, the Corporation completed the issuance of $20.0 million in aggregate principal amount of subordinated notes due in 2030 in a private placement transaction. The subordinated notes will initially bear interest at a fixed rate of 4.875% for five years and at the three month SOFR plus 475.5 basis points thereafter. These notes are included in Tier 2 capital of the Corporation, and the proceeds will be used for general corporate purposes and to support future growth opportunities.

Capital and Dividends. The Corporation declared cash dividends during the year ended December 31, 2020 totaling $1.52 per share. The Corporation declared a quarterly cash dividend of 38 cents per share during the fourth quarter of 2020, which was paid on January 1, 2021. These dividends represent a payout ratio of 17 percent of earnings per share for the fourth quarter of 2020 and 25 percent of earnings per share for the year ended December 31, 2020. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital requirements, and expected future earnings.

In November 2020, the Board of Directors authorized a program, effective November 17, 2020, to repurchase up to 365,000 shares of the Corporation’s common stock through November 30, 2021. As of December 31, 2020, the Corporation has made aggregate common stock repurchases of 7,459 shares for an aggregate amount repurchased of $275,000 under the share repurchase program.

About C&F Financial Corporation. C&F Financial Corporation’s common stock is listed for trading on The Nasdaq Stock Market under the symbol CFFI. The common stock closed at a price of $38.70 per share on January 26, 2021. At December 31, 2020, the book value of the Corporation was $52.80 per share and the tangible book value per share was $45.32. For more information about the Corporation’s tangible book value per share, which is not calculated in accordance with GAAP, please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures, below.

C&F Bank operates 31 retail bank branches and three commercial loan offices located throughout the Hampton to Charlottesville corridor and the Northern Neck region in Virginia and offers full wealth management services through its subsidiary C&F Wealth Management, Inc. C&F Mortgage Corporation and its subsidiary C&F Select LLC provide mortgage loan origination services through offices located in Virginia, Maryland, North Carolina, South Carolina and West Virginia. C&F Finance Company provides automobile, marine and RV loans through indirect lending programs offered in Alabama, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Minnesota, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia through its offices in Richmond and Hampton, Virginia.

Additional information regarding the Corporation’s products and services, as well as access to its filings with the Securities and Exchange Commission (SEC), are available on the Corporation’s website at http://www.cffc.com.