C&F Financial Corporation (NASDAQ:CFFI) is a diversified financial services holding company headquartered in Toano, Virginia. Through its subsidiaries, the company provides a range of banking, mortgage, consumer finance, and wealth management services to individuals and businesses throughout eastern and central Virginia. With a longstanding history dating back to 1927, C&F Financial has weathered numerous economic cycles, emerging as a resilient community banking institution.
Business Overview and History
C&F Financial Corporation was incorporated in March 1994 under the laws of the Commonwealth of Virginia. The company owns all of the stock of Citizens and Farmers Bank (C&F Bank), which was originally opened for business under the name Farmers and Mechanics Bank on January 22, 1927. Over the decades, C&F Financial has grown to operate a diverse set of business lines, including community banking, mortgage banking, and consumer finance.
In 1995, the company established C&F Mortgage Corporation to originate and sell residential mortgages. Two years later, in 1997, C&F Finance Company was acquired to provide automobile, marine, and recreational vehicle financing. These strategic moves allowed C&F Financial to diversify its revenue streams and offer a more comprehensive suite of financial services to its customers.
In the early 2000s, C&F Financial faced some challenges as the mortgage and consumer finance industries experienced significant disruption. The company navigated this period by doubling down on its core community banking operations. In 2005 and 2007, C&F Financial formed trust subsidiaries to issue trust preferred securities, providing an additional source of capital to support its growth and operations.
More recently, in 2016 and 2019, C&F Financial expanded its wealth management and title services capabilities through the acquisitions of C&F Wealth Management Corporation and CVB Title Services, Inc. These acquisitions further enhanced the company's ability to provide a wide range of financial services to its customers.
Throughout its history, C&F Financial has demonstrated resilience and an ability to adapt to changing market conditions. The company's strategic initiatives and diversification efforts have positioned it well to navigate the challenges of the ever-evolving financial landscape.
Financial Performance and Ratios
C&F Financial Corporation has demonstrated resilience in its financial performance, navigating economic headwinds and volatile market conditions. For the year ended December 31, 2024, the company reported consolidated net income of $19.9 million, down from $23.7 million in the prior year. This decline was primarily attributable to lower net income in the community banking and consumer finance segments, partially offset by an increase in the mortgage banking segment.
The company's return on average assets (ROA) was 0.80% in 2024, compared to 0.99% in 2023, while its return on average equity (ROE) stood at 9.02% in 2024, down from 11.68% the previous year. These metrics reflect the company's ability to generate profits relative to its asset base and shareholder equity, although the decrease in 2024 indicates some margin compression.
C&F Financial's capital position remains strong, with a Tier 1 risk-based capital ratio of 11.90% and a total risk-based capital ratio of 14.10% as of December 31, 2024. These ratios exceed the well-capitalized thresholds set by banking regulators, providing the company with a solid foundation to withstand potential economic challenges.
For the full year 2024, C&F Financial reported revenue of $123.69 million, net income of $19.92 million, operating cash flow of $38.49 million, and free cash flow of $35.00 million. The most recent quarter (Q4 2024) saw revenue of $43.4 million, representing a 15% increase from $37.8 million in Q4 2023. Net income for Q4 2024 was $6.0 million, up 18.5% from $5.1 million in Q4 2023. The revenue growth was driven by increases in net interest income, gains on sales of loans, and wealth management services income, while net income growth was due to higher revenue, partially offset by increases in provision for credit losses and non-interest expenses.
Loan Portfolio and Asset Quality
The company's loan portfolio is diversified across commercial real estate, commercial business, consumer finance, and residential mortgage segments. As of December 31, 2024, the company's total loans held for investment, net of the allowance for credit losses, stood at $1.88 billion, up from $1.70 billion a year earlier.
C&F Financial's asset quality metrics have remained relatively stable, with nonaccrual loans representing 0.05% of total loans as of December 31, 2024, down from 0.07% at the end of 2023. The allowance for credit losses as a percentage of total loans was 2.09% in 2024, compared to 2.28% in the prior year. The company's net charge-off ratio in the consumer finance segment increased to 2.62% in 2024, up from 1.99% in 2023, reflecting some deterioration in loan performance within this portfolio.
Funding and Liquidity
C&F Financial relies primarily on deposits as its funding source, with total deposits reaching $2.17 billion as of December 31, 2024, up from $2.07 billion at the end of 2023. The company's deposit mix has shifted towards time deposits as customers seek higher-yielding opportunities in the rising interest rate environment.
The company's liquidity position remains strong, with liquid assets, including cash, due from banks, and unpledged securities, totaling $288.1 million at the end of 2024. Additionally, the company has available borrowing capacity of $606.2 million from sources such as the Federal Home Loan Bank and unsecured federal funds agreements, providing ample liquidity to support its operations and growth initiatives.
As of December 31, 2024, C&F Financial reported a debt-to-equity ratio of 0.54 and cash and cash equivalents of $65.59 million. The company has access to $75 million in unsecured federal funds agreements, $257.73 million available from the Federal Home Loan Bank, and $313.50 million available from the Federal Reserve Bank, further bolstering its liquidity position.
Diversified Business Model and Strategic Initiatives
C&F Financial's diversified business model, encompassing community banking, mortgage banking, and consumer finance, has been a key strength in navigating the evolving financial landscape. The company's strategic initiatives aim to capitalize on opportunities in each of its operating segments.
In the community banking segment, the company is focused on expanding its loan and deposit portfolios, improving operational efficiency, and enhancing its wealth management and insurance services. The mortgage banking segment is adapting to the higher interest rate environment by improving profitability through operational efficiencies, recruiting mortgage loan officers, and growing its Lender Solutions division.
The consumer finance segment, which has experienced higher charge-offs and volatile interest rates, is focused on closely monitoring economic conditions, leveraging technology investments, and implementing aggressive business development strategies to increase profitability.
Community Banking Segment
The community banking segment, comprising C&F Bank, C&F Wealth Management, C&F Insurance, and CVB Title, is the core of C&F Financial's operations. This segment provides a wide range of banking services to individuals and businesses in eastern and central Virginia, including various types of checking and savings deposit accounts, business loans, real estate loans, mortgage loans, and other customary banking services.
For the year ended December 31, 2024, the community banking segment reported net income of $20.28 million, down from $22.93 million in the prior year. The decrease was primarily due to higher interest expense resulting from higher rates on deposits and higher average balances of interest-bearing deposits, partially offset by higher interest income from loan growth and the effects of higher interest rates.
The segment's loans, excluding loans to the consumer finance and mortgage banking segments, increased 14.1% to $1.50 billion at December 31, 2024, compared to $1.30 billion at the end of 2023. This growth was driven by increases in commercial real estate, construction, land acquisition and development, and residential mortgage segments of the loan portfolio. Deposits also saw growth, increasing 5.1% to $2.20 billion at December 31, 2024, up from $2.10 billion at the prior year-end.
Mortgage Banking Segment
The mortgage banking segment, operated through C&F Mortgage and its 51%-owned subsidiary C&F Select LLC, provides mortgage loan origination services through offices located in Virginia and surrounding states. This segment originates a wide variety of residential mortgage loans, which are then sold to investors in the secondary mortgage market.
For the year ended December 31, 2024, the mortgage banking segment reported net income of $1.11 million, up from $465,000 in the prior year. The increase was primarily due to higher gains on sales of loans and higher mortgage banking fee income resulting from a 5.8% increase in mortgage loan originations to $527.75 million, as well as lower occupancy expenses.
The segment's Lender Solutions division provides certain mortgage loan origination functions as a service to third-party mortgage lenders, including other community banks. Additionally, the segment's subsidiary, Certified Appraisals LLC, provides ancillary mortgage loan production services to third parties for residential appraisals.
Consumer Finance Segment
The consumer finance segment, operated through C&F Finance, is a regional finance company that purchases automobile, marine, and recreational vehicle (RV) loans primarily in the Mid-Atlantic, Midwest, and Southern United States. This segment serves customers in both the prime and non-prime markets, including those who may have limited access to traditional automobile financing due to prior credit difficulties.
For the year ended December 31, 2024, the consumer finance segment reported net income of $1.41 million, down from $2.88 million in the prior year. The decrease was due primarily to higher provision for credit losses due to increased net charge-offs and higher interest expense on borrowings from the community banking segment, partially offset by higher interest income resulting from the effects of higher interest rates on loan yields and higher average balances of loans.
At December 31, 2024, the consumer finance segment's loans totaled $466.79 million, down slightly from $468.51 million at the end of 2023. The segment's net charge-off ratio increased to 2.62% for 2024, compared to 1.99% in the prior year, due primarily to an increase in the number of delinquent loans, the number of repossessions, and the average amount charged off when a loan was uncollectible.
Human Capital Resources
C&F Financial Corporation and its subsidiaries foster a culture of respect, teamwork, ownership, responsibility, initiative, integrity, and service. Acquiring and retaining strong talent is a top strategic priority, and the company provides competitive compensation and benefits programs to meet the needs of its employees. As of December 31, 2024, the company employed a total of 545 employees, with 28% having been employed for at least 15 years.
The company strives for its workforce to reflect the diversity of the customers and communities it serves, and it aims to fill positions by promotion and transfer from within the organization whenever possible. C&F Financial encourages and supports the growth and development of its employees, providing them with the skills and opportunities they need to achieve their career goals and become leaders within the business.
Human capital is a critical component of the company's performance and the achievement of its strategic goals. The people-centric culture and focus on talent acquisition, retention, and development are key elements of how C&F Financial's businesses compete and succeed.
Risks and Challenges
Like any financial institution, C&F Financial faces various risks and challenges that could impact its performance. These include interest rate risk, credit risk, competitive pressures, regulatory changes, and the potential for economic downturns that could affect loan quality and deposit flows.
The company's significant exposure to commercial real estate loans, which represented 55% of the total loan portfolio as of December 31, 2024, makes it susceptible to risks associated with this sector, such as changes in property values and the profitability of the underlying businesses.
Additionally, the consumer finance segment's focus on non-prime borrowers carries inherently higher credit risk, which could lead to increased delinquencies, defaults, and charge-offs during economic downturns.
The company's business is subject to various lending and other economic risks that could adversely affect its results of operations and financial condition. Deterioration in economic conditions, including factors such as unemployment rates, business formations and expansions, housing market conditions, and industry conditions, could lead to an increase in loan delinquencies, defaults, and foreclosures, as well as a decline in the value of loan collateral.
C&F Financial also faces competition from a variety of financial entities, including large national and regional banks, savings associations, credit unions, and non-bank financial technology firms. Increased competition could result in pressure on interest rates, fees, and margins, which could adversely affect the company's financial condition and results of operations.
Regulatory changes and the evolving regulatory environment also pose risks to the company. Failure to comply with applicable laws and regulations could result in financial, structural, and operational penalties, as well as increased compliance costs that may limit the company's ability to pursue certain business opportunities.
Industry Trends
The banking industry has seen increased competition from fintech firms and other non-traditional providers, leading to pressure on net interest margins. However, rising interest rates have generally benefited the industry's profitability. The 5-year compound annual growth rate (CAGR) for the industry is approximately 3-4%.
Conclusion
C&F Financial Corporation has demonstrated resilience and adaptability in the face of an evolving financial landscape. The company's diversified business model, strong capital position, and strategic initiatives position it to navigate the challenges ahead. As the company continues to execute on its growth plans and address emerging risks, investors will be watching closely to see how C&F Financial navigates the dynamic environment and delivers value for its shareholders.
The company's solid financial results for 2024, with growth in revenue and net income, along with its strong liquidity position and ample available credit, provide a strong foundation for future growth. While facing industry-wide challenges and economic uncertainties, C&F Financial appears to be performing well within the current banking industry environment, leveraging its diverse business segments and focus on community banking to maintain its competitive edge.