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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________________to________________________
Commission file number 000-23423
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C&F FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-1680165
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Eighth and Main Streets, West Point, VA 23181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 843-2360
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 Par
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ( X ) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant was approximately $62,201,958 as of March 17, 1998.
The number of shares outstanding of the registrant's common stock, $1.00
par value was 1,925,625 at March 17, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
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PART II
Item 5 - Market for Registrants Common The Company's 1997 Annual Report to Shareholders for
Equity and Related Stockholder Matters fiscal years ended December 31, 1997, Investor Information,
page 45.
Item 6 - Selected Financial Data The Company's 1997 Annual Report to Shareholders for fiscal
years ended December 31, 1997, Five Year Financial Summary,
page 13.
Item 7 - Management's Discussion and The Company's 1997 Annual Report to Shareholders
Analysis of Financial Conditions for the fiscal years ended December 31, 1997,
and Results of Operations Management's Discussion and Analysis of Financial
Condition and Results of Operations, pages 13 through 24.
Item 8 - Financial Statements and The Company's 1997 Annual Report to Shareholders
Supplementary Data for fiscal years ended December 31, 1997, Consolidated
Financial Statements, Notes to Consolidated Financial
Statements, and Independent Auditors' Report, pages
25 through 44.
Item 9 - Changes in and Disagreements The Company's September 30, 1997 Form 10Q, Other
With Accountants on Accounting Information, page 11, and exhibit 16.
and Financial Disclosure
PART III
Item 10 - Directors and Executive The Company's 1998 Proxy Statement,
Officers of the Registrant Election of Directors, pages 2 through 4.
Item 11 - Executive Compensation The Company's 1998 Proxy Statement, Executive
Compensation, pages 5 through 6.
Item 12 - Security Ownership of Certain The Company's 1998 Proxy Statement, Principal Holders
Beneficial Owners and Management of Capital Stock, page 2.
Item 13 - Certain Relationships and The Company's 1998 Proxy Statement, Interest of
Related Transactions Management in Certain Transactions, page 5.
TABLE OF CONTENTS
PART 1
ITEM 1. BUSINESS..................................................................................page 1
ITEM 2. PROPERTIES................................................................................page 2
ITEM 3. LEGAL PROCEEDINGS.........................................................................page 3
ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS...........................................................page 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.........................................................page 4
ITEM 6. SELECTED FINANCIAL DATA...................................................................page 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION............................................page 4
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................page 4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................page 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................................page 7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT......................................................................page 8
ITEM 11. EXECUTIVE COMPENSATION....................................................................page 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...................................................................page 9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................................................page 9
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.........................................................page 10
PART I
Item 1. BUSINESS
General
C&F Financial Corporation (the "Company") is a bank holding company which
was incorporated under the laws of the Commonwealth of Virginia in March, 1994.
The Company owns all of the stock of its sole subsidiary, Citizens and Farmers
Bank (the "Bank"), which is an independent commercial bank chartered under the
laws of the Commonwealth of Virginia. The Bank has a total of nine branches. The
Bank has its main office at Eighth and Main Streets, West Point, Virginia, and
has branch offices in the locations of Norge, Middlesex, Providence Forge,
Quinton, Tappahannock, Varina, Williamsburg and West Point (2 branches). The
Bank was originally opened for business under the name Farmers and Mechanics
Bank on January 22, 1927.
The local community served by the Bank is defined as those portions of
King William County, King and Queen County, Hanover County and Henrico County
which are east of Route 360; Essex, Middlesex, New Kent, Charles City, and James
City Counties; that portion of York County which is directly north of James City
County; and that portion of Gloucester County surrounded by Routes 14 and 17.
The Company, through its subsidiaries, offers a wide range of banking
services available to both individuals and small businesses. These services
include various types of checking and savings deposit accounts, and the making
of business, real estate, development, mortgage, home equity, automobile and
other installment, demand and term loans. Also, the Bank offers ATMs at all
locations, credit card services, trust services, travelers' checks, money
orders, safe deposit rentals, collections, notary public, wire services and
other customary bank services to its customers.
The Bank has three wholly-owned subsidiaries, C & F Title Agency, Inc.,
C&F Investment Services, Inc., and C&F Mortgage Corporation, all incorporated
under the laws of the Commonwealth of Virginia. C&F Title Agency, Inc. sells
title insurance to the mortgage loan customers of the Company. C&F Investment
Services, Inc., organized April, 1995, is a full-service brokerage firm offering
a comprehensive range of investment options including stocks, bonds, annuities
and mutual funds. C&F Mortgage Corporation, organized in September, 1995,
originates and sells residential mortgages.
C&F Mortgage Corporation provides mortgage services through six locations
in Virginia and two in Maryland. The Virginia offices are in Richmond (two
locations), Williamsburg, Newport News, Charlottesville, and Chester. The
Maryland offices are in Crofton and Bel Aire.
As of December 31, 1997, a total of 220 persons were employed by the
Company, of whom 17 were part-time. The Company considers relations with its
employees to be excellent.
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Competition
The Bank is subject to competition from various financial institutions
and other companies or firms that offer financial services. The Bank's principal
competition in its market area consists of all the major statewide banks. The
Bank also competes for deposits with savings and loan associations, credit
unions and money-market funds. In making loans, the Bank competes with consumer
finance companies, credit unions, leasing companies and other lenders.
C&F Mortgage Corporation competes for mortgage loans in its market
areas with other mortgage companies, commercial banks and other financial
institutions.
C&F Investment Services competes with other investment companies,
brokerage firms, and insurance companies to provide these services.
C&F Title Agency competes with other title companies owned by lawyers
and other financial institutions.
Regulation and Supervision
The Company is subject to regulation by the Federal Reserve Bank under
the Bank Holding Company Act of 1956. The Company is also under the jurisdiction
of the Securities and Exchange Commission and certain state securities
commissions with respect to matters relating to the offer and sale of its
securities. In addition, the Bank is subject to regulation and examination by
the State Corporation Commission and the Federal Deposit Insurance Corporation.
ITEM 2. PROPERTIES
The following describes the location and general character of the
principal offices and other materially important physical properties of the
Company and its subsidiary.
The Company owns the headquarters located at Eighth and Main Streets in
the business district of West Point, Virginia. The building, originally
constructed in 1923, has three floors totaling 15,000 square feet. This building
houses the Citizens and Farmers Bank Main Office branch, C&F Investment
Services, Inc. offices, and office space for the Company's administrative
personnel.
The Company also owns a building located at Seventh and Main Streets in
West Point, Virginia. The building provides space for Citizens and Farmers Bank
operations functions and staff. The building was originally constructed prior to
1935 and remodeled by the Company in 1991. The two-story building has 20,000
square feet.
Citizens and Farmers Bank owns eight other branch locations in
Virginia. Also, the Bank owns several lots in West Point, Virginia and one other
lot in New Kent County, Virginia.
C&F Mortgage Corporation has eight leased offices, six in Virginia and
two in Maryland. Rental expense for these locations totaled $244,000 for the
year ended December 31, 1997.
All of the Company's properties are in good operating condition and are
adequate for the Company's present and anticipated future needs.
2
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which the property of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company through a
solicitation of proxies or otherwise.
3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained on pages 43 and 45 of the 1997 Annual Report to
Shareholders, which is attached hereto as Exhibit 13, under the captions, "Note
18: Quarterly Condensed Statements of Income - Unaudited" and "Investor
Information" is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained on page 13 of the 1997 Annual Report to
Shareholders, which is attached hereto as Exhibit 13, under the caption, "Five
Year Financial Summary" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information contained on pages 13 through 24 of the 1997 Annual
Report to Shareholders, which is attached hereto as Exhibit 13, under the
caption, "Management's Discussion and Analysis of Financial Condition and
Results of Operation", is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As the holding company for a commercial bank, the Company's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense recorded on a
large portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets and interest-bearing liabilities, other than those which
possess a short term to maturity. Since the majority of the Company's
interest-earning assets and all of the Company's interest-bearing liabilities
are held by the Bank, virtually all of the Company's interest rate risk exposure
lies at the Bank level. Therefore, all significant interest rate risk management
procedures are performed by management of the Bank. Based upon the nature of the
Bank's operations, the Bank is not subject to foreign currency exchange or
commodity price risk. The Bank's loan portfolio is concentrated primarily in the
counties of King William, King and Queen, Hanover, Henrico, Essex, Middlesex,
New Kent, Charles City, York and James City and is therefore subject to risks
associated with the local economy. As of December 31, 1997, the Company does not
own any trading assets. As of December 31, 1997, the Company does not have any
hedging transactions in place such as interest rate swaps and caps.
The Bank's interest rate management strategy is designed to stabilize net
interest income and preserve capital. The Bank manages interest rate risk
through the use of a simulation model which measures the sensitivity of future
net interest income and the net portfolio value to changes in interest rates. In
addition, the Bank monitors interest rate sensitivity through analysis,
measuring the terms to maturity or next repricing date of interest-earning
assets and interest-bearing liabilities. The matching of the maturities of
assets and liabilities may be analyzed by examining the extent to which assets
and liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to be "interest
rate sensitive" within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity "gap" is defined as the
difference between the amount of interest-earning assets anticipated, based upon
certain assumptions, to mature or reprice within a specific time period and the
5
amount of interest-bearing liabilities anticipated, based upon certain
assumptions, to mature or reprice within that time period. A gap is considered
negative when the amount of interest rate sensitive liabilities maturing or
repricing within a specific time period exceeds the amount of interest rate
sensitive assets maturing or repricing within that same time period. During a
period of rising interest rates, a negative gap would tend to result in a
decrease in net interest income while a positive gap would tend to result in an
increase in net interest income. In a declining interest rate environment, an
institution with a negative gap would generally be expected, absent the effect
of other factors, to experience a greater decrease in the cost of its
liabilities relative to the yield of its assets and thus an increase in the
institution's net interest income, whereas an institution with a positive gap
would be expected to experience the opposite results.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1997 based on the information and assumptions set forth in the notes. The
Company believes that the assumptions utilized are reasonable. The expected
maturity date values for loans were calculated by adjusting the instruments
contractual maturity date for expectations of prepayments, as set forth in the
notes. Similarly, expected maturity date values for interest-bearing core
deposits were calculated based upon estimates of the period over which the
deposits would be outstanding as set forth in the notes. From a risk management
perspective, however, the Company utilizes both maturity and repricing dates, as
opposed to solely using expected maturity dates.
5
Principal Amount Maturing in:
Fair Value
There- Dec. 31,
(Dollars in thousands) 1998 1999 2000 2001 2002 after Total 1997
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Earning assets:
Fixed rate loans(1)(2) $ 16,002 $ 9,777 $ 7,598 $ 6,265 $ 5,142 $ 18,185 $ 62,969 $ 62,780
Average interest rate 9.01% 8.67% 8.32% 8.06% 7.91% 7.82% 8.35%
Variable rate loans(1)(2) $ 31,035 $ 8,338 $ 5,846 $ 5,291 $ 4,747 $ 39,738 $ 94,995 $ 95,208
Average interest rate 9.45% 8.91% 8.64% 8.62% 8.60% 8.62% 8.91%
Loans held for sale(3) $ 24,525 - - - - - $ 24,525 $ 24,853
Average interest rate 6.28% - - - - - 6.28%
Taxable securities(4) $ 5,800 $ 2,997 $ 1,000 $ 999 - $ 25,558 $ 36,354 $ 36,510
Average interest rate 8.08% 6.70% 6.40% 8.00% - 6.73% 6.97%
Tax-exempt securities(5) $ 500 $ 1,170 $ 950 $ 1,040 $ 1,378 $ 35,094 $ 40,132 $ 42,031
Average interest rate 6.38% 6.56% 6.80% 6.67% 5.82% 5.77% 5.85%
Other interest-bearing assets $ 1,027 - - - - - $ 1,027 $ 1,027
Average interest rate 5.23% - - - - - 5.23%
Interest-bearing liabilities:
Money market, savings and
interest-bearing transaction
accounts(6) $ 57,063 $ 9,511 $ 9,511 $ 9,510 $ 9,510 - $ 95,105 $ 95,199
Average interest rate 3.00% 3.01% 2.98% 2.95% 2.92% - 2.99%
Certificates of deposit $ 76,767 $ 16,552 $ 5,689 $ 432 $ 1,326 $ 347 $ 101,113 $ 101,275
Average interest rate 5.09% 5.46% 6.08% 5.37% 5.81% 3.55% 5.21%
Borrowings $ 9,336 - - - - - $ 9,336 $ 9,336
Average interest rate 5.16% - - - - - 5.16%
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(1) Net of undisbursed loan proceeds and does not include net deferred loan fees
or the allowance for loan losses.
(2) For single-family residential loans, assumes annual prepayment rate of 12%.
No prepayment assumptions were used for all other loans.
(3) Does not include net deferred loan fees.
(4) Includes the Company's investment in Federal Home Loan Bank stock.
(5) Average interest rates are the average of stated coupon rates and have not
been adjusted for taxes.
(6) For money market, savings and interest-bearing transaction accounts, assumes
an annual decay rate of 60% for 1998 and 10% for each of the years 1999 through
2002.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained on pages 25 through 44 of the 1997 Annual
Report to Shareholders, which is attached hereto as Exhibit 13, under the
captions, "Consolidated Financial Statements", "Notes to Consolidated Financial
Statements", and "Independent Auditors' Report", is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information in Item 5, Other Information, page 11, and exhibit 16 to
Form 10Q filed November 12, 1997, of C&F Financial Corporation is incorporated
herein by reference.
7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to the Directors of the
Registrant is contained on pages 2 through 4 of the 1998 Proxy Statement, which
is attached hereto as Exhibit 99, under the caption, "Election of Directors", is
incorporated herein by reference.
The information in the following table pertains to the executive officers
of the Company.
Executive Officers of C&F Financial Corporation
Name (Age) Business Experience Number of Shares Beneficially
Present Position During Past Five Years Owned as of March 18, 1998
- - ---------------------- ------------------------------------- ---------------------------------
Larry G. Dillon (45) President of the Bank since 1989; 20,601 (1)
Chairman, President and Senior Vice President of the Bank
Chief Executive Officer prior to 1989
Gari B. Sullivan (60) Senior Vice President of the Bank since 1990; 4,505 (1)
Secretary Vice President of the Bank from 1989 to 1990;
President of the Middlesex Region of First
Virginia Bank prior to 1989
Brad E. Schwartz (35) Promoted to Senior Vice President of the Bank 5,436 (1)
Treasurer in December 1997. Vice President of the Bank
from 1991 to December 1997; Administrative
Officer of the Bank from 1989 to 1991;
Senior Financial Institutions Examiner with
the Bureau of Financial Institutions of the
Virginia State Corporation Commission prior
to 1989
Thomas F. Cherry (29) Vice President of the Bank since December 1996. 283 (1)
Chief Accounting Officer Manager with Price Waterhouse, LLP in Norfolk, VA
prior to December 1996.
(1) Includes exercisable options of 6,734, 3,034, 5,034, and 233 shares
presently held by Messrs. Dillon, Sullivan, Schwartz, and Cherry,
respectively.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 through 6 of the 1998 Proxy
Statement, which is attached hereto as Exhibit 99, under the caption, "Executive
Compensation", is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP ON CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 2 of the 1998 Proxy Statement, which is
attached hereto as Exhibit 99, under the caption, "Principal Holders of Capital
Stock", is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 5 of the 1998 Proxy Statement, which is
attached hereto as Exhibit 99, under the caption, "Interest of Management In
Certain Transactions", is incorporated herein by reference.
9
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
14 (a) Exhibits
Exhibit No. 3: Articles of Incorporation and Bylaws
Articles of Incorporation and Bylaws of C&F Financial
Corporation filed as Exhibit Nos. 3.1 and 3.2, respectively,
to Form 10KSB filed March 29, 1996, of C&F Financial
Corporation is incorporated herein by reference.
Exhibit No. 10: Material Contracts
Exhibit No. 13: C&F Financial Corporation 1997 Annual
Report to Shareholders
Exhibit No. 21: Subsidiaries of the Registrant
Citizens and Farmers Bank, incorporated in the Commonwealth
of Virginia (100% owned)
Exhibit No. 23: Consents of experts and counsel
23.1 Consent of Yount, Hyde & Barbour, P.C.
23.2 Consent of Deloitte & Touche LLP
Exhibit No. 27: Financial Data Schedule
Exhibit No. 99: Additional Exhibits
99.1 C&F Financial Corporation 1998 Annual Meeting Proxy
Statement
99.2 Independent Auditors Report of Deloitte &
Touche LLP for 1996 and 1995
14 (b) Reports on Form 8-K filed in the fourth quarter of 1997:
The Company filed Form 8-K dated November 25, 1997 in the last
quarter of the fiscal year ended December 31, 1997. The filing
was in order to generate an Exchange Act file number for the
Company's use in making an application to the National
Association of Securities Dealers Automated Quotation System.
14 (c) Exhibits to this Form 10-K are either filed as part of this
Report or are incorporated herein by reference.
14 (d) Financial Statements Excluded from Annual Report to Shareholders
pursuant to Rule 14a3(b). Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, C&F Financial Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized:
C&F FINANCIAL CORPORATION
/s/ Larry G. Dillon /s/ Thomas F. Cherry
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Larry G. Dillon Thomas F. Cherry
Chairman, President and Chief Executive Officer Chief Accounting Officer
Date: March 20, 1998 Date: March 20, 1998
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Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ W.T. Robinson Date: March 20, 1998
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W. T. Robinson, Director
/s/ J. P. Causey Jr. Date: March 20, 1998
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J. P. Causey Jr., Director
/s/ James H. Hudson, III Date: March 20, 1998
- - -------------------------------------------- --------------------------------------
James H. Hudson, III, Director
/s/ Larry G. Dillon Date: March 20, 1998
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Larry G. Dillon, Director
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William E. O'Connell, Jr., Director
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Sture G. Olsson, Director