Community Banking Segment. The community banking segment reported net income of $4.0 million for the first quarter of 2024 compared to $6.4 million for the same period in 2023 due primarily to:

• higher interest expense due primarily to higher rates on deposits and higher balances of interest-bearing deposits; and

• higher salaries and employee benefits expense, which have generally increased in line with employment market conditions;

partially offset by:

• higher interest income resulting from the effects of rising interest rates on asset yields and higher average balances of loans, offset in part by lower average balances of securities.
  

Average loans increased $130.1 million, or 11.1 percent, for the first quarter of 2024 compared to the same period in 2023 due primarily to growth in the commercial real estate, construction, and residential mortgage segments of the loan portfolio. Average deposits increased $72.3 million, or 3.6 percent, for the first quarter of 2024 compared to the same period in 2023. Average deposits increased $31.8 million, or 6.3 percent annualized, for the first quarter of 2024 compared to the fourth quarter of 2023.

Average loan yields and average costs of interest-bearing deposits were higher for the first quarter of 2024 compared to the same period of 2023, due primarily to the effects of rising interest rates as market interest rates rose in 2023, and management expects both to continue to rise in 2024.

The community banking segment’s nonaccrual loans were $550,000 at March 31, 2024 compared to $406,000 at December 31, 2023. The community banking segment recorded provision for credit losses of $500,000 and $450,000 for the first quarters of 2024 and 2023, respectively. At March 31, 2024, the allowance for credit losses increased to $16.6 million, compared to $16.1 million at December 31, 2023. The increases in provision and allowance for credit losses are due primarily to growth in the loan portfolio. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Mortgage Banking Segment. The mortgage banking segment reported net income of $294,000 for the first quarter of 2024 compared to $227,000 for same period in 2023 due primarily to:

• higher reversal of provision for indemnifications;

• lower variable expenses tied to mortgage loan origination volume such as commissions and bonuses, reported in salaries and employee benefits, as well as mortgage banking loan processing expenses and data processing expenses; and

• lower salaries and employee benefits, occupancy expense and other expenses due to an effort to reduce overhead costs as mortgage loan origination volume has decreased;
  

partially offset by:

• lower volume of mortgage loan originations.
  

The sustained elevated level of mortgage interest rates, combined with higher home prices and lower levels of inventory, has led to a substantial decline in mortgage loan originations for the mortgage industry during 2024 and 2023. Mortgage loan originations for the mortgage banking segment were $94.3 million for the first quarter of 2024, comprised of $7.5 million refinancings and $86.8 million home purchases, compared to $115.8 million, comprised of $14.0 million refinancings and $101.8 million home purchases, for same period in 2023. Mortgage loan originations in the first quarter of 2024 decreased $3.9 million compared to the fourth quarter of 2023 due to normal industry seasonal fluctuations, low level of inventory, and the current mortgage interest rate environment.

During the first quarter of 2024, the mortgage banking segment recorded a reversal of provision for indemnification losses of $140,000 compared to no provision for indemnification losses in the same period of 2023. The mortgage banking segment increased reserves for indemnification losses during 2020 based on widespread forbearance on mortgage loans and economic uncertainty related to the COVID-19 pandemic. The release of indemnification reserves in 2024 was due primarily to improvement in the mortgage banking segment’s assessment of borrower payment performance and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

Consumer Finance Segment. The consumer finance segment reported a net loss of $63,000 for the first quarter of 2024 compared to net income of $509,000 for the same period in 2023 due primarily to:

• higher provision for credit losses due primarily to increased net charge-offs; and

• higher interest expense on variable rate borrowings from the community banking segment as a result of increased market interest rates;

partially offset by:

• higher interest income resulting from the effects of rising interest rates on loan yields.
  

Average loans decreased $1.4 million, or less than 1 percent, for the first quarter of 2024 compared to the same period in 2023. The consumer finance segment experienced net charge-offs at an annualized rate of 2.54 percent of average total loans for the first quarter of 2024 compared to 1.77 percent for the first quarter of 2023 due primarily to an increase in the number of delinquent loans and repossessions, which coupled with a decline in wholesale values of used automobiles, results in an increased charge-off amount on a per-unit basis. At March 31, 2024, total delinquent loans as a percentage of total loans was 2.78 percent compared to 4.09 percent at December 31, 2023 and 2.33 percent at March 31, 2023. Delinquency and loss rates have returned to pre-pandemic levels due to the passage of time since the expiration of stimulus and enhanced unemployment benefits that benefitted borrowers. The consumer finance segment, at times, offers payment deferrals as a portfolio management technique to achieve higher ultimate cash collections on select loan accounts. A significant reliance on deferrals as a means of managing collections may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio. The average amounts deferred on a monthly basis during the first quarter of 2024 were 1.62 percent of average automobile loans outstanding compared to 2.02 percent during the fourth quarter of 2023 and 1.60 percent during the first quarter of 2023. The allowance for credit losses was $23.6 million at March 31, 2024 and December 31, 2023. The allowance for credit losses as a percentage of total loans decreased to 4.95 percent at March 31, 2024 from 5.03 percent and 5.45 percent at December 31, 2023 and March 31, 2023, respectively, primarily as a result of growth in loans with stronger credit quality while balances of loans with lower credit quality declined. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected. If loan performance deteriorates resulting in continued elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

Liquidity. The objective of the Corporation’s liquidity management is to ensure the continuous availability of funds to satisfy the credit needs of our customers and the demands of our depositors, creditors and investors. Uninsured deposits represent an estimate of amounts above the FDIC insurance coverage limit of $250,000. As of March 31, 2024, the Corporation’s uninsured deposits were approximately $560.3 million, or 26.8 percent of total deposits. Excluding intercompany cash holdings and municipal deposits, which are secured with pledged securities, amounts uninsured were approximately $408.3 million, or 19.6 percent of total deposits as of March 31, 2024. The Corporation’s liquid assets, which include cash and due from banks, interest-bearing deposits at other banks and nonpledged securities available for sale, were $298.5 million and borrowing availability was $573.8 million as of March 31, 2024, which in total exceed uninsured deposits, excluding intercompany cash holdings and secured municipal deposits, by $464.0 million as of March 31, 2024.

In addition to deposits, the Corporation utilizes short-term and long-term borrowings as sources of funds. Short-term borrowings from the Federal Reserve Bank and the Federal Home loan Bank of Atlanta (FHLB) may be used to fund the Corporation’s day-to-day operations. Short-term borrowings also include securities sold under agreements to repurchase. Total borrowings increased to $121.6 million at March 31, 2024 from $109.5 million at December 31, 2023 due primarily to higher borrowings from the FHLB. Borrowings decreased $79.4 million from $201.0 million at March 31, 2023.

Additional sources of liquidity available to the Corporation include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities and the issuance of brokered certificates of deposit.

Capital and Dividends. The Corporation declared a quarterly cash dividend for the first quarter of 2024 of $0.44 per share, which was paid on April 1, 2024. This dividend represents a payout ratio of 43.6 percent of earnings per share for the first quarter of 2024. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital requirements, and expected future earnings.

Total consolidated equity decreased $567,000 at March 31, 2024 compared to December 31, 2023 due primarily to higher unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income, share repurchases and dividends paid on the Corporation’s common stock, the significant majority of which was offset by net income. The Corporation’s securities available for sale are fixed income debt securities and their unrealized loss position is a result of rising market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest and unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale increased to $27.1 million at March 31, 2024 compared to $25.0 million at December 31, 2023 due primarily to an increase in debt security market interest rates.

As of March 31, 2024, the most recent notification from the FDIC categorized the C&F Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized under regulations applicable at March 31, 2024, C&F Bank was required to maintain minimum total risk-based, Tier 1 risk-based, CET1 risk-based and Tier 1 leverage ratios. In addition to the regulatory risk-based capital requirements, C&F Bank must maintain a capital conservation buffer of additional capital of 2.5 percent of risk-weighted assets as required by the Basel III capital rules. The Corporation and C&F Bank exceeded these ratios at March 31, 2024. For additional information, see “Capital Ratios” below. The above mentioned ratios are not impacted by unrealized losses on securities available for sale. In the event that all of these unrealized losses became realized into earnings, the Corporation and C&F Bank would both continue to exceed minimum capital requirements, including the capital conservation buffer, and be considered well capitalized.

In December 2023, the Board of Directors authorized a program, effective January 1, 2024, to repurchase up to $10.0 million of the Corporation’s common stock through December 31, 2024. During the first quarter of 2024, the Corporation repurchased 9,654 shares, or $516,000, of its common stock under this share repurchase program.

About C&F Financial Corporation. The 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 $35.69 per share on April 18, 2024. At March 31, 2024, the book value per share of the Corporation was $64.24 and the tangible book value per share was $56.36. For more information about the Corporation’s tangible book value per share, which is not calculated in accordance with GAAP, please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures,” below.

C&F Bank operates 31 banking offices and four commercial loan offices located throughout eastern and central Virginia and offers full wealth management services through its subsidiary C&F Wealth Management, Inc. C&F Mortgage Corporation and its subsidiary C&F Select LLC provide mortgage loan origination services through offices located in Virginia, Maryland, North Carolina, and West Virginia. C&F Finance Company provides automobile, marine and recreational vehicle loans through indirect lending programs offered in Alabama, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Minnesota, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia from its headquarters in Henrico, Virginia.

Additional information regarding the Corporation’s products and services, as well as access to its filings with the Securities and Exchange Commission (SEC), are available on the Corporation’s website at https://www.cffc.com.

Use of Certain Non-GAAP Financial Measures. The accounting and reporting policies of the Corporation conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Corporation’s performance. These include adjusted net income, adjusted earnings per share, adjusted return on average equity, adjusted return on average assets, return on average tangible common equity (ROTCE), adjusted ROTCE, tangible book value per share, price to tangible book value ratio, and the following fully-taxable equivalent (FTE) measures: interest income on loans-FTE, interest income on securities-FTE, total interest income-FTE and net interest income-FTE.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of balances of intangible assets, including goodwill, that vary significantly between institutions, and tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently. A reconciliation of the non-GAAP financial measures used by the Corporation to evaluate and measure the Corporation’s performance to the most directly comparable GAAP financial measures is presented below.

Forward-Looking Statements. This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. 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, and reflect management’s current views with respect to certain events that could have an impact on the Corporation’s future financial performance. These statements, including without limitation statements made in Mr. Cherry’s quote and statements regarding future interest rates and conditions in the Corporation’s industries and markets, relate to expectations concerning matters that are not historical fact, may express “belief,” “intention,” “expectation,” “potential” and similar expressions, and may use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “might,” “will,” “intend,” “target,” “should,” “could,” or similar expressions. 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 or implied by such statements. Forward-looking statements in this release may include, without limitation, statements regarding expected future operations and financial performance, expected trends in yields on loans, expected future recovery of investments in debt securities, future dividend payments, deposit trends, charge-offs and delinquencies, changes in cost of funds and net interest margin and items affecting net interest margin, strategic business initiatives and the anticipated effects thereof, changes in interest rates and the effects thereof on net interest income, mortgage loan originations, expectations regarding C&F Bank’s regulatory risk-based capital requirement levels, technology initiatives, our diversified business strategy, asset quality, credit quality, adequacy of allowances for credit losses and the level of future charge-offs, market interest rates and housing inventory and resulting effects in mortgage loan origination volume, sources of liquidity, adequacy of the reserve for indemnification losses related to loans sold in the secondary market, the effect of future market and industry trends, the effects of future interest rate fluctuations, cybersecurity risks, and inflation. 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:

• interest rates, such as volatility in short-term interest rates or yields on U.S. Treasury bonds, increases in interest rates following actions by the Federal Reserve and increases or volatility in mortgage interest rates

• general business conditions, as well as conditions within the financial markets

• general economic conditions, including unemployment levels, inflation rates, supply chain disruptions and slowdowns in economic growth

• general market conditions, including disruptions due to pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts (including the ongoing military conflicts between Russia and Ukraine and in the Middle East) or other major events, or the prospect of these events

• average loan yields and average costs of interest-bearing deposits

• financial services industry conditions, including bank failures or concerns involving liquidity

• labor market conditions, including attracting, hiring, training, motivating and retaining qualified employees

• the legislative/regulatory climate, regulatory initiatives with respect to financial institutions, products and services, the Consumer Financial Protection Bureau (the CFPB) and the regulatory and enforcement activities of the CFPB

• monetary and fiscal policies of the U.S. Government, including policies of the FDIC, U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System (the Federal Reserve Board), and the effect of these policies on interest rates and business in our markets

• demand for financial services in the Corporation’s market area

• the value of securities held in the Corporation’s investment portfolios

• the quality or composition of the loan portfolios and the value of the collateral securing those loans

• the inventory level, demand and fluctuations in the pricing of used automobiles, including sales prices of repossessed vehicles

• the level of automobile loan delinquencies or defaults and our ability to repossess automobiles securing delinquent automobile finance installment contracts

• the level of net charge-offs on loans and the adequacy of our allowance for credit losses

• the level of indemnification losses related to mortgage loans sold

• demand for loan products

• deposit flows

• the strength of the Corporation’s counterparties

• the availability of lines of credit from the FHLB and other counterparties

• the soundness of other financial institutions and any indirect exposure related to the closing of other financial institutions and their impact on the broader market through other customers, suppliers and partners, or that the conditions which resulted in the liquidity concerns experienced by closed financial institutions may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Corporation has commercial or deposit relationships

• competition from both banks and non-banks, including competition in the non-prime automobile finance markets and marine and recreational vehicle finance markets

• services provided by, or the level of the Corporation’s reliance upon third parties for key services

• the commercial and residential real estate markets, including changes in property values

• the demand for residential mortgages and conditions in the secondary residential mortgage loan markets

• the Corporation’s technology initiatives and other strategic initiatives

• the Corporation’s branch expansions and consolidations plans

• cyber threats, attacks or events

• C&F Bank’s product offerings

• accounting principles, policies and guidelines, and elections by the Corporation thereunder

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 any forward-looking statements, which speak only as of the date of this release. For additional information on risk factors that could affect the forward-looking statements contained herein, see the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023 and other reports filed with the SEC. The Corporation undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

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¹For more information about these non-GAAP financial measures, please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures.”

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1. Includes results of the holding company that are not allocated to the business segments and elimination of inter-segment activity.

2. For more information about these non-GAAP financial measures, please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures.”

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¹ For more information about these non-GAAP financial measures, please see “Use of Certain Non-GAAP Financial Measures” and “Reconciliation of Certain Non-GAAP Financial Measures.”

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¹ The Corporation, a small bank holding company under applicable regulations and guidance, is not subject to the minimum regulatory capital regulations for bank holding companies. The regulatory requirements that apply to bank holding companies that are subject to regulatory capital requirements are presented above, along with the Corporation’s capital ratios as determined under those regulations.
² All ratios at March 31, 2024 are estimates and subject to change pending regulatory filings. All ratios at December 31, 2023 are presented as filed.
³ The ratios presented for minimum capital requirements are those to be considered adequately capitalized.

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¹ Assuming a tax rate of 21%.