WEST POINT, Va., July 27 /PRNewswire-FirstCall/ -- C&F FinancialCorporation (Nasdaq: CFFI), the one-bank holding company for C&F Bank,today reported net income of $2.46 million, or 77 cents per share assumingdilution, for its second quarter ended June 30, 2007, compared with $3.73million, or $1.14 per share assuming dilution, for the second quarter of2006. Net income for the first six months of 2007 was $4.47 million, or$1.39 per share assuming dilution, compared with $6.25 million, or $1.91per share assuming dilution, for the first six months of 2006. Net income for the second quarter and the first six months of 2006included $728,000, after taxes, or 22 cents per share assuming dilution,attributable to the recovery of past due interest and a reduction in thecorporation's loan loss allowance in connection with the pay-off ofpreviously nonperforming loans of one commercial relationship. Excludingthe after-tax effect of this loan pay-off, the corporation's earnings were$3.00 million, or 92 cents per share assuming dilution, for the secondquarter of 2006 and $5.52 million, or $1.69 per share assuming dilution,for the first half of 2006. For the second quarter of 2007, on an annualized basis, thecorporation's return on average equity was 15.40 percent and its return onaverage assets was 1.34 percent, compared to 23.72 percent and 2.16percent, respectively, for the second quarter of 2006, and compared to19.09 percent and 1.73 percent for the second quarter of 2006, excludingthe effect of the commercial loan pay-off in 2006. For the first half of2007, on an annualized basis, the corporation's return on average equitywas 13.69 percent and its return on average assets was 1.23 percent,compared to 20.25 percent and 1.84 percent, respectively, for the firsthalf of 2006, and compared to 17.89 percent and 1.62 percent for the firsthalf of 2006, excluding the effect of the commercial loan pay-off in 2006.The decline in these measures resulted from lower earnings in 2007, coupledwith asset and equity growth. As part of its capital management strategy, on July 17, 2007, thecorporation's board of directors authorized the purchase of up to 150,000shares of C&F's common stock over the next twelve months. Thisauthorization replaces the authorization for the purchase of up to 150,000shares approved by the board on November 3, 2006, under which a total of149,855 shares were purchased. "Net interest margin compression is continuing at the retail bankingsegment as rates on earning assets are stable while deposits are repricingat higher rates relative to their maturing rates," said Larry Dillon,president and chief executive officer of C&F Financial Corporation. "Thecurrent interest rate environment, coupled with the ongoing softening inthe housing market and increased competition, are resulting in lower demandat our mortgage banking segment for home mortgage loans and affectingmargins in both the retail banking and mortgage banking segments. Netinterest margin compression at the consumer finance segment has moderatedbecause its earning assets carry fixed rates of interest and its cost offunds has stabilized." "In addition to net interest margin compression, the retail bankingsegment is incurring operating expenses associated with opening four newC&F Bank branches within a 15-month time period in 2006 and 2007,"continued Dillon. "Because these branches are not yet profitable, theircosts will negatively impact our short-term profits; however, we expectthey will contribute to the corporation's long-term profitability.Similarly, the consumer finance segment has entered into new markets andstrengthened its position in existing markets over the past 12 monthsresulting in an increase in overhead expenses." "The remainder of 2007 will be challenging from an earningsstandpoint," added Dillon. "However, we are confident that our investmentsin facilities, technology, new markets and people will enhance thecorporation's long-term profitability." Retail Banking Segment. Second quarter net income for C&F Bank was$997,000 in 2007 compared to $2.28 million in the second quarter of 2006,and compared to $1.55 million, excluding the effect of the commercial loanpay- off, in the second quarter of 2006. Net income for the first half of2007 was $1.93 million compared to $3.64 million in the first half of 2006,and compared to $2.91 million, excluding the effect of the commercial loanpay- off, in the first half of 2006. The decline in earnings for 2007included (1) the effects of margin compression and competition on netinterest income, (2) the effects on operating expenses of the Peninsula andRichmond branch expansions and the operations center relocation, (3) higheroperational and administrative personnel costs to support growth, and (4)the recognition of compensation expense, in accordance with accountingprinciples effective in 2006, in connection with the corporation's issuanceof stock options and restricted stock. Mortgage Banking Segment. Second quarter net income for C&F MortgageCorporation was $610,000 in 2007 compared to $613,000 in the second quarterof 2006. Net income for the first half of 2007 was $957,000 compared to$1.06 million in the first half of 2006. The decline in earnings for 2007included the effects of the slowdown in the housing market on loanorigination volume, which declined 3.43 percent and 5.17 percent in thesecond quarter and the first half, respectively, of 2007. In addition, themortgage banking segment incurred higher operating expenses in 2007 relatedto new offices and higher business development costs in order to generatemore loan production. Consumer Finance Segment. Second quarter net income for C&F FinanceCompany was $770,000 in 2007 compared to $813,000 in the second quarter of2006. Net income for the first half of 2007 was $1.50 million compared to$1.51 million in the first half of 2006. The slight decline in earnings for2007 resulted from an increase in the provision for loan losses resultingfrom higher net charge-offs and higher operating expenses to support growthin new and existing markets. The increase in net charge-offs during 2007was attributable to a decline in the recovery rate on the sale ofrepossessed vehicles, coupled with an increase in the number of vehiclesrepossessed in 2007 and an increasing average balance per loan originatedover the last couple of years. About C&F Financial Corporation. C&F Financial Corporation's stock islisted for trading on The Nasdaq Stock Market under the symbol CFFI. Thestock closed at a price of $40.76 per share on Thursday, July 26, 2007. AtJune 30, 2007, the book value of the corporation was $21.03 per share, andthe corporation declared a dividend of 31 cents per share during the secondquarter of 2007. The corporation's market makers include Advest, Inc.,Davenport & Company LLC, FTN Financial Securities Corp., McKinnon & Companyand Scott & Stringfellow, Inc. C&F Bank operates 18 retail bank branches located throughout theNewport News to Richmond corridor in Virginia and offers full investmentservices through its subsidiary C&F Investment Services, Inc. C&F MortgageCorporation provides mortgage and title services through 24 offices locatedin Virginia, Maryland, North Carolina, Delaware, Pennsylvania and NewJersey. C&F Finance Company provides automobile loans principally inVirginia, Tennessee, Maryland, North Carolina, Ohio, Kentucky and WestVirginia through its offices in Richmond, Roanoke and Hampton, Virginia andin Nashville, Tennessee. Additional information regarding the corporation's products andservices, as well as access to its filings with the Securities and ExchangeCommission, are available on the corporation's web site athttp://www.cffc.com. Use of Certain Non-GAAP Financial Measures. In addition to resultspresented in accordance with United States generally accepted accountingprinciples (GAAP), this earnings release includes certain non-GAAPfinancial measures for the second quarter and the first half of 2006, whichare reconciled to their equivalent GAAP financial measures below.Management believes these non-GAAP financial measures for 2006 provideinformation useful to investors in understanding the corporation'sperformance trends and facilitate comparisons with its peers. Specifically,management believes the exclusion of a significant recovery of incomerecognized in a single accounting period permits a comparison of resultsfor ongoing business operations, and it is on this basis that managementinternally assesses the corporation's performance and establishes goals forfuture periods. Although the corporation's management believes the non-GAAP financialmeasures presented in this earnings release enhance investors'understandings of its performance, these non-GAAP financial measures shouldnot be considered an alternative to GAAP-basis financial statements. Forward-Looking Statements. The statements contained in this earningsrelease that are not historical facts may constitute "forward-lookingstatements" as defined by the federal securities laws. These statements mayaddress issues that involve estimates and assumptions made by management,risks and uncertainties, and actual results could differ materially fromhistorical results or those anticipated by such statements. Factors thatcould have a material adverse effect on the operations and future prospectsof the corporation include, but are not limited to, changes in: (1)interest rates, (2) general economic conditions, (3) demand for loanproducts, (4) the legislative/regulatory climate, (5) monetary and fiscalpolicies of the U.S. Government, including policies of the U.S. Treasuryand the Federal Reserve Board, (6) the quality or composition of the loanor investment portfolios, (7) deposit flows, (8) competition, (9) demandfor financial services in the corporation's market area, (10) technology,(11) reliance on third parties for key services, (12) the real estatemarket, (13) the corporation's expansion and technology initiatives, and(14) accounting principles, policies and guidelines. These risks anduncertainties should be considered in evaluating the forward-lookingstatements contained herein, and readers are cautioned not to place unduereliance on such statements, which speak only as of the date of thisrelease. C&F Financial Corporation Selected Financial Information (in thousands, except for share and per share data) Balance Sheets 6/30/07 12/31/06 6/30/06 Interest-bearing deposits with other banks $4,551 $17,010 $9,920 Investment securities - available for sale at fair value 71,698 67,584 64,517 Loans held for sale, net 44,294 53,504 57,034 Loans, net 551,437 517,843 499,447 Federal Home Loan Bank stock 2,014 2,093 2,678 Total assets 754,125 734,468 715,671 Deposits 553,473 532,835 511,005 Borrowings 120,775 115,056 123,333 Shareholders' equity 64,170 68,006 63,723 Statements of Income For The For The Quarter Ended Six Months Ended 6/30/07 6/30/06 6/30/07 6/30/06 Interest income $15,970 $15,050 $31,269 $28,543 Interest expense 5,729 4,543 11,118 8,476 Provision for loan losses (1) 1,490 825 2,890 2,100 Other operating income: Gains on sales of loans 4,439 4,256 8,067 8,119 Other 2,723 2,626 4,893 4,749 Other operating expenses: Salaries and employee benefits 7,903 7,153 15,205 14,102 Other 4,480 3,986 8,660 7,667 Income tax expense 1,068 1,699 1,883 2,814 Net income 2,462 3,726 4,473 6,252 Earnings per common share - assuming dilution 0.77 1.14 1.39 1.91 Earnings per common share - basic 0.81 1.18 1.45 1.99 Segment Information For The For The Quarter Ended Six Months Ended 6/30/07 6/30/06 6/30/07 6/30/06 Net income - Retail Banking $997 $2,282 $1,930 $3,636 Net income - Mortgage Banking 610 613 957 1,064 Net income - Consumer Finance 770 813 1,499 1,514 Net income - Other and Eliminations 85 18 87 38 Mortgage loan originations - Mortgage Banking 253,316 262,316 451,974 476,608 Mortgage loans sold - Mortgage Banking 254,470 250,752 461,184 459,251 Average Balances For The For The Quarter Ended Six Months Ended 6/30/07 6/30/06 6/30/07 6/30/06 Investment securities $71,345 $67,855 $69,815 $67,247 Loans held for sale 47,629 39,913 38,997 40,322 Loans 547,563 510,203 539,078 500,518 Interest-bearing deposits in other banks 4,478 11,906 15,686 11,674 Total earning assets 671,015 629,877 663,576 619,761 Time, checking and savings deposits 446,614 409,597 446,567 409,477 Borrowings 126,852 127,374 121,241 119,732 Total interest-bearing liabilities 573,466 536,971 567,808 529,209 Demand deposits 84,300 77,627 82,521 75,799 Shareholders' equity 63,948 62,824 65,350 61,763 Asset Quality Retail and Mortgage Banking Segments 6/30/07 12/31/06 6/30/06 Nonperforming assets* $773 $955 $1,104 Accruing loans** past due for 90 days or more $1,568 $1,629 $3,739 Total loans** $418,335 $399,195 $391,722 Allowance for loan losses $4,301 $4,326 $4,403 Nonperforming assets* to loans** 0.18% 0.24% 0.28% Allowance for loan losses to loans** 1.03% 1.08% 1.12% Allowance for loan losses to nonperforming assets* 556.40% 452.98% 398.82% * Nonperforming assets consist solely of nonaccrual loans for each period presented. ** Loans exclude Consumer Finance segment loans presented below. Consumer Finance Segment 6/30/07 12/31/06 6/30/06 Nonaccrual loans $712 $880 $642 Accruing loans past due for 90 days or more $10 $8 $32 Total loans $147,931 $132,864 $121,315 Allowance for loan losses $10,528 $9,890 $9,187 Nonaccrual consumer finance loans to total consumer finance loans 0.48% 0.66% 0.53% Allowance for loan losses to total consumer finance loans 7.12% 7.44% 7.57% Other Data and Ratios As Of and For The As Of and For The Quarter Ended Six Months Ended 6/30/07 6/30/06 6/30/07 6/30/06 Annualized return on average assets 1.34% 2.16% 1.23% 1.84% Annualized return on average equity 15.40% 23.72% 13.69% 20.25% Dividends declared per share $0.31 $0.29 $0.62 $0.56 Shares purchased 43,820 10,502 149,720 12,022 Average price of purchased shares $42.11 $39.07 $41.59 $39.13 Weighted average shares outstanding - assuming dilution 3,185,113 3,275,074 3,213,597 3,274,768 Weighted average shares outstanding - basic 3,053,550 3,150,352 3,079,506 3,149,496 Market value per share at period end $40.98 $39.00 $40.98 $39.00 Book value per share at period end $21.03 $20.23 $21.03 $20.23 Price to book value ratio at period end 1.95 1.93 1.95 1.93 Price to earnings ratio at period end (ttm) 12.89 10.37 12.89 10.37 Note to Selected Financial Information (1) Included in the provision for loan losses is $1,450,000 and $1,075,000 for the quarters ended June 30, 2007 and 2006, respectively, and $2,850,000 and $2,350,000 for the six months ended June 30, 2007 and 2006, respectively, attributable to the consumer finance segment. C&F Financial Corporation Reconciliation of Certain Non-GAAP Financial Measures (in thousands, except for per share data) For The For The Quarter Ended Six Months Ended * 6/30/07 6/30/06 6/30/07 6/30/06 Net Income and Earnings Per Share Net income (GAAP) A $2,462 $3,726 $4,473 $6,252 Nonaccrual and default interest attributable to loan transaction, net of income taxes (GAAP) - (565) - (565) Reduction in loan loss allowance attributable to loan transaction, net of income taxes (GAAP) - (163) - (163) Net income, excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction B $2,462 $2,998 $4,473 $5,524 Weighted average shares - assuming dilution (GAAP) C 3,185 3,275 3,214 3,275 Weighted average shares - basic (GAAP) D 3,054 3,150 3,080 3,149 Earnings per share - assuming dilution GAAP A/C $0.77 $1.14 $1.39 $1.91 Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction B/C $0.77 $0.92 $1.39 $1.69 Earnings per share - basic GAAP A/D $0.81 $1.18 $1.45 $1.99 Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction B/D $0.81 $0.95 $1.45 $1.75 Annualized Return on Average Assets Average assets (GAAP) E $734,802 $691,600 $727,955 $681,210 Annualized return on average assets GAAP (A/E)*4 1.34% 2.16% GAAP (A/E)*2 1.23% 1.84% Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction (B/E)*4 1.34% 1.73% Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction (B/E)*2 1.23% 1.62% Annualized Return on Average Equity Average equity (GAAP) F $63,948 $62,824 $65,350 $61,763 Annualized return on average equity GAAP (A/F)*4 15.40% 23.72% GAAP (A/F)*2 13.69% 20.25% Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction (B/F)*4 15.40% 19.09% Excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction (B/F)*2 13.69% 17.89% Retail Banking Segment Net Income Net income (GAAP) $997 $2,282 $1,930 $3,636 Nonaccrual and default interest attributable to loan transaction, net of income taxes (GAAP) - (565) - (565) Reduction in loan loss allowance attributable to loan transaction, net of income taxes (GAAP) - (163) - (163) Net income, excluding nonaccrual and default interest and reduction in loan loss allowance attributable to loan transaction $997 $1,554 $1,930 $2,908 * 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.
