C&F Financial Corporation Announces Third Quarter Earnings

• Press Release
• Source: C&F Financial Corporation
• On 1:07 pm EDT, Friday October 30, 2009

WEST POINT, Va., Oct. 30 /PRNewswire-FirstCall/ --C&F Financial Corporation (Nasdaq: CFFI - News), the one-bank holding company for C&F Bank, today reported net income of $1.66 million for the third quarter of 2009, compared with $299,000 for the third quarter of 2008 ($1.82 million, adjusted to exclude the impairment charge taken in the third quarter of 2008 related to the corporation's investments in perpetual preferred stock of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)). Net income available to common shareholders for the third quarter of 2009 was $1.37 million, or 45 cents per common share assuming dilution, compared with $299,000, or 10 cents per common share assuming dilution, ($1.82 million, or 60 cents per common share assuming dilution, adjusted to exclude the effect of the impairment charge) for the third quarter of 2008.

The corporation's net income was $4.92 million for the first nine months of 2009, compared with $3.14 million for the first nine months of 2008 ($4.67 million, adjusted to exclude the effect of the impairment charge). Net income available to common shareholders for the first nine months of 2009 was $4.08 million, or $1.34 per common share assuming dilution, compared with $3.14 million, or $1.03 per common share assuming dilution, ($4.67 million, or $1.52 per common share assuming dilution, adjusted to exclude the effect of the impairment charge) for the first nine months of 2008.

The difference between reported net income and net income available to common shareholders in 2009 is a result of the preferred stock dividends and amortization of the warrant, related to the corporation's participation in the Department of Treasury's Capital Purchase Program. The preferred stock and warrant were issued in the first quarter of 2009 and, therefore, did not impact net income available to common shareholders for 2008.

For the third quarter of 2009, the corporation's return on average common equity and return on average assets, on an annualized basis, were 8.14 percent and 0.63 percent, respectively, compared to 1.82 percent and 0.14 percent (11.07 percent and 0.87 percent, adjusted to exclude the effect of the impairment charge) for the third quarter of 2008. For the first nine months of 2009, the corporation's return on average common equity and return on average assets, on an annualized basis, was 8.21 percent and 0.62 percent, respectively, compared to 6.38 percent and 0.52 percent (9.47 percent and 0.77 percent, adjusted to exclude the effect of the impairment charge) for the first nine months of 2008. In 2009, these ratios reflect the effects of preferred stock dividends and amortization of the common stock warrant on net income available to common shareholders, as well as asset growth since the end of the third quarter of 2008.

"The corporation's earnings in 2009 continue to reflect the effects of the current economic environment resulting in higher provisions for loan, foreclosed properties and indemnification losses," said Larry Dillon, president and chief executive officer of C&F Financial Corporation. "The sustained deterioration of the commercial and residential real estate markets and credit quality throughout 2009 is driving these increases. Despite these higher loss provisions, both our mortgage company and our finance company reported higher net income in 2009, primarily as a result of the lower interest rate environment and strong demand for their products. Gains on loans sold by the mortgage company increased as a result of the 47 percent increase in loan origination volume, and the finance company's net interest margin for the first nine months of 2009 increased over last year. However, our retail banking segment reported a loss for both the third quarter and the first nine months of 2009, which principally resulted from the effect of nonperforming loans on interest income and the provision for loan losses, lower overdraft charges on deposit accounts, higher expenses associated with nonaccrual loans and foreclosed properties for which loan loss provisions or write downs to fair market value were necessary, and higher assessments for FDIC deposit insurance, including the special assessment recognized in the second quarter of this year to help replenish the Deposit Insurance Fund."

"The capital and liquidity positions of the corporation remain strong," continued Dillon. "The Bank continues to be well-capitalized under all regulatory guidelines. The corporation's board of directors maintained the corporation's quarterly dividend for the third quarter of 2009 at 25 cents per common share. The board of directors will continue to evaluate the corporation's dividends in light of changes in economic conditions, the corporation's capital levels and its future levels of earnings."

Retail Banking Segment. C&F Bank reported a net loss of $347,000 for the third quarter of 2009, compared to net income of $787,000 for the third quarter of 2008. C&F Bank's net loss was $655,000 for the first nine months of 2009, compared to net income of $1.58 million for the first nine months of 2008. The decline in 2009 earnings included the effects of (1) nonperforming loans on interest income, (2) a higher provision for loan losses attributable to the continued slow down in the economy and an increase in nonperforming assets, (3) lower overdraft charges on deposit accounts resulting from economic conditions over the past year, which have caused a decrease in the use of the Bank's overdraft protection product, (4) higher assessments for deposit insurance principally resulting from the FDIC's special assessment in the second quarter of 2009 to help restore the Deposit Insurance Fund, coupled with the effects of the FDIC's increased insurance assessments for all banks, and (5) higher expenses related to nonaccrual loans and foreclosed properties.

The Bank's nonperforming assets increased since December 31, 2008 to $20.35 million at September 30, 2009 and consist of $8.23 million of nonaccrual loans and $12.12 million of foreclosed properties. The largest components of the Bank's nonaccrual loans are three commercial relationships aggregating $5.84 million, which are secured by residential real estate. Management actively monitors the credit risks within the Bank's loan portfolio and evaluates the loss allowance level. The ratio of the Bank's allowance for loan losses to total loans increased to 1.85 percent at September 30, 2009, compared to 1.36 percent at December 31, 2008. The largest component of the Bank's foreclosed properties is $12.00 million of residential properties associated with three commercial relationships. These properties have been written down to their estimated fair value based upon current appraisals less selling costs.

Mortgage Banking Segment. Third quarter net income for C&F Mortgage Corporation was $755,000 in 2009, compared to $401,000 in 2008. Net income for the first nine months of 2009 was $2.75 million, compared to $1.14 million for the first nine months of 2008. Earnings in 2009 included the effects of lower interest rates on loan origination volume, which increased 8.40 percent and 46.90 percent for the third quarter and first nine months of 2009, respectively, resulting in gains on sales of loans of $5.46 million and $19.38 million for the third quarter and first nine months of 2009, respectively, compared to $4.54 million and $12.92 million for the third quarter and first nine months of 2008, respectively. This revenue growth was offset in part by (1) an increase of $224,000 and $1.07 million in the combined provisions for indemnification and foreclosed properties losses in the third quarter and first nine months of 2009, respectively, and (2) increases in personnel costs of $406,000 and $3.99 million in the third quarter and first nine months of 2009, respectively, principally for variable compensation associated with the increase in loan production and net income. The increases in the provisions for indemnification and foreclosed properties losses resulted from increased nonperforming loans due to recourse resulting from borrower fraud and the continued deterioration of the U.S. economy, especially in the housing markets and higher unemployment.

Consumer Finance Segment. Third quarter net income for C&F Finance Company was $1.40 million in 2009, compared to $826,000 in 2008. Net income for the first nine months of 2009 was $3.20 million, compared to $2.46 million for the first nine months of 2008. The consumer finance segment has benefited from growth in average consumer finance loans outstanding since the end of the third quarter of 2008, as well as the decline in its cost of borrowings throughout 2009 compared to 2008. However, C&F Finance Company has experienced higher loan charge-offs in 2009 compared to 2008, which, in combination with loan growth, has resulted in increases in the provision for loan losses of $330,000 in the third quarter of 2009 and $1.83 million in the first nine months of 2009, compared to the same periods in 2008. The higher provision for loan losses resulted in a $1.51 million increase in the allowance for loan losses since December 31, 2008, which increased the ratio of the allowance for loan losses to total loans to 7.68 percent at September 30, 2009, compared to 7.31 percent at December 31, 2008.

Other and Eliminations Segment. The third quarter net loss of this segment was $150,000 in 2009, compared to a net loss of $1.72 million in the third quarter of 2008. The net loss for the first nine months of 2009 was $378,000, compared to a net loss of $2.03 million for the first nine months of 2008. Revenue and expenses of this segment include dividends received on the corporation's investment in equity securities and interest expense associated with the corporation's trust preferred capital notes. The net loss in 2008 included the $1.52 million impairment charge related to the corporation's investments in perpetual preferred stock of Fannie Mae and Freddie Mac, as previously discussed, as well as higher interest expense associated with the corporation's trust preferred capital notes.

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 $18.03 per share on Thursday, October 29, 2009. At September 30, 2009, the book value of the corporation was $22.83 per common share, and the corporation declared a dividend of 25 cents per common share during the third quarter of 2009. The corporation's market makers include Davenport & Company LLC, FTN Financial Securities Corporation, McKinnon & Company, Inc. and Scott & Stringfellow, LLC.

C&F Bank operates 18 retail bank branches located throughout the Hampton to Richmond corridor in Virginia and offers full investment services through its subsidiary C&F Investment Services, Inc. C&F Mortgage Corporation provides mortgage, title and appraisal services through 23 offices located in Virginia, Maryland, North Carolina, South Carolina, Pennsylvania, Delaware and New Jersey. C&F Finance Company provides automobile loans in Virginia, Tennessee, Maryland, North Carolina, Georgia, Ohio, Kentucky, Indiana and West Virginia through its offices in Richmond and Hampton, Virginia, in Nashville, Tennessee and in Towson, Maryland.

Additional information regarding the corporation's products and services, as well as access to its filings with the Securities and Exchange Commission, are available on the corporation's web site at http://www.cffc.com.

Use of Certain Non-GAAP Financial Measures. In addition to results presented in accordance with United States generally accepted accounting principles (GAAP), this earnings release includes certain non-GAAP financial measures for the three and nine months ended September 30, 2008, which are reconciled to their equivalent GAAP financial measures below. Management believes these non-GAAP financial measures provide information useful to investors in understanding the corporation's performance trends and facilitate comparisons with its peers. Specifically, management believes the exclusion from net income of a significant one-time impairment charge recognized in a single accounting period in 2008 permits a comparison of results for ongoing business operations, and it is on this basis that management internally assesses the corporation's performance and establishes goals for future periods. Although the corporation's management believes the non-GAAP measures presented in this earnings release enhance investors' understandings of its performance, these non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements.

Forward-Looking Statements. Statements in this press release which express "belief," "intention," "expectation," and similar expressions, identify forward-looking statements. These forward-looking statements are based on the beliefs of the corporation's management, as well as assumptions made by, and information currently available to, the corporation's management. These statements are inherently uncertain, and there can be no assurance that the underlying assumptions will prove to be accurate. Actual results could differ materially from those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the corporation include, but are not limited to, changes in: (1) interest rates, (2) general economic and business conditions, including unemployment levels, (3) demand for loan products, (4) the legislative/regulatory climate, (5) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, (6) the quality or composition of the loan or investment portfolios, (7) the level of net charge-offs on loans, (8) deposit flows, (9) competition, (10) demand for financial services in the corporation's market area, (11) technology, (12) reliance on third parties for key services, (13) the real estate market, (14) the corporation's expansion and technology initiatives, and (15) accounting principles, policies and guidelines. Further, there can be no assurance that the actions taken by the U.S. Treasury and the Federal Reserve Bank will stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely affect the corporation's business and financial performance. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of date of this release.

                        C&F Financial Corporation
                     Selected Financial Information
           (in thousands, except for share and per share data)


    Balance Sheets                          9/30/09    12/31/08      9/30/08
                                            -------    --------      -------
                                            (unaudited)          (unaudited)
    Interest-bearing deposits
    with other banks and
      federal funds sold                       $1,800        $161     $1,230
    Investment securities -
    available for sale at fair value          119,774     100,603     87,556
    Loans held for sale, net                   48,763      37,042     40,273
    Loans, net:
      Retail Banking segment                  445,523     469,700    468,268
      Mortgage Banking segment                  2,371       3,540      4,312
      Consumer Finance segment                169,679     159,777    161,995
    Federal Home Loan Bank stock                3,887       5,284      4,011
    Total assets                              874,936     855,657    846,474
    Deposits                                  575,405     550,725    551,858
    Borrowings                                192,333     219,460    214,169
    Shareholders' equity                       89,539      64,857     64,385


                                        For The                 For The
                                     Quarter Ended         Nine Months Ended
    Statements of Income           9/30/09    9/30/08      9/30/09   9/30/08
                                  -------     -------      -------   -------
                                      (unaudited)             (unaudited)
    Interest income               $16,625     $16,386     $48,187    $48,198
    Interest expense                3,727       5,319      11,900     16,380
    Provision for loan losses:
      Retail Banking segment        1,400         500       3,500      1,160
      Mortgage Banking segment         63          75         563        587
      Consumer Finance segment      2,900       2,570       8,800      6,970
    Other operating income:
      Gains on sales of loans       5,464       4,524      19,381     12,915
      Gains (losses) on available
       for sale securities            (22)     (1,354)          8     (1,301)
      Other                         3,118       2,653       8,370      7,459
    Other operating expenses:
      Salaries and
       employee benefits            8,357       7,823      26,668     23,031
      Other                         6,364       4,989      17,844     14,557
    Income tax expense                716         634       1,755      1,442
    Net income                      1,658         299       4,916      3,144
    Net income available to
    common shareholders             1,367         299       4,077      3,144
    Earnings per common share -
    assuming dilution                0.45        0.10        1.34       1.03
    Earnings per common share -
     basic                           0.45        0.10        1.34       1.04


                                         For The                 For The
                                      Quarter Ended         Nine Months Ended
    Segment Information            9/30/09     9/30/08     9/30/09    9/30/08
                                   -------     -------     -------    -------
                                       (unaudited)              (unaudited)
    Net (loss) income - Retail
     Banking                        $(347)       $787       $(655)    $1,575
    Net income -
     Mortgage Banking                 755         401       2,746      1,139
    Net income - Consumer Finance   1,400         826       3,203      2,462
    Net loss -
     Other and Eliminations          (150)     (1,715)       (378)    (2,032)
    Mortgage loan originations -
    Mortgage Banking              214,621     197,983     866,952    590,168
    Mortgage loans sold -
     Mortgage Banking             227,973     192,425     855,231    583,978


                                        For The                 For The
                                     Quarter Ended         Nine Months Ended
    Average Balances              9/30/09     9/30/08     9/30/09     9/30/08
                                  -------     -------     -------     -------
                                      (unaudited)              (unaudited)
    Interest-bearing deposits
     in other banks and
      federal funds sold           $2,345      $1,369      $1,097     $1,406
    Investment securities
     - available for sale at fair
      value                       117,678      94,282     112,507     91,482
    Loans held for sale            41,436      29,129      55,925     30,843
    Loans:
      Retail Banking segment      457,708     475,716     465,699    454,385
      Mortgage Banking segment      2,859       4,739       3,532      4,904
      Consumer Finance segment    181,164     174,068     176,386    168,445
    Total earning assets          803,190     779,303     815,146    751,465

    Time, checking and savings
     deposits                     488,761     463,413     486,577    457,684
    Borrowings                    182,432     206,402     196,266    188,960
    Total interest-bearing
     liabilities                  671,193     669,815     682,843    646,644
    Demand deposits                88,425      86,983      84,996     83,663
    Shareholders' equity           87,624      65,819      85,494     65,701


    Asset Quality                             9/30/09    12/31/08    9/30/08
                                              -------    --------    -------
                                            (unaudited)          (unaudited)
    Retail and Mortgage Banking Segments
    Nonaccrual loans* -Retail Banking          $8,232     $17,222    $12,133
    Nonaccrual loans* -Mortgage Banking           253       1,460      1,663
    Real estate owned**-Retail Banking         12,116       1,370      1,972
    Real estate owned**-Mortgage Banking          719         596        623
                                                  ---         ---        ---
      Total nonperforming assets              $21,320     $20,648    $16,391
    Accruing loans* past due
      for 90 days or more                        $231      $3,517       $912
    Total loans*                             $456,691    $480,438   $478,477
    Allowance for loan losses                  $8,797      $7,198     $5,897
    Nonperforming assets to loans*
     and real estate owned                       4.54%       4.28%      3.41%
    Allowance for loan losses to loans*          1.93%       1.50%      1.23%
    Allowance for loan losses
     to nonaccrual loans*                      103.68%      38.53%     42.74%

    *   Loans exclude Consumer Finance segment loans presented below.
    **  Real estate owned is recorded at its fair market value less cost to
        sell.


    Consumer Finance Segment
    Nonaccrual loans                             $386        $798       $990
    Accruing loans past due for 90 days or more    $-          $-         $-
    Total loans                              $183,798    $172,385   $174,184
    Allowance for loan losses                 $14,119     $12,608    $12,189
    Nonaccrual consumer finance
     loans to total
      consumer finance loans                     0.21%       0.46%     0.57%
    Allowance for loan losses to total consumer
      finance loans                              7.68%       7.31%     7.00%


                                    As Of and For The       As Of and For The
                                      Quarter Ended         Nine Months Ended
    Other Data and Ratios           9/30/09    9/30/08     9/30/09    9/30/08
                                    -------    -------     -------    -------
                                        (unaudited)            (unaudited)
    Annualized return
    on average assets                0.63%       0.14%       0.62%      0.52%
    Annualized return on
     average common equity           8.14%       1.82%       8.21%      6.38%
    Dividends declared
    per common share                $0.25       $0.31       $0.81      $0.93
    Common shares purchased             -       1,000           -      1,600
    Average price of
     purchased common shares            -      $21.56           -     $24.67
    Weighted average
    common shares outstanding -
      assuming dilution         3,047,263   3,048,760   3,042,757  3,065,891
    Weighted average
    common shares outstanding -
      basic                     3,044,110   3,030,972   3,041,706  3,026,400
    Market value per common
    share at period end            $17.00      $20.50      $17.00     $20.50
    Book value per common
     share at period end           $22.83      $21.24      $22.83     $21.24
    Price to book value ratio
     at period end                   0.74        0.97        0.74       0.97
    Price to earnings ratio
     at period end (ttm)            10.12       12.97       10.12      12.97



                                 C&F Financial Corporation
                  Reconciliation of Certain Non-GAAP Financial Measures
                           (in thousands, except for per share data

                                               For The             For The
                                           Quarter Ended     Nine Months Ended
                                   (1)    9/30/09  9/30/08   9/30/09   9/30/08
                                   ----  -------   -------   -------   -------
                                            (unaudited)         (unaudited)
    Net Income and
     Earnings Per Common
     Share
      Net income (GAAP)                  $1,658      $299    $4,916    $3,144
      Effective dividends on Treasury
       preferred stock                     (291)        -      (839)        -
                                           ----        --      ----        --
      Net income available to common
       shareholders (GAAP)           A    1,367       299     4,077     3,144
      Other-than-temporary impairment
     on Fannie Mae and
     Freddie Mac preferred stock
         (GAAP)                               -     1,522         -     1,522
                                             --     -----        --     -----
      Net income available to common
       shareholders excluding
       other-than-temporary
       impairment on Fannie Mae
         and
       Freddie Mac preferred  stock  B   $1,367    $1,821    $4,077    $4,666

      Weighted average common shares
       - assuming dilution (GAAP)    C    3,047     3,049     3,043     3,066
      Weighted average common shares
       - basic (GAAP)                D    3,044     3,031     3,042     3,026

      Earnings per common share
       - assuming dilution
       GAAP                        A/C    $0.45     $0.10     $1.34     $1.03
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                   B/C    $0.45     $0.60     $1.34     $1.52

      Earnings per common share - basic
        GAAP                       A/D    $0.45     $0.10     $1.34     $1.04
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                   B/D    $0.45     $0.60     $1.34     $1.54

    Annualized Return on
     Average Assets

      Average assets (GAAP)          E $867,654  $838,458  $877,958  $812,499

      Annualized return on average assets
        GAAP                      (A/E)*4   0.63%     0.14%
        GAAP                      (A/E)/.75                    0.62%     0.52%
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                  (B/E)*4  0.63%     0.87%
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                  (B/E)/.75                   0.62%     0.77%

    Annualized Return on
     Average Common Equity
      Average common equity (GAAP)   F  $67,625   $65,819   $66,080   $65,701

      Annualized return on average
       common equity
        GAAP                      (A/F)*4  8.14%     1.82%
        GAAP                      (A/F)/.75                    8.21%     6.38%
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                  (B/F)*4  8.14%    11.07%
        Excluding other-than-
         temporary impairment
          on Fannie Mae and
           Freddie Mac preferred
           stock                  (B/F)/.75                    8.21%     9.47%



    (1)  The letters included in this column are provided to show how the
         various ratios presented in the Reconciliation of
         Certain Non-GAAP Financial Measures are calculated.

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