TOANO, Va., April 22, 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 $7.2 million for the first quarter of 2021, which represents an increase of $3.5 million, or 97 percent, as compared to the first quarter of 2020 and is the highest reported net income for the first quarter of any year in the Corporation’s history. Adjusted net income for the first quarter of 2021 was $7.2 million, which represents an increase of $2.7 million, or 62 percent, as compared to the first quarter of 2020.

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¹ _{The Corporation uses non-GAAP measures of financial performance, including adjusted net income, adjusted earnings per share, adjusted annualized return on average assets (ROA) and adjusted annualized return on average equity (ROE), 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 first quarter of 2020 excludes the effects of merger related expenses incurred in connection with the acquisition of Peoples. 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 first quarter of 2021 are as follows. Comparisons are to the corresponding period in the prior year unless otherwise stated.

• Consolidated provision for loan losses was $280,000 in the first quarter of 2021, compared to $2.7 million in the first quarter of 2020, as qualitative adjustments to reserves related to the COVID-19 pandemic increased provision for loan losses in 2020 and net charge-offs were lower in 2021;
• The community banking segment continued assisting businesses in our communities affected by the COVID-19 pandemic through the Paycheck Protection Program (PPP), originating nearly $45.0 million in loans to approximately 600 businesses during the first quarter of 2021, after having originated $89.9 million to over 1,250 businesses during the year ended December 31, 2020;
• Average loans outstanding at the community banking segment excluding PPP loans increased 4 percent;
• Consolidated annualized net interest margin for the first quarter of 2021 was 4.33 percent, compared to 4.92 percent for the first quarter of 2020 and 4.57 percent for the fourth quarter of 2020. The decrease compared to the fourth quarter of 2020 was due primarily to higher average balances of excess cash as mortgage loans held for sale decreased;
• Mortgage banking segment net income increased 65 percent for the first quarter of 2021 primarily as a result of higher margins on sales of mortgage loans, and mortgage loan originations increased from $260.4 million to $422.5 million;
• The consumer finance segment’s net charge-off ratio fell to 0.51 percent for the first quarter of 2021 from 2.81 percent, as borrowers generally benefitted from government stimulus measures related to the COVID-19 pandemic; and
• The consumer finance segment’s average loan yield declined due to continued competition for non-prime auto loans and growth in higher quality, lower-yielding loans, including marine and recreational vehicle loans.

Tom Cherry, President and Chief Executive Officer of C&F Financial Corporation, commented, “We are seeing encouraging signs in the economies in our markets and in our business segments in 2021. COVID-19 vaccinations are on the rise, and people are starting to resume many types of economic activity. Each of our business segments delivered significantly higher net income in the first quarter of 2021 compared to a year ago. Historically low net charge-offs at our consumer finance segment and historically high mortgage loan production volume at our mortgage banking segment contributed to our record first quarter net income. Although the community banking segment is still dealing with margin compression, we are encouraged by both loan and deposit growth as well as synergies we have realized as a result of our acquisition of Peoples in the first quarter of last year.”

Community Banking Segment. Beginning with the first quarter of 2021, the community banking segment comprises C&F Bank and C&F Wealth Management Corporation. Prior to the first quarter of 2021, the segment comprised only C&F Bank, and prior periods have been restated to conform to the current period presentation. The community banking segment reported net income of $2.8 million for the first quarter of 2021, compared to $657,000 for the first quarter of 2020. Quarterly net income increased $2.1 million for the first quarter of 2021 compared to the first quarter of 2020, of which $685,000 was due to after-tax merger related expenses in the first quarter of 2020.

In addition to the effect of merger related expenses, the increase in community banking segment net income for the first quarter of 2021 compared to the first quarter of 2020 was due primarily to (1) lower provision for loan losses, (2) growth in loans and investments, funded by deposit growth, (3) lower compensation expense, primarily as a result of attrition following the acquisition of Peoples in January 2020 and (4) higher income from debit card interchange and wealth management services, partially offset by (1) lower average yields on loans, (2) lower overdraft fee income, (3) higher occupancy expense related to the opening of two financial centers in the third quarter of 2020 and (4) higher FDIC deposit insurance assessment expense, as credits available to banks with less than $10 billion in consolidated assets were used to offset assessment expense for the first quarter of 2020.

Average loans increased $126.4 million, or 14 percent, for the first quarter of 2021 compared to the same period in 2020. This increase included $93.1 million of average balances of PPP loans. In addition to the increase resulting from the PPP, the increase in average loans outstanding for the first quarter of 2021 compared to the same period in 2020 resulted from growth in the commercial real estate and commercial business lending segments of the loan portfolio. Average loan yields were lower for the first quarter of 2021 compared to the same period in 2020 due primarily to changes in interest rates in 2020, resulting in repricing of variable rate loans and lower average yields on new lending, including PPP loans, as well as lower interest income on purchased credit impaired (PCI) loans. PPP loans earn interest at a note rate of one percent as well as net origination fees that are amortized over the contractual term of the related loan or accelerated into interest income upon repayment of the loan. Net PPP origination fees recognized in the first quarter of 2021 were $864,000. Since the second quarter of 2020, the community banking segment has recognized $2.4 million of net fees under the PPP, and there were unrecognized net deferred PPP fees at March 31, 2021 of $3.7 million, which are expected to be recognized primarily in 2021 and 2022. 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 the first quarters of 2021 and 2020. Interest income recognized on PCI loans was $517,000 and $959,000 for the first quarters of 2021 and 2020, respectively.

C&F Bank’s total nonperforming assets were $3.9 million at March 31, 2021 and December 31, 2020. Nonperforming assets at March 31, 2021 and December 31, 2020 included $3.0 million in nonaccrual loans and $907,000 in other real estate owned. Nonaccrual loans were comprised primarily of one commercial relationship at March 31, 2021 and December 31, 2020. The community banking segment recorded no provision for loan losses for the first quarter of 2021 compared to $1.0 million for the same period in 2020, as qualitative adjustments to reserves related to the COVID-19 pandemic and loan growth resulted in increased provision for loan losses in the first quarter of 2020. As of March 31, 2021, compared to December 31, 2020, there have not been significant changes in the overall credit quality of the loan portfolio, although management believes that the effects of PPP loans and government stimulus may be delaying signs of credit deterioration. At March 31, 2021, compared to December 31, 2020, the allowance for loan losses remained unchanged at $15.0 million. Management believes that the level of the allowance for loan losses is sufficient to absorb losses inherent in the portfolio. However, if there are further challenges to the economic recovery, including a resurgence in COVID-19 cases or weaker than expected consumer spending, additional provision for loan losses may be required in future periods.

Mortgage Banking Segment. C&F Mortgage Corporation, which comprises the mortgage banking segment, reported net income of $2.5 million for the first quarter of 2021, compared to net income of $1.5 million for the first quarter of 2020.

The increase in net income of the mortgage banking segment for the first quarter of 2021 compared to the same period in 2020 was due primarily to (1) higher gains on sales of loans as a result of higher margins on loans originated for resale, (2) higher fee income as a result of higher volume of mortgage loan originations and higher lender services volume, and (3) higher net interest income due to higher balances of loans held for sale. Partially offsetting these factors were higher expenses, primarily tied to loan production, including compensation expense, loan processing expense and data processing expense. Mortgage loan originations for the mortgage banking segment were $422.5 million and $260.4 million for the first quarters of 2021 and 2020, respectively. Loan production for the first quarter of 2021 was the highest reported by the mortgage banking segment for the first quarter of any calendar year in the Corporation’s history as sustained historically low interest rates on mortgage loans have contributed to an increase in volume in the broader mortgage industry. Mortgage loan originations for the mortgage banking segment during the first quarter of 2021 for refinancings and home purchases were $235.2 million and $187.3 million, respectively, compared to $95.4 million and $165.0 million, respectively, during the first quarter of 2020.

Consumer Finance Segment. C&F Finance Company, which comprises the consumer finance segment, reported net income of $2.5 million for the first quarter of 2021, compared to net income of $1.9 million for the first quarter of 2020.

The increase in net income of the consumer finance segment for the first quarter of 2021 compared to the same period in 2020 was due primarily to (1) lower provision for loan losses due to lower net charge-offs and qualitative adjustments to reserves that increased provision for loan losses in the first quarter of 2020 and (2) lower 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 first quarter of 2021 was lower compared to the same period in 2020 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 annualized net charge-off ratio for the first quarter of 2021 decreased to 0.51 percent from 2.81 percent for the first quarter of 2020. The decline reflects a lower number of charge-offs during 2021, 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. At March 31, 2021, total delinquent loans as a percentage of total loans was 1.56 percent, compared to 3.08 percent at December 31, 2020 and 3.38 percent at March 31, 2020. The allowance for loan losses was $23.4 million, or 7.37 percent of total loans at March 31, 2021, compared to $23.5 million, or 7.53 percent of total loans at December 31, 2020. The decrease in the level of the allowance for loan losses as a percentage of total loans is primarily a result of lower net charge-offs. Management believes that the level of the allowance for loan losses is sufficient to absorb losses inherent in the portfolio. However, if there are further challenges to the economic recovery, including a resurgence in COVID-19 cases, weaker than expected consumer spending or a reduction in government stimulus prior to a recovery in employment, additional provision for loan losses may be required in future periods.

Capital and Dividends. The Corporation declared a quarterly cash dividend of 38 cents per share during the first quarter of 2021, which was paid on April 1, 2021. This dividend represents a payout ratio of 19.8 percent of earnings per share for the first quarter of 2021. 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 March 31, 2021, 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 $40.81 per share on April 21, 2021. At March 31, 2021, the book value of the Corporation was $53.78 per share and the tangible book value per share was $46.34. 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.