10-Q 1 cffi-20170630x10q.htm 10-Q cffi_Current Folio_10Q

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


(Mark One)

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2017

 

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

 


 

C&F FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 


 

 

 

Virginia

54-1680165

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

802 Main Street West Point, VA

23181

(Address of principal executive offices)

(Zip Code)

 

(804) 843-2360

(Registrant’s telephone number, including area code)

 

 

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

 

 

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.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 (Do not check if a smaller reporting company)

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No   

 

 

At August 4, 2017, the latest practicable date for determination,  3,487,223 shares of common stock, $1.00 par value, of the registrant were outstanding.

 

 

 


 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

PART I - Financial Information 

    

Page

 

 

 

 

 

 

Item 1. 

   Financial Statements

 

 3

 

 

 

 

 

 

 

   Consolidated Balance Sheets - June  30, 2017 (unaudited) and December 31, 2016

 

 3

 

 

 

 

 

 

 

   Consolidated Statements of Income (unaudited) – Three and six months ended June  30, 2017 and 2016

 

 4

 

 

 

 

 

 

 

   Consolidated Statements of Comprehensive Income (unaudited) – Three and six months ended June 30, 2017 and 2016

 

 5

 

 

 

 

 

 

 

   Consolidated Statements of Shareholders' Equity (unaudited) - Six months ended June 30, 2017 and 2016

 

6

 

 

 

 

 

 

 

   Consolidated Statements of Cash Flows (unaudited) - Six  months ended June 30, 2017 and 2016

 

7

 

 

 

 

 

 

 

   Notes to Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2. 

   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 33

 

 

 

 

 

 

Item 3. 

   Quantitative and Qualitative Disclosures About Market Risk

 

 59

 

 

 

 

 

 

Item 4. 

   Controls and Procedures

 

 59

 

 

 

 

 

 

PART II - Other Information 

 

 

 

 

 

 

 

 

Item 1A. 

   Risk Factors

 

60

 

 

 

 

 

 

Item 2. 

   Unregistered Sales of Equity Securities and Use of Proceeds

 

 60

 

 

 

 

 

 

Item 6. 

   Exhibits

 

61

 

 

 

 

 

 

 

   Signatures

 

 62

 

 

2


 

Part I – FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

   June 30,    

 

December 31, 

 

 

    

2017

    

2016

  

Assets

 

 

(unaudited)

 

 

*

 

Cash and due from banks

 

$

12,560

 

$

12,892

 

Interest-bearing deposits in other banks

 

 

106,337

 

 

90,309

 

Total cash and cash equivalents

 

 

118,897

 

 

103,201

 

Securities—available for sale at fair value, amortized cost of
$210,340 and $207,893, respectively

 

 

213,036

 

 

210,026

 

Loans held for sale, at fair value

 

 

47,326

 

 

52,027

 

Loans, net of allowance for loan losses of $36,496 and $37,066, respectively

 

 

957,072

 

 

960,162

 

Restricted stocks, at cost

 

 

3,443

 

 

3,403

 

Corporate premises and equipment, net

 

 

35,544

 

 

35,804

 

Other real estate owned, net of valuation allowance of $57 and $86, respectively

 

 

284

 

 

195

 

Accrued interest receivable

 

 

6,885

 

 

7,261

 

Goodwill

 

 

14,425

 

 

14,425

 

Core deposit and other amortizable intangibles, net

 

 

1,903

 

 

2,269

 

Bank-owned life insurance

 

 

15,294

 

 

15,103

 

Other assets

 

 

49,970

 

 

48,116

 

Total assets

 

$

1,464,079

 

$

1,451,992

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

239,612

 

$

218,655

 

Savings and interest-bearing demand deposits

 

 

539,965

 

 

556,851

 

Time deposits

 

 

348,622

 

 

344,415

 

Total deposits

 

 

1,128,199

 

 

1,119,921

 

Short-term borrowings

 

 

13,243

 

 

12,363

 

Long-term borrowings

 

 

127,029

 

 

127,029

 

Trust preferred capital notes

 

 

25,192

 

 

25,175

 

Accrued interest payable

 

 

725

 

 

703

 

Other liabilities

 

 

24,786

 

 

27,587

 

Total liabilities

 

 

1,319,174

 

 

1,312,778

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Common stock ($1.00 par value, 8,000,000 shares authorized, 3,486,476 and 3,472,561 shares issued and outstanding, respectively, includes 139,130 and 141,755 of unvested shares, respectively)

 

 

3,347

 

 

3,331

 

Additional paid-in capital

 

 

12,416

 

 

11,705

 

Retained earnings

 

 

129,732

 

 

125,162

 

Accumulated other comprehensive loss, net

 

 

(590)

 

 

(984)

 

Total shareholders’ equity

 

 

144,905

 

 

139,214

 

Total liabilities and shareholders’ equity

 

$

1,464,079

 

$

1,451,992

 


*     Derived from audited consolidated financial statements.

 

See notes to consolidated financial statements.

3


 

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except for share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2017

    

2016

  

2017

    

2016

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

20,697

 

$

20,636

 

$

41,065

 

$

40,842

 

Interest on interest-bearing deposits and federal funds sold

 

 

278

 

 

143

 

 

487

 

 

320

 

Interest and dividends on securities

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and corporations

 

 

86

 

 

85

 

 

164

 

 

186

 

Mortgage-backed securities

 

 

370

 

 

312

 

 

708

 

 

646

 

Tax-exempt obligations of states and political subdivisions

 

 

817

 

 

954

 

 

1,680

 

 

1,935

 

Taxable obligations of states and political subdivisions

 

 

60

 

 

45

 

 

112

 

 

91

 

Corporate bonds and other

 

 

115

 

 

128

 

 

228

 

 

248

 

Total interest income

 

 

22,423

 

 

22,303

 

 

44,444

 

 

44,268

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-bearing deposits

 

 

281

 

 

267

 

 

568

 

 

559

 

Time deposits

 

 

879

 

 

802

 

 

1,727

 

 

1,611

 

Borrowings

 

 

906

 

 

861

 

 

1,758

 

 

1,739

 

Trust preferred capital notes

 

 

279

 

 

288

 

 

562

 

 

571

 

Total interest expense

 

 

2,345

 

 

2,218

 

 

4,615

 

 

4,480

 

Net interest income

 

 

20,078

 

 

20,085

 

 

39,829

 

 

39,788

 

Provision for loan losses

 

 

3,100

 

 

3,600

 

 

7,500

 

 

8,200

 

Net interest income after provision for loan losses

 

 

16,978

 

 

16,485

 

 

32,329

 

 

31,588

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on sales of loans

 

 

2,619

 

 

2,552

 

 

4,562

 

 

4,282

 

Service charges on deposit accounts

 

 

1,109

 

 

1,041

 

 

2,178

 

 

2,004

 

Other service charges and fees

 

 

2,287

 

 

2,363

 

 

4,333

 

 

4,047

 

Net gains on calls and sales of available for sale securities

 

 

 7

 

 

44

 

 

 8

 

 

45

 

Wealth management services income

 

 

428

 

 

315

 

 

750

 

 

591

 

Other

 

 

839

 

 

1,408

 

 

1,604

 

 

1,917

 

Total noninterest income

 

 

7,289

 

 

7,723

 

 

13,435

 

 

12,886

 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

11,061

 

 

10,522

 

 

21,730

 

 

20,693

 

Occupancy

 

 

2,632

 

 

2,365

 

 

5,253

 

 

4,699

 

Other

 

 

4,587

 

 

4,760

 

 

9,142

 

 

9,345

 

Total noninterest expenses

 

 

18,280

 

 

17,647

 

 

36,125

 

 

34,737

 

Income before income taxes

 

 

5,987

 

 

6,561

 

 

9,639

 

 

9,737

 

Income tax expense

 

 

1,848

 

 

1,855

 

 

2,769

 

 

2,547

 

Net income

 

$

4,139

 

$

4,706

 

$

6,870

 

$

7,190

 

Net income per share - basic

 

$

1.19

 

$

1.36

 

$

1.97

 

$

2.08

 

Net income per share - assuming dilution

 

$

1.19

 

$

1.36

 

$

1.97

 

$

2.08

 

Weighted average number of shares outstanding - basic

 

 

3,486,997

 

 

3,451,746

 

 

3,485,002

 

 

3,450,188

 

Weighted average number of shares outstanding - assuming dilution

 

 

3,486,997

 

 

3,453,136

 

 

3,485,160

 

 

3,451,438

 

 

See notes to consolidated financial statements.

4


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

  

Net income

 

$

4,139

 

$

4,706

 

$

6,870

 

$

7,190

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in defined benefit plan assets and benefit obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in net loss arising during the period1

 

 

36

 

 

38

 

 

74

 

 

76

 

Tax effect

 

 

(12)

 

 

(13)

 

 

(25)

 

 

(26)

 

Amortization of prior service cost arising during the period1

 

 

(15)

 

 

(15)

 

 

(30)

 

 

(30)

 

Tax effect

 

 

 6

 

 

 5

 

 

11

 

 

10

 

Net of tax amount

 

 

15

 

 

15

 

 

30

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on cash flow hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(68)

 

 

(134)

 

 

(3)

 

 

(672)

 

Tax effect

 

 

26

 

 

53

 

 

 1

 

 

241

 

Net of tax amount

 

 

(42)

 

 

(81)

 

 

(2)

 

 

(431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

265

 

 

755

 

 

571

 

 

2,439

 

Tax effect

 

 

(93)

 

 

(264)

 

 

(200)

 

 

(853)

 

Reclassification adjustment for gains included in net income2

 

 

(7)

 

 

(44)

 

 

(8)

 

 

(45)

 

Tax effect

 

 

 3

 

 

15

 

 

 3

 

 

15

 

Net of tax amount

 

 

168

 

 

462

 

 

366

 

 

1,556

 

Other comprehensive income

 

 

141

 

 

396

 

 

394

 

 

1,155

 

Comprehensive income

 

$

4,280

 

$

5,102

 

$

7,264

 

$

8,345

 


1

These items are included in the computation of net periodic benefit cost, which is a component of “Salaries and employee benefits” on the consolidated statements of income. See “Note 6: Employee Benefit Plans,” for additional information.

2

Gains are included in “Net gains on calls and sales of available for sale securities" on the consolidated statements of income.

 

See notes to consolidated financial statements.

5


 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

Accumulated

   

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

 

Common

 

Paid - In

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

 

Balance December 31, 2016

 

$

3,331

 

$

11,705

 

$

125,162

 

$

(984)

 

$

139,214

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

6,870

 

 

 —

 

 

6,870

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

394

 

 

394

 

Stock options exercised

 

 

 2

 

 

81

 

 

 —

 

 

 —

 

 

83

 

Share-based compensation

 

 

 —

 

 

754

 

 

 —

 

 

 —

 

 

754

 

Restricted stock vested

 

 

17

 

 

(17)

 

 

 —

 

 

 —

 

 

 —

 

Common stock issued

 

 

 1

 

 

74

 

 

 —

 

 

 —

 

 

75

 

Common stock purchased

 

 

(4)

 

 

(181)

 

 

 —

 

 

 —

 

 

(185)

 

Cash dividends declared – common stock ($0.66 per share)

 

 

 —

 

 

 —

 

 

(2,300)

 

 

 —

 

 

(2,300)

 

Balance June 30, 2017

 

$

3,347

 

$

12,416

 

$

129,732

 

$

(590)

 

$

144,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

   

 

 

   

Additional

   

 

 

   

Other

   

Total

 

 

 

Common

 

Paid - In

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Stock

 

Capital

 

Earnings

 

Income

 

Equity

 

Balance December 31, 2015

 

$

3,301

 

$

10,420

 

$

116,167

 

$

1,171

 

$

131,059

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

7,190

 

 

 —

 

 

7,190

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

1,155

 

 

1,155

 

Share-based compensation

 

 

 —

 

 

615

 

 

 —

 

 

 —

 

 

615

 

Restricted stock vested

 

 

10

 

 

(10)

 

 

 —

 

 

 —

 

 

 —

 

Common stock issued

 

 

 2

 

 

72

 

 

 —

 

 

 —

 

 

74

 

Common stock purchased

 

 

(4)

 

 

(138)

 

 

 —

 

 

 —

 

 

(142)

 

Cash dividends declared – common stock ($0.64 per share)

 

 

 —

 

 

 —

 

 

(2,209)

 

 

 —

 

 

(2,209)

 

Balance June 30, 2016

 

$

3,309

 

$

10,959

 

$

121,148

 

$

2,326

 

$

137,742

 

 

See notes to consolidated financial statements.

 

6


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

    

2017

    

2016

  

Operating activities:

 

 

 

 

 

 

 

Net income

 

$

6,870

 

$

7,190

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

1,305

 

 

1,275

 

Provision for loan losses

 

 

7,500

 

 

8,200

 

Provision for indemnifications

 

 

88

 

 

140

 

Provision for other real estate owned losses

 

 

 —

 

 

70

 

Share-based compensation

 

 

754

 

 

615

 

Net accretion of certain acquisition-related fair value adjustments

 

 

(629)

 

 

(748)

 

Net amortization of discounts and amortization of premiums on securities

 

 

955

 

 

856

 

Realized gains on sales and calls of securities

 

 

(8)

 

 

(45)

 

Net realized losses (gains) on sales of other real estate owned

 

 

 4

 

 

(98)

 

Net realized gains on sale of corporate premises and equipment

 

 

(2)

 

 

(183)

 

Income from bank-owned life insurance

 

 

(168)

 

 

(664)

 

Origination of loans held for sale

 

 

(349,908)

 

 

(280,047)

 

Proceeds from sales of loans held for sale

 

 

359,171

 

 

266,756

 

Gains on sales of loans held for sale

 

 

(4,562)

 

 

(4,282)

 

Change in other assets and liabilities:

 

 

 

 

 

 

 

Accrued interest receivable

 

 

376

 

 

(171)

 

Other assets

 

 

(1,963)

 

 

(1,699)

 

Accrued interest payable

 

 

22

 

 

13

 

Other liabilities

 

 

(2,892)

 

 

3,048

 

Net cash provided by operating activities

 

 

16,913

 

 

226

 

Investing activities:

 

 

 

 

 

 

 

Proceeds from maturities, calls and sales of securities available for sale and payments on mortgage-backed securities

 

 

21,488

 

 

31,530

 

Purchases of securities available for sale

 

 

(24,742)

 

 

(22,381)

 

Net purchases of restricted stocks

 

 

(40)

 

 

(58)

 

Net increase in loans

 

 

(3,778)

 

 

(65,975)

 

Other real estate owned improvements

 

 

 —

 

 

(20)

 

Proceeds from sales of other real estate owned

 

 

115

 

 

805

 

Purchases of corporate premises and equipment, net

 

 

(1,090)

 

 

(885)

 

Net cash used in investing activities

 

 

(8,047)

 

 

(56,984)

 

Financing activities:

 

 

 

 

 

 

 

Net increase in demand, interest-bearing demand and savings deposits

 

 

4,071

 

 

9,984

 

Net increase (decrease) in time deposits

 

 

4,207

 

 

(5,158)

 

Net increase (decrease) in borrowings

 

 

879

 

 

(6,225)

 

Issuance of common stock

 

 

75

 

 

74

 

Purchase of common stock, including shares withheld to pay taxes 

 

 

(185)

 

 

(142)

 

Proceeds from exercise of stock options

 

 

83

 

 

 —

 

Cash dividends

 

 

(2,300)

 

 

(2,209)

 

Net cash provided by (used in) financing activities

 

 

6,830

 

 

(3,676)

 

Net increase (decrease) in cash and cash equivalents

 

 

15,696

 

 

(60,434)

 

Cash and cash equivalents at beginning of period

 

 

103,201

 

 

152,943

 

Cash and cash equivalents at end of period

 

$

118,897

 

$

92,509

 

Supplemental disclosure

 

 

 

 

 

 

 

Interest paid

 

$

4,575

 

$

4,449

 

Income taxes paid

 

 

2,890

 

 

1,230

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

Unrealized gains on securities available for sale

 

$

563

 

$

2,394

 

Transfers from loans to other real estate owned

 

 

208

 

 

394

 

Pension adjustment

 

 

44

 

 

46

 

Unrealized losses on cash flow hedging instruments

 

 

(3)

 

 

(672)

 

 

See notes to consolidated financial statements.

 

7


 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

NOTE 1: Summary of Significant Accounting Policies

 

Principles of Consolidation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission (the SEC). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the C&F Financial Corporation Annual Report on Form 10-K for the year ended December 31, 2016.

 

The unaudited consolidated financial statements include the accounts of C&F Financial Corporation (the Corporation) and its wholly owned subsidiary, Citizens and Farmers Bank (the Bank or C&F Bank). All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Corporation owns C&F Financial Statutory Trust I, C&F Financial Statutory Trust II and Central Virginia Bankshares Statutory Trust I, all of which are unconsolidated subsidiaries. The subordinated debt owed to these trusts is reported as a liability of the Corporation.  The accounting and reporting policies of C&F Financial Corporation and Subsidiary conform to U.S. GAAP and to predominant practices within the banking industry.

 

Nature of Operations: The Corporation is a bank holding company incorporated under the laws of the Commonwealth of Virginia. The Corporation owns all of the stock of its subsidiary, C&F Bank, which is an independent commercial bank chartered under the laws of the Commonwealth of Virginia.

 

C&F Bank has five wholly-owned subsidiaries: C&F Mortgage Corporation and Subsidiary (C&F Mortgage), C&F Finance Company (C&F Finance), C&F Wealth Management Corporation (C&F Wealth Management), C&F Insurance Services, Inc. and CVB Title Services, Inc., all incorporated under the laws of the Commonwealth of Virginia. C&F Mortgage, organized in September 1995, was formed to originate and sell residential mortgages and through its subsidiary, Certified Appraisals LLC, provides ancillary mortgage loan production services for residential appraisals. C&F Finance, acquired on September 1, 2002, is a finance company purchasing automobile loans through indirect lending programs. C&F Wealth Management, organized in April 1995, is a full-service brokerage firm offering a comprehensive range of wealth management services and insurance products through an alliance with an independent broker/dealer. C&F Insurance Services, Inc., organized in July 1999, owns an equity interest in an insurance agency that sells insurance products to customers of C&F Bank, C&F Mortgage and other financial institutions that have an equity interest in the agency. CVB Title Services, Inc. was organized for the primary purpose of owning membership interests in two insurance-related limited liability companies. Business segment data is presented in Note 8.

 

Basis of Presentation: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the allowance for indemnifications, impairment of loans, impairment of securities, the valuation of other real estate owned, the projected benefit obligation under the defined benefit pension plan, the valuation of deferred taxes, fair value measurements and goodwill impairment. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

 

Reclassification: Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. None of these reclassifications are considered material. 

 

8


 

Adoption of New Accounting Standard:  During the fourth quarter of 2016, the Corporation adopted Accounting Standards Update (ASU) 2016-09 “Compensation-Stock Compensation (Topic 718): Improvements to Employer Share-Based Payment Accounting.  This ASU simplifies several aspects of the accounting for share-based payment award transactions, one of which is the recognition of excess tax benefits and deficiencies related to share-based payments, including tax benefits of dividends on share-based payment awards. Prior to the adoption of ASU 2016-09, such tax consequences were recognized as components of additional paid-in capital. With the adoption of this ASU, tax benefits and deficiencies are recognized within income tax expense.  In accordance with the adoption provisions of ASU 2016-09, the results for the second quarter and first six months of 2016 include only the excess tax (expense) benefits attributable to the second quarter and first six months of 2016 of $(37,000) and $23,000, respectively.  

 

Derivative Financial Instruments: The Corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet. The Corporation’s derivative financial instruments may include (1) interest rate lock commitments (IRLCs) on mortgage loans that will be sold in the secondary market on a best efforts basis and the related forward commitments to sell mortgage loans, (2) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and (3) interest rate swaps that qualify as cash flow hedges on the Corporation’s trust preferred capital notes. Because the IRLCs, forward sales commitments and interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported as noninterest income or noninterest expense, as applicable. The effective portion of the gain or loss on the Corporation’s cash flow hedges is reported as a component of other comprehensive income, net of deferred income taxes, and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Corporation’s derivative financial instruments are described more fully in Note 10.

 

Share-Based Compensation: Shared-based compensation expense, net of forfeitures, for the second quarter of 2017 and the first six months of 2017 was $351,000  ($217,000 after tax) and $754,000  ($467,000 after tax), respectively, for restricted stock granted during 2012 through 2017. As of June 30, 2017, there was $2.84 million of total unrecognized compensation expense related to unvested restricted stock that will be recognized over the remaining requisite service periods.

 

A summary of activity for restricted stock awards during the first six months of 2017 and 2016 is presented below:

 

 

 

 

 

 

 

 

 

 

2017

 

 

    

 

    

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

 

Unvested, December 31, 2016

 

141,755

 

$

39.77

 

Granted

 

15,725

 

 

45.46

 

Vested

 

(16,760)

 

 

35.30

 

Forfeited

 

(1,590)

 

 

42.81

 

Unvested, June 30, 2017

 

139,130

 

$

40.91

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

    

 

    

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

 

Unvested, December 31, 2015

 

137,200

 

$

36.50

 

Granted

 

17,265

 

 

38.39

 

Vested

 

(10,500)

 

 

31.04

 

Forfeited

 

(950)

 

 

38.88

 

Unvested, June 30, 2016

 

143,015

 

$

37.11

 

 

9


 

Stock option activity during the six months ended June 30, 2017 and 2016 and stock options outstanding at June 30, 2017 and 2016 are summarized below. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intrinsic

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

Unexercised

 

 

 

 

 

 

 

 

Remaining

 

In-The

 

 

 

 

 

 

 

 

Contractual

 

Money

 

 

 

 

Exercise

 

 

Life

 

Options

 

 

Shares

 

Price*

 

 

(in years)*